Dodge City Auto: Consumer Protection and Exemplary Damages

On May 19, 2005, the Supreme Court of Canada (“SCC”) delivered an interesting decision in a case relating to damages and costs within the context of consumer protection issues. Prebushewski v Dodge City Auto (1984) Ltd., [2005] 1 SCR 649, examines s. 65 of the The Consumer Protection Act, SS 1996, c C-30.1 [Saskatchewan Consumer Protection Act]. and decides whether an award of exemplary damages is justified by this piece of consumer protection legislation. Specifically the SCC decided whether the exemplary damages provision is merely a codified common law test or if it has been altered to create a distinct regime designed to improve consumer protection.

On December 17, 1996, Shawna Prebushewski and her husband purchased a new Dodge Ram 4×4 one-half ton truck manufactured by Chrysler from Dodge City, a Saskatchewan dealer. The Prebushewskis borrowed $43,198.80 to finance the purchase and drove the vehicle for about 31,000 kilometers in a time span of just over one year. In April of 1998, Mr. Prebushewski parked the truck on the street outside his work. Later in the evening, he discovered his truck on fire; despite the quick reaction of the fire department, the damage was beyond repair. After reporting the damage, the Prebushewskis’ insurer, Saskatchewan Government Insurance (“SGI”), determined that the blaze was caused by a defect in the daytime running light module. By August of 1998, the claim had been settled and Ms. Prebushewski was awarded $26,640, after depreciation and the deductible. However, she remained indebted to the bank over $11,000 and her annual interest rate increased since the security for the loan had been eliminated.

Over a period of several months, the Prebushewskis attempted to receive assistance from Chrysler and Dodge City by phone and mail. The dealership did not respond to their letters and Chrysler referred them to their insurance company. At the end of March in 1999, Prebushewski filed a statement of claim against Chrysler and Dodge City for a number of things, including breach of statutory warranties under the Saskatchewan Consumer Protection Act, claiming exemplary damages in accordance with s. 65 of the Act. Though Chrysler and Dodge City both denied liability, at trial unchallenged expert evidence established that the manufacturing daytime running light defect caused the fire. In fact, an authorized representative for Chrysler revealed that Chrysler had knowledge of the problems with the daytime running lights for several years, but failed to attempt to remedy the issue. Chrysler and Dodge City were found to be jointly liable for breaching statutory warranties pursuant to the Saskatchewan Consumer Protection Act.

The trial judge awarded Prebushewski $41,969.83 in general damages, as well as an additional $25,000 in exemplary damages by relying on s. 65(1) which allowed an award of exemplary damages if there had been “wilful violation” of the Saskatchewan Consumer Protection Act. She found that “wilful” should be defined as “voluntary and intentional, but not necessarily malicious” and determined that Chrysler and Dodge City had willfully violated the Act for their failure to correct the defect, advise customers, recall the truck, investigate the issue or compensate Prebushewski.

At the Saskatchewan Court of Appeal, the award of general damages was upheld, but the exemplary damages were set aside and costs were ordered against Prebushewski. Justice Tallis found that since the defendants had not acted in bad faith when learning about the fire and referring the Prebushewskis to their insurer, an award of exemplary damages could not be supported. Further, he was of the belief that Chrysler could not be expected to know that the daytime running light module defect caused fires.

The SCC allowed Prebushewski’s appeal and restored the decision of the trial judge. In coming to this conclusion, it determined that s. 65 articulates a discrete test for exemplary damages. The common law test for exemplary damages the defendant must have engaged in “malicious, oppressive and high-handed” conduct that “offends the court’s sense of decency. This test limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour.” Section 65, on the other hand, allows that exemplary damages be recovered from “any manufacturer, retail seller or warrantor who has committed a wilful violation.” According to the SCC, in using the word “wilful,” the legislature indicated that a lower threshold should be implemented in order to allow for easier access to exemplary damages. Further, s. 16(1) of the Act states that when the court finds that “a supplier has committed an unfair practice, it may award the consumer damages in the amount of any loss suffered because of the unfair practice, including punitive or exemplary damages.”

The examination of the historical context and legislative history of consumer protection legislation in Saskatchewan leads to a similar conclusion. Various pieces of consumer protection legislation were enacted to improve protection for consumers, increase their options for remedies, and equitably adjust the imbalance of bargaining power between consumers and manufacturers and sellers of products. The SCC also found that s. 66 provides that costs “shall” not be awarded against a consumer who brings an action for breach of warranty against a manufacturer or retail seller, regardless of the success or failure of the action, unless the action is “frivolous or vexatious.” Despite the claims by Chrysler and Dodge City that that the protective scope of this provision is limited to the first trial stage of legal proceedings, the SCC found, instead, that if this protection were limited to the trial level, it would be against the spirit of s. 66, which is to “protect consumers who start legitimate lawsuits from the disincentive of potentially onerous costs against them.” In this case, there was no suggestion that Ms. Prebushewski’s action was frivolous or vexatious, and hence, no award of costs against her could be upheld.

This case highlights the importance of a serious issue, consumer protection, especially when it involves product safety. By reversing the award against Prebushewski for costs, the SCC encouraged the pursuit of legitimate action against manufacturers and retail sellers who provide defective products. The implementation of a lower threshold for exemplary damages in cases of this kind sends a strong message to manufacturers and retail sellers to supply consumers with sound, safe products and remedy any problems as soon as they are brought to their attention, offering some small level of protection for the “little consumer” from the “big corporation.”