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Amex Bank of Canada c. Adams

2012 QCCA 1394

COURT OF APPEAL

 

CANADA

PROVINCE OF QUEBEC

REGISTRY OF

MONTREAL

 

No:

500-09-019842-095

(500-06-000262-044)

 

DATE:

 August 2, 2012

 

 

CORAM:

THE HONOURABLE

ANDRÉ FORGET, J.A.

PIERRE J. DALPHOND, J.A.

MARIE-FRANCE BICH, J.A.

 

 

AMEX BANK OF CANADA

APPELLANT - Defendant

v.

 

SYLVAN ADAMS

RESPONDENT - Plaintiff

and

ATTORNEY GENERAL OF CANADA

INTERVENER

and

ATTORNEY GENERAL OF QUEBEC

IMPLEADED PARTY - Intervener

and

LE PRESIDENT DE L’OFFICE DE LA PROTECTION  DU CONSOMMATEUR

IMPLEADED PARTY - Intervener

 

 

JUDGMENT

 

 

[1]           On appeal from a judgment of the Superior Court, District of Montreal, rendered on June 11, 2009 (the Honourable Mr. Justice Clément Gascon), which ordered to restore all conversion fees collected between 1993 and 2003 ($13,097,896) plus punitive damages ($2,500,000).

[2]           For the reasons of Dalphond, J.A., with which Forget and Bich, JJ.A. agree, the Court:

[3]           ALLOWS the appeal in part, without costs;

[4]           STRIKES paragraph 497 of the judgment of the Superior Court granting punitive damages, all other conclusions of the judgment being confirmed.

 

 

 

 

ANDRÉ FORGET, J.A.

 

 

 

 

 

PIERRE J. DALPHOND, J.A.

 

 

 

 

 

MARIE-FRANCE BICH, J.A.

 

Mtre Silvana Conte

Mtre Mahmud Jamal

Mtre Alexandre Fallon

Osler Hoskin Harcourt

For the Appellant

 

Mtre Peter Kalichman

Mtre Mathieu Bouchard

Mtre Catherine McKenzie

Irving Mitchell Kalichman

For the Respondent

 

Mtre Michel Miller

Mtre Jean-Robert Noiseux

Joyal Leblanc

For the Intervener

 

Mtre Jean-François Jobin

Mtre Francis Demers

Mtre Samuel Chayer

Bernard, Roy (Justice-Québec)

For the Impleaded party (Attorney General of Quebec)

 

Mtre Marc Migneault

Allard, Renaud et Associés

For the Intervener (le président de l’office de la protection du consommateur)

 

Date of hearing:

September 16, 2011


 

 

REASONS OF DALPHOND, J.A.

 

 

[5]           American Express credit cards and charge cards provide a convenient means to pay for goods and services purchased both in Canada and abroad. Between 1993 and 2003, unbeknown to the cardholders, using the cards to pay in foreign currency attracted a fee that was added to the conversion rate and included as part of the all-in amount billed in Canadian dollars (commission fee). The appellant seeks a reversal of an order to restore the amount collected during this period ($13,097,896) plus punitive damages ($2,500,000). The issue here is essentially about the consequences of failing to disclose to the other contracting party a relevant piece of information.

BACKGROUND

 

[6]           The principal products and services of American Express Company, a US company founded in 1850 and listed on the New York Stock Exchange, are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. American Express cards are accepted in over 140 countries. On its website, the Company describes itself as follows:

     At American Express, We:

  • are the world's largest card issuer by purchase volume
  • process millions of transactions daily as the premium network for high-spending card members
  • help small business owners succeed by delivering purchasing power, flexibility and financial control
  • provide commercial payment tools and expertise that help companies control their spending and save billions of dollars
  • offer marketing and information management insights that help merchants build their businesses
  • are customer loyalty experts with industry-leading rewards programs and platforms
  • operate the world’s largest travel network serving consumers and businesses.

[7]           The appellant, Amex Bank of Canada (Amex), is a wholly-owned subsidiary of American Express Travel Related Services Company, Inc. (TRS), itself a subsidiary of American Express Company. TRS is the overall network provider that electronically captures charges made by cardholders all over the world; determines on a daily basis the conversion rates for about 188 currencies, which are used the following day by the system; forecasts rates and hedges funds to cover liability in local currency to merchants. In fact, each time a cardholder uses an American Express card, credit or charge, a payment is made to the merchant shortly afterward by TRS that secures access to cash. The amount paid is charged to Amex and repaid by it to TRS.

[8]           Amex is a Schedule II bank under the Bank Act, S.C. 1991, c. 46. The issuance in Canada of American Express cards, either credit cards or charge cards[1], represents about 98% of its activities. Amex has no branches across Canada and its sole place of business is in Markham, Ontario. Once a month, the payments made by Amex to TRS on behalf of its cardholders are billed to them. Those holding charge cards must repay the full amount within the delay provided; those holding credit cards can repay in full or repay only a part and pay interest on the balance.

[9]           The evidence shows that when a card member uses his or her card abroad to pay in local currency for goods or services, TRS converts the amount paid to the merchant first into US dollars and then into Canadian dollars, using forecasted interbank rates. TRS also adds a conversion fee to the amount once it is converted into US dollars but before its conversion into Canadian dollars; the conversion fee varies according to the various categories of cards offered (currently between 2.2% and 2.5%). The all-in amount in Canadian dollars is then billed by TRS to Amex, which pays it and later collects it from the cardholder, assuming the risk of default. TRS does not share in any way with Amex the conversion fee (judgment appealed from at para. 153). On the monthly statement, the card member sees an all-in billed amount in Canadian dollars and the original amount in the local currency.

