Drip pricing under the microscope following Quebec Court of Appeal ruling

A Quebec Court of Appeal ruling that ordered Air Canada to pay more than $10 million in punitive damages in a class action lawsuit underscores the growing risks companies engaging in drip pricing face, according to legal pundits.

The Appeal Court decision, following a long 15-year legal battle, marks the third significant case dealing with unbundled pricing over the past year, with the Competition Tribunal ordering Canada’s largest cinema chain, Cineplex Inc., to pay a record penalty of over $38.9 million for deceptive marketing practices by adding a mandatory $1.50 online booking fee, the first enforcement of the drip pricing provisions introduced by the amendments to Canada’s Competition Act. In June 2024, the Competition Bureau also reached an agreement with SiriusXM Canada, a subscription-based satellite radio and streaming content provider, over subscription price representations. Sirius agreed to pay a $3.3 million penalty, enhance its compliance program, and pledged not to engage in drip pricing.

The Quebec Appeal Court decision, while it relies on the Supreme Court’s 2014 decision in Bank of Montreal v Marcotte, 2014 SCC 55 to reaffirm Quebec’s jurisdiction over consumer protection and applies a restrictive approach of the constitutional doctrines of paramountcy, also appears to open the door to obtaining compensatory damages in drip pricing cases and seemingly provides class counsel with a roadmap on how to establish quantum.

“The court clearly has said it is notoriously difficult, if not impossible, to show damages in misrepresentation case but it does open, if you read between the lines, for future cases quite a few possibilities to attempt to prove the amounts at pay for” compensatory damages, said Cory Verbauwhede, a Montreal class action lawyer with Grenier Verbauwhede Avocats Inc. in Montreal. “It doesn’t make things easier, but there’s a kind of guidebook for practitioners that does show us where the difficult work has to be done for future cases. So I think that that was worth the wait.”

The Quebec Appeal decision, coupled with the recent Cineplex ruling by the Competition Tribunal, sends a strong message that the days of disaggregated pricing are coming to end, said Joshua Krane, who leads the competition and foreign investment practice at MLT Aikins in Calgary. “The key takeaway here is that companies that engage in drip pricing continue to face significant enforcement risk, including from private litigation,” said Krane. “If I were a company that is caught up in a drip pricing case, I would be much more concerned now with this decision and the Cineplex decision about the potential penalties that could be imposed, which are much more severe than they used to be.”

But Alexandre Fallon, a Montreal litigator with Osler, Hosking & Harcourt LLP, finds the Appeal Court’s reasons for ordering Air Canada to pay $10 million in punitive damages, the second highest after the Quebec tobacco class action, to be inadequate. “Where is the analysis that $10 million is the smallest amount that is necessary to achieve the purposes set out in the case law for awarding punitive damages?” asked rhetorically Fallon. “The Court doesn’t seem to acknowledge the fact that it is shifting the goalposts, and there’s certainly no explanation as to why that is. That’s what I find surprising.”

The 15-year-old case was launched by consumer advocacy group Union des consommateurs and class representative Michael Silas, who alleged that the airline did not include all extra fees, thereby violating the Quebec Consumer Protection Act (CPA). Silas said he was charged $124 more in taxes, fees and surcharges than the fare price shown during the first step of the ticket-buying process at Air Canada’s website. The class action argued that this practice breached section 224(c) of the CPA, which prohibits charging a consumer more than the advertised price for a good and service, and sought the reimbursement of amounts overpaid by consumers and $10 million in punitive damages.

In 2022, Quebec Superior Court Justice Karen Rogers found that Air Canada had infringed the law, but that there was no evidence of harm and there was no cause to grant punitive damages. The trial judge also dismissed Air Canada’s constitutional arguments by concluding that s. 224(c) of the CPA, which falls under provincial jurisdiction over property and civil rights, does not infringe on the core exclusive federal jurisdiction over aeronautics.

