The Supreme Court of Canada is pictured on May 22, 2014 in Ottawa.Dave Chan/The Globe and Mail
The Supreme Court of Canada has ruled against nine of the country's largest financial institutions in a decade-old class action lawsuit that raises questions about provincial power in federally regulated industries.
In a widely watched decision, the Supreme Court ruled that the plaintiffs, Réal Marcotte and Bernard Laparé, have the right to sue multiple banks and credit card companies for failing to disclose certain foreign exchange charges, thereby violating Quebec's Consumer Protection Act.
The lawsuit, which was first filed in 2003, alleges the banks improperly charged or inadequately disclosed fees for