Bank of Montreal v. Marcotte

Bank of Montreal v. Marcotte
Collection
Supreme Court Judgments
Date
2014-09-19
Neutral citation
2014 SCC 55
Report
[2014] 2 SCR 725
Case number
35009
Judges
McLachlin, Beverley; LeBel, Louis; Abella, Rosalie Silberman; Rothstein, Marshall; Cromwell, Thomas Albert; Moldaver, Michael J.; Wagner, Richard
On appeal from
Quebec
Subjects
Civil procedure
Constitutional law
Notes
SCC Case Information: 35009
Decision Content
SUPREME COURT OF CANADA
Citation: Bank of Montreal v. Marcotte, 2014 SCC 55, [2014] 2 S.C.R. 725
Date: 20140919
Docket: 35009
Between:
Bank of Montreal
Appellant
and
Réal Marcotte, Bernard Laparé, Attorney General of Quebec and
Président de l’Office de la protection du consommateur
Respondents
And Between:
Citibank Canada
Appellant
and
Réal Marcotte, Bernard Laparé, Attorney General of Quebec and
Président de l’Office de la protection du consommateur
Respondents
And Between:
Toronto‑Dominion Bank
Appellant
and
Réal Marcotte, Bernard Laparé, Attorney General of Quebec and
Président de l’Office de la protection du consommateur
Respondents
And Between:
National Bank of Canada
Appellant
and
Réal Marcotte, Bernard Laparé, Attorney General of Quebec and
Président de l’Office de la protection du consommateur
Respondents
And Between:
Réal Marcotte and Bernard Laparé
Appellants
and
Bank of Montreal, Amex Bank of Canada, Royal Bank of Canada,
Toronto‑Dominion Bank, Canadian Imperial Bank of Commerce,
Bank of Nova Scotia, National Bank of Canada, Laurentian Bank of Canada,
Citibank Canada and Attorney General of Canada
Respondents
- and -
Attorney General of Canada, Attorney General of Ontario,
Attorney General of Quebec, Attorney General of Alberta,
Président de l’Office de la protection du consommateur and
Canadian Bankers Association
Interveners
Coram: McLachlin C.J. and LeBel, Abella, Rothstein, Cromwell, Moldaver and Wagner JJ.
Joint Reasons for Judgment:
(paras. 1 to 117)
Rothstein and Wagner JJ. (McLachlin C.J. and LeBel, Abella, Cromwell and Moldaver JJ. concurring)
bank of montreal v. marcotte, 2014 SCC 55, [2014] 2 S.C.R. 725
Bank of Montreal Appellant
v.
Réal Marcotte, Bernard Laparé, Attorney General of Quebec and
President of the Office de la protection du consommateur Respondents
‑ and ‑
Citibank Canada Appellant
v.
Réal Marcotte, Bernard Laparé, Attorney General of Quebec and
President of the Office de la protection du consommateur Respondents
‑ and ‑
Toronto‑Dominion Bank Appellant
v.
Réal Marcotte, Bernard Laparé, Attorney General of Quebec and
President of the Office de la protection du consommateur Respondents
‑ and ‑
National Bank of Canada Appellant
v.
Réal Marcotte, Bernard Laparé, Attorney General of Quebec and
President of the Office de la protection du consommateur Respondents
‑ and ‑
Réal Marcotte and Bernard Laparé Appellants
v.
Bank of Montreal, Amex Bank of Canada, Royal Bank
of Canada, Toronto‑Dominion Bank, Canadian Imperial
Bank of Commerce, Bank of Nova Scotia, National Bank
of Canada, Laurentian Bank of Canada, Citibank Canada and
Attorney General of Canada Respondents
and
Attorney General of Canada, Attorney General of Ontario,
Attorney General of Quebec, Attorney General of Alberta,
President of the Office de la protection du consommateur and
Canadian Bankers Association Interveners
Indexed as: Bank of Montreal v. Marcotte
2014 SCC 55
File No.: 35009.
2014: February 13; 2014: September 19.
Present: McLachlin C.J. and LeBel, Abella, Rothstein, Cromwell, Moldaver and Wagner JJ.
on appeal from the court of appeal for quebec
Civil procedure — Class actions — Standing — Representative plaintiffs initiating class action against credit card issuers on grounds they failed to disclose conversion charges on credit card purchases made in foreign currencies — Representative plaintiffs not having direct cause of action or legal relationship with each defendant — Whether plaintiffs have standing to sue all defendants — Code of Civil Procedure, CQLR, c. C‑25, art. 55.