[10]        With respect to transactions in foreign currencies, Amex's cardholders' agreements contained the following clause between 1990 and March 1993:

Charges made in foreign countries

 

If you incur a Charge in a foreign currency, it will be converted into Canadian DollarsThe conversion rate used will be at least as favourable to you as the interbank rate, tourist rate, or where required by law, official rate, in effect within 24 hours of the time that the Charge is processed by us or by our authorized agents, plus 1% of the converted amount.  Amounts converted by establishments - such as airlines - will be billed at the rates such establishments use.

 

[Emphasis added]

 

Les frais engagés en monnaies étrangères seront convertis en dollars canadiensLe taux de conversion vous sera au moins aussi favorable que le taux interbancaire, le taux exigé des touristes ou, lorsque la loi l'oblige, le taux officiel en vigueur dans les 24 heures du traitement des frais par nous-mêmes ou par nos agents autorisés, plus 1 % du montant converti.  Les montants convertis par des établissements comme des lignes aériennes, vous seront facturés au taux utilisé par l'établissement.

 

[11]        In January 1993, Amex sent to the cardholders the following notice of amendment:

Effective March 1, 1993, the paragraph headed "CHARGES MADE IN FOREIGN COUNTRIES" in your Cardmember Agreement will be replaced by the following:

 

If you incur a Charge in a foreign currency, it will be converted into Canadian dollars at the exchange rate determined by us on the date when the Charge is processed by us or by our authorized agents.  This rate may differ from the rate in effect on the date of your Charge. Amounts converted by establishments - such as airlines - will be billed at the rates such establishments charge.

 

[Emphasis added]

 

 

Si vous portez à la Carte des frais en devises étrangères, ceux-ci seront convertis en dollars canadiens au taux de change que nous aurons déterminé à la date où nous ou nos représentants autorisés traitons l'opération. Ce taux peut différer de celui qui était en vigueur à la date où vous avez porté les frais à la Carte.  Les montants convertis par des établissements - comme des sociétés aériennes - vous seront facturés au taux utilisé par ces établissements.

 

[12]        As the trial judge pointed out, the evidence showed that Amex's practice did not change afterward as it continued to charge a 1% conversion fee; in fact, the fee was increased after August 1999 for various card products.

[13]        In December 2002, after an investigation, the Financial Consumer Agency of Canada (FCAC) concluded that the foreign exchange mark-up was a non-interest charge that needed to be disclosed in accordance with s. 452(2)(c) of the Bank Act and s. 12(1) of the Cost of Borrowing (Banks) Regulations, SOR/2001-101, which had come into effect on September 1, 2001. As a result, on March 18, 2003, the FCAC issued a public letter of reprimand to Amex.

[14]        In the interim, while maintaining that the conversion fee was a mark-up and not a non-interest charge, Amex agreed to comply. In February 2003, it sent the following notice to all its cardholders, personal and business:

 

Using your American Express Card Outside Canada?

 

To enhance our description of "Charges Made in Foreign Countries" this section of your Cardmember Agreement is replaced with the following:  "If you incur a Charge in a foreign currency, it will be converted into Canadian dollars at an exchange rate determined by us on the date processed by us or our authorized agents.  This rate may differ from the rate in effect on the date of your Charge.  This exchange rate includes a conversion rate adjustment as shown in the Disclosure Statement or as otherwise disclosed by us.  Amounts converted by establishments - such as airlines - will be billed at the rates such establishments charge.  The conversion rate adjustment is 2.2%.

 

[Emphasis added]

 

 

Vous utilisez votre Carte American Express à l'extérieur du Canada ?

 

Pour mieux décrire le traitement des opérations effectuées à l'étranger, l'alinéa de votre convention portant sur ce sujet se lit maintenant comme suit :  si vous effectuez des opérations en devisses étrangères avec la Carte, elles seront converties en dollars canadiens au taux de change que nous déterminons à la date où nous ou nos agents autorisés traitons l'opération.  Ce taux peut différer de celui qui était en vigueur à la date où vous avez porté l'opération à la Carte.  Ce taux de change inclut un rajustement du taux de conversion, comme nous l'indiquons sur la fiche d'information ou autrement.  Les montants convertis par des établissements - comme les sociétés aériennes - seront facturés au taux utilisé par ces établissements.  Le rajustement est de 2,2 %.

 

[15]        In September 2003, Amex further adjusted the wording contained in its personal and small business charge and credit card agreements, the whole in keeping with the American Express international language. The revised agreements include the following wording:

 

CHARGES MADE IN FOREIGN CURRENCIES

 

If you make a charge in a currency other than Canadian dollars that charge will be converted into Canadian dollars.  The conversion will take place on the date the charge is processed by us, which may not be the same date on which you made your charge as it depends on when the charge was submitted to us.  If the charge is not in U.S. dollars, the conversion will be made through U.S. dollars, by converting the charge amount into U.S. dollars and then by converting the U.S. dollar amount into Canadian dollars.  If the charge is in U.S. dollars, it will be converted directly into Canadian dollars.

 

Unless a specific rate is required by applicable law, you understand and agree that the American Express treasury system will use conversion rates based on interbank rates that it selects from customary industry sources on the business day prior to the processing date, increased by a single conversion commission as specified on your Disclosure Statement or as otherwise disclosed by us

 

[Emphasis added]

 

OPÉRATIONS EN DEVISES

 

 

Les opérations effectuées dans une autre monnaie que le dollar canadien sont converties en dollars canadiens.  La conversion s'effectue à la date à laquelle nous traitons l'opération, qui peut différer de celle à laquelle vous avez effectué l'opération, car celle-ci peut nous avoir été présentée à une autre date.  Les opérations effectuées dans une autre monnaie que le dollar américain sont d'abord converties en dollars américains, puis en dollars canadiens.  Les opérations effectuées en dollars américains sont converties directement et en dollars canadiens.

