Canada: Private Right Of Action Under CASL – The Case For Judicial Restraint In Ordering Non-Compensatory Damages

Last Updated: February 13 2017
Article by Young Park

When the private right of action ("PRA")2 under CASL comes into force on July 1, 2017, affected parties can pursue private lawsuits against those that contravene CASL and claim both the "actual loss or damage suffered or expenses incurred"3 and the statutory damages set out in ss. 51(1)(b) of the PRA.

There is a potential for large statutory damage awards under the PRA. By way of example, contraventions of s. 6 of CASL (sending non-compliant CEMs4) could result in damages of $200 for each contravention up to a maximum of $1,000,000 on each day a contravention occurred.5 Businesses that inadvertently send thousands of non-compliant CEMs daily as part of a marketing campaign could, in theory, face statutory damage awards of $1 million per day over the course of the campaign.

As July 1, 2017 approaches, the breadth of CASL and absence of jurisprudence on the PRA have understandably raised concerns among businesses engaged in digital marketing in Canada about their exposure to PRA proceedings (especially, class actions) in general and to statutory damages in particular. While uncertain times lie ahead, there is, however, good reason for businesses to expect the Courts to exercise restraint when ordering statutory damages under the PRA. This expectation is based on the purpose of statutory damage awards.

Purpose of statutory damages under the PRA

Since the bulk of CASL came into force on July 1, 2014, the CRTC6 has had primary responsibility for enforcing CASL through the use of measures including administrative monetary penalties ("AMPs"). On July 1, 2017, contraventions of CASL will also be enforced through private action and statutory damages.

Statutory damages under the PRA and AMPs under ss. 20(1) of CASL serve the same purpose: "to promote compliance" with CASL "and not to punish".7 The main differences between the two are mechanical. Statutory damages are ordered by a Court "to pay the applicant"8. AMPs are ordered by the CRTC and are payable to Her Majesty in the Right of Canada.9

Damages in civil lawsuits generally aim to compensate plaintiffs for their loss. Under ss. 51(1)(a) of the PRA, private applicants can claim "compensation in an amount equal to the actual loss or damage suffered" by the applicant. In contrast, statutory damages under ss. 51(1)(b) of the PRA are non-compensatory.

The inclusion of statutory damages in the PRA seems unusual at first blush. While the PRA states that the purpose of statutory damages is "not to punish", they are non-compensatory and potentially punitive and may lead to windfalls for successful applicants. But where the actual loss suffered by applicants who have, i.e., received non-compliant CEMs may be relatively small10, large businesses may view such compensatory damage awards merely as a cost of doing business. In such circumstances, statutory damages provide Courts with an additional measure to promote compliance and deter non-compliance.

Features of the PRA that flow from the purpose of statutory damages

The fact that statutory damages and AMPs share the same purpose explains other features of the PRA. First, ss. 48(1) provides that a "court may not consider an application for an order under paragraph 51(1)(b)" of the PRA "(a) if the person has entered into an undertaking under ss. 21(1)11 , or has been served with a notice of violation under ss. 22(1)"12 for acts or omissions referred to in a PRA proceeding. CASL provides that the goal of compliance can be achieved either through AMPs in regulatory proceedings or statutory damages in private actions but both are not permitted (or desirable) for the same conduct.13

Second, a due diligence defence is available to both respondents of PRA proceedings for contraventions of CASL14 and to respondents of regulatory proceedings for violations of CASL15. Subsections 33(1) and 54(1) of CASL both provide that a "person must not be found" to have committed violations or contraventions of CASL "if they establish that they exercised due diligence to prevent" the violation or contravention. In contrast, a defendant in a civil claim cannot escape liability for breaching a contract or other legal duty because it was duly diligent.

