is a ruling of the Supreme Court of Canada. Together with and (collectively known as the Marcotte trilogy'''), it represents a further development in Canadian constitutional jurisprudence on the doctrines of interjurisdictional immunity and paramountcy, together with significant clarifications on the law concerning class actions in the Province of Quebec, which is similar to that in operation in the common law provinces.
Background In Canada, holders of credit cards are allowed to use them to make purchases in foreign currency, and the conversion of the purchase price into Canadian dollars follows a similar pattern among all card issuers:Marcotte (BMO) (SCC), par. 67
Conversion from the foreign currency through the interbank rate. Application of a conversion charge by the issuer, which is disclosed by only some issuers to the cardholder. Inserting the total amount of the transactions onto the cardholder's monthly statement.
In April 2003, Réal Marcotte applied to the Superior Court of Quebec for authorization to launch a class action against several financial institutions:
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 Fédération des caisses Desjardins du Québec
Marcotte alleged that the defendants, contrary to the Consumer Protection Act in Quebec, failed to disclose the conversion charges as part of their "credit charge" as defined under the Act, which would have allowed cardholders who make payments before the due date to do so without paying such charge. In addition, he asserted that five of the banks failed to disclose the existence of the conversion charge, which was also in breach of the Act. It was estimated that the total amount of the charges in question was over $242 million.Marcotte (BMO) (QCCS), par. 15
The class action became a group of three because of procedural considerations:
Amex sought to be removed because Marcotte was not an American Express cardholder. Bernard Laparé, who was, joined as co-representative and co-plaintiff. Amex, relying on a ruling of the Quebec Court of Appeal that questioned the validity of the class action, sought to be removed from the action, but its application was dismissed. The Desjardins part of the action was separated, as the other banks (who were established under the Bank Act) sought to raise constitutional issues relating the relationship between the Bank Act and the Consumer Protection Act. The main action and the Desjardins action were heard jointly, on application of the parties. Sylvan Adams instituted a separate class action against Amex with respect to the same issues but also asserted that restitution was due to all cardholders even if they were not consumers. This case was heard by the same judge that presided over the other actions.Marcotte (BMO) (QCCA), par. 28
The defendants sought to have the actions dismissed on several grounds:Marcotte (BMO) (QCCS), par. 6785
All banks other than BMO and Amex sought to be removed from the action, as Marcotte and Laparé had no direct connection since they held no cards issued by them. The conversion charges were not "credit charges" as defined by the CPA, but instead fell within the definition of "net capital". Five of the banks, which did not specifically disclose the conversion charge in their cardholder agreements, submitted that the charge was related to the exchange rate and not the interest rate posted on the monthly statements. The plaintiffs did not challenge the disclosure made by the four other banks. In any case, all banks submitted that, by paying their balances in full each month, cardholders extinguished any rights they may have had in the matter. For any accounts created before 17 April 2000 (three years before the commencement of the action), the rules concerning prescription would provide that those cardholders were statute-barred from participating in the action. The constitutional doctrines on interjurisdictional immunity and paramountcy meant that the COA did not apply, as the Act attempted to regulate activity that fell under the federal banking power, and it conflicted with existing federal legislation. In the event that these doctrines did not apply, the Code of Civil Procedure in Quebec did not support a claim for punitive damages in the action. The claims for reimbursement and punitive damages were not capable of being calculated with precision.
In its separate proceeding, Amex asserted essentially the same grounds. In its case, Desjardins submitted that payments by credit card fall within the federal power over bills of exchange, and is thus protected under interjurisdictional immunity and paramountcy grounds.