 

À moins qu'une loi applicable exige un taux particulier, vous comprenez et convenez que le système de trésorerie d'American Express utilisera les taux de conversion établis d'après un taux interbancaire qu'il choisit parmi les sources financières usuelles le jour ouvrable précédent la date du traitement de l'opération, majoré d'une commission unique de conversion, comme nous vous l'expliquons dans la fiche d'information ou autrement.       

 

 

[16]        However, it was not until December 2003 that Amex's monthly statements of accounts sent to its cardholders included a precise reference to the conversion fee being charged.

[17]        Since 1990, the respondent, Sylvan Adams, has been the holder of an American Express charge card issued by Amex. Most of the charges billed by Amex were paid in fact by his company, Iberville Developments. According to his testimony, he found out about the conversion fee only in the fall of 2004 when he was asked by lawyers to be a plaintiff and a class representative. He was then advised that the conversion fee charged between 1993 and 2003 was contrary to the Consumer Protection Act, R.S.Q., c. P-40.1 (CPA), and the Civil Code of Quebec (CCQ), and could possibly be claimed back. He agreed to become the class representative.

[18]        On November 26, 2004, Mr. Adams' lawyers filed a motion to institute a class action on behalf of all the card members who are residents of Quebec, both consumers (primary group) and non-consumers (secondary group), and sought a judgment against Amex ordering it to reimburse all the conversion fees charged between March 1, 1993 and December 31, 2003. During the relevant period, the commission varied from 1% to 2.2%. Mr. Adams claims that Amex hid the commission or conversion fee in violation of the CPA and the CCQ.

[19]        On November 1, 2006, Mr. Adams was authorised to institute the class action. The management of the file was given to Mr. Justice Gascon of the Quebec Superior Court, as he then was, who was also in charge of two related class actions, one against banks and the other against Fédération des caisses Desjardins du Québec, alleging the illegality of the conversion fees charged to MasterCard and Visa cardholders paying in foreign currencies.

[20]        The trial was held in December 2008 and lasted for seven and a half days devoted essentially to arguments. Only one witness was heard, a representative of Amex who explained the American Express card systems.

[21]        In a judgment released on June 11, 2009, the Superior Court granted the class action proceedings, ordered collective recovery and condemned Amex to reimburse $9,561,464 to the primary group members and $3,536,432 to the secondary group members. In addition, $2,500,000 were awarded in punitive damages to the members of the primary group.

JUDGMENT UNDER APPEAL

 

[22]        In a detailed judgment, the trial judge concluded that the commission is nothing but a fee, charge or cost added to the interbank exchange rate for the conversion process service and not a component of the applicable exchange rate:

 

[142]       When one considers all these elements revealed by the documentary or testimonial evidence, the argument raised by Amex, to the effect that the Commission is nothing more than a component of the exchange rate, is hardly convincing.

[143]       A rate is the basis of calculating an amount or value.  In this case, this has to be the rate at which Canadian dollars are traded in a foreign currency on any given day. 

[144]       This is quite distinct and separate from the Commission, the percentage of which is set in advance by Amex.  Not only does it not vary from day to day, it is not even the same from one card product to the other. 

[145]       On any given day, for each currency, it is the Commission that causes a variation between the all-in rates charged to the cardholders for the various Amex's card products. In comparison, the daily exchange rate of the currency remains the same for all types of Amex's card products.

[146]       To accept Amex's argument, one would have to conclude that an exchange rate does not mean the rate at which a currency is exchanged.  It should rather mean the rate at which a currency is exchanged, plus whatever Amex wishes to add to that. 

[147]       This is not acceptable.  Notably, considering the wording Amex itself uses in its cardholders' agreements.

[148]       In fact, when Amex argues that the Commission is part of the foreign exchange rate, it says so because it decides itself to include it as part of the all-in rate charged to the customer.  In other words, it becomes a component because Amex decides to put it together with the exchange rate. 

[149]       It is not because Amex puts together separate elements that they are necessarily one component of each other.  That way of doing does not change the fact that the Commission remains a distinct cost, separate from the conversion rate that is established by TRS.

[150]       This is the more supported by the fact that Amex itself, prior to March 1, 1993 and after March 1, 2003, did disclose separately, and in a distinct manner, the Commission it was charging and the conversion rate to which it was adding the Commission afterwards.

[151]       All in all, save for Mrs. Ghali's testimony, nothing supports the affirmation that the Commission is indeed a mark-up or margin for Amex. 

[152]       None of the Amex's documentation, be it before 1993, between 1993 and 2003, or after 2003, refers to the Commission as being a margin or a mark-up.  It is always described as a percentage, a commission or an adjustment.  In plain language, a commission, a percentage or an adjustment is a "cost" or a "frais".

[153]       Indeed, when one considers that, according to Mrs. Ghali, the full amount of the Commission was returned to TRS at all times during the relevant period, it is hard to qualify the Commission as being a mark-up or a margin for Amex.

[154]       On the whole, the evidence does not support Amex's contention that the Commission is something other than a fee, a charge or a cost.  In all likelihood, this is exactly what it is.

[23]        As a consequence of this conclusion of fact, the trial judge found that Amex had breached s. 12 of the CPA by failing to disclose a cost to consumers:

[163]       From the analysis made in the prior section of this judgment, the Commission is a "cost" or a "frais".  From the consumer's standpoint, namely the standpoint of the Primary Group class members, it is an amount paid for the conversion process service.

