In Bank of Montreal v. Marcotte, 2014 SCC 55, the Supreme Court dismissed appeals brought by various banks contesting the applicability of the Quebec Consumer Protection Act (“CPA”) to conversion charges charged by banks of foreign currency transactions. The Court concluded that certain disclosure provisions of the CPA did apply to the conversion charges in issue.  The Court rejected the applicability of the doctrines of inter-jurisdictional immunity and paramountcy invoked by the banks.  The Court concluded that section 12 CPA had been breached (giving rise to a reduction in obligations and punitive damages). The Court also held that a representative plaintiff need not have a cause of action against each of the named defendants, that collective recovery and punitive damages are both available, and that punitive damages may be awarded if the impugned behaviour was “lax, passive or ignorant with respect to consumers’ rights.”

First, the Supreme Court explained that although the Quebec Code of Civil Procedure requires plaintiffs to have a “sufficient legal interest,”  this provision must be read in harmony with the class action regime and the proportionality principle. Where the representative plaintiff has been able to establish that he or she is adequate and that the issues involving the defendants are identical, similar or related, there will be a sufficient legal interest.  This is true even if a direct cause of action does not exist between the representative plaintiff and each of the defendants. The approach to this issue taken in Marcotte is consistent with common law decisions on this issue in Ontario.

Second, the Court upheld the Court of Appeal’s characterization of the conversion charges as “net capital”, or the amount for which the credit is granted, rather than credit charges. The Court noted that the conversion charges were not specifically enumerated as a credit charge under section 70 CPA.  Because conversion charges are related to services ancillary to the actual granting of credit, it would be erroneous (and the Court found harmful to consumers) to confuse them with credit charges that are subject to their own, specific disclosure regime.  As a result of such finding, it was not necessary for the Court to consider whether Division III of the CPA, which deals with the disclosure of credit charges and the credit rate, conflicts with the provisions of the Bank Act and the Cost of Borrowing (Banks) Regulations. However, the Court did hold that conversion charges are required to be disclosed by banks pursuant to Section 12 of the CPA, which states that “no costs may be claimed from a consumer unless the amount thereof is precisely indicated in the contract.” Very notably, Section 12 of the CPA does not deal with the disclosure of credit costs, but is a general provision of law which applies to all consumer contracts much like those rules of contract found in the Civil Code of Quebec. The Court did, however, leave open the question which may arise with respect to other fees charged by banks if and to the extent they constitute credit charges under the CPA and there would be a conflict between the provisions of the federal and provincial legislation with respect to their disclosure. The Court stated:  “ It is arguable that a provincial requirement that conversion charges be calculated or disclosed in a different manner than that required by federal law would engage paramountcy. If the province provided for a different grace period, or a different method of interest computation or disclosure, it could perhaps be said to either result in an operational conflict or undermine a federal purpose of exclusive national standards (assuming, without deciding, that such a purpose could be made out). Currently, however, the federal and provincial standards are the same. Duplication is not, on its own, enough to trigger paramountcy.”

Third, the Court dismissed (as had the judge of first instance and the Court of Appeal) the constitutional doctrines of inter-jurisdictional immunity and paramountcy raised by the banks.  To the extent that the conversion charges did not form part of credit charges, which would have required their disclosure as part of the credit rate in a manner which may have differed from the provisions of the Cost of Borrowing (Banks) Regulations under the Bank Act, there was no operational conflict with the relevant provisions of the Bank Act.  In the Court’s opinion, the disclosure required by section 12 CPA does not impair or significantly “trammel” Parliament’s ability to legislate in matters of banking. Likewise, the CPA does not frustrate or undermine the Bank Act. Rather, the CPA sets out rules comparable to the general contractual rules contained in the Civil Code of Quebec.

Having disposed of the constitutional arguments, the Court concluded that: i) section 12 CPA had been breached by those banks which did not disclose the conversion charges; ii) the breach had prevented consumers from making informed choices (in fact, there is an absolute legal presumption to this effect); and iii) it was appropriate to reduce the cardholders’ obligations “in the amount of all conversion charges imposed during the period of non-disclosure,” pursuant to section 272 CPA.

Finally, departing from the Court of Appeal’s reasoning, the Court stated that ordering collective recovery should not preclude an award of punitive damages and restored the decision of the Superior Court which awarded punitive damages against those banks which did not disclose the conversion charges.

With respect to the standard to be applied when determining whether punitive damages should be awarded, the Court stated that “neither evidence of antisocial behaviour nor reprehensible conduct” is required to award punitive damages under the CPA. According to the Court, it is sufficient, in examining the overall behaviour of a defendant, to award such damages if he was “lax, passive, or ignorant with respect to consumers’ rights and to (his) own obligations” or if he displayed “ignorance, carelessness or serious negligence.”

Marcotte is not only significant because of what it says about the applicability of the CPA to financial institutions, but because of its implications for class actions in Quebec. This case can be seen as comprising a trilogy (together with Infineon Technologies AG v. Option consommateurs and Vivendi Canada Inc. v. Dell’Aniello) of decisions that emphasise the relatively low threshold imposed by the Quebec Code of Civil Procedure. The Court also reiterated the importance of the twin objectives of class action regimes, namely deterrence and victim compensation.