Canada: "Richard v. Time Inc.": The "Credulous And Inexperienced" Consumer Is Reborn

Last Updated: March 14 2012
Article by Enrico Forlini, Frédérique Dupuy and Raphaël Lescop

On February 12, 2012, in a long-awaited ruling on Quebec consumer law, the Supreme Court of Canada clarified several questions that have been the subject of doctrinal and jurisprudential debate. For example, the Court clearly established that:

  • Commercial advertising must be assessed from the perspective of a "credulous and inexperienced" consumer, rather than from that of a consumer with an "average level of intelligence, scepticism and curiosity".
  • That civil proceedings cannot be instituted under Section 272 of the Consumer Protection Act ("CPA"), if a person has merely seen a misleading advertisement. Rather, the person must have also entered into a consumer contract in relation to the advertisement.
  • That a consumer exercising the recourse provided for under Section 272 CPA has the choice of claiming punitive damages only. This head of damages is autonomous and distinct and may be awarded by the court even in the absence of an award of compensatory damages.

This bulletin aims to expose the primary conclusions of this landmark ruling, which we believe will now be relevant in all future Quebec consumer law disputes, and which are therefore important to grasp as soon as possible.

The Facts

The facts go back to 1999. Jean-Marc Richard received a letter from Time magazine with the following announcement prominently displayed at the top of the page: "OUR SWEEPTSTAKES RESULTS ARE NOW FINAL: MR. JEAN MARC RICHARD HAS WON A CASH PRIZE OF $833,337.00!" However, closer examination reveals this message to be merely the second part of a sentence which begins, in discrete, lower case letters and regular sized font, with: "If you have and return the Grand Prize winning entry in time and correctly answer a skill-testing question, we will officially announce that...".

The same technique appears four more times in the letter. The following messages are capitalized, in bold font, and underlined: "we are now authorized to pay $833,337.00 in cash to Mr. Jean Marc Richard!", "a bank cheque for $833,337.00 is on its way to —— St.!", "you will forfeit the entire $833,337.00 if you fail to respond to this notice!", and "latest cash prize winners: [...] Mr. Jean Marc Richard, $833,337.00, authorized for payment". Just as in the first example, each of these enticing excerpts is preceded by discreetly written conditional clauses. The letter is, in fact, merely an invitation for Mr. Richard to participate in a draw.

To provide a clearer picture, please refer to the complete letter.

Upon reading the letter, Mr. Richard, blinded by dollar signs, believed that he had won the $833,337. He returned the reply coupon to Time, at the same time taking out a two-year-subscription to the magazine (the reply coupon included a space for this purpose). One month later, Mr. Richard received his first magazine, but waited in vain for his cash prize to arrive. He then contacted a Time marketing representative, who informed him that the letter that he had received was simply announcing a draw and that his reply coupon did not bear the winning number. He would not be receiving the $833,337.

Mr. Richard's Recourse

Believing that he had been had, Mr. Richard instigated proceedings against Time before the Superior Court to claim his prize or, alternately, an amount equal to that of the prize by way of compensatory and exemplary damages. The Superior Court allowed the claim in part and awarded him $1,000 in compensatory damages (para. 21) and $100,000 in punitive damages (para. 23).

The Court of Appeal overturned this ruling and dismissed Mr. Richard's case. This Court found that Time had not violated the CPA, because the letter that Mr. Richard had received would not mislead a consumer "with an average level of intelligence, scepticism and curiosity". The Court of Appeal found that it was "in a word, up to consumers to be suspicious of advertisements that seem too good to be true" (para. 31). In so ruling, the Court of Appeal modified the hitherto used reference criterion of the "credulous and inexperienced" consumer.

On February 28, 2012, the Supreme Court of Canada unanimously overturned the Court of Appeal decision. The primary findings of this decision are as follows:

The Credulous, Inexperienced, and Hurried Consumer

Under Section 218 CPA, determination of whether or not a representation constitutes a prohibited practice must take two factors into account: 1) the general impression it gives, and 2) the literal meaning of the terms used, that is, the meaning they hold in everyday use.

In Time, the Court set aside the new reference criterion established by the Court of Appeal and reiterated that the general impression that a commercial representation gives must be analyzed from the perspective of a credulous and inexperienced consumer rather than one with "an average level of intelligence, scepticism and curiosity". A credulous and inexperienced consumer is one who "is not particularly experienced at detecting the falsehoods or subtleties found in commercial representations" (para. 71).