Superior Court Gascon J (as he then was), in decisions released on the same day, found for the plaintiffs in all three actions. In reasons that were closely interlinked, he held:
Case Ruling Once a class action has been authorized, it must be viewed from the perspective of the class rather than that of the representative plaintiff. Conversion charges are "credit charges" within the meaning of s. 69 of the CPA. They did not constitute "net capital" since the foreign merchant never receives the conversion charge and it is not part of the exchange rate. A finding of fact was made that the Group A banks failed to disclose the conversion charges. In addition, payment of the conversion charges by cardholders does not constitute a waiver of their right of action or of the protection of the CPA. The prescription period for cardholders of the Group B Banks who formed their initial contract over three years before the class action was filed had not run out, as a new contract is formed every time a credit card is renewed. Prescription for cardholders of the Group A Banks was suspended until the banks began to disclose the charges. The banks' constitutional arguments were rejected. Credit card contracts are not at the core of banking activities so the CPA does not interfere with the federal banking regime, and there was no operational conflict or frustration of federal purpose. Reimbursement of the conversion charges was ordered as the appropriate sanction. Collective recovery was ordered, as well as individual recovery against TD and the Group B banks. The Group A banks were also assessed punitive damages of $25 per class member for failing to disclose the conversion charge. For the same reasons as in BMO, conversion charges were held to be credit charges under the CPA, and their payment by cardholders did not constitute a waiver of their right to reclaim the charges. Only conversion charges imposed pursuant to contracts that were formed after April 17, 2000 were not subject to prescription, but it was held that renewing a credit card, which occurs every three years for Desjardins cardholders, results in a new contract being formed, which restarts the prescription period. Desjardins adequately disclosed the conversion charges both before and after April 1, 2006and so was not in breach of sections 12 or 219 of the CPA. Payment by credit card is not an activity that falls under the bills of exchange power and so interjurisdiction immunity cannot be invoked. In addition, paramountcy is not a concern, as no evidence was given of any federal law that may be frustrated by the CPA. Punitive damages were not assessed against Desjardins because of the extent of the reparation for which it is already liable, the fact that its conduct was not reprehensible, the usefulness of the conversion service, and the exceptional nature of punitive damages. Amex's argument that Adams lacked standing to bring the class action was rejected. It is irrelevant whether he knew about the conversion charge during the class period or whether a third party paid his monthly account. Conversion charges were not part of the exchange rate. The cardholder agreement disclosed its existence separately, and the Financial Consumer Agency of Canada also treats such charges as being separate from the exchange rate. Amex violated the general disclosure requirement imposed by s. 12 of the CPA, as well as. 219, which forbids the making of "false or misleading representations to a consumer." However, from March 2003 Amex was in compliance with those provisions. Repayment of all conversion charges collected from consumer cardholders from March 1, 1993 to March 1, 2003, was ordered under section 272 of the CPA, which provides remedies for violations of the Act's general obligations (such as s. 12). As in BMO, prescription did not bar the claims of any cardholders, and a new contract is formed when cardholders renew their cards. Amex's constitutional claims also fell for the same reasons expressed in BMO. All cardholders, both consumers and non-consumers, are owed restitution of the conversion charges imposed during the period of nondisclosure. It was ordered on a collective basis in the amount of $9,561,464 for consumer cardholders and $3,536,432 for non-consumer cardholders. Punitive damages to consumer cardholders were awarded on a collective basis under section 272 of the CPA, because of Amex's behaviour in the matter.
Court of Appeal The appeals produced varying results. In his reasons, Dalphond JA held:
Appeal Ruling The appeal was allowed and the order against Amex set aside in part. The doctrines of interjurisdictional immunity and paramountcy did not apply to render the CPA inapplicable or inoperative, particularly since, unlike in BMO and Desjardins, Adams did not argue that the conversion charges were credit charges under the CPA. As a finding of factor oe a question of mixed law and fact, Gascon J's order for restitution must stand, as Amex failed to demonstrate a palpable and overriding error. The award of punitive damages was overturned, as the trial judgment failed to consider the punitive aspect inherent in collective recovery. The appeal was allowed and the order against Desjardins set aside. As explained in BMO, conversion charges were held to constitute "net capital" within the meaning of the CPA. To hold otherwise would have consequences contrary to the purpose of the Act. Even if such charges were held to be "credit charges", the appropriate remedy was to be found in section 271 of the Act (the court could refuse to order repayment if the consumer has suffered no prejudice), and section 272 does not apply. It was agreed that the doctrines of interjurisdictional immunity and paramountcy do not apply. The appeal was allowed and the order set aside in part. The Plaintiffs were adequate representative plaintiffs against all of the Banks. As noted in the general provisions of the Code of Civil Procedure, 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 in Desjardins, conversion charges were held to constitute net capital. Neither interjurisdictional immunity nor paramountcy prevents the CPA from applying to the Banks, as credit offered through credit cards does not fall under the federal banking power. Paramountcy does prevent the Office de la protection du consommateur from receiving complaints against banks, as only the Financial Consumer Agency of Canada can do so, but the federal and provincial law can work together harmoniously. As the Group B banks had disclosed their conversion charges, Desjardins was applied and the action against them was dismissed.