Finally, both the CRTC and Court "must consider" the following prescribed factors in making an order for AMPs or statutory damages under ss. 20(3) and 51(3), respectively, of CASL:

  1. purpose of order;
  2. nature and scope of contravention or reviewable conduct;
  3. person's history of previous contraventions or reviewable conduct;
  4. person's history of any previous undertaking or consent agreement;
  5. any financial benefit person obtained from the contravention or reviewable conduct;
  6. person's ability to pay;
  7. whether applicant has received compensation for the contravention or the reviewable conduct;
  8. factors established by the regulations16; and
  9. any other relevant factors.

In civil cases, Courts do not consider these factors when assessing compensatory damages. For example, when assessing the damages payable by a defendant for its breach of contract, the Court strives to put the plaintiff in the position it would have occupied if the contract had been performed. Neither the fact that the defendant may have breached other contracts nor the fact that the defendant cannot pay the compensatory damages is relevant to the Court's assessment.

Blackstone Decision

Given the common purpose of AMPs and statutory damages under the PRA, the CRTC's Compliance and Enforcement Decision dated October 26, 201617 against Blackstone Learning Corp. (the "Blackstone Decision") may provide relevant guidance to the Courts on ss. 51(1)(b) of the PRA.

The Designated Person issued a notice of violation on January 30, 2015 against Blackstone, a small business, seeking an AMP of $640,000 for 9 violations of ss. 6(1)(a) of CASL. Blackstone had sent over 385,000 CEMs without consent to electronic addresses of employees at 25 Canadian federal and provincial government organizations. The CRTC found that Blackstone had committed the violations but reduced the AMP to $50,000 after considering the factors prescribed in ss. 20(3) of CASL18.

The CRTC made the following comments:

  • General deterrence is a valid goal of an AMP but it should not lead to the imposition of true penal consequences. True penal consequences may result where an AMP focuses on redressing the wrong to the society at large rather than securing compliance within a limited sphere of activity or the amount is out of proportion with the amount required to promote compliance.
  • The magnitude of an AMP may not be determinative. Significant penalties may be necessary to deter non-compliance and ensure that they are not viewed merely as a cost of doing business.
  • The quantum must be large enough to have an impact on a person to promote changes in behaviour. But an amount that precludes a person from continuing to operate on a commercial basis is undesirable, as it would also preclude that person's compliant participation in the regulated conduct going forward.
  • While the nature of Blackstone's violation (sending over 385,000 unsolicited CEMs) was significant and disruptive, the CRTC found the duration of the violations (2 months) was relatively short.
  • A person's ability to pay is not limited to its immediate ability to pay but can also include indicia of that person's revenue-generating capacity. The $640,000 AMP sought in the notice of violation represented several years' worth of Blackstone's revenues.
  • The "lack of any indicators of self-correction" by Blackstone was a relevant factor to consider. Blackstone showed a low likelihood of self-correction because it did not change its non-compliant conduct even after it was served with the notice of violation. Further, Blackstone's efforts to comply with CASL were not "particularly robust".
  • Blackstone's refusal to co-operate with the Designated Person (including its refusal to respond to a notice to produce financial documents pursuant to s. 17 of CASL and the CRTC's order to comply with such notice) was also a relevant factor.

Some lessons from the Blackstone Decision may be relevant for orders under ss. 51(1)(b) of the PRA. First, general deterrence is a valid goal of statutory damages but the quantum must be proportional. It must be large enough to promote behaviour modification but must not preclude the respondent from carrying on business. Second, "indicators of self-correction" qualify as "other relevant factors" in ss. 51(3)(i). Thus, evidence of due diligence may lower the quantum, even if it was not adequate to preclude liability. Similarly, steps taken by a business to address deficiencies in its compliance program after a contravention may support a lower quantum19. Third, the manner in which the respondent conducts its defence of a PRA proceeding may also qualify as an "other relevant factor" in ss. 51(3)(i)20.

The most notable feature of the Blackstone Decision is the overriding weight that the CRTC gave to the principle of proportionality and Blackstone's ability to pay. While most of the prescribed factors appeared to support a higher quantum (Blackstone sent over 385,000 non-compliant CEMs over 2 months, refused to self-correct, failed to conduct meaningful due diligence and refused to co-operate or comply with the Designated Person and CRTC), the CRTC ordered an AMP of $50,000 (in contrast to the $640,000 sought by the Designated Person) as "proportionate to the circumstances of the case, and [as] reasonable and necessary to promote Blackstone's compliance with the Act".

