Canada: Supreme Court Of Canada Rules That Québec’s Consumer Protection Act Applies To Banks

On September 19, 2014, the Supreme Court of Canada (the "SCC") released a trilogy of much anticipated class action decisions in Bank of Montreal v. Réal Marcotte, Réal Marcotte v. Fédération des caisses Desjardins du Québec and Amex Bank of Canada v. Sylvan Adams, et al. (collectively, "Marcotte").

In Marcotte, the plaintiffs, who used their Canadian-issued credit cards to make purchases in foreign currencies, argued that the banks violated Québec's Consumer Protection Act (the "CPA") by failing to disclose foreign exchange conversion charges as  "credit charges". The plaintiffs sought reimbursement of these charges and punitive damages. The banks invoked, among other things, the constitutional division between federal and provincial powers, namely that the federal government has exclusive jurisdiction over banking under the Constitution Act, 1867 and that the CPA impaired the core federal banking power. As such, the banks argued that the relevant sections of the provincially enacted CPA did not apply to them.

In a 7-0 decision, the SCC ruled that despite being federally regulated, the credit card issuers had to comply with the CPA. The SCC held that two related questions must be asked: "First, does the power to regulate disclosure of conversion charges lie at the core of federal jurisdiction over banking? Second, if so, do the provisions of the CPA at issue significantly trammel or impair the manner in which the federal power can be exercised?" The SCC answered the first question in the negative and rejected the banks' arguments that the CPA was inapplicable on the basis of the doctrine of interjurisdictional immunity. This doctrine "operates to prevent laws enacted by one level of government from impermissibly trenching on the 'unassailable core' of jurisdiction reserved for the other level of government". The SCC held that the CPA provisions, though relating to bank lending, "do not in any way impair any activities that are 'vital or essential to banking'", that the provisions of the CPA do not prevent banks from lending money or converting currency, but only require that conversion fees be disclosed to consumers, and that "Banks cannot avoid the application of all provincial statutes that in any way touch on their operations, including lending and currency conversion":

"While lending, broadly defined, is central to banking and has been recognized as such by this Court in previous decisions, it cannot plausibly be said that a disclosure requirement for certain charges ancillary to one type of consumer credit 'impairs' or 'significantly trammels' the manner in which Parliament's legislative jurisdiction over bank lending can be exercised."

The SCC also dismissed the banks' argument that the provisions of the CPA frustrate the purpose of the federal banking scheme and that, based on the doctrine of federal paramountcy (which is engaged where there is a conflict between valid provincial and federal law), the sections of the CPA were inoperative towards the banks:

"If the Banks' argument amounts to claiming that the federal scheme was intended to be a complete code to which no other rules at all can be applied, that argument must also fail as the federal scheme is dependent on fundamental provincial rules such as the basic rules of contract."

The SCC ordered five of the banks to repay more than $100 million in conversion charges and $25 in punitive damages per affected cardholder. The SCC dismissed, however, the claim in damages against four of the banks based on the terms of their credit card agreements, which complied with both federal legislation (the Bank Act) and the disclosure obligations under the CPA.

The SCC's decision is also noteworthy in that deciding the class action plaintiff had standing to sue all of the banks, the SCC resolved a long-standing controversy under Québec class action law with respect to the "interest" requirement for a plaintiff in multi-defendant class actions. In other words, can a plaintiff bring a class action against multiple defendants without having a direct contractual relationship or cause of action against each of them (i.e., can a consumer who has a credit card with only the Bank of Montreal also sue other banks based on the same alleged practice)? In a landmark judgment in 2006, Bouchard v. Agropur Coopérative ("Agropur"), the Québec Court of Appeal upheld a decision that refused to authorize a class action because the proposed representative did not have a contractual relationship with each of the defendants. Subsequently, in a 2007 decision rendered in the context of a class action that had previously been authorized, CHSLD Christ-Roi (Centre hospitalier, soins longue durée) v. comité provincial des malades, the Québec Court of Appeal held that a direct cause of action (contractual or otherwise) against each defendant was not necessary where the same fault is alleged against each of the defendants. In Marcotte, the SCC held that its recent class action decisions support a "proportional approach to class action standing that economizes judicial resources and enhances access to justice", that the analysis of whether the plaintiffs have standing must have the same outcome regardless of whether it is conducted before or after the class action is authorized, and that "the portions of Agropur pertaining to standing should no longer be followed." As a result of these decisions, a class action plaintiff does not need to have a cause of action against, or a legal relationship with each defendant.

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