[164]        Yet, even though it was not mentioned at all, it was fully collected by Amex during the relevant period.  Having failed to disclose the charge that the consumer had to pay in this respect, Section 12 of the CPA prevented Amex from collecting such.

[165]       This interpretation is reinforced by the similar obligation that is imposed upon Amex by virtue of Section 452(2) of the Bank Act.  Be it in 1991 or in its revised version in 2001, this Section stated that a bank issuing a credit or charge card to a natural person in Canada had to disclose any charge ("les frais" in French) for which the person was responsible by reason of accepting or using the card.

[166]       It is indeed because of this provision and the intervention of the FCAC that the disclosure that Amex was providing prior to March 1st, 1993 reappeared after March 1st, 2003.

[167]       The Court considers that the violation of Section 12 is established.

[24]        The judge also found that Amex made false or misleading representations to consumers in violation of s. 219 of the CPA:

[176]       Here, the Court finds that the language of Amex's notices of January 1993 and Amex's cardholders' agreements existing from March 1st, 1993 to March 1st, 2003 were misleading. 

[177]       After having specifically referred, prior to March 1st, 1993, to the fact that it was adding a 1% percentage to the converted amount, Amex advised its cardholders that, on March 1st, 1993, it was changing the wording of the clause. It then removed the reference to any percentage or commission, without drawing the attention of the cardholders to the reason for the change. 

[178]       Yet, even though the wording of its agreements changed, the foreign exchange conversion process followed before or after the modification remained the same.  Only the disclosure in the agreements was modified. 

[179]       Afterwards, up until 2003, no reference to the Commission, or to a percentage or an adjustment, was included in any of the Amex's cardholders' agreements.  The Commission only reappeared when the disclosure was reinstated after March 2003.

[180]       Amex offered no explanation for the removal of the reference to the percentage, adjustment or commission in March 1993.

[181]       One thing is clear though.  The removal was not accidental.  It was deliberate and conscientious.   At best, it certainly did not enhance the clarity of the foreign currency transaction charges for the average consumer.  At worst, one can infer that it was simply meant to conceal the Commission.

[182]       From that standpoint, Amex's notices of January 1993 and its subsequent cardholders' agreements were misleading.  Their literal meaning, as well as their general impression, conveyed the message that the only operation made by Amex, once a charge was incurred in a foreign currency, was to convert the amount in Canadian dollars. 

[183]       For the average consumer, there was no way to know or suspect that the Commission would still be applied.  In fact, the notices sent in January 1993 to advise the consumers of the change gave the impression of a substantive change to the cardholders' agreement, not a mere modification in its wording.

[184]       Based on that, it would have been a reasonable inference for a consumer to conclude that Amex was not charging the Commission anymore.

[185]       Contrary to what the notice conveyed, it was not a single operation that occurred after March 1993 in terms of the foreign currency exchange process.  There were still two operations, one to convert the currency, the other to add a commission or a fee thereto.

[186]       Amex cannot argue that referring merely to "the exchange rate determined by us" was proper and not misleading.  According to the evidence, one could not reasonably read or understand the words "exchange rate" as including the Commission.

[187]       This false and misleading impression remained from March 1, 1993 up until Amex sent another notice to its customers at the end of February 2003, informing them that an adjustment would, from then on, be added to the conversion rate.

[188]       In the Court's opinion, this falls within the ambit of Section 219.

[25]        Furthermore, he concluded that there were similar breaches under the general principles of law applicable in this province, as codified in the Civil Code of Québec. Thus, the secondary group, not made of consumers, had also a valid claim under the law.

APPELLANT'S ARGUMENTS

 

[26]        Amex submits that the trial judge erred in concluding that the impugned provisions of the CPA are constitutionally applicable to the core business of a federal bank (interjurisdictional immunity) or alternatively are not in conflict with the federal legislation and regulations applicable to lending and credit cards (thus excluding federal paramountcy). If the CPA is applicable, Amex contends that the claims of the members of the primary group are prescribed, that the mark-up is not a cost within the meaning of the CPA, that s. 272 of the CPA does not apply here and that its agreements were not misleading. Furthermore, it contends that restitution is not called for either under the CPA or the CCQ. Finally, it disputes the order for collective recovery.

ANALYSIS

 

I.          The nature of the breach by Amex

[27]        The core business of Amex is providing credit to its cardholders. There is no doubt that both sets of cards, credit and charge, are a means of accessing credit, though only for a limited period in the case of charge cards since the outstanding balance must be paid in full at the end of each cycle: M.H. Ogilvie, Canadian Banking Law, 2d ed. (Scarborough: Carswell, 1998) at 696-698; Bradley Crawford, Crawford and Falconbridge Banking and Bills of Exchange: A Treatise on the Law of Banks, Banking, Bills of Exchange and the Payment System in Canada, 8th ed. (Toronto: Canada Law Book, 1986) vol. 1 at 357-359.

[28]        The Attorney General of Canada has intervened in the appeal to argue that the provisions of the CPA dealing with disclosure, credit, interest and charges are not applicable to the lending activities of Amex since these issues are federally regulated by the Bank Act, the Financial Consumer Agency of Canada Act, S.C. 2001, c. 9, and related regulations, namely the Cost of Borrowing (Banks) Regulations. However, it does not dispute that the general principles of tort and contract law applicable in this province under the CCQ remain applicable to the extent that they complement federal legislation and do not distort them. This of course is in accordance with ss. 8.1 and 8.2 of the Interpretation Act, R.S.C. 1985, c. I-21, which formally recognises the duality of our legal traditions.