Consumer protection — Contracts of credit — Contracts extending variable credit — Credit cards — Obligation to disclose costs in contract — Appropriate remedy for failing to disclose — Conversion charges imposed by financial institutions on cardholders for transactions in foreign currencies — Class actions — Whether conversion charges imposed are “credit charges” or “net capital” as defined by legislation — Whether Banks failed to disclose charges to cardholders — Whether reimbursement of conversion charges collected from consumer class members should be ordered — Consumer Protection Act, CQLR, c. P‑40.1, ss. 12, 68, 69, 70, 272.
Consumer protection — Recourses — Punitive damages — Obligation to disclose costs in contract — Appropriate remedy for failing to disclose — Whether class members are entitled to punitive damages — Consumer Protection Act, CQLR, c. P‑40.1, s. 272.
Constitutional law — Division of powers — Banking — Interjurisdictional immunity — Federal paramountcy — Quebec’s consumer protection legislation regulating disclosure of conversion charges with respect to contracts of credit — Whether provincial legislation constitutionally inapplicable or inoperative in respect of bank‑issued credit cards by virtue of doctrine of interjurisdictional immunity or federal paramountcy — Constitution Act, 1867, s. 91(15) — Bank Act, S.C. 1991, c. 46, ss. 16 , 988 — Consumer Protection Act, CQLR, c. P‑40.1, ss. 12, 272.
A class action was launched by consumers to seek repayment of conversion charges imposed by several credit card issuers (the “Banks”) on credit card purchases made in foreign currencies primarily on the basis that the conversion charges violated Quebec’s Consumer Protection Act (“CPA”). The Banks argued that (1) the representative plaintiffs did not have a direct cause of action against each of the Banks and therefore did not have standing to sue all of them, (2) the CPA did not apply to them due to the Constitution Act, 1867 , and (3) no repayment of the conversion charges was owed. The Superior Court maintained the class action and found that the CPA applied to the Banks. It determined that the conversion charges were “credit charges” for the purposes of contracts extending variable credit, and ordered all the Banks to reimburse the conversion charges. It further required BMO, NBC, Citibank, TD and Amex (the “Group A Banks”) to pay punitive damages for failing to disclose the conversion charges. The Court of Appeal determined that the conversion charges were “net capital” and allowed the appeal of the non‑Group A Banks. It maintained the order against the Group A Banks, but overturned the amount awarded against Amex as well as the award of punitive damages against all Group A Banks, with the exception of TD.
Held: The appeals by the Group A Banks should be dismissed. The appeal by the representative plaintiffs should be allowed in part.
The representative plaintiffs have standing to sue all of the Banks. The law permits a collective action where the representative does not have a direct cause of action against, or a legal relationship with, each defendant. Indeed, art. 55 of the Code of Civil Procedure (“CCP”), which requires plaintiffs to have “sufficient interest” in the action, must be interpreted in harmony with the provisions governing class actions and in accordance with the principle of proportionality found in art. 4.2 of the CCP. This approach is consistent with most other Canadian jurisdictions and the CCP itself, and it ensures the economy of judicial resources, enhances access to justice and averts the possibility of conflicting judgments on the same question of law or fact. In addition, the analysis of whether the plaintiffs have standing must have the same outcome regardless of whether it is conducted before or after the class action is authorized, because at both stages, the court must look to the authorization criteria of art. 1003 of the CCP.
Different obligations flow from whether conversion charges are qualified as credit charges or net capital. If the conversion charges qualify as credit charges, then according to the CPA they would have to be disclosed on their own, be included in the disclosed credit rate, and be subject to a grace period. If conversion charges qualify as net capital, they would not be included in the credit rate or be subject to the grace period, but would still have to be disclosed under s. 12 of the CPA, the general disclosure provision. In this case, conversion charges constitute sums for which credit is actually extended, within the meaning of s. 68 of the CPA, and are best classified as net capital. They do not fall under any of the categories in s. 70 of the CPA. Treating conversion charges as administrative charges or commissions pursuant to s. 70(d) and (f) of the CPA, and therefore as credit charges, would not achieve the objectives of the CPA either by restoring the balance between merchants and consumers or by improving consumers’ abilities to make informed choices. Rather, it would force merchants to either disclose a wide range for the credit rate, which would confuse consumers, or require cardholders to unknowingly subsidize ancillary services that other cardholders choose to use, which would only benefit some consumers at the cost of others and reduce the ability of consumers to make informed choices. Because neither option benefits consumers, s. 17 of the CPA and art. 1432 of the Civil Code of Québec — both of which require contracts to be interpreted so as to favour consumers in cases of doubt or ambiguity — do not require classifying these charges as credit charges. Moreover, conversion charges are not fees that consumers must pay under the contract in order to access credit within the meaning of s. 69 of the CPA. Rather, they are additional fees for an optional service that is not necessary for consumers to access the credit.