The Court added that these credulous and inexperienced consumers are also "hurried" when viewing advertising, and "take no more than ordinary care to observe that which is staring them in the face upon their first contact with an advertisement. The courts must not conduct their analysis from the perspective of a careful and diligent consumer" (para. 67). In short, the "courts must not approach a written advertisement as if it were a commercial contract by reading it several times, going over every detail to make sure they understand all its subtleties". The Court went on to say that, "reading over the entire text once should be sufficient to assess the general impression conveyed by a written advertisement" (para. 56).

On the basis of these criteria, the Court found violation of Sections 219 and 228 CPA, ruling that the letter from Time effectively gave the general – and misleading – impression that Mr. Richard had indeed won the prize of $833,337 (para. 87).

The Legal Interest to Institute Civil Proceedings under Section 272 CPA

The fact that a person has read a misleading advertisement is not enough for that person to have the legal interest required to institute civil proceedings against the merchant under Section 272 CPA. In Time, the Court clearly established that in order to be able to exercise the recourse provided for in this Section, a person has to have been the "victim" of a prohibited practice, meaning that the consumer must have entered into a contractual relationship with this merchant or manufacturer. In Time, the Court ruled that such a contract did exist, and was indeed related to the prohibited practice. As a matter of fact, in returning his reply coupon, Mr. Richard had subscribed to Time magazine. He therefore had the legal interest required to exercise the recourse provided for in Section 272 CPA (paras. 101 - 110).

Absolute Presumption of Prejudice to the Consumer

The Court confirmed the Court of Appeal's jurisprudence, according to which "the recourse provided for in Section 272 CPA is based on the premise that any failure to fulfill an obligation imposed by the Act gives rise to an absolute presumption of prejudice to the consumer" (para. 112). In other words, a merchant cannot claim that the consumer suffered no prejudice, by pleading, for example, that after publishing a misleading advertisement, it gave corrected information directly to the consumer before they entered into the contract. According to the Court, the consumer was attracted to the merchant on the basis of misleading advertising, becoming even more vulnerable once he arrived on site (para. 118). Even if the merchant corrects the information once the consumer is on the premises, the consumer's consent is fundamentally tainted (para. 119). The formation of a contract itself constitutes a prejudice to the consumer (para. 124).

The Compensatory Damages

The Court did, however, point out that just because a consumer has the legal interest required to exercise a recourse under Section 272 CPA, this does not mean that he or she is automatically entitled to compensatory damages (one of the remedies provided for in Section 272 LPC). The general rules of civil law still apply, and: "an award of compensatory damages can be obtained only if the prejudice suffered can be assessed or quantified" (para. 126). In this case, the Court upheld the amount of $1,000 awarded by the Superior Court in compensation of the moral injuries which the evidence showed Mr. Richard to have suffered.

The Punitive Damages

The Court also confirmed the autonomy of the punitive damages that can be claimed under Section 272 CPA, confirming that consumers who qualify to exercise a recourse under Section 272 CPA "can choose to claim contractual remedies, compensatory damages and punitive damages or to claim just one of those remedies" (para. 145).

As with compensatory damages, just because a consumer has a recourse under Section 272 CPA, this does not mean that he or she is automatically entitled to punitive damages. In this respect, the Court overturned a recent Court of Appeal decision that had established such automatic entitlement, writing that, instead, an award of punitive damages may result where violations by merchants or manufacturers "are intentional, malicious or vexatious, [or where] conduct on their part display[s] ignorance, carelessness or serious negligence with respect to their obligations and consumers' rights under the CPA" (para. 180).

In this case, the Court upheld the Superior Court's ruling that the letter from Time to Mr. Richard was specifically designed to mislead the recipient. The violations of the CPA were intentional and calculated. In addition, the Court pointed out that nothing in the evidence indicated "that Time had taken corrective action to make its advertising [...] consistent with the CPA. On the contrary, it rejected Mr. Richard's entire claim and proposed nothing" (paras. 181-183). Mr. Richard's award of punitive damages was therefore justified.

Upon analysis of the criteria set forth in Article 1621 of the Civil Code of Quebec and other relevant considerations, the Court set the punitive damages at $15,000 (para. 215), stating that this amount "suffices in the circumstances to fulfill the preventative purpose of punitive damages, underlines the gravity of the violation of the Act and sanctions the respondent's conduct in a manner that is serious enough to induce them to cease the prohibited practices in which they have been engaging, if they have not already done so" (para. 215).

Conclusion

With its decision in Time, the Supreme Court of Canada has clarified the central elements of the legal framework established by the CPA. Considering the crucial role that this Act plays in the economic and legal world (as evidenced by the significant number of class actions based on it), no company operating in the consumer sales sector can afford to be unaware of the Supreme Court of Canada's findings as outlined above.

To consult the full decision, please click here.

www.fasken.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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