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CONGRATULATIONS!!! YOU HAVE WON MILLIONS!!! … or not yet?

Posted in Case Comments, Contracts
Marc-Andre Russell

Rachel LaferrièreActually, not. The odds of your winning are one in 120 million. On February 28, 2012, the Supreme Court of Canada established the test for misleading advertising and rendered a landmark decision that will generate important discussions all across Canada.

Background

In 1999, Mr. Richard received an “Official Sweepstakes Notification” in the mail. In large, bold, capitalized letters, the notification proclaimed “OUR SWEEPSTAKES RESULTS ARE NOW FINAL: MR JEAN MARC RICHARD HAS WON A CASH PRIZE OF $833,337.00!”

Closer inspection however revealed that the above statement was preceded by, “If you have and return the Grand Prize winning entry in time and correctly answer a skill-testing question, we will officially announce that”. This qualifying language was written in small print, and in lowercase letters.

The letter also offered Mr. Richard the possibility to subscribe to Time Magazine, which he did. There were several other exclamatory sentences in bold uppercase letters, whose purpose was to catch the reader’s attention by suggesting that he or she had won a large cash prize. These sentences were combined with conditional clauses in smaller print, some of which began with the words “If you have and return the Grand Prize winning entry in time”. His actual odds of winning were 1 in 120 million.

Convinced that he was about to receive the prize, Mr. Richard returned the reply coupon and subscribed to Time magazine. When he did not receive the prize, Mr. Richard communicated with Time, and was advised that the notification was an invitation to participate in the sweepstakes, not the winning entry. He then instituted legal proceedings to declare him to be the winner of the cash prize or, in the alternative, sought compensatory and punitive damages on the basis of prohibited practices pursuant to Québec’s Consumer Protection Act (the “CPA”).

Time explained that the sweepstakes in issue was a contest in which only one person would win the grand prize. To receive the prize, the person had to have the winning entry, return the reply coupon by the deadline and correctly answer a skill-testing question. Only one person had the winning entry, which had been selected before the mailings were sent. However, at the top of each recipient’s document, the word “claim” appeared, followed by a combination of numbers and letters. In the event that the pre-selected winner failed to return the reply coupon, a draw would be held for the grand prize among all those who had returned it.

Decisions Below

The Québec Superior Court had found that the notification contained false representations in violation of the CPA and had awarded the Plaintiff $1,000 in moral damages and $100,000 in punitive damages.

The Court of Appeal had reversed this decision, defining the average consumer as having “an average level of intelligence, scepticism and curiosity”, and thus finding that the notification contained no false or misleading representations.

The Decision

The Supreme Court of Canada (the “SCC”) found that the Time Magazine sweepstakes letter breached the CPA. The amount of $1,000 awarded by the trial judge was restored by the SCC. The SCC also found that an award of punitive damages was justified in this case, and an amount of $15,000 sufficed in the circumstances.

The “General Impression” Test

Mr. Richard’s claim was brought under the Misleading Representations provisions of the CPA, which requires the consideration of the “general impression” given by a representation. The SCC exposed the “general impression” test as follows:

A court asked to assess the veracity of a commercial representation must therefore engage, under s. 218 C.P.A., in a two-step analysis that involves […]

(1) describing the general impression that the representation is likely to convey to a credulous and inexperienced consumer; and

(2) determining whether that general impression is true to reality.

If the answer at the second step is no, the merchant has engaged in a prohibited practice.

The SCC pointed out that this test is similar to the one that must be applied under the Trade-marks Act, to determine whether a trade-mark causes confusion. It is an abstract analysis. The SCC also took the view that considerable importance must be attached not only to the text, but also to the entire context, including the way the text is displayed.

The “credulous and inexperienced” is the average consumer, or the “ordinary hurried purchaser”  for the purposes of the CPA. As the SCC stated, the average consumer is “someone who is not particularly experienced at detecting the falsehoods or subtleties found in commercial representations.”

The SCC found it hard to understand how a “credulous and inexperienced customer” could deduce Time’s explanations after reading the notification for the first time. It also found that it is “very likely” that the average consumer would conclude that Mr. Richard held the winning entry and had only to return the reply coupon to initiate the claim process.

Legal Interest

Another important question raised by this appeal is the issue of the legal interest to institute a civil claim under the prohibited practices title of the CPA. Mr. Richard submitted that he was entitled to be awarded the equivalent of nearly US$1 million in punitive damages under s. 272 of the CPA, whereas Time denied that the recourses provided for in s. 272 of the CPA can be exercised by a consumer to sanction a prohibited practice.

This revived a debate between Québec authors that has been under way since the early 1980s.

In the SCC’s opinion, s. 272 of the CPA establishes a legislative scheme that makes it possible to sanction prohibited practices by means of civil proceedings initiated for contractual remedies or damages (compensatory and/or punitive), but in order to respect the principles governing the application of this statute, the recourse under s. 272 of the CPA is available only to “consumers”. As the SCC stated:

“This means that a consumer must have entered into a contractual relationship with a merchant or a manufacturer to be able to exercise the recourse provided for in s. 272 C.P.A. against the person who engaged in the prohibited practice.”

Punitive Damages

Another important question clarified by the SCC is the issue of punitive damages under the CPA. The SCC clarified that consumers can be awarded punitive damages under s. 272 of the CPA even if they are not awarded contractual remedies or compensatory damages at the same time.

The SCC also pointed out that unlike in the common law, there is no unified scheme for awarding punitive damages in Québec civil law. Although punitive damages are exceptional in their nature, the SCC took the view that there is no traditional rule in Québec civil law to the effect that only malicious misconduct can result in an award of punitive damages.

As a result of an interpretation exercise, the SCC took the view that having regard to the legislative objective to discourage the repetition of undesirable conduct, violations by merchants or manufacturers that are intentional, malicious or vexatious, and conduct on their part in which they display ignorance, carelessness or serious negligence with respect to their obligations and consumers’ rights under the CPA may result in awards of punitive damages under s. 272 of the CPA.

However, before awarding such damages, the court must consider the whole of the merchant’s conduct at the time of and after the violation.

As a result, the SCC ordered Time Magazine to pay Mr. Richard $16,000 – a $1,000 compensatory damages award, and $15,000 in punitive damages – for misleading him to believe in a letter meant to sell subscriptions that he had won the sweepstake.

Potential Significance

The SCC determined that the applicable test to determine the presence of a misleading advertising is the “general impression” test.

The “credulous and inexperienced consumer” standard sets a low bar for plaintiffs to show that a representation was misleading, whether or not the advertisement is actually true. Companies should also keep in mind that first impressions count, and remember that size and layout matter, as disclaimers may not be sufficient to change the general impression conveyed by an advertisement.

The SCC clearly stated that a legal interest is necessary for a consumer seeking compensation under s. 272 of the CPA, and that punitive damages can be awarded in the absence of compensatory damages.

The SCC created a test for punitive damages under the CPA, in which intentional, malicious or vexatious, and conduct of the merchants in which they display ignorance, carelessness or serious negligence with respect to their obligations and consumers’ rights may result in awards for punitive damages. The merchant’s conduct at the time of and after the violation may also be taken into consideration.

While based on Québec consumer law, this decision is likely to influence how other courts across Canada will apply the “general impression” test in misleading advertising cases.

Case Information

Richard v. Time Inc., 2012 SCC 8

SCC Docket No: 33354

Date of Decision: February 28, 2012