The Supreme Court of Canada recently rendered judgment on the rules governing false and misleading representations under Quebec’s Consumer Protection Act (CPA). The country’s top court held that the test is not what a consumer of average intelligence, scepticism and curiosity would understand from the commercial representation but rather what a credulous and inexperienced consumer would comprehend.
The court held that where a prohibited business practice has been established, there is no need to prove actual damages since an irrefutable presumption of prejudice exists. The Supreme Court also held that punitive damages can be awarded under the CPA even where the circumstances do not justify compensatory damages. The net result is that the sole proof of a prohibited practice may, in certain circumstances, entitle consumers to punitive damages under the CPA.
Mr. Jean-Marc Richard received by mail a letter from Time Magazine entitled “Official Sweepstakes Notification.” After reading it, he came to the conclusion that he had just won a significant cash prize. His excitement yielded to disappointment, however, when he was told by a member of Time’s management that the letter merely invited him to participate in a “sweepstake.” Unhappy with the situation, he decided to institute an action for breach of contract and false and misleading representations within the meaning of the CPA.
The Superior Court found no breach of contract but awarded Mr. Richard $1,000 in moral damages and $100,000 in punitive damages on the ground that the letter contained several false and misleading representations.
Key findings by the Supreme Court
The Supreme Court disagreed with the Court of Appeal’s test that asked what a consumer of average intelligence, scepticism and curiosity would have understood from the letter. Rather, it held that the proper test for CPA purposes was the comprehension of a “credulous and inexperienced” consumer in the marketplace. On the basis of this test, the letter received by Mr. Richard would give the “average” consumer the impression that he had won the grand prize.
The court then considered whether the civil recourses under s. 272 of the CPA were available or whether the sole recourse was penal liability. It concluded that the civil sanctions were available but only to consumers in a contractual relationship with a merchant.
Moreover, the court held that the use of a prohibited practice triggers an irrefutable presumption that the consumer who purchased the good or service after seeing such a misrepresentation suffered a prejudice. Not only can the consumer ask the court to vary or annul the contract, but he may also claim compensatory and punitive damages.
Perhaps most importantly, the court ruled that an award of punitive damages is not conditional upon the granting of compensatory damages. Punitive damages, as an independent remedy, may be awarded to consumers every time the merchant’s conduct is “intentional, malicious or vexatious” or “displays ignorance, carelessness or serious negligence with respect to their obligations and consumers’ rights under the CPA.” On the facts of this case, the court awarded $15,000 in punitive damages, an amount judged sufficient to meet the objectives of the CPA.
The Supreme Court has raised a yellow flag for businesses that advertise in the marketplace. It is now possible for a consumer to sue and recover punitive damages in the range of several thousand dollars, even where the circumstances do not justify compensatory damages. The Supreme Court effectively considers that consumers have a right to believe that the general impression conveyed by commercial representations is the truth – regardless of the fine print.
For corporations, the message is loud and clear: beware.
Download Richard v Time: key Supreme Court ruling on Quebec’s Consumer Protection Act (pdf 89kb)