The doctrine of interjurisdictional immunity does not apply. Sections 12 and 272 of the CPA, which deal with the disclosure of charges requirement and the remedies for breach of same, do not impair the federal banking power. While lending, broadly defined, is central to banking, it cannot be said that a disclosure requirement for certain charges ancillary to one type of consumer credit impairs or significantly trammels the manner in which Parliament’s legislative jurisdiction over bank lending can be exercised.
Similarly, the doctrine of paramountcy is not engaged. Assuming that a purpose of the Bank Act is to provide for exclusive national standards, ss. 12 and 272 of the CPA cannot be said to frustrate or undermine that purpose, because they do not provide for standards applicable to banking products and banking services offered by banks. Rather, they articulate a contractual norm analogous to the substantive rules of contract found in the Civil Code. The basic rules of contract cannot be said to frustrate the federal purpose of comprehensive and exclusive standards, and the general rules regarding disclosure and accompanying remedies support rather than frustrate the federal scheme. In addition, ss. 12 and 272 of the CPA are not inconsistent with ss. 16 and 988 of the Bank Act and therefore do not frustrate the narrower federal purpose of ensuring that bank contracts are not nullified even if a bank breaches its disclosure obligations. The representative plaintiffs seek restitution of the conversion charges and punitive damages, not nullification of their contracts or of the specific clauses at issue.
The Group A Banks breached s. 12 of the CPA by failing to disclose the conversion charges. This violation is not related to the terms and conditions of payment or to the computation or indication of the credit charges or the credit rate, which are specifically covered by s. 271 of the CPA. It is a substantive violation that goes against the CPA’s objective of permitting consumers to make informed choices, and, at the very least, the violation results from ignorant or careless conduct. Section 272 of the CPA applies, and the appropriate remedy is a reduction of the cardholders’ obligations in the amount of all conversion charges imposed during the period of non‑disclosure. As there is an absolute presumption of prejudice for violations that give rise to s. 272 remedies, the commercial competitiveness of the conversion charges imposed is of no consequence.
In addition, the trial judgment with respect to punitive damages should be restored. The threshold for awarding punitive damages is not higher in the context of class actions where the plaintiffs are awarded collective recovery as opposed to individual recovery. The mode of recovery is not a factor set out in the jurisprudence for assessing punitive damages, nor would it be reasonable to include it as one. Moreover, the amount of punitive damages awarded in this case is rationally connected to the purposes for which the damages are awarded. Indeed, neither evidence of antisocial behaviour nor reprehensible conduct is required to award punitive damages under the CPA. Rather, what is necessary is an examination of the overall conduct of the merchant, before, during and after the violation, for behaviour that was lax, passive, or ignorant with respect to consumers’ rights and to their own obligations, or conduct that displays ignorance, carelessness or serious negligence. In this case, the Group A Banks breached the CPA without any explanation for a period of years, and that negligence overwhelms their unexplained decision to start disclosing a fee they were charging consumers without their knowledge.
Cases Cited
Applied: Richard v. Time Inc., 2012 SCC 8, [2012] 1 S.C.R. 265; overruled: Bouchard v. Agropur Coopérative, 2006 QCCA 1342, [2006] R.J.Q. 2349; distinguished: Quebec (Attorney General) v. Canadian Owners and Pilots Association, 2010 SCC 39, [2010] 2 S.C.R. 536; referred to: Marcotte v. Fédération des caisses Desjardins du Québec, 2014 SCC 57, [2014] 2 S.C.R. 806; Amex Bank of Canada v. Adams, 2014 SCC 56, [2014] 2 S.C.R. 788; Regroupement des CHSLD Christ‑Roi (Centre hospitalier, soins longue durée) v. Comité provincial des malades, 2007 QCCA 1068, [2007] R.J.Q. 1753; MacKinnon v. National Money Mart Co., 2004 BCCA 472, 33 B.C.L.R. (4th) 21; Service aux marchands détaillants ltée (Household Finance) v. Option consommateurs, 2006 QCCA 1319 (CanLII), leave to appeal refused, [2007] 1 S.C.R. xi; Imperial Tobacco Canada Ltd. v. Conseil québécois sur le tabac et la santé, 2007 QCCA 694 (CanLII); General Motors du Canada ltée v. Billette, 2009 QCCA 2476, [2010] R.J.Q. 66; Infineon Technologies AG v. Option consommateurs, 2013 SCC 59, [2013] 3 S.C.R. 600; Vivendi Canada Inc. v. Dell’Aniello, 2014 SCC 1, [2014] 1 S.C.R. 3; Marcotte v. Longueuil (City), 2009 SCC 43, [2009] 3 S.C.R. 65; Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3; Law Society of British Columbia v. Mangat, 2001 SCC 67, [2001] 3 S.C.R. 113; United States of America v. Dynar, [1997] 2 S.C.R. 462; Bank of Montreal v. Hall, [1990] 1 S.C.R. 121; Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161; Cinar Corporation v. Robinson, 2013 SCC 73, [2013] 3 S.C.R. 1168.
