Your contest may not be a winner 


March 2012

McMillan Competition and Antitrust Bulletin/Lexology

More than twelve years after Jean-Marc Richard received a direct mail promotional document from TIME magazine, the Supreme Court of Canada issued its ruling in a dispute that arose out of the type of marketing materials received by millions of Canadians.1 The decision deals specifically with the Quebec Consumer Protection Act (QCPA), but to have a Supreme Court ruling on the "general impression" test in determining whether advertising is false or misleading may influence interpretation of the Competition Act's misleading advertising provisions. The decision may also increase the use of consumer protection statutes in other provinces.

The direct mail advertisement was customized and said, amongst other things,

If you have and returned the Grand Prize winning entry in time and correctly answer a skill-testing question, we will officially announce that

A CASH PRIZE OF $833,337.00!.

There were a number of other similar passages in the document.

The sweepstakes rules were disclosed in full in the document itself. The odds of winning were set out as 1 in 126,000,000. The plaintiff was not a native speaker of English. His understanding, based on his own reading, as well as that of family members and co-workers, was that he was entitled to a large sum of money. He immediately subscribed to TIME magazine and returned the portion of the direct mail material designed for the purpose of entering the contest and subscribing to the magazine. When the large sum of money was not forthcoming, Mr. Richard made inquiries, and when turned down, launched a proceeding in the Superior Court of Quebec claiming that he was owed more than $1 million based on breach of contract and breach of the QCPA.

The making of a misleading representation by an advertiser is defined as a "prohibited practice" under the QCPA. The Superior Court found that it was sufficient for this analysis "to find that the average consumer, that is, one who is credulous and inexperienced, could be misled." The Superior Court held, among other things, that the fact that the recipient might not be the Grand Prize winner "at the very least had been buried in a sea of text." The judge stated:

It is patently obvious to any reader that the mailing from TIME was false and incomplete, it was specifically designed to be misleading, both in the words chosen, the size of the conditions or disclaimers and the ambiguity, especially to a person who is not reading in his or her mother tongue.

The Court awarded damages of $1000 with punitive damages of $100,000. The matter was appealed.

The Quebec Court of Appeal reversed, stating that "they could not conclude that the advertisement might give the average Quebec consumer the general impression that the recipient was the Grand Prize winner":

With respect, I see eye-catching text in the documentation sent to the [appellant], but I do not see misleading, under-handed or deceitful statements. I even suspect that the [appellant], a well informed businessman who worked locally and internationally in both French and English, understood the sweepstakes and his chance of winning perfectly well from the very start.

The case then went on appeal to the Supreme Court of Canada. The Supreme Court decision deals in significant detail in matters of statutory interpretation relating to the QCPA. While the Court's analysis of the QCPA will be important for the law of Quebec, it may have an impact on cases both private and public under the Competition Act's misleading advertising provisions, as it deals with the "general impression" test and how the notional consumer is defined. These concepts, though arising under the QCPA, apply under the Competition Act as well. While it is not a certainty that the reasoning in this case will be adopted in future Competition Act cases, it will probably be argued to be relevant.

The relevant provision of the QCPA, section 218, requires that an advertising representation be evaluated based on "the general impression it gives, and, as the case may be, the literal meaning of the terms used therein [being taken] into account." This wording is very close to section 52(4) of the Competition Act,2 which provides that "In a prosecution for a contravention of this section, the general impression conveyed by a representation as well as its literal meaning shall be taken into account in determining whether or not the representation is false or misleading in a material respect."

The Supreme Court concluded that "general impression" under the QCPA is "that of the first impression." It is the impression "a person has after an initial contact with the entire advertisement, and it relates to both the layout of the advertisement and the meaning of the words used."

On the question of "who is the consumer," the Supreme Court used the same phrase as the Court of Appeal and of most decisions under the Competition Act: the "average consumer." The existing Quebec authority interpreting the QCPA held that the average consumer should be deemed to be "credulous and inexperienced." The Quebec Court of Appeal held that an average consumer also has "an average level of intelligence, skepticism and curiosity." The Supreme Court did not repeat this language but stated instead "in conformity with the objective of protection that underlies such legislation [i.e., consumer law], the courts have assumed that the average consumer is not very sophisticated." The Court then went on to use prior decisions involving trademarks as a good example of this interpretive approach. The standards for determining whether a trademark causes confusion is that the average consumers for such purposes are "ordinary hurried purchasers" and that "the standard is not that of people ‘who never notice anything' but of persons who take no more than ‘ordinary care to observe that which is staring them in the face'."

The Court explicitly rejected the "average consumer" having "an average level of intelligence, skepticism and curiosity" as "inconsistent with the letter and the spirit" of the QCPA.

The caselaw analyzed by the Supreme Court relies upon the "credulous man" test adopted in Imperial Tobacco,3 which was a prosecution under the Combines Investigation Act. Under the Combines Investigation Act and its successor, the Competition Act, this test has evolved significantly. The Court of Appeal for Ontario, in its 1975 decision in R v Viceroy Construction Company (1975),4 adopted the "average purchaser" test. This decision and its later decision in RM Lowe Real Estate Limited,5 the Court used the "average purchaser" test. The level of sophistication imputed to the "average purchaser" under the Competition Act analysis varies with respect to the type of product and the target audience. None of the more current caselaw under the Competition Act was discussed in the Supreme Court's ruling.

The Supreme Court's reasoning makes the "general impression" a much harsher test for the advertiser. It makes the advertiser responsible for ensuring that no consumer is misled. The Court of Appeal's inclusion of skepticism and curiosity did not weaken the general impression, rather it was part of the general impression.

For purposes of the QCPA, the Court found that where certain violations are committed by the merchant, it is no defence that the consumer suffered no prejudice. (It should be noted that damages under the Competition Act, including for violations of the misleading advertising provisions, only arise where actual harm has been suffered by the plaintiff.)

Under the Consumer Protection Act, 2002 of Ontario, the making of false, misleading or deceptive representations is deemed to be an "unfair practice." Similar to the Quebec statute, damages (including punitive damages) are available. Thus, if the Supreme Court's reasoning is applied to other consumer protection statutes, a right to nominal damages without the need to show prejudice to the consumer may become the basis for future class actions. These types of class actions exist now of course, but this decision will likely encourage more.

by Dan Edmondstone, Janine MacNeil and James Musgrove

1 Richard v Time Inc, 2012 SCC 8.

2 The QCPA wording was based on a predecessor to section 52(4). It should also be noted that section 74.03(5) uses the same language with respect to the general impression test for the civil reviewable misleading advertising provision of the Competition Act.

3 R v Imperial Tobacco Canada Ltd, 2011 SCC 42.

4 23 CPR (2d) 281.

5 39 CPR (2d) 366.

a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2012