[29]        In the case at bar, judgment against Amex rests on the conclusion of the trial judge that the conversion fee was not disclosed and, as a consequence, could not be charged to cardholders under either the CPA (applicable only to the primary group) or the general principles of law, as embodied in the CCQ (applicable to the secondary group). Therefore, this case does not involve the detailed requirements of the CPA relating to credit costs, credit rate and payment period at issue in Fédération des caisses Desjardins du Québec c. Marcotte (500-09-019846-096) or the similar requirements of the Cost of Borrowing (Banks) Regulations at issue in Banque de Montréal c. Marcotte (500-09-019849-090), two related judgments released concurrently.

[30]        It is thus difficult to conceive how the obligation to disclose imposed on all merchants in Quebec by s. 12 of the CPA (at the core of the reasoning of the trial judge for the primary group) could be seen as frustrating in any way Parliament's intent, as found in s. 452 of the Bank Act, to request the disclosure of "any charges for which the person becomes  responsible by accepting or using the card.”

[31]        In fact, even if the provincial laws are excluded, it remains that Amex committed a similar fault under s. 452 of the Bank Act. As for the remedies and the applicable limitation period, we must resort to provincial laws since federal laws are silent on the subjects. The fault, the right to sue and the appropriateness of a class action cannot be disputed.

[32]        It is noteworthy to signal that class actions alleging a similar undisclosed and unauthorized fee were certified in Ontario and led to substantial settlements: Gilbert v. Canadian Imperial Bank of Commerce (2004), 3 C.P.C. (6th) 35 (Ont. Sup. Ct. J.) ($16,500,000); Meretsky v. Bank of Nova Scotia, [2009] O.J. No. 6375 (Ont. Sup. Ct. J.) ($24,200,000) and Cassano v. Toronto-Dominion Bank (2009), 98 O.R. (3d) 543 (Ont. Sup. Ct. J.) ($55,000,000).

[33]        The CPA is a comprehensive code applicable to all types of contracts entered into by the consumers of this province. Some of its principles derogate from the general law, as codified in the CCQ, but most are complementary when not a mere restatement of the general principles. Clearly, it is not an act directed at regulating contracts entered into by banks but a law of general application in the province that governs all merchants, including banks. Its provisions should therefore be complied with unless they conflict with a federal provision or a federal scheme intended to exclude them. In Canadian Western Bank v. Alberta, [2007] 2 S.C.R. 3 , 2007 SCC 22, the Supreme Court said:

89  The appellants also then rely on this Court’s holding in Bank of Montreal v. Hall in which it was held

. . . beyond dispute that the federal banking power empowers Parliament to create an innovative form of financing and to define, in a comprehensive and exclusive manner, the rights and obligations of borrower and lender pursuant to that interest. [p. 150]

However, it must be repeated that just because Parliament can create innovative forms for financing does not mean that s. 91(15) grants Parliament exclusive authority to regulate their promotion.  If provincial legislation were held to be inapplicable to all forms of security held as collateral by banks, then the application of provincial legislation such as the Personal Property Security Act, R.S.A. 2000, c. P-7 (“PPSA”), would also be in jeopardy.  The appellants claim that the Insurance Act differs from the PPSA because the Insurance Act may lead to a prohibition of the activity (promoting insurance), whereas the PPSA deals only with how the creditor realizes on a security.  However, the Insurance Act does not prohibit the promotion of insurance any more than the PPSA prohibits realization on a security provision.  In both cases, compliance with provincial rules is a pre-condition to obtaining the benefit of the statute.  The rigid demarcation sought by the banks between federal and provincial regulations would not only risk a legal vacuum, but deny to lawmakers at both levels of government the flexibility to carry out their respective responsibilities.

II.         The consequence of the fault

[34]        The trial judge's determination about the nature of the mark-up is essentially a conclusion of fact or, at best for the appellant, a mixed question of fact and law. It follows that his conclusion that the mark-up was in essence "a fee or cost for a service" instead of "a component of the exchange rate" cannot be disturbed unless Amex shows that it resulted from a palpable and overriding error in the appreciation of the evidence (Housen v. Nikolaisen, [2002] 2 S.C.R. 235 , 2002 SCC 33; H.L. v. Canada (Attorney General), [2005] 1 S.C.R. 401 , 2005 SCC 25). Such is not the case. To the contrary, the overwhelming evidence, well summarised by the trial judge, supports his determination.

[35]        Under the general principles of civil law, the parties to a contract are bound by its terms (art.  1434 CCQ). This may extend to an external clause (art.  1435 CCQ) and to what is incidental to it by equity, usage or law, according to its nature (art.  1434 CCQ).

[36]        As indicated above, between 1993 and 2003, the agreements used by Amex did not contain any reference to a conversion fee or commission for the use of the cards to pay in a foreign currency. Moreover, Amex did not establish an external clause known to the card members in respect of such conversion fee or even a usage. To the contrary, the trial judge found that the language of the agreements was likely to create the impression that no such fee was charged.

[37]        Under the general principles of law, one must then conclude that Amex could not rely on its agreements or even a common usage to legally claim the conversion fee included in the all-in amount billed to its cardholders.

[38]        Furthermore, Amex cannot argue that the commission is an insignificant element, immaterial to the contract that needed not to be disclosed. As pointed out by the trial judge, the past behaviour of Amex as well as s. 452(2) of the Bank Act and its related regulations foreclose such an assertion. It has been correctly held in Joyal c. Élite Tours inc., [1993] R.J.Q. 1143 (S.C.), that when the legislator imposes an obligation to disclose specific information to a consumer, that information must be considered as forming an important element of the contract.

