Canada’s largest discount furniture and appliance retailer was ordered to pay $2.36 million, including $1 million in punitive damages, to thousands of consumers after Quebec Superior Court found that it engaged in deceptive advertising and marketing with its popular “buy now, pay later” promotions.
The ruling, one of a handful of Quebec class actions that was decided on its merits, represents a convincing victory for consumer’s rights and serves as a cautionary tale for business that rely on false and misleading advertising pitches to lure customers, according to legal experts.
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“The takeaway from this ruling is that one cannot repeatedly and continuously use a business model that avoids respecting consumer protection laws without exposing oneself to liability,” noted Jean Saint-Onge, a Montreal class action lawyer with Lavery. “This ruling will serve as guidance to other retailers who often rely on the same business model.”
The class action, launched by consumer advocacy group Option Consommateurs, took aim at the marketing practices of Leon’s Furniture Limited, whose retail banners include Leon’s and The Brick, for enticing consumers with newspaper and television advertisements that boasted that customers could purchase big-ticket items without having to pay for periods of up to 36 months. Between 1,000 and 2,000 Quebecers finance their purchases through Leon’s finance program each week, revealed evidence at the trial.
But “in reality” at least 7,300 consumers who opted to pay their purchases through Leon’s financing program between 2007 and 2011 were slapped with a $21 annual fee that was charged by Citifinancière Canada Inc., the financial institution that Leon’s did business with, found Quebec Superior Court Justice Marc-André Blanchard. In some cases, clients had to also pay the federal and provincial sales tax at the time of purchase, added Blanchard in Option Consommateurs c. Meubles Léon ltée, 2017 QCCS 3526.
“It is clear that the retailer’s advertising strategy rests on a repeated and systemic violation of the relevant provisions of the Quebec Consumer Protection Act (Act),” said Quebec Superior Court Justice Marc-André Blanchard in a 62-page ruling that harshly castigated the retailer.
Justice Blanchard also found that Leon’s infringed article 244 of the Act which prohibits in any advertisement of goods and services that notifies consumers credit can be offered to them “except to mention the availability of credit” through the use of a logo of a financial institution, an illustration of a credit card, or a mention that credit can be offered or accepted.
“We hope that this ruling will prove to be a warning signal to companies and a turning point in advertising practices in general because Leon’s is not the only one to use such marketing strategies,” said Elise Thériault, a lawyer with Option consommateurs in Montreal.
The Canadian retailer is a repeat offender. It has faced five Quebec class actions since 2002, two of which dealt with extended warranties while the others with financing charges. In 2005 Leon’s settled a class action that paid $38 to each member of the class, gave $160,000 to charities and paid $420,000 in legal fees incurred by lawyers. In another class action settlement reached in 2010 Leon’s paid a lump sum of $125,000 and pledged to change its advertising practices.
“One can even question the good faith of the enterprise when it committed in a legal framework to change its practices but did not do it for a substantial period of time,” underlined Justice Blanchard.
But the ruling also highlights the challenges faced by judges when applying the landmark class action ruling by the Supreme Court of Canada in Richard v. Time Inc., 2012 SCC 8. Under s. 272 of the Act, a consumer can institute proceedings to have the court sanction a failure by a merchant or a manufacturer to fulfil an obligation imposed on them by the Act. When a merchant or manufacturer fails to fulfil such obligations, the consumer can claim a contractual remedy, compensatory damages and punitive damages. It is up to the trial judge to award the remedies he considers to be appropriate. In Time the SCC held that the “recourse provided for in s. 272 C.P.A. is based on the premise that any failure to fulfil an obligation imposed by the Act gives rise to an absolute presumption of prejudice to the consumer.” Judges are still grappling with that guidance, noted Montreal class action lawyer Mathieu Charest-Beaudry of Trudel Johnston & Lespérance.
Earlier this year, the Quebec Court of Appeal held in Vidéotron c. Union des consommateurs 2017 QCCA 738 that claims for damages are still governed by common law and that consumers must show evidence of the harm they suffered and the causal link between the harm and the violation of the Act. That is guidance that Justice Blanchard rejected. Instead he relied on the SCC’s Time ruling.
“The courts are having a problem to delineate clearly this notion of absolute presumption of prejudice to the consumer,” said Charest-Beaudry. “Justice Blanchard casts doubt on the guidance provided by the Quebec appeal court over this notion. He says that in this case that absolute presumption of prejudice to the consumer applies.”
All told, Leon’s was ordered to pay almost $163,000 to class members for the $21 fee that they had paid, $703,800 to class members in damages for its illegal, false and deceptive advertising, $1 million in punitive damages, and $495,000 in damages under article 36 of the Competition Act to cover expenses incurred by the consumer lobby group.
Leon’s issued a statement that it intends to file leave to appeal before the Quebec Court of Appeal.
This article originally appeared in The Lawyer’s Daily.