Statutes and Regulations Cited
Bank Act, S.C. 1991, c. 46 , preamble [ad. 2012, c. 19, s. 525], ss. 16 , 452 , 988 .
Civil Code of Québec, arts. 1422, 1432, 1621.
Code of Civil Procedure, CQLR, c. C‑25, arts. 4.2, 55, 59, 67, Book IX, 1003, 1015, 1048, 1051.
Constitution Act, 1867, s. 91(15) .
Consumer Protection Act, CQLR, c. P‑40.1, Title I, ss. 12, 17, Chapter III, Division III, 68, 69 “credit charges”, 70, 72, 126, 127, 271, 272.
Cost of Borrowing (Banks) Regulations, SOR/2001‑101.
Financial Consumer Agency of Canada Act, S.C. 2001, c. 9 .
Authors Cited
Bulmer, John. “Payment Systems: The Credit Card Market in Canada”. Background paper PRB 09‑10E, prepared for the Library of Parliament, Parliamentary Information and Research Service, September 24, 2009 (online: http://www.parl.gc.ca/content/lop/researchpublications/prb0910-e.pdf).
Masse, Claude. Loi sur la protection du consommateur: analyse et commentaires. Cowansville, Qué.: Yvon Blais, 1999.
APPEALS from a judgment of the Quebec Court of Appeal (Forget, Dalphond and Bich JJ.A.), 2012 QCCA 1396, [2012] R.J.Q. 1541, [2012] AZ‑50881449, [2012] Q.J. No. 7428 (QL), 2012 CarswellQue 14792, setting aside in part a decision of Gascon J., 2009 QCCS 2764, [2009] AZ‑50560820, [2009] J.Q. no 5771 (QL), 2009 CarswellQue 6515. Appeals by the Bank of Montreal, Citibank Canada, the Toronto‑Dominion Bank and the National Bank of Canada dismissed and appeal by Réal Marcotte and Bernard Laparé allowed in part.
Mahmud Jamal, Sylvain Deslauriers, Silvana Conte, Alberto Martinez, W. David Rankin, Anne‑Marie Lizotte and Alexandre Fallon, for the appellants/respondents the Bank of Montreal, Citibank Canada, the Toronto‑Dominion Bank and the National Bank of Canada, and for the respondents the Amex Bank of Canada, the Royal Bank of Canada, the Canadian Imperial Bank of Commerce, the Bank of Nova Scotia and the Laurentian Bank of Canada.
Bruce W. Johnston, Philippe H. Trudel, André Lespérance and Andrew E. Cleland, for the respondents/appellants Réal Marcotte and Bernard Laparé.
Jean‑François Jobin, Francis Demers and Samuel Chayer, for the respondent/intervener the Attorney General of Quebec.
Marc Migneault and Joël Simard, for the respondent/intervener the President of the Office de la protection du consommateur.
Bernard Letarte and Pierre Salois, for the respondent/intervener the Attorney General of Canada.
Janet E. Minor and Robert A. Donato, for the intervener the Attorney General of Ontario.
Robert J. Normey, for the intervener the Attorney General of Alberta.
John B. Laskin and Myriam M. Seers, for the intervener the Canadian Bankers Association.
The judgment of the Court was delivered by
Rothstein and Wagner JJ. —
I. Introduction
[1] Credit cards are so ubiquitous and commonly used that their many conveniences have become easy to overlook. One such convenience is the ability to use a credit card provided by a Canadian issuer to make purchases in foreign currencies. This conversion service presents an alternative to exchanging Canadian currency for foreign currency, purchasing and cashing traveller’s cheques, or withdrawing foreign currency using a bank convenience card.