[39]        In other words, the conversion fee was a material element that needed to be disclosed by Amex to be enforceable against its cardholders as part of the agreements binding them. Since it was not, there is no obligation to pay it under the law.[2]

[40]        Under the general principles of law, the commission paid between 1993 and 2003 can then be recovered:

 

 

1554. Every payment presupposes an obligation; what has been paid where there is no obligation may be recovered.

 

 

Recovery is not admitted, however, in the case of natural obligations that have been voluntarily paid.

 

1554. Tout paiement suppose une obligation: ce qui a été payé sans qu'il existe une obligation est sujet à répétition.

 

La répétition n'est cependant pas admise à l'égard des obligations naturelles qui ont été volontairement acquittées.

 

[41]        The limitation period was three years further to the discovery of the fees in 2004. The class action was initiated within this period.

[42]        Restitution was then the proper remedy available under civil law pursuant to arts. 1491, 1492 and 1699 CCQ:

 

1491. A person who receives a payment made in error, or merely to avoid injury to the person making it while protesting that he owes nothing, is obliged to restore it.

 

He is not obliged to restore it, however, where, in consequence of the payment, the claim of the person who received the undue payment in good faith is prescribed or the person has destroyed his title or relinquished a security, saving the remedy of the person having made the payment against the true debtor.

 

1492. Restitution of payments not due is made according to the rules of restitution of prestations.

 

 

1699. Restitution of prestations takes place where a person is bound by law to return to another person the property he has received, either unlawfully or by error, or under a juridical act which is subsequently annulled retroactively or under which the obligations become impossible to perform by reason of superior force.

 

 

The court may, exceptionally, refuse restitution where it would have the effect of according an undue advantage to one party, whether the debtor or the creditor, unless it deems it sufficient, in that case, to modify the scope or mode of the restitution instead.

 

 

1491. Le paiement fait par erreur, ou simplement pour éviter un préjudice à celui qui le fait en protestant qu'il ne doit rien, oblige celui qui l'a reçu à le restituer.

 

Toutefois, il n'y a pas lieu à la restitution lorsque, par suite du paiement, celui qui a reçu de bonne foi a désormais une créance prescrite, a détruit son titre ou s'est privé d'une sûreté, sauf le recours de celui qui a payé contre le véritable débiteur.

 

 

 

1492. La restitution de ce qui a été payé indûment se fait suivant les règles de la restitution des prestations.

 

 

1699. La restitution des prestations a lieu chaque fois qu'une personne est, en vertu de la loi, tenue de rendre à une autre des biens qu'elle a reçus sans droit ou par erreur, ou encore en vertu d'un acte juridique qui est subséquemment anéanti de façon rétroactive ou dont les obligations deviennent impossibles à exécuter en raison d'une force majeure.

 

Le tribunal peut, exceptionnellement, refuser la restitution lorsqu'elle aurait pour effet d'accorder à l'une des parties, débiteur ou créancier, un avantage indu, à moins qu'il ne juge suffisant, dans ce cas, de modifier plutôt l'étendue ou les modalités de la restitution.

 

[43]        Before the trial judge, Amex argued that no restitution should be ordered since the evidence showed that the conversion fee charged by TRS for the service of paying a merchant in a foreign currency was reasonable and competitive in light of the similar fees charged to the holders of MasterCard and Visa cards, and that it was cheaper than the other available means of payment in foreign currencies (traveller's cheques, exchange offices, traders, ATM, etc.).

[44]        This is all true (see judgment appealed from at paras. 418 and 419) but it remains that restitution is the normal consequence of a payment made in error or where there was no obligation to pay (Montréal (Ville de) c. St-Pierre (Succession de), [2009] R.J.Q. 54 , 2008 QCCA 2329 ). Under art. 1699 CCQ, a court can refuse it only in exceptional circumstances:

 

1699. Restitution of prestations takes place where a person is bound by law to return to another person porperty he has received, either unlawfully or by error, ou under a juridical act which is subsequently annuled retroactivley or under which the obligations become impoossible to perform by reason of superior force.

 

 

The court may, exceptionally, refuse restitution where it would have the effect of according an undue advantage to one party, whether the debtor or the creditor, unless it deems it sufficient, in that case, to modify the scope or mode of the restitution instead.

 

Emphasis added]

 

 

1699. La restitution des prestations a lieu chaque fois qu'une personne est, en vertu de la loi, tenue de rendre à une autre des biens qu'elle a reçus sans droit ou par erreur, ou encore en vertu d'un acte juridique qui est subséquemment anéanti de façon rétroactive ou dont les obligations deviennent impossibles à exécuter en raison d'une force majeure,

 

 Le tribunal peut, exceptionnellement, refuser la restitution lorsqu'elle aurait pour effet d'accorder à l'une des parties, débiteur ou créancier, un avantage indu, à moins qu'il ne juge suffisant, dans ce cas, de modifier plutôt l'étendue ou les modalités de la restitution.

 

[45]        Of course, the burden lies on the debtor to establish that restitution would result in an undue advantage to the creditor (Montréal (Ville de) c. St-Pierre (Succession de), supra, at para. 48). 

[46]        In the case at bar, the trial judge refused to exercise his discretion to apply the second paragraph of art. 1699 CCQ for the following reasons:

[380]       While Article 1699 (2) CCQ allows this discretion to be exercised exceptionally, the evidence submitted by Amex fails to show any undue advantage to the class members.  One cannot simply isolate the alleged benefit of the Commission being reimbursed to the class members and ignore the other benefits Amex would have undoubtedly received through the use of its cards by these class members in carrying foreign currency transactions.

