Canada: Misleading Representations In Advertising Campaigns: Further Guidance From The SCC

Last Updated: March 15 2012
Article by Veronika Pidskalny

Edited by Brian Fraser and Susan Vogt

On February 28, 2012, the Supreme Court of Canada (SCC) rendered its decision in Richard v. Time Inc., 2012 SCC 8. The primary issue addressed by the SCC in this decision was whether the respondents, Time Inc. and Time Consumer Marketing Inc., violated the Québec Consumer Protection Act (Act) in their "Official Sweepstakes Notification," which was mailed to potential consumers. In discussing this issue, the SCC provided valuable guidance as to the characteristics that are relevant in determining whether a commercial representation is false or misleading.

By way of background, in August of 1999, the appellant received the respondents' Notification in the mail. The document was in the form of a letter, was in English only, was addressed to the appellant and was signed by Elizabeth Matthews, director of sweepstakes. The document contained several exclamatory sentences in bold, uppercase letters, the first of which suggested that the recipient had won a large cash prize. Conditional clauses in smaller print were found throughout the document and informed the recipient, for instance, that they had to have the grand prize winning entry and had to return the reply coupon by the deadline. The document also referred to various benefits the recipient could receive if he decided to subscribe to Time magazine at the same time as he validated his entry. Included with the Notification was an "official entry certificate" and a return envelope on which the official rules of the sweepstakes appeared in small print. The official rules provided that a winning number had been pre-selected by computer and that the holder of the number could receive the grand prize only if the reply coupon was returned by the deadline, failing which the grand prize winner would be selected by random draw from among all returned reply coupon entries.

The appellant testified that, after reading the document twice and obtaining a second opinion from the vice-president of the company he worked for, he was convinced that he had won the large cash prize and immediately returned the reply coupon. In doing so, he also subscribed to Time magazine for two years, which entitled him to receive a free camera and photo album as indicated in the notification. Although he received the camera, photo album, and his regular issues to the magazine, the appellant soon discovered that he would not be receiving the cash prize, as he did not have the winning entry for the draw. He was also informed during his attempts to contact the respondents for his prize that "Elizabeth Matthews" did not exist and that the name was merely a pen name used by the respondents in their advertising material.

The Judicial History

The appellant filed a motion to institute proceedings in the Québec Superior Court, seeking a declaration that he was the winner of the large cash prize and compensatory and punitive damages corresponding to the value of the grand prize. Although the Superior Court found that the parties had not entered into a contract, and accordingly declined to order payment of the prize, the Superior Court awarded $1,000 for moral injuries suffered by the appellant and punitive damages in the amount of $100,000.

Although affirming the Superior Court's decision with respect to the payment of the prize, the Québec Court of Appeal set aside the award of compensatory and punitive damages. The Court of Appeal concluded, among other things, that the respondents had not violated the Act by failing to indicate clearly in the document that the appellant may not be the grand prize winner and that the use of a "pen name" was simply intended to "personalize" the mailings and did not, on its own, have the potential to mislead consumers about the merchant's identity. Further, the Court of Appeal concluded that there were no false or misleading representations in the document and that, essentially, it was up to consumers to be suspicious of advertisements that seemed too good to be true. In doing so, the Court of Appeal considered the "average consumer" to be one with "an average level of intelligence, scepticism and curiosity."

The Test According to the SCC

The Supreme Court noted that one of the main objectives of Title II of the Act is to protect consumers from false or misleading representations and noted (with reference to the decision of the Ontario County Court in R. v. Colgate-Palmolive Ltd., a case involving the federal Competition Act) what the Supreme Court characterized as a legislative intent to move away from the maxim caveat emptor (let the buyer beware) to the more "enlightened view" of caveat venditor (let the seller beware).

In determining whether a representation is to be considered a prohibited practice under Section 218 of the Act, two factors must be considered: the "general impression" given by the representation and the "literal meaning" of the words used. These factors must be considered from the perspective of the "average consumer."

The General Impression

With respect to the "general impression" conveyed by a representation, the SCC concluded the following:

  • The "general impression" must be analyzed in the abstract, without consideration of the personal attributes of the consumer bringing the proceedings.
  • The entire advertisement must be taken into account, rather than merely portions of its contents.
  • Considerable importance must be attached not only to the text but also to the entire context, including the way the text is displayed to the consumer.
  • The test is that of "first impression." However, it is not the impression formed as a result of a rushed or partial reading of an advertisement, nor does it involve the minute dissection of the entire text.

In summary, with respect to false or misleading advertising, the SCC concluded that the "general impression is the one a person has after initial contact with the entire advertisement, and it relates to both the layout of the advertisement and the meaning of the words used."

The Literal Meaning

With respect to the "literal meaning" of the terms used, the SCC noted that this factor requires that every word in the representation be interpreted in its ordinary sense, thus preventing merchants from raising a defence based on a subtle, technical or convoluted meaning of a word used in a representation.

The "Average Consumer" Perspective

The general impression conveyed by a representation must be considered from the prospective of the "average consumer." In this regard, the SCC concluded the following:

  • The definition of the "average consumer" set out by the Court of Appeal — that of a consumer with "an average level of intelligence, scepticism and curiosity" — is inconsistent with the Act and should not be applied.
  • The "average consumer" is not a reasonably prudent, diligent or well-informed person.
  • Section 218 requires consideration of the general impression test from a perspective similar to that of an "ordinary hurried purchaser," a consumer who would take no more than ordinary care to observe that which is staring him in the face upon his first contact with an advertisement.
  • The "average consumer" is best described as "credulous and inexperienced" for the purposes of the Act. He is prepared to trust merchants on the basis of the general impression conveyed to him by an advertisement, but is capable of understanding the literal meaning of the words used as long as the general layout of the advertisement does not render the words unintelligible.

The Test Applied

The SCC agreed with the Superior Court that, even if the respondents' marketing materials did not necessarily contain any false statements, the documents were misleading and conveyed the general impression that the appellant had won the large grand prize. The SCC highlighted several factors that were relevant to its decision, including the following:

  • The affirmations and restrictions contained in the documents were not clear or intelligible enough to dispel the general impression conveyed by the most prominent sentences. It was highly likely that the average consumer would conclude that the appellant held the winning entry and only had to return his reply coupon to collect his prize.
  • The Notification referred to the appellant as the sweepstakes winner and listed his name with other real or fictitious winners.
  • The Notification indicated, in several instances, that a cheque was about to be mailed to the appellant.
  • The number assigned to the appellant was referred to as the "Prize Claim Number," not as a contest participation number.
  • The contest rules were not readily apparent.

The SCC agreed with the Court of Appeal, however, that using a fictitious person as the signatory of the Notification letter did not constitute a prohibited practice under the Act.

Following an extensive discussion of the remedies available to the appellant, the SCC upheld the Superior Court's award of $1,000 in compensatory damages for moral injuries suffered by the appellant. The punitive damages award was reduced to $15,000.

Importantly, the SCC stated that, in addition to a merchant's conduct prior to a violation, how the merchant's attitude toward the consumer, and toward consumers in general, changed after the violation (if at all) will be taken into account when awarding punitive damages. Thus, two factors were significant to the SCC's decision to award punitive damages in this case: the violations by the respondents were intentional and calculated as the conditional wording was specifically designed to mislead the recipient; and following the appellant's complaint, the respondents took no corrective action to make their advertising clear or consistent with the Act.

The full written decision in Richard v. Time Inc. can be viewed here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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