On July 4th, 2016, Ms. Stephanie Benabu1, a Montreal resident, filed an application with the Quebec Superior Court to authorize a class action2. This potential class action targets two dozen titans of industry from the banking, technology and telecommunications sectors3. These businesses, including Vidéotron, Netflix, Apple and several Canadian banks, engage in nearly identical negative option billing practices. The Class Action Applicant argues that the Defendants systematically violate paragraph 230 c) of the Quebec Consumer Protection Act ("CPA").
In 2010, the CPA was amended to include paragraph c) to article 230. This amendment seeks to forbid merchants' negative option billing practices, which intend to entice new clients. Paragraph 230 c) states that if a consumer acquires a good or service during a promotional or trial period, merchants cannot automatically charge the consumer the regular price for the good or service at the end of that timeframe. According to the government, the purpose of this amendment was to prevent consumers from actively having to take steps to opt-out of a promotional contract in advance of billing at the end of a trial period.
Application to Authorize a Class Action
The targeted class and subclass members of this potential action are fairly large. It includes every consumer who since July 4th, 2013 "was provided services or goods at a reduced price, or for free, for a fixed period, and who after that period, was required to send a notice to any of the Defendants indicating that they did not wish to obtain the services or goods at the regular price". The damages being requested are substantial. The Class Action Applicant claims that each member of the class and subclass would be entitled to compensatory damages for the difference between the regular and reduced price of their monthly payments. Damages for trouble and inconvenience incurred in recovering said price difference, along with punitive damages, are also being claimed.
Application of Recent Case Law
a) Marcotte case
In 2014, a class action4 was launched by consumers seeking repayment of conversion charges imposed by several banks. It was then argued that, based on the requirements of the CPA, conversion charges had not been properly disclosed by credit card issuers. As a result of this lawsuit, the Supreme Court of Canada (the "SCC") released a decision pertaining to the applicability of the CPA to Canadian banks.
Throughout the trial, the banks argued that because of the exclusive federal jurisdiction over bank lending under the Canadian Constitution5, the CPA did not apply to them. The SCC ultimately held that regardless of the fact that bank lending is of federal jurisdiction, the application of numerous provisions of the CPA cannot be said to (i) "impair or significantly trammel" the core of federal banking power or (ii) frustrate general federal rules applicable to bank lending. The SCC also considered that the CPA did not provide standards applicable to banking products and services offered by banks, but in fact articulated contractual norms analogous to the general rules governing contracts.
The SCC also established that punitive damages are to be awarded based on an examination of the overall conduct of merchants, before, during and after the violation of the CPA. Such conduct must be "lax, passive, or ignorant" with respect to consumers' rights, or the behavior must display "ignorance, carelessness or serious negligence".
This case proved that all federally regulated organizations in Canada must be mindful of provincial statutes like the CPA.
b) Application to Canadian banks specifically
At the heart of its analysis, the SCC reiterated that the mere fact that the "Parliament has legislated in an area does not preclude provincial legislation from operating in the same area". However, the SCC left the door open for banks to challenge the application of other CPA provisions. It will thus be interesting to see how the Quebec Superior Court will reconcile recent case law with potentially contradictory federal legislation, namely the Negative Option Billing Regulations6.
These Regulations, adopted in 20127, apply to federally regulated financial institutions and provide that certain products and services may only be offered to consumers on an opt-in basis. The Regulations also provide for disclosure requirements applicable to "promotional, preferential, introductory or special offer". Under such Regulations, consumers must be provided with advance notice prior to the end date of a promotional period and any charges that may be imposed after that date must be disclosed.
While, in Marcotte, the SCC held that there was no direct conflict between the federal and provincial regulations governing disclosure requirements, the outcome in the situation at hand could be different considering that specific federal rules apply to promotional periods.
The next step for this class action application is for the Quebec Superior Court to authorize the action. In order to authorize a class action, a managing judge must establish that the Applicant has serious and concrete allegations that appear to be well-founded upon face value8. Such process can take place anywhere from months to years following the filing date of the application. If the authorization is successful, the members of the class action will be determined, a representative plaintiff will be appointed to represent all members of the class action and the main issues and conclusions sought will be defined. As a result of this authorization, a notice to all class members would also be published through newspaper, social media advertisements, or the like to inform consumers in Quebec about the class action.
Miller Thomson will continue to follow this case closely should it go to trial, as it could greatly impact how businesses, large or small, establish their promotional campaigns in Quebec.
1 hereinafter, the "Class Action Applicant"
3 hereinafter, the "Defendants"
4 Marcotte v. Bank of Montreal, 2014 SCC 55.
6 Negative Option Billing Regulations, SOR/2012-23.
7 The Negative Option Billing Regulations were adopted pursuant to the provisions of the Insurance Companies Act (Canada), the Bank Act (Canada), the Trust and Loan Companies Act (Canada) and the Cooperative Credit Associations Act (Canada) in March, 2012.
8 Option Consommateurs v. Novopharm et al., 2006 QCCS 118 (CanLII), No. 500-06-000192-035, par. 79.
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.