Advertising Update: Supreme Court Awards Compensatory and Punitive Damages in Misleading Contest Case

CANADIAN CONTEST RULES/PRECEDENTS

Do you need contest rules and forms for a Canadian contest/sweepstakes? I offer a selection of Canadian contest rules and forms for random draw, skill and other common types of Canadian contests (i.e., contest precedents and forms). For more information see Canadian Contest Forms/Precedents.

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On February 28, 2012, the Supreme Court of Canada awarded compensatory and punitive damages to a contest entrant for misleading claims in a contest mail-out (see: Jean-Marc Richard v. Time Inc. and Time Consumer Marketing Inc.).

The decision is interesting not only that a contest case made it to the Supreme Court, but that our highest court also allowed punitive damages.  The Supreme Court also had interesting comments in this Quebec Consumer Protection Act case regarding the importance of the “general impression” test for evaluating advertising (the “general impression” is also relevant in evaluating whether advertising is false or misleading under the federal Competition Act).

In this case, the plaintiff received an “Official Sweepstakes Notification” that suggested he won USD $833,337.  The prize notification letter included conditional clauses which began “If you have and return the Grand Prize winning entry in time” and information that the recipient would qualify for a $100,000 bonus prize if the entry was validated within five days.  The mailing also included the official rules in small print and an offer to subscribe to Time magazine.  The 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 (otherwise the prize winner would be selected by random draw from all eligible entries with odds of winning of about 1 in 120 million).

The plaintiff returned the coupon and subscribed to Time.  Though he began receiving his magazines, no cheque arrived.   Contacting Time, he was told that he would not be receiving a cheque, his document had not contained the winning entry for the draw and was merely an invitation to participate in the sweepstakes.

The plaintiff commenced proceedings in Quebec Superior Court to declare him the winner of the contest and seeking compensatory and punitive damages in the amount of the prize money.  The Superior Court allowed the action in part, holding that the prize mail-out contravened Title II of the Quebec Consumer Protection Act applied on prohibited business practices and that civil sanctions under the CPA were available.  The lower court judge awarded total damages of $101,000 ($100,000 in punitive damages).

The Quebec Court of Appeal in turn allowed Time’s appeal in part, finding that the CPA had not been violated on a number of grounds, including finding that Time had not failed to clearly disclose that the plaintiff may not be the grand prize winner.  The Court of Appeal also found that there were no false or misleading representations in the prize mail-out, given that, in the Court’s view, it would not mislead a consumer “with an average level of intelligence, skepticism and curiosity.”  The Court of Appeal accordingly set aside the lower Court’s judgment.

On further appeal, the Supreme Court allowed the appeal, set aside the Court of Appeal’s judgment and restored the Superior Court’s judgment in part ordering the defendants to pay the plaintiff $1,000 in compensatory damages and $15,000 in punitive damages (reducing the original punitive damage award from $100,000 to $15,000).  Costs at the Supreme Court were also awarded on a solicitor and client basis “because of the importance of the issues of law”.

The Supreme Court held, among other things, that the Court of Appeal erred in its analytical approach for establishing the general impression of the prize mail-out, which it held needed to be considered together with the literal meaning of the claims in a two-stage analysis.

The Court also held that the correct standard was that of the “average consumer, who is credulous and inexperienced and takes no more than ordinary care to observe that which is staring him or her in the face upon first entering into contact with an entire advertisement”:

“The analytical approach chosen by the Court of Appeal for establishing the general impression conveyed by the advertisement of T and TCM was inconsistent with the test adopted by the legislature.   According to s. 218 C.P.A., which guides the application of all the provisions of Title II concerning prohibited business practices, to determine whether a representation constitutes such a practice, it is necessary to consider the “general impression” given by the representation and, where appropriate, the “literal meaning” of the words used in it.  In the case of false or misleading advertising, the general impression is the 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.  It is analysed without considering the personal attributes of the consumer who has instituted proceedings against the merchant.  To be consistent with the legislature’s objective of protecting vulnerable persons from the dangers of certain advertising techniques, the general impression test must be applied from the perspective of the average consumer, who is credulous and inexperienced and takes no more than ordinary care to observe that which is staring him or her in the face upon first entering into contact with an entire advertisement.  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.  Defining the average consumer as having “an average level of intelligence, scepticism and curiosity” is inconsistent with the letter and the spirit of s. 218 C.P.A.  A court asked to assess the veracity of a commercial representation must engage, under s. 218 C.P.A., in a twostep analysis that involves — having regard, where appropriate, to the literal meaning of the words used by the merchant — (1) describing the general impression that the representation is likely to convey to a credulous and inexperienced consumer; and (2) determining whether that general impression is true to reality.  If the answer at the second step is no, the merchant has engaged in a prohibited practice.”

On the facts of this case, the Court held that an average consumer would have been under the general impression that they indeed had the winning entry and only had to return it to win the prize.

Importantly, the Court held that the various disclaimers in the mail-out were insufficient to dispel its overall general impression, which was, in its view, “riddled with misleading representations”.

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SERVICES AND CONTACT

I am a Toronto competition/antitrust lawyer and advertising/marketing lawyer who helps clients in Toronto, Canada and the US practically navigate Canada’s advertising and marketing laws and offers Canadian advertising/marketing law services in relation to print, online, new media, social media and e-mail marketing.

My Canadian advertising/marketing law services include advice in relation to: anti-spam legislation (CASL); Competition Bureau complaints; the general misleading advertising provisions of the federal Competition Act; Internet, new media and social media advertising and marketing; promotional contests (sweepstakes); and sales and promotions. I also provide advice relating to specific types of advertising issues, including performance claims, testimonials, disclaimers, drip pricing, astroturfing and native advertising.

For more information about my services, see: services

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