misleading advertising claim brought by one bottled water
supplier against a competitor can't hold water unless the
plaintiff (not consumers) relied on the
misrepresentation, the Ontario Superior Court held recently. The court relied on cases that
require consumers to plead that they relied on misleading
ads in order to recover damages. The court imposed this requirement
on all plaintiffs without considering that a claim by a
competitor is different from claim by a consumer.
A misleading advertising claim by one competitor against
another is based on losses caused when consumers (not the
plaintiff competitor) rely on the misleading ads and shift business
away from the plaintiff to the defendant.
Claim struck for lack of reliance
LBI Brands Inc. and AquaTerra Corp. both sell water in large box
format. LBI alleged that AquaTerra reproduced some of LBI's
icons on its packaging in order to target LBI's customers, and
falsely represented to the customers that its water originates from
a certain natural spring, contrary to the CompetitionAct's misleading advertising provisions (section
52). LBI sued for damages under the Competition
Act's statutory cause of action (section 36) (among other
AquaTerra moved to strike, arguing that LBI must plead (and
ultimately establish) that it relied on the misrepresentation to
The court held that LBI's Statement of Claim failed to show
that it suffered a loss as a result of the misrepresentation
made by the defendant, which can only be established by
pleading that LBI relied on the misrepresentation to its detriment.
In reaching this conclusion, the court relied on two cases that
establish that a consumer seeking damages for misleading
advertising must plead and prove reliance (Singer v Schering-Plough Canada
Inc. and Magill v Expedia Canada
The court thus struck LBI's Competition Actclaim,
but granted LBI leave to amend.
The difference between consumer claims and competitor
The court did not take into consideration the difference between
claims by consumers and claims by competitors.
Singer and Magill were actions brought by consumers
who claimed they suffered losses caused by misrepresentations made
by the defendants. LBI's action was brought by a
competitor who claims for losses, not because it relied on
AquaTerra's misrepresentations, but because consumers did.
The cause of action in the Competition Act requires proof
of causation. It makes sense to require consumer plaintiffs to
prove that they suffered damages because they relied on a
misleading ad. But it doesn't make sense to require a
competitor plaintiff to show that it relied on the ad. After all,
advertisements are designed to target consumers, not competitors.
There is no reason why a business would rely or act on the
representations made in its competitor's advertisements. A
competitor suffers harm not because it relies on the ad, but
because consumers do, which causes the plaintiff to lose business.
Therefore, what the competitor plaintiff should have to prove is
that it lost money because consumers relied on the
This case is wrongly decided, in my view.
The plaintiff is appealing.
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