The rules on misleading advertising have changed in Canada due to a Supreme Court of Canada ruling from earlier this year and a 2009 amendment to the Competition Act. It appears that the Supreme Court has set the bar lower than ever for what constitutes misleading advertisements. As a result, smart businesses are taking a hard look at their marketing practices with a view to whether they violate the Competition Act and consumer protection laws. Consumers, for their part, now have some strong incentives to sue companies making false or misleading claims.

In the February 2012 decision of Richard v. Time Inc., the Supreme Court of Canada found that an advertisement for a “sweepstakes” was seriously misleading. The case concerned a mailout flyer sent by Time magazine to random recipients which strongly suggested that the recipient had just won $833,337.00. The fine print on the flyer did indicate that the flyer was merely an entry into a sweepstakes, but the language was fairly obtuse and confusing, particularly for non-English speakers. Upon receiving this flyer a man in Quebec truly believed he had won the grand prize and wrote to Time to claim his money. When Time refused to pay out, he sued for breach of contract and misleading advertising under the Quebec Consumer Protection Act. The man won at trial and was awarded $1,000 for moral damages and $100,000 in punitive damages, a decision which the Supreme Court subsequently upheld.

In a key part of their judgment the Supreme Court applied a test of whether “a credulous and inexperienced consumer could deduce [the true meaning of the advertising] after reading the Document for the first time.” Using this test, the Court found that the trial judge did not err in finding that the “general impression” given by the sweepstakes advertisement was misleading. Although the case was decided under the Quebec Consumer Protection Act, many other provinces including Ontario have their own consumer protection acts which are similar (though not identical) to the Quebec act on this point, and it is a fair assumption that the same test would be applied to similarly worded provisions in these other laws as well.

In addition to the Richard v. Time Inc. ruling, a 2009 amendment to the federal Competition Act made misrepresentations to the public a “reviewable matter” by the Competition Bureau, as opposed to a criminal offense as they were before. This has led to increased enforcement activity on the part of the Competition Bureau, which has initiated several high-profile prosecutions against the likes of Bell, Rogers and Telus. As a result, there is an increased risk for businesses of both a) being forced to pay administrative fines to the Competition Bureau, and b) consumer class actions which “piggy-back” on Competition Bureau findings.

The end result for businesses is that they must be especially vigilant now about ensuring that their marketing materials are not misleading in any way. The test a court will apply is whether a “credulous and inexperienced” consumer would be misled by the materials on a first read, which is quite a low standard. Failure to comply presents a risk of hefty administrative penalties from the Competition Bureau and class action lawsuits from consumers.