Paramountcy

The Quebec Appeal Court partially overturned the lower court ruling. Just as it did in 2022 in Bell Canada c. Directeur des poursuites criminelles et pénales (Office de la protection du consommateur), 2022 QCCA 408 when it found that provisions of the CPA applied to federally regulated telecommunication service providers, the Appeal Court held that Air Canada failed to prove that the doctrine of federal paramountcy applies in this case. The Appeal Court found there is “no inconsistency” between that provincial provision and section 86.1 of the Canada Transportation Act, which regulates the airlines’ advertising of prices to potential buyers. “It is possible to simultaneously comply with the letter of both these laws,” said Quebec Appeal Court Justice Judith Harvie in a unanimous decision in Union des consommateurs c. Air Canada, 2025 QCCA 480.

“Paramountcy requires the demonstration of an actual operational conflict,” points out Fallon. “Ever since Marcotte, it’s been pretty clear that to the extent we’re talking about marketing products or services to consumers, federal undertakings are not exempted from provincial legislation such as the Quebec CPA. And that was reiterated by the Appeal Court in a series of cases involving telco providers. In this case the Appeal Court concludes that the evidence was just not there.”

The Appeal Court found however that the trial judge committed a reviewable error in concluding that the rational connection between the prohibited practice and the contract had not been proved, one of the requirements of the so-called Time test. The Supreme Court of Canada set out in Richard v. Time Inc., 2012 SCC 8, [2012] 1 S.C.R. 265 a framework for determining whether a representation is false or misleading under the Quebec CPA. If the consumer satisfies the burden of proof, he does not have to establish that misrepresentation was decisive in order to benefit from the remedies provided under the Quebec CPA, subject to proving the quantum.

But the class was unable to prove the quantum of the harm they had suffered, thereby effectively closing the door on obtaining compensatory damages, held the the lower court, a conclusion upheld by the Appeal Court. Historically plaintiffs have sought compensatory damages that reflect the difference between the final price and the initially posted price, explained Krane. “The Appeal Court said that is not good enough to calculate the damage because at the end of the day, the customer is getting the product that they paid for and ultimately there was disclosure of the price before the customer clicks ‘pay now,’” said Krane. “It’s not obvious how to quantify harm.”

But future claims may be possible, added Krane, if plaintiffs can demonstrate actual harm suffered by consumers, such as financial loss due to misleading pricing. “We anticipate further guidance on this point as more cases are litigated,” said Krane.

Punitive damages

The trial judge did err in refusing to award punitive damages, held the Appeal Court. Punitive damages seek to discourage the repetition of wrongful behaviour, both for the perpetrator and for society in general, reaffirmed Justice Harvie. “Although the evidence does not show that a specific consumer was in fact misled, Air Canada was nonetheless in violation of section 224 para. 1(c) of the CPA – which it no longer disputes – and it had been advised of this possibility,” held Justice Harvie. In October 2010, the Quebec Consumer Protection Office wrote to Air Canada to inform it that it was in violation of the CPA. The airline retorted that the s. 224(1)(c) of the CPA did not apply to its sector as air transportation falls under exclusive federal jurisdiction.

“Air Canada’s maintenance of the practice of price disaggregation seeks above all to maintain its competitive interest in the market, and not to protect the interests of consumers,” said Justice Harvie. “Air Canada put its own commercial interests first, demonstrating a serious lack of concern and negligence towards consumers. Punitive damages are necessary to denounce this behaviour.”

According to Verbauwhede, one of the reasons the class obtained punitive damages is “because it’s so hard to prove compensatory damages. It’s interconnected.” Under the Civil Code, it is necessary to take into account the compensation that the defendant is already required to pay, explained Verbauwhede. If the compensation is nil, then that is taken into account by augmenting the punitive damages, added Verbauwhede.

Fallon believes the punitive damages that were ordered by the Quebec Appeal Court are “just off the charts,” and “completely changes” the risk analysis for doing business in Quebec, the jurisdiction with the most stringent consumer protection statute in the country. “An Air Canada-type class action resulting in a freestanding punitive damages award of up to $10 million is a material increase in risk in respect of doing business in Quebec,” said Fallon.

Private parties however will have another avenue to bring cases dealing with drip pricing. As of June 25, private parties will be able to bring applications to the Competition Tribunal for a wider range of reviewable practices, including drip pricing, noted Krane. Since Competition Tribunal proceedings can move more quickly than cases in superior court, “there’s already a lot of knocking on doors around these things,” said Krane.

This story was originally published in Law360 Canada.

Law in Quebec