The Marcotte Decision: The Supreme Court of Canada rules against banks in provincial consumer protection class action

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On September 19, 2014, the Supreme Court of Canada (the “Court”) ruled in Bank of Montreal v. Marcotte1 (“Marcotte”) that Quebec’s consumer protection legislation is applicable to federally regulated banks such that it provides the basis for consumer class actions in Quebec against those banks. In so doing, the Court rejected the banks’ constitutional arguments and held the banks were not immune from Quebec’s Consumer Protection Act (“CPA”) with respect to the disclosure of credit card conversion charges levied on purchases made in foreign currencies. In the result, the Court ordered that the “Group A Bank”2 defendants breached the CPA by failing to disclose the charges. They were ordered to reimburse consumer cardholders for conversion charges during the non-disclosing periods. The Court also restored the trial court’s award of punitive damages – $25.00 per class member – for failing to disclose the conversion charges.

The Court’s decision in Marcotte is an important decision with respect to a bank’s disclosure obligations in consumer contracts in Quebec, and elsewhere. As is apparent from the decision, disclosure of credit charges and net capital amounts must comply with both federal and provincial requirements. As the Court observed there is no sweeping immunity for banks from provincial laws of general application and there are “many provincial laws providing for a variety of civil causes of action that can potentially be raised against banks. The silence of the Bank Act on civil remedies cannot be taken to mean that civil remedies are inconsistent with the Bank Act.”

The Marcotte decision will likely apply to several other federally-regulated areas, outside of banking. It is anticipated that plaintiffs will attempt to expand the Court’s ruling in Marcotte to support provincial consumer protection act class action claims not only against banks but also against other federally-regulated businesses in Quebec and the other provinces. As in Marcotte, constitutional arguments may be ineffective to immunize those types of businesses from such claims.

Marcotte Case Background

In 2003, Mr. Marcotte applied for authorization (the civil law equivalent of “certification” in common law class actions) to commence a class action against the Bank of Montreal, Amex Bank of Canada (“Amex”), Royal Bank of Canada, Toronto-Dominion Bank (“TD”), Canadian Imperial Bank of Commerce, Bank of Nova Scotia, National Bank of Canada, Laurentian Bank of Canada, Citibank Canada and the Fédération des caisses Desjardins du Québec (“Desjardins”). He also filed a separate class action against Desjardins, and a third class action against Amex. The class actions sought repayment of the conversion charges imposed by certain credit card issuers on credit card transactions made in foreign currency, primarily on the basis that the defendants violated the CPA by failing to disclose the charges. One of the banks’ arguments was that the CPA did not apply to them as they were federally regulated under the Constitution Act, 1867 and, as a result, no repayment of the conversion charges was owed, regardless of the manner in which the conversion charges were disclosed in the credit card contracts.

In 2009, following a trial on the merits, the Quebec Superior Court held that the CPA applied to the bank defendants and ordered Group A Banks to reimburse the conversion charges received during various periods and to pay punitive damages for failing to disclose the conversion charges. In 2012, the Quebec Court of Appeal maintained the order against the Group A banks, but overturned the amount awarded against Amex and the punitive damages against all of the Group A Banks, except for TD.

In so doing, both the Quebec Superior Court and the Court of Appeal rejected the banks’ constitutional arguments. Justices Rothstein and Wagner for the Court also rejected the banks’ constitutional arguments based on interjurisdictional immunity and paramountcy.

The Supreme Court dismissed the Group A Banks’ appeal and restored the trial court’s restitution order and the punitive damages award.

Applicability of Constitutional Principles

Interjurisdictional Immunity

At trial and on appeal, the banks argued that the CPA was inapplicable to their credit card activities on the basis of the interjurisdictional immunity doctrine asserting that their activities were federally regulated under s. 91(15) of the Constitution Act, 1867 (by which Parliament enjoys exclusive jurisdiction over banking) and that application of the provisions of the CPA to banks would impair the core federal banking power. In rejecting that argument, Justices Rothstein and Wagner observed, “interjurisdictional immunity operates to prevent laws enacted by one level of government from impermissibly trenching on the “unassailable core” of jurisdiction reserved for the other level of government.”

The Court went on to observe that although the doctrine remains “an extant constitutional doctrine, this Court has cautioned against excessive reliance on it. A broad application of the doctrine is in tension with the modern cooperative approach to federalism which favours, where possible, the application of statutes enacted by both levels of government” and application of the doctrine “should be reserved for situations already covered by precedent.”