[2] The present case and its companion cases, Marcotte v. Fédération des caisses Desjardins du Québec, 2014 SCC 57, [2014] 2 S.C.R. 806, and Amex Bank of Canada v. Adams, 2014 SCC 56, [2014] 2 S.C.R. 788, are appeals of decisions on the merits of three class actions. The class actions were launched to seek repayment of the conversion charges imposed by several credit card issuing financial institutions on credit card purchases made in foreign currencies primarily on the basis that the conversion charges violated Quebec’s Consumer Protection Act, CQLR, c. P-40.1 (“CPA”). The financial institutions argue that the CPA does not apply to them due to the Constitution Act, 1867 and that no repayment of the conversion charges is owed, regardless of the manner in which the conversion charge was disclosed in the credit card contracts.
[3] For the reasons below, we conclude that the CPA does apply to the credit card issuers. Any conversion charge imposed by an issuer without sufficient disclosure to the cardholder must be repaid.
II. Facts
[4] A list of definitions of all technical terms used in these reasons is set out in the Appendix.
A. Overview of Credit Cards and Conversion Charges
[5] A simplified domestic credit card payment involves four parties: the cardholder, the merchant, the card issuer (typically a bank, credit union, or store), and the credit card company (Visa, MasterCard and American Express). The payment proceeds as follows:
1. The cardholder presents his credit card to the merchant.
2. The merchant sends the credit card information to the card issuer for authorization.
3. Once authorized, the merchant charges the purchase to the card.
4. The card issuer pays the merchant the amount charged minus the interchange fee, a rate set by the credit card company but retained by the card issuer.
5. The card issuer pays the credit card company a network access fee per transaction. The network access fee is less than the interchange fee.
6. The cardholder pays the card issuer.
(J. Bulmer, “Payment Systems: The Credit Card Market in Canada”, Library of Parliament, background paper PRB 09-10E, September 24, 2009 (online))
For the sake of simplicity, the role of payment processors, which are corporations that act as middlemen between merchants and card issuers, has been omitted from this description as payment processors are not relevant to these appeals.
[6] A credit card provided by a Canadian card issuer can be used to make purchases in a foreign currency. The conversion is performed by the credit card company and proceeds as follows:
1. The purchase amount is converted from the foreign currency to Canadian dollars according to the interbank rate. The conversion occurs either directly or by first converting the purchase amount to U.S. dollars, then converting that amount to Canadian dollars.
2. The conversion charge is calculated by applying the conversion charge percentage rate to the amount resulting from the first step.
3. The amount from the first step and the conversion charge are added together and charged to the card. The monthly statement displays the total amount.
B. Cardholder Agreements
[7] There are numerous cardholder agreements at issue in the present appeals. Each card issuer provides multiple cards. The cardholder agreements for these cards have changed over the years. However, the cardholder agreements fall into two groups: (1) those that state that an exchange rate or a conversion rate is applied to purchases in foreign currencies and either do not mention the conversion charge or do not provide details about it, and (2) those that describe the conversion charge in addition to the exchange rate. An example of a group 1 provision is found in a Citibank MasterCard cardholder agreement that reads as follows:
Charges Made in Foreign Currency: If you make a purchase or obtain a cash advance (or return a purchase) in a foreign currency, your account will be charged (or credited for a return) in Canadian dollars. We will use a rate of exchange that reflects the cost of foreign funds at the time of the transaction and an administration charge for the transaction handling through the MasterCard International Incorporated network. These costs will be included for both credits and debits to your account. [Emphasis added.]
By contrast, an example of a group 2 provision is found in a Royal Bank of Canada Visa cardholder agreement that reads as follows:
Foreign Currency Fee: [The card issuer] will charge a currency conversion fee equal to 1.8% of the amount of any Debt or other transaction not incurred in Canadian dollars. [The card issuer] will convert this Debt or other transaction and fee to Canadian dollars at [its] conversion cost in effect on the day [it] post[s] the converted Debt or other transaction and fee to the Account. [Emphasis added.]
[8] Cardholders receive information about their credit card through the initial application, the cardholder agreement, the “card carrier” used to deliver the card to its holder, monthly statements, and updates and amendments to the cardholder agreement.
