Banks Forced to Repay Added Charges Plus Punitive Damages: Bank of Montreal v Marcotte
On September 19, 2014, the Supreme Court of Canada (“SCC”) released its decision in Bank of Montreal v Marcotte, 2014 SCC 55 [BMO v Marcotte], and its two companion cases, Amex Bank of Canada v Adams, 2014 SCC 56, and Marcotte v Fédération des caisses Desjardins du Québec, 2014 SCC 57. The case in BMO v Marcotte was based on major banks charging undisclosed fees for credit card transactions made in foreign currency. The SCC found a group of major banks liable for repayment of those undisclosed charges, plus punitive damages.
In rendering its decision, the SCC addressed many fundamental features of consumer protection laws that apply to Federally regulated businesses in Canada. In particular, BMO v Marcotte (1) establishes new standards for the authorization of class actions in Quebec; (2) emphasizes co-operative federalism as the dominant approach to issues arising from overlapping Federal and Provincial jurisdiction; and (3) affirms the significance of business transparency and accountability to the determination of punitive damages. On the whole, BMO v Marcotte may constitute a game-changer for how Federal firms assess risk and the costs of doing business in Canada.
Details of this case and its companion cases were set out in a January 2014 case comment by TheCourt.ca’s Patricia Wood.
The class action against 9 major Canadian banks arose from extra charges applied to foreign currency transactions made using bank-issued credit cards. The representative plaintiff, Marcotte, argued that banks applied these conversion charges without providing notice to cardholders.
While such conversion charges are commonplace, Quebec’s Consumer Protection Act, chapter P-40.1 [CPA] strictly requires these charges to be disclosed to consumers. The defendant banks did not deny charging the conversion fees in question, but some defendant banks (RBC, CIBC, Scotiabank, and Laurentian; collectively the “Group B Banks”) gave evidence of having disclosed these charges to cardholders. Other defendant banks (BMO, National Bank of Canada, Citibank, TD, and Amex; collectively the “Group A Banks”) had not disclosed these charges and failed to account for these decisions.
As previously detailed by Wood, both Quebec’s Superior Court and Court of Appeal rendered judgments in favour of the plaintiffs. Specifically, the Superior Court found and the Court of Appeal affirmed that the Group A Banks had violated the CPA by failing to disclose conversion charges to their cardholders. Both courts rejected the defendant banks’ arguments that (1) the representative plaintiff did not have standing against all of the defendant banks; (2) the doctrine of interjurisdictional immunity (“IJI”) renders the CPA inapplicable to banks; and (3) the doctrine of paramountcy renders the CPA inapplicable to banks.
The Superior Court’s ruling was written by Justice Gascon (as he then was) and further determined that the Group A Banks’ failure to disclose conversion charges and subsequent lack of explanation justified an award of punitive damages against those banks in the amount of $25 per affected cardholder. The Court of Appeal reversed this finding and substituted no award of punitive damages.
The Validity of the Class Action
The defendant banks challenged Marcotte’s standing as representative Plaintiff by arguing that he should not qualify because he did not hold credit cards with each of the defendants and therefore lacked the contractual relationship needed to bring an action against every defendant. The SCC rejected this argument and found that fairness must be central to determining when consumer class actions should proceed.
The Superior Court and Court of Appeal dealt with the Plaintiff’s standing by focusing on the fact that the class had already been authorized. Once authorized, the class could only be considered as a whole and standing would be determined with respect to all class members and not the representative Plaintiff alone. Following these decisions, the door remained open for future defendants to raise the defendant banks’ argument at the class authorization stage in order to fracture potential class actions.
That door was closed by the SCC’s decision, which broke from an established line of Quebec cases (see Imperial Tobacco Canada Ltd v Conseil québécois sur le tabac et la santé, 2007 QCCA 694, and General Motors du Canada ltée v Billette, 2009 QCCA 2476) to endorse a “proportional approach to class action standing that economizes judicial resources and enhances access to justice.”
According to the SCC, the proportional approach applies equally at both the pre-authorization and post-authorization stage, and requires courts to focus on “good faith” and “the balance between litigants” in determining whether to grant standing to a class. Applying this approach to BMO v Marcotte, the SCC found that class members’ similar claims against the defendant banks and the similar defences of the defendant banks justified the standing of the class at both the pre-authorization and post-authorization stage.
The Applicability of Paramountcy and Interjurisdictional Immunity
In line with the decisions of the courts below, the SCC rejected the defendant banks’ claims to exemption from Provincial consumer protection legislation on the basis of either IJI doctrine or the doctrine of paramountcy. Relying on Canadian Western Bank v Alberta,  2 SCR 3 [Canadian Western Bank], the SCC affirmed that federally-regulated businesses are not exempt from Provincial consumer protection legislation except where said Provincial legislation is in direct conflict with Federal legislation.
The applicability of the IJI doctrine was rejected because it would provide the banks with an “amorphous, sweeping immunity” that conflicts with “the modern cooperative approach to federalism which favours, where possible, the application of statutes enacted by both levels of government.” Affirming Canadian Western Bank, the SCC called for the limited application of IJI – only to cases covered by precedent.
The applicability of the doctrine of paramountcy was also rejected on the SCC’s finding that notice requirements in the CPA had simply set out applicable contract rules and did not conflict with Federal regulation of banking. Again citing Canadian Western Bank v Alberta, the SCC stated that paramountcy only applies where Provincial legislation interferes with Federal regulatory power that is founded on “very clear statutory language” and Parliament’s intention to “occupy the field.”
The Justification for Punitive Damages
The SCC restored the trial judge’s award of punitive damages against the Group A Banks, determining that these banks’ conduct had violated the CPA’s “objective of permitting consumers to make informed choices.” According to the SCC, the Group A Banks’ failure to disclose conversion charges and subsequent lack of explanation amounted to at least “ignorant or careless conduct” and therefore sufficed to justify a remedy of punitive damages under the CPA.
The judgment emphasized public accountability and transparency as means for businesses to avoid punitive damages in the future. In particular, the SCC affirmed the Quebec Superior Court’s findings concerning the inexcusability of the Group A Banks’ failure to publicly account for their practices after the public had become aware of the undisclosed conversion charges. This consideration of banks’ conduct following a violation reflects the approach taken in Richard v Time Inc,  1 SCR 265, which stated that “the whole of the merchant’s conduct” must be considered to determine whether to award punitive damages under the CPA.
Implications of the Decision
The SCC’s decision in BMO v Marcotte represents a shift in the legal landscape for businesses operating in Canada.
First, the decision strongly signals a shift away from jurisdictional arguments as a means for businesses to avoid scrutiny by Provincial regulators. In the future, this will certainly affect risk assessments undertaken by businesses determining how to carry on operations in each province, or whether operations are better avoided altogether in some provinces. In response, Provincial governments may choose to competitively reduce regulations to attract more businesses or to cooperatively work with other Provinces to strengthen regulations. Each scenario offers a drastically different outcome with respect to regulation of businesses – a race to the bottom in one case, and a race to the top in the other.
Second, the decision’s emphasis on public accountability following violations of consumer protection law means that businesses will face more difficult decisions in addressing future violations. On the one hand, being accountable to consumers may prevent adverse findings of punitive damages. On the other hand, greater public disclosure may increase the number of class action lawsuits that businesses face. In terms of providing for effective regulation following violations, this provides a mixed outcome. Prior to violations occurring, however, the SCC’s reasoning provides greater incentive for businesses to avoid violations of consumer protection laws in the first place.