[381]       Simply put, the evidence is far too incomplete for the Court to conclude that any advantage in granting restitution of the Commission to the class members could be qualified as "undue" under the CCQ.

[Emphasis added]

[47]        In other words, the judge's decision flows from his assessment of the evidence and not from an erroneous reading of the law. In these circumstances, Amex has the burden of showing that there was a palpable and overriding error in his assessment of the situation of the cardholders or of its own situation.

[48]        The evidence shows that the American Express system benefits from the use of the cards in various ways: discounts collected from the merchants paid by using the card, higher volumes of transactions, membership fees, etc. Amex also failed to adduce evidence as to the actual cost of the foreign currency services so that the judge could have determined only a partial restitution. As for the cardholders, it is difficult to conclude that the restitution of an amount equivalent to 1% to 2.2% of their purchases in foreign currencies between 1993 and 2003, obviously small amounts, will result in undue advantage to each of them.

[49]        It is true though that Amex will have to bear a cost of about 20 million dollars (capital and interests) even though it did not benefit from the conversion fee. But there is no indication that such a "loss" would be an excessive burden for it; furthermore, this loss will ultimately be borne by its shareholder, TRS, the entity that benefited from the undisclosed commission. In any case, Amex being the sole party in the American Express system with which the cardholder has a contract, it is the one that must be accountable for the fee charged to the cardholders.

[50]        Amex has failed to show that the trial judge did not exercise his discretion judiciously by refusing to apply the exception to restitution.

[51]        It follows that the recovery of the conversion fee is to be confirmed.

 

III.        The award of punitive damages

[52]        Under the general principles of civil law, damages are compensatory in nature. Punitive damages are a concept imported from common law jurisdictions and remain exceptional in this province. According to art. 1621 CCQ, they can be granted only when a specific provision of the law provides for them:

 

1621.  Where the awarding of punitive damages is provided for by law, the amount of such damages may not exceed what is sufficient to fulfil their preventive purpose.

 

Punitive damages are assessed in the light of all the appropriate circumstances, in particular the gravity of the debtor's fault, his patrimonial situation, the extent of the reparation for which he is already liable to the creditor and, where such is the case, the fact that the payment of the damages is wholly or partly assumed by a third person.

 

[Emphasis added]

 

 

1621.  Lorsque la loi prévoit l'attribution de dommages-intérêts punitifs, ceux-ci ne peuvent excéder, en valeur, ce qui est suffisant pour assurer leur fonction préventive.

 

Ils s'apprécient en tenant compte de toutes les circonstances appropriées, notamment de la gravité de la faute du débiteur, de sa situation patrimoniale ou de l'étendue de la réparation à laquelle il est déjà tenu envers le créancier, ainsi que, le cas échéant, du fait que la prise en charge du paiement réparateur est, en tout ou en partie, assumée par un tiers.

 

[53]        The trial judge's conclusion that the agreements and related documentation were misleading between 1993 and 2003 is essentially a factual one or, at best, a mixed question of fact and law. It follows, once again, that this conclusion cannot be disturbed unless Amex shows that it resulted from a palpable and overriding error in the appreciation of the evidence. Such is not the case.

[54]         Based on that finding, the trial judge awarded punitive damages to the members of the primary group only by relying on ss. 219 and 272 CPA:

 

219. No merchant, manufacturer or advertiser may, by any means whatever, make false or misleading representations to a consumer.

 

 

 

272.  If the merchant or the manufacturer fails to fulfil an obligation imposed on him by this Act, by the regulations or by a voluntary undertaking made under section 314 or whose application has been extended by an order under section 315.1, the consumer may demand, as the case may be, subject to the other recourses provided by this Act,

 

(a)  the specific performance of the obligation;

 

(b)  the authorization to execute it at the merchant's or manufacturer's expense;

 

(c)  that his obligations be reduced;

 

 (d) that the contract be rescinded;

 

 (e) that the contract be set aside; or

 

 (f) that the contract be annulled,

 

 

without prejudice to his claim in damages, in all cases. He may also claim punitive damages.

 

[Emphasis added]

 

219. Aucun commerçant, fabricant ou publicitaire ne peut, par quelque moyen que ce soit, faire une représentation fausse ou trompeuse à un consommateur.

 

 

272. Si le commerçant ou le fabricant manque à une obligation que lui impose la présente loi, un règlement ou un engagement volontaire souscrit en vertu de l'article 314 ou dont l'application a été étendue par un décret pris en vertu de l'article 315.1, le consommateur, sous réserve des autres recours prévus par la présente loi, peut demander, selon le cas:

 

 a) l'exécution de l'obligation;

 

 b) l'autorisation de la faire exécuter aux frais du commerçant ou du fabricant;

 

 

 c) la réduction de son obligation;

 

 d) la résiliation du contrat;

 

 e) la résolution du contrat; ou

 

f) la nullité du contrat,

 

 

sans préjudice de sa demande en dommages-intérêts dans tous les cas. Il peut également demander des dommages-intérêts punitifs.

 

[55]        Here is his reasoning:

[424]       While it is true that under the circumstances, the conduct of Amex can hardly be qualified as antisocial or particularly reprehensible or intolerable, it still remains that for an interval of 10 years, it clearly disregarded its obligations under the CPA.

[425]       At the very least, it showed a rather blunt disregard of its obligations.  To the extent that of the various chartered banks operating in Canada in 2002, the FCAC found that Amex was the only one then failing to disclose the Commission.

[426]       Moreover, no legitimate excuse for Amex's behaviour has been offered or given.  One can indeed hardly understand why Amex elected to disclose the Commission up to 1993 and yet stopped doing so for 10 years, until the FCAC advised it that this was improper.