C. Procedural History
[9] Réal Marcotte was the proposed representative plaintiff in the April 17, 2003 application for authorization (the civil law equivalent of “certification” in common law class actions) to institute a class action against the Bank of Montreal (“BMO”), Amex Bank of Canada (“Amex”), Royal Bank of Canada (“RBC”), Toronto-Dominion Bank (“TD”), Canadian Imperial Bank of Commerce (“CIBC”), Bank of Nova Scotia (“Scotiabank”), National Bank of Canada (“NBC”), Laurentian Bank of Canada (“Laurentian”) and Citibank Canada (collectively referred to hereafter as “Banks”), along with the Fédération des caisses Desjardins du Québec (“Desjardins”) (the “BMO Action”). Mr. Marcotte is a BMO and Desjardins cardholder. Bernard Laparé, who is an Amex cardholder, was added as a representative plaintiff after Amex made a motion for dismissal on the basis of Mr. Marcotte’s lack of standing against it (Mr. Marcotte and Mr. Laparé are collectively referred to hereafter as the “Plaintiffs”). Amex was the only Bank to make such a motion.
[10] Mr. Marcotte filed a separate class action against Desjardins, a credit union (the “Desjardins Action”), after the Banks indicated that they would make a constitutional argument based on the s. 91(15) federal banking head of power in the Constitution Act, 1867 . The hearing on the merits for the BMO and Desjardins Actions was held jointly. The Banks agreed not to contest the authorization of the class action in return for having a joint hearing, though they reserved the right to raise the issue of the Plaintiffs’ lack of standing against the Banks with which they did not hold a card.
[11] A year and a half after the Plaintiffs filed suit against the Banks and Desjardins, a second class action was commenced against Amex (the “Amex Action”). Unlike the BMO and Desjardins Actions, the class in the Amex Action included consumer and non-consumer holders of credit and charge cards. The same trial judge, Gascon J., as he then was, heard the BMO, Desjardins and Amex Actions, with the Amex Action hearing on the merits taking place soon after the joint hearing in the BMO and Desjardins Actions. All three trial judgments were rendered on the same day.
III. Judicial History
[12] Although separate trial and appeal judgments were rendered for the BMO, Desjardins and Amex Actions, the judgments refer to each other on many occasions. The summaries below concern the trial and Court of Appeal judgments for the BMO Action but refer to the judgments rendered for the Desjardins and Amex Actions where appropriate.
A. Quebec Superior Court, 2009 QCCS 2764 (CanLII)
[13] Gascon J. refused to dismiss the class action on the basis that the Plaintiffs do not have standing to sue all of the Banks. He held that once a class action has been authorized, it must be viewed from the perspective of the class rather than that of the representative plaintiff. In this case, the legal and factual backgrounds at issue were common to all the Banks. Therefore, requiring a separate class action against each Bank would be a waste of resources, whereas allowing the BMO Action to proceed would result in no identified prejudice to the Banks.
[14] Gascon J. concluded that the conversion charges are “credit charges” within the meaning of s. 69 of the CPA. Under the CPA, any charge that is not net capital is a credit charge. Gascon J. found that the evidence did not support the theory that the conversion charges are net capital since the foreign merchant never receives the conversion charge and it is not part of the exchange rate. Instead, the evidence demonstrated that the conversion charge is a fee for services related to the credit card and therefore a credit charge. It is the credit card companies, not the credit card issuers, that perform the actual conversion. Credit charges under the CPA include accessory fees in addition to fees directly related to the extension of credit.
[15] Gascon J. made a finding of fact that five of the Banks — BMO, NBC, Citibank, TD and Amex (the “Group A Banks”) — failed to disclose the conversion charges. The Plaintiffs did not challenge the disclosure made by the four other banks — RBC, CIBC, Scotiabank and Laurentian (the “Group B Banks”). Gascon J. held that payment of the conversion charges by cardholders does not constitute a waiver of their right of action or of the protection of the CPA.
[16] According to Gascon J., the prescription period for cardholders of the Group B Banks who formed their initial contract before April 17, 2000 — three years before the class action was filed — had not run out because a new contract is formed every time a credit card is renewed. Prescription for cardholders of the Group A Banks was suspended until those banks began to disclose the charges.
[17] Gascon J. rejected the Banks’ constitutional argument that the CPA does not apply to them due to the doctrine of interjurisdictional immunity, concluding that credit card contracts are not at the core of banking activities and the CPA does not interfere with the federal banking regime. He also rejected the similar argument based on the doctrine of paramountcy, concluding that there was no operational conflict or frustration of federal purpose.
[18] Reimbursement of the conversion charges, as provided for in s. 272 of the CPA, was ordered as the appropriate sanction. Where possible, Gascon J. ordered collective recovery of all conversion charges imposed during the class periods, meaning each Bank must repay all conversion charges in a lump sum. Individual recovery was ordered where there was insufficient evidence to support collective recovery, meaning each class member would have the right to claim repayment of the conversion charges they paid during the relevant period. This was the case for cardholders of the Group B Banks as a result of the different prescription periods that applied to each cardholder depending on when they first renewed their cards after April 17, 2000. Individual recovery was also ordered against TD, which failed to provide sufficient evidence that would have permitted collective recovery. The five Group A Banks were additionally required to pay $25 per class member as punitive damages for failing to disclose the conversion charge.