Conclusion

Prudent businesses should not rely too heavily on one CASL enforcement decision in their risk management planning. But as we enter unchartered waters on July 1, 2017, the purpose of statutory damages and related provisions of CASL should provide businesses with some comfort and good reason to expect the Courts to exercise restraint when ordering statutory damages under the PRA.

Footnotes

1 Written by Young Park, a commercial litigator at Fogler, Rubinoff LLP: http://foglers.com/lawyers/young-park.

2 The PRA consists of sections 47-51 and 55 of "Canada's Anti-Spam Legislation", S.C. 2010, c. 23 ("CASL"). Under ss. 47(1), the PRA applies to: (1) contraventions of s. 6 (sending non-compliant CEMs), s. 7 (altering transmission data in an electronic message without consent), s. 8 (installing computer programs on any other person's computer system without consent) and s. 9 (aiding, inducing or procuring an act contrary to sections 6-8); (2) contraventions of the prohibition in the Personal Information Protection and Electronics Documents Act, S.C. 2000, c. 5 against the collection and use of (a) electronic addresses harvested by the use of computer programs and (b) personal information by unlawfully accessing, using or interfering with computer systems; and (3) reviewable conduct under s. 74.011(1) of the Competition Act, R.S.C. 1985, c. C-34 of sending or causing to be sent or made, for the purpose of promoting any business interest, (a) a false or misleading representation in the sender information or subject matter information in an electronic message; (b) an electronic message that contains a representation that is false or misleading in a material respect; and (c) a false or misleading representation in a locator (including URLs).

3 CASL, ss. 51(1)(a)

4 "Commercial electronic message" as defined in ss. 1(2), CASL.

5 CASL, ss. 51(b)(i)

6 Under s. 14 of CASL, the CRTC may designate a person (the "Designated Person"), i.e. the Chief Compliance and Enforcement Officer, to exercise specified powers to enforce CASL.

7 See ss. 20(2) and 51(2) of CASL.

8 CASL, ss. 47(1)

9 CASL, ss. 28(1)

10 Damages for actual losses suffered by applicants under the PRA will be subject to the principles of causation and remoteness. Examples of actual losses may include costs (for technology, consulting and human resources) incurred to redress damage to computer systems caused by malware and spyware; deployment of resources to address and resolve customer complaints; monies lost to electronic financial fraud / identity theft schemes distributed by spam; operational costs; and wasted time and productivity.

11 An undertaking is a settlement agreement between a person that has violated CASL and the Designated Person. The undertaking includes any conditions the Designated Person considers appropriate, including an AMP. See s. 21 of CASL.

12 The Designated Person may prosecute violations of CASL by issuing and serving notices of violation: CASL, s. 22.

13 The rule in ss. 48(1) only applies to statutory damages under ss. 51(1)(b), and not to actual damages under ss. 51(1)(a). In the unlikely event that a private applicant seeks only compensatory damages in a PRA proceeding, the respondent may be liable to the applicant for such damages even if it entered into an undertaking or was served with a notice of violation for the same conduct.

14 CASL, ss. 54(1) and (2)

15 CASL, ss. 33(1) and (2)

16 No factors have been prescribed by the regulations enacted under CASL: Electronic Commerce Protection Regulations, SOR 81000-2-175 and Electronic Commerce Protection Regulations (CRTC), SOR 2012-36.

17 CRTC 2016-428

18 These factors are mirrored in ss. 51(3) of the PRA.

19 Indicators of self-correction may include steps to discipline employees and contractors who caused the contraventions, address deficiencies in the compliance program and increase the frequency of audits.

20 Conduct by a respondent in a PRA proceeding that unnecessarily lengthens or delays the proceeding or is vexatious is arguably analogous to Blackstone's refusal to co-operate with the Designated Person in the regulatory proceeding.

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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