[427]       In the absence of any reasonable explanation or legitimate excuse, a logical inference remains. Amex may well have chosen to wilfully hide the Commission within the exchange rate, leaving the consumer unable to ascertain its existence, let alone its extent.  This would be quite disturbing.

[428]       Under the circumstances, there is enough justification to grant some punitive damages award, albeit to a much lesser extent that what Mr. Adams is claiming.

[429]       According to the evidence, from 1993 to 2002, there were between some 26 000 and 60 000 Quebec Amex's personal charge or credit cardholders who used their cards yearly to make purchases in foreign currency.  The average was about 34 000 cardholders per year.

[430]       Recent cases that have dealt with the issue of punitive damages awards involving consumers' class actions claims in this province have granted amounts varying from $10 to $150 per member. 

[431]       In Lambert, the Court of Appeal awarded punitive damages of $150 to each passenger involved.  In Household Finance, the Court of Appeal granted punitive damages of $100 per member.  In Riendeau v. Brault & Martineau inc., the 2 million dollars award of punitive damages was equivalent to about $10 per member.

[432]       Taking into consideration these decisions, the Court is of the view that a punitive damages award of 2.5 million dollars is appropriate and reasonable under the circumstances.  It corresponds roughly to some $75 to $100 per member, depending on the amount of members one looks at from year to year.  Courts have recognized that it is proper to assess an amount of damages in class actions on the basis of an average.

[433]       In the Court's opinion, any higher amount would be exaggerated.

[56]        The decision to award punitive damages to members of the primary group rests exclusively upon the conclusion that s.  272 of the CPA is applicable. Assuming, without deciding, that such is the case, I am of the view that such damages were not justified in the present case for the following reasons.

[57]        Firstly, the judge failed to take into consideration the fact that a collective recovery often comprises an important punitive aspect as compared to individual recovery. In his treatise on class actions: Le recours collectif comme voie d'accès à la justice pour les consommateurs (Montréal: Éditions Thémis, 1996), Professor Pierre-Claude Lafond writes at 569:

Il convient désormais d'orienter l'indemnisation non plus à partir du dommage subi, mais à partir du dommage causé. C'est précisément ce que préconise la formule québécoise du recouvrement collectif. En procurant l'avantage de forcer le défendeur à déposer au greffe du tribunal le montant total des réclamations, la responsabilité du défendeur s'étend à la mesure du préjudice total dont il est responsable, contrairement au mode de recouvrement individuel dans lequel le débiteur n'est appelé à dédommager que les membres qui produisent leur réclamation. Conformément au principe de justice corrective, le recouvrement collectif appelle le plein remboursement des gains illégaux afin de rétablir l'équilibre de la situation entre le défendeur et le groupe.

Cette conception nouvelle de la réparation du préjudice obéit à d'autres règles qu'uniquement à celle de la mesure du préjudice subi; les notions d'accès à la justice, de justice corrective, de prévention, de respect volontaire du droit et d'effet dissuasif sont tout aussi présentes dans la recherche d'une compensation globale.

[Emphasis added]

[58]        Secondly, in June 2009 there was no need to impose punitive damages to discourage a practice that had been discontinued six years earlier by Amex and even before that by other banks. Put differently, there was no need to send a message to the banking community.

[59]        Thirdly, Mr. Adams did not discharge his burden to adduce evidence of antisocial or reprehensible conduct by Amex requiring some form of punishment in addition to an award of restitution of all the fees collected for a conversion service that it actually did provide at a cost for it.

[60]        Fourthly, considering the collective recovery ordered, to grant some $75 to $100 per member in connection with a service that they used for 10 years, that will retrospectively be free of charge and that they have continued to use even when made aware of the commission associated with it, is to ignore all the appropriate circumstances, including the extent of the reparation for which Amex is already liable. 

[61]        For these reasons, there was no need to add anything else to fulfil a preventive purpose. This is not to say that punitive damages cannot be awarded in a class action when collective recovery is ordered, but only that in the present case, in light of all the appropriate circumstances, they are not justified.

IV.       Miscellaneous comments

[62]        There is no need to explain at length why s. 273 of the CPA, now abrogated, sets out a prescription period that could be suspended as per art. 2904 CCQ.[3] In the present case only the general principles of law applicable in this province are relied upon to order restitution of the fees and they include the suspension of the prescription when it is in fact impossible for a party to act (Oznaga v. Société d’exploitation des loteries et courses du Québec, [1981] 2 S.C.R. 113 at 126; Bank of Montreal v. Bail ltée, [1992] 2 S.C.R. 554 ; Gauthier v. Beaumont, [1998] 2 S.C.R. 3). What amounts to an impossibility to act then becomes mostly a question of fact and I see no reason to interfere with the conclusion of the trial judge in this regard.

[63]        As for the collective recovery, I am of the view that Amex shows no error of law or fact that would justify interfering with the trial judge's exercise of his discretion in this matter and issuing an order of individual recovery instead (Thompson c. Masson, [2000] R.J.D.T. 1548 (C.A.)).


CONCLUSION

 

[64]        For these reasons, I propose to allow the appeal, without costs, only to exclude the punitive damages.

 

 

 

PIERRE J. DALPHOND, J.A.

 



[1]     Since 1990, Amex has issued about 40 credit and charge card products.

[2]     The same would appear also to be the case in the common law provinces and would explain the settlements reached after certification in the three different Ontario class actions referred to previously.

[3]     Those interested are invited to read the reasons on that issue in Banque de Montréal c. Marcotte, released concurrently.

AVIS :
Le lecteur doit s'assurer que les décisions consultées sont finales et sans appel; la consultation du plumitif s'avère une précaution utile.

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