B. Quebec Court of Appeal, 2012 QCCA 1396 (CanLII)
[19] Dalphond J.A. upheld Gascon J.’s conclusion that the Plaintiffs were adequate representative plaintiffs against all of the Banks. Dalphond J.A. held that permitting such class actions to proceed accorded with the general provisions of the Quebec Code of Civil Procedure, CQLR, c. C-25 (“CCP”), some of which allow people to sue on behalf of another party, and with the spirit of Book IX of the CCP, which governs class actions. What is needed by the representative plaintiff is not a personal legal interest, but sufficient interest. The quality of the representative plaintiff is distinct from the interest of the represented members. As long as there is a real sub-group of members for each defendant, a defendant cannot move to dismiss the action against them on the basis of the authorized representative having insufficient legal interest. Here, the class action was authorized with Mr. Marcotte and Mr. Laparé as its representative plaintiffs. The Banks’ argument on this issue attacked the quality of the representative plaintiffs, not whether there was a real sub-group of members for each Bank, and was rightly dismissed at trial.
[20] Dalphond J.A. agreed that neither interjurisdictional immunity nor paramountcy prevent the CPA from applying to the Banks. The credit offered through credit cards does not fall under s. 91(15) of the Constitution Act, 1867 . Paramountcy applies to complaints made to the Office de la protection du consommateur against banks — only the Financial Consumer Agency of Canada (“FCAC”) has the authority to receive customer complaints against banks — but in light of the fact that conversion charges constitute net capital, the federal and provincial schemes work together harmoniously. The civil remedies in the CPA and the Civil Code of Québec (“CCQ”) remain available.
[21] As explained by Dalphond J.A. in his judgment in the Desjardins Action, the conversion charges constitute net capital under the CPA and not credit charges. The CPA classifies all fees tied to a contract extending variable credit (such as a credit card contract) as either net capital or credit charges. Credit charges are fees imposed to access credit either in the lead up to obtaining a credit card, such as membership fees, or subsequent to using the credit, such as interest or insurance premiums. Other fees imposed in the context of a credit card contract, such as fees for a copy of a lost monthly statement or to withdraw money from the ATM of another financial institution, are not credit charges. They, like conversion charges, are fees charged in exchange for a service the cardholder has chosen to use, not to access the credit.
[22] According to Dalphond J.A., classifying conversion charges as credit charges would have consequences contrary to the purpose of the CPA. The annual percentage credit rate that the CPA requires be disclosed to consumers on the credit card contract would vary between 18% and 900%, information more likely to confuse consumers than inform them. The 21-day grace period would apply to conversion charges so that customers who pay their balance before that time would not have to pay the conversion charge. As a result, card issuers would have to fund the conversion service by raising the membership fee or the general credit rate, resulting in cardholders being charged a hidden fee for a service that only some use. Dalphond J.A. concluded that conversion charges must be classified as net capital as they are [translation] “charges invoiced for the use, at the consumer’s choice, of a service that is ancillary to the [credit] card and unconnected to the actual issuance of credit in Canadian dollars that is available under the [credit card contract]” (2012 QCCA 1395 (CanLII), at para. 60).
[23] Applying the conclusion in the Desjardins Action to the BMO Action, Dalphond J.A. noted that under the Bank Act, S.C. 1991, c. 46 , conversion charges are not included in the borrowing costs or borrowing rate defined in the federal scheme. As a result, he allowed the appeals brought by the Group B Banks, who were found at trial to have disclosed the conversion charge to cardholders.
[24] For the reasons given by Dalphond J.A. in the Amex Action, the Group A Banks were held to have breached both the CPA and the CCQ by not disclosing the conversion charge to cardholders. In the Amex Action, Dalphond J.A. applied the finding at trial that Amex had not disclosed the conversion charges in contravention of the CPA, the general principles of law found in the CCQ, and s. 452 of the Bank Act . Dalphond J.A. agreed with the trial judge that the conversion charge was not a component of the exchange rate but was instead a fee or cost for a service. For a 10-year period, neither the credit card contracts used by Amex nor common usage imposed an obligation to pay the conversion charge on cardholders. As a result, the receipt of a payment not due provisions permitted recovery of the amounts paid. The fact that the conversion charge rate was reasonable and competitive was held to be insufficient cause for refusing to order restitution. Refusing to grant restitution is a discretionary decision of the trial judge, and “Amex has failed to show that the trial judge did not exercise his discretion judiciously” by “showing that there was a palpable and overriding error in his assessment of the situation” (2012 QCCA 1394, [2012] R.J.Q. 1512, at paras. 47 and 50).