The Court noted that there was no precedent for application of the doctrine to credit card activities of banks. Further, the Court held that the power to regulate disclosure of conversion charges does not lie at the core of federal power over banking and, in any event, the specific provisions of the CPA in issue did not trammel or impair the manner in which the banking power could be exercised. As the Court noted, “requiring banks to inform customers of how their relationship will be governed or be subject to certain remedies does not limit banks’ abilities to dictate the terms of that relationship or otherwise limit their activities. Similarly, even if foreign currency conversion is accepted as being part of the core of the federal banking power, imposing a broad disclosure requirement for charges relating to currency conversion in no way impairs that power.”

The Court held that the “CPA does not impair the federal banking power and the doctrine of interjurisdictional immunity is not engaged”. The Court concluded, “Banks cannot avoid the application of all provincial statutes that in any way touch on their operations, including lending and currency conversion…The provisions of the CPA do not prevent banks from lending money or converting currency, but only require that conversion fees be disclosed to consumers.”

Paramountcy

At trial and on appeal, the banks also argued that provisions of the CPA in issue were inoperative with respect to banks by operation of the paramountcy doctrine. The Court observed, “paramountcy is engaged where there is a conflict between valid provincial and federal law. In such cases, the federal law prevails, and the provincial law is rendered inoperative to the extent of the conflict. Conflict can be established by impossibility of dual compliance or by frustration of a federal purpose.”

In conducting its analysis, the Court noted that both the federal and CPA provisions pertaining to conversion charges (which it determined was “net capital”) were consistent such that there was no operational conflict. The Court also held, assuming that the Bank Act is to provide for exclusive national standards, that such a purpose is not frustrated by the CPA. It did so by holding that the CPA provisions in issue “do not provide for “standards applicable to banking products and banking services offered by banks”, but rather articulate a contractual norm in Quebec.” The Court observed:

If the Banks’ argument amounts to claiming that the federal scheme was intended to be a complete code to which no other rules at all can be applied, that argument must also fail as the federal scheme is dependent on fundamental provincial rules such as the basic rules of contract. Just as the basic rules of contract cannot be said to frustrate the federal purpose of comprehensive and exclusive standards, if indeed such purpose exists, so too do general rules regarding disclosure and accompanying remedies support rather than frustrate the federal scheme.

The Court noted that the Plaintiffs were not seeking nullification of their contracts or of specific clauses but rather reimbursement of the conversion charge that was never disclosed in their contract such that the paramountcy doctrine was not engaged. The Court did observe, however, that the doctrine might be engaged, where, for example, nullification was sought on the basis of a breach of a provision of the CPA which is similar to the Bank Act. As the Court observed:

Since the federal and CPA standards are the same then It is arguable that a provincial requirement that conversion charges be calculated or disclosed in a different manner than that required by federal law would engage paramountcy. If the province provided for a different grace period, or a different method of interest computation or disclosure, it could perhaps be said to either result in an operational conflict or undermine a federal purpose of exclusive national standards (assuming, without deciding, that such a purpose could be made out). Currently, however, the federal and provincial standards are the same. Duplication is not, on its own, enough to trigger paramountcy.

Marcotte Ruling Could Affect Other Canadian Consumer Class Actions

The Court’s decision in Marcotte is an important decision with respect to a bank’s disclosure obligations in consumer contracts in Quebec, and elsewhere. As is apparent from the decision, disclosure of credit charges and net capital amounts must comply with both federal and provincial requirements. As the Court observed there is no sweeping immunity for banks from provincial laws of general application and there are “many provincial laws providing for a variety of civil causes of action that can potentially be raised against banks. The silence of the Bank Act on civil remedies cannot be taken to mean that civil remedies are inconsistent with the Bank Act.”

The decision in Marcotte is likely to have broad application outside the banking context. Plaintiffs will no doubt attempt to expand the ruling to support provincial consumer protection act claims brought as class actions against other federally regulated businesses in Quebec and the other provinces. For further information on this bulletin, please contact the authors or any of the following lawyers: Allen Soltan, Kevin Wright (Vancouver), Heather Treacy, Q.C. (Calgary), Doug Shell, Q.C. (Edmonton), Eric Belli-Bivar, David Foulds, Kelly Friedman, Susan Friedman, Anna MacMillan (Toronto), and Marc Philibert (Montréal).


1 2014 SCC 55. The Court also released two companion cases, Marcotte v. Fédération des caisses Desjardins du Québec, 2014 SCC 57, and Amex Bank of Canada v. Adams, 2014 SCC 56. All three appeals of decisions on the merits of three class actions.
2 Group A Banks were defined as Bank of Montreal, Citibank Canada, National Bank of Canada, Toronto-Dominion Bank and Amex Bank of Canada