Credulous Consumers and ‘Strange Collections of Affirmations and Restrictions’: A Case Comment on Richard v. Time Inc.

Generally speaking, advertisers are in the business of making promises. Occasionally, it falls on courts to determine when businesses will be held to the promises they make, even if they had no intention of keeping them. In Leonard v. PepsiCo Inc., 88 F Supp 2d 116, a favourite of first year contracts students, the US Second Circuit Court of Appeals considered a promise made by PepsiCo in a promotion in which consumers were encouraged to accumulate Pepsi points that could be redeemed for merchandise. The value of the prizes varied with the number of points accumulated and the case involved a consumer demanding the top ‘prize’ offered in a commercial: a Harrier jet. This turned out to be a promise that the company was not forced to keep. The court held that the commercial was simply an invitation to look more closely at the prize catalogue—it was simply an exercise of “zany humor.” Most importantly, no reasonable consumer could have expected to redeem Pepsi points for a military jet.

Facts

In Richard v. Time, 2012 SCC 8, the Supreme Court of Canada (SCC) had the chance to weigh in on exactly who the “average consumer” is and how that person should be expected to read, and understand, an ad. The case involved an “Official Sweepstakes Notification” sent by Time Inc. to Mr. Richard, among many others. In bold upper case letters, the notification (annexed to the Court’s decision) suggested that the reader had won a cash prize of US$833,337.00. In fine print, the notification contained several conditional clauses, including: “if you have and return the Grand Prize winning entry in time.” In addition, the notification referred to various benefits that the reader would receive if a subscription to Time Magazine was made at the same time as the validation of the entry.

Convinced that he was the Grand Prize winner, Mr. Richard returned the reply coupon and subscribed to Time Magazine. While magazines started to arrive shortly thereafter, “the cheque he was expecting was a long time coming.” When he followed up with Time Inc., he learned that the notification he had received in the mail was not the winning entry for the draw and was simply an invitation to participate in sweepstakes. And so began a legal battle in Quebec courts, ending with the pronouncement of the SCC regarding the proper approach for determining whether an advertisement constitutes a false or misleading representation for the purposes of Quebec’s Consumer Protection Act (CPA).

Decision

Writing for a unanimous Court, LeBel and Cromwell JJ. held that the proper approach to be applied in assessing the veracity of a commercial representation is to (1) describe the general impression that the representation is likely to convey to a average consumer, and (2) determine whether that general impression is true to reality. If the second inquiry is answered in the negative, the merchant has engaged in a prohibited practice within the meaning of s. 218 of CPA. Consequently, the points of contestation between Mr. Richard and Time Inc. turned on two (interrelated) aspects of the test: what is meant by an advertisement’s “general impression” and the level of sophistication to be attributed to the “average consumer.”

General Impression

The Court held that in the case of false or misleading advertising, the general impression “is one 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.” In reaching this conclusion, the Court rejected Time Inc.’s argument that s. 218 calls for an analytical approach, focusing on the words of the advertisement rather than its layout. The correct approach falls short of requiring the “minute dissection of the text of an advertisement… the courts must not approach a written advertisement as if it were a commercial contract by reading it several times, going over every detail to make sure they understand all its subtleties.” At the same time, however, the proper approach requires something more than a rushed or partial reading of the ad. Thus, the court settled on a middle ground: the “general impression” which the test seeks to elucidate is one that is created by reading over the entire text once.

Average Consumer

The test articulated by the SCC is premised on the general impression that an ad stirs in the mind of an average consumer, not the actual consumer in any particular case. Thus, it fell on the Court to determine the characteristics which properly describe the mythical construct of the “average consumer.” In fashioning this legal concept, the Court rejected the Court of Appeal’s characterization of the average consumer as one with “an average level of intelligence, scepticism and curiosity” since such a test would raise the threshold for misleading advertising higher than what was intended by the legislation. Consequently, the SCC found that the average consumer is “credulous, inexperienced and takes no more than ordinary care to observe that which is staring him or her in the face.”

Remedy

Applied to the facts, the Court held that the average consumer would have been under the general impression that Mr. Richard held the winning entry and would be entitled to the cash prize if he returned his ticket within the stipulated time. The ad’s “strange collection of affirmations and restrictions was not clear enough to dispel the general impression conveyed by the most prominent sentences.”  Consequently, the ad was misleading within the meaning of the CPA despite the fact that it did not necessarily contain any statements that were actually false.

There are three types of remedies available to consumers when a merchant or manufacturer fails to fulfil an obligation under the CPA: contractual, compensatory, and punitive damages. In order to claim a contractual remedy, the consumer does not need to prove fraud or its consequences since a merchant’s violation is deemed to give rise to an absolute presumption of prejudice to the consumer. In order to benefit from this presumption, a consumer must show: (1) that the merchant failed to fulfil one of the obligations imposed by Title II of the Act, (2) that the consumer saw the representation that constituted a prohibited practice, (3) that the consumer’s seeing that representation resulted in the formation, amendment, or performance of a consumer contract, and (4) that a sufficient nexus existed between the content of the representation and the goods or services covered by the contract. Applied to the facts, the Court found that Mr. Richard had discharged his onus of proving a sufficient nexus between the misleading ad and his subscription to Time Magazine.

Mr. Richard did not, however, seek any contractual damages from Time Inc. He instead sought $1 million dollars in compensatory and punitive damages. The Court held that there was no reason to interfere with the trial judge’s decision to grant $1,000 in moral damages to Mr. Richard as a result of the misrepresentation by Time Inc. On the issue of punitive damages (after having reviewed the unique civil law approach in Quebec to awarding punitive damages), the SCC varied the trial judge’s award of $100,000. The Court held that while Time Inc. had intentionally violated the CPA and that the violation could have potentially affected a large number of people, the impact of the violation on Mr. was “quite limited, though, it is true, not negligible,” and so “an amount of $15,000 suffices in the circumstances to fulfil the preventative purpose of punitive damages, underlines the gravity of the violations of the Act and sanctions the conduct of [Time Inc.] in a manner that is serious enough to induce them to cease the prohibited practices.”

Policy

Having recognized that the characteristics attributable to the “average person” in any legislative scheme is a function of the policy underlying that scheme, the strength of the SCC’s approach lay in its ability to elucidate the legislative principles and history underlying the CPA and effectively anchor the legal test in them. The Court traced the evolution of consumer protection legislation from initial indirect protection under federal structural economic regulation to the post-WWII rise of the consumer society, which required more stringent regulation to realign the power imbalances between merchants and consumers. The shift meant that “in Quebec, the contractual fairness model based on freedom of contract, consensualism and the binding force of contracts seemed increasingly unsuited to ensuring real equality between merchants and consumers.”

Consequently, the Court’s characterization of the average consumer as a credulous and possessing less than average intelligence is consistent with the broader legislative project of protecting vulnerable parties. The classic free market model is premised on all actors possessing perfect information, thereby allowing them to make rational, informed choices. Given a reality of imperfect information and asymmetrical knowledge, the CPA (and the SCC’s corresponding legal tests) alleviates the burden on consumers by holding advertisers accountable to the promises they make. Given the ability of corporations to hide behind their ‘veils’ and the speed and ease with which advertisers can reach potential consumers through modern technology and media, perhaps it is only fair that companies think twice before promising jets.