[25] As a result, in the Amex Action, Amex was ordered to repay the conversion charges collected during the period of non-disclosure on a collective recovery basis to the defined classes. Similarly, in the BMO Action, BMO, NBC and Citibank were ordered to repay the conversion charges collected during the relevant periods on a collective recovery basis. TD was ordered to repay the conversion charges on an individual recovery basis because it provided insufficient evidence to determine the total amount of conversion charges imposed during the relevant period. The Court of Appeal overturned the amount awarded against Amex in the BMO Action, stating that that amount was entirely covered by the amount awarded against Amex in the Amex Action. Punitive damages were only awarded against TD in light of its failure to provide evidence that would have permitted collective recovery. The punitive damages against the other Group A Banks were overturned because collective recovery already has an important punitive aspect and ordering punitive damages would serve no preventive purpose.
[26] Dalphond J.A. concluded by dismissing waiver, prescription and the absence of prejudice as grounds for refusing to grant restitution against the Group A Banks. The cardholders could not have waived their right to dispute the conversion charges by paying off their accounts because the conversion charges were not disclosed to the cardholders and waivers can only be made with full knowledge. Prescription only began to run when the Group A Banks’ failure to disclose the conversion charges was discovered. The absence of prejudice is irrelevant since the Group A Banks had no legal right to impose the conversion charges and restitution would not grant an undue advantage to the cardholders.
[27] In the BMO Action, the Group A Banks and the Plaintiffs appeal the decision of the Court of Appeal before this Court. The Banks appeal Dalphond J.A.’s conclusion that interjurisdictional immunity and paramountcy do not apply, that the conversion charges imposed by the Group A Banks should be reimbursed, and that the Plaintiffs had standing against all of the Banks. The Plaintiffs appeal Dalphond J.A.’s conclusion that the conversion charges are net capital and not credit charges. Leave was granted by this Court for both appeals on April 11, 2013, along with the appeals in the Desjardins and Amex Actions ([2013] 2 S.C.R. v, vi and x).
IV. Issues
[28] This appeal raises the following issues:
(a) Do the representative plaintiffs have standing to bring a class action against all of the Banks, including those against which they do not have a personal right of action?
(b) Are the conversion charges net capital or credit charges under the CPA?
(c) Are ss. 12 and 272 of the CPA constitutionally inapplicable in respect of bank-issued credit cards by reason of the doctrine of interjurisdictional immunity?
(d) Are ss. 12 and 272 of the CPA constitutionally inoperative in respect of bank-issued credit cards by reason of the doctrine of federal paramountcy?
(e) What remedies, if any, are owed to the class members?
V. Analysis
A. The Representative Plaintiffs Have Standing
[29] The five Group A Banks argue that the trial judge and Court of Appeal erred in finding that the Plaintiffs had standing to bring this class action. The Banks argue that the Court of Appeal decision conflicts with arts. 55 and 59 of the CCP, which respectively require plaintiffs to have a “sufficient interest” and a “common interest” in the action. The Group A Banks rely on Bouchard v. Agropur Coopérative, 2006 QCCA 1342, [2006] R.J.Q. 2349, for the proposition that a representative plaintiff in a class action must have a cause of action against each defendant. They submit that the Court of Appeal’s decision has replaced Agropur’s clear rule with “an elastic, case-by-case knowledge test” (Banks A.F., at para. 111).
[30] The Plaintiffs, Mr. Marcotte and Mr. Laparé, counter that Agropur does not apply for two reasons: first, it was decided at the authorization stage, and second, this case falls into an exception to Agropur created by the Court of Appeal in Regroupement des CHSLD Christ-Roi (Centre hospitalier, soins longue durée) v. Comité provincial des malades, 2007 QCCA 1068, [2007] R.J.Q. 1753. They further argue that the CCP allows a person to act on behalf of others, that the banks have not suffered any prejudice from the current arrangement, that the Court of Appeal’s position is shared by most Canadian jurisdictions, and finally, that the Banks’ position would lead to a waste of judicial resources.
[31] That the Banks’ position would lead to a waste of juridical resources is true, as echoed by the statement of the trial judge: [translation] “. . . this would all have been done for nothing, and such a con