Canada: No Crime, Lots of Punishment

Can a class action be used as a solely punitive procedural vehicle? Yes, if we rely on the decision in Brault & Martineau inc. v. François Riendeau and Fédération des caisses Desjardins du Québec, 2010 QCCA 366 (Can LII), where the Court of Appeal confirmed the decision to grant punitive damages despite the absence of any proof whatsoever that a prejudice had occurred.

Riendeau v. Brault & Martineau for Authorization

In Riendeau, the Superior Court was seized of a motion for authorization to institute a class action. The petitioner, after being attracted by an ad published by the respondent, had purchased some merchandise at B&M. As proof, the petitioner produced an ad that had been published one year later and that he claimed was identical to the one he had seen. This ad offered two options, namely to pay in 24 equal instalments without fees or interest, or to pay within one year with no deposit, payment or interest. Both options referred the reader to a footnote that said: "Pay only the sales tax. Subject to credit approval." There was no mention of interest or other fees if purchasers failed to make a payment.

According to the Superior Court, there was no requirement for a consumer to offer written proof (Section 263, Consumer Protection Act (CPA)). The affirmation, together with the ad, was sufficient to establish a rebuttable presumption and constitute a credible allegation.

Although it is impossible to escape the payment of taxes in a contract, vendors frequently assume these costs to attract customers. Therefore, the petitioner's claims in this regard had, in the court's opinion, at least the semblance of credibility.

Section 247 CPA provides that no person may make use of advertising regarding the terms and conditions of credit, except the credit rate, unless such advertising includes the particulars prescribed by regulation. The petitioner claimed, and the court agreed, that a merchant cannot evade its liability under the law to advertise credit terms and conditions even if offered by other merchants. B&M had in fact advertised a variable credit agreement, but had only included one of the terms and conditions in the ad, namely the delay within which the consumer may discharge his obligation without incurring any credit charges.

In addition, the court believed that a monetary loss need not be invariably established. Section 272 CPA includes moral damages. It is plausible that a consumer, though obliged to pay sales taxes as a matter of public order, may nevertheless claim moral damages, however modest, for having been led to believe that none were payable.

According to the court, a consumer who pays credit charges without having been informed of what they are in the advertising may ask that these charges be cancelled and refunded. He may also file a claim for punitive damages, even if he has not incurred any loss. After all, the court reasoned, the petitioner may plausibly contend that he would have never gone to B&M had he been aware that credit charges would be imposed for late payment.

Importantly, however, the same judge who authorized the class action later changed his mind. In Ata v. 9118-8169 Québec inc. et als, under the exceptional heading "Confession of an error," he explained that his fresh outlook was based on the similarities between Section 272 CPA and Section 49 of the Charter of human rights and freedoms, which, according to the Supreme Court of Canada, could not justify the award of punitive damages in the absence of moral or material damages to which they are ancillary.

The Riendeau Decision on its Merits

In spite of this remarkable confession by the motions judge, Justice Roy partially agreed with the petitioner's arguments on the merits. The court came to the conclusion, in light of the evidence presented, that indeed the respondent's advertising had contravened the provisions of the CPA. According to the court, the charges paid by the respondent to credit companies were not credit charges within the meaning of the law since they were included in the net worth of the goods. As such, all buyers, whether they availed themselves of the financing options or their methods of payment or not, had to support them. By transforming the cost of the delay in payment of the sales price into part of the net worth, however, and by omitting to inform consumers that they could obtain a discount if they paid cash, the respondent misrepresented and omitted to disclose an important fact.

As to the remedy the members of the group are entitled to in the case of prohibited commercial practices, the court noted that on the one hand, Section 272 CPA, which addresses the civil recourses a consumer may initiate if there is a violation to the CPA, applies in the case of prohibited commercial practices. On the other hand, the court found that the evidence did not show the probable existence of a prejudice for each of the members, and made it impossible to quantify the prejudice for those who had actually suffered one.

As for punitive damages, the court agreed that under Section 272 CPA, punitive damages may be claimed even if compensatory damages are not granted. It also noted that this type of remedy is particularly appropriate in prohibited commercial practice cases since it is difficult to assess the impact of a violation of the CPA on consumers. To obtain such damages, the consumer does not have to prove the merchant's bad faith, but only a disregard for the law and those behaviours the law wants to repress. In its assessment of punitive damages, the court considered damages in the amount of $2 million to be appropriate under the circumstances.

The Riendeau Decision on Appeal

B&M appealed this decision, asking for the class action to be dismissed. The petitioner cross-appealed, claiming an amount of $11,859,889.50 for illegally billed credit charges. The court dismissed the appeal and cross-appeal. According to the court, B&M had indeed committed a prohibited practice under the CPA and its associated regulation by publishing the ads in question. But the court did confirm that the trial judge was right in not considering the taxes as hidden charges.

The court also confirmed the decision of the trial court judge granting punitive damages without compensatory damages. According to the court, the CPA is subject to the principles governing the assessment of damages and the respondent did not prove the existence of harm. However, unlike Section 49 of the Charter of human rights and freedoms, punitive damages may be granted under the CPA even in the absence of compensatory damages. Furthermore, the court denied B&M's argument that punitive damages are only granted in the case of bad faith or negligence, and refused to reconsider the amount granted in punitive damages by the Superior Court.

McCarthy Tétrault Notes

Riendeau is significant for at least three reasons. First of all, it sets out the principle according to which it is possible to obtain punitive damages under the CPA without having to grant compensatory damages. Secondly, the case implies that the mere presence of a fault is enough to establish the liability of a respondent even where no one has relied on its misrepresentations. This would mean, at least conceptually, that someone who would have bought the product advertised, who would have seen the advertising, or who would neither have bought nor seen anything whatsoever, would have a sufficient legal interest to claim punitive damages. Finally, during parliamentary debates leading to the adoption of class actions in Québec, the provincial Bar as well as most members of the National Assembly agreed that this procedure would ensure access to justice and should not be used as a purely punitive proceeding. It is at the very least debatable that Riendeau could alter the nature of the class action by changing it from being a convenient procedural mechanism to a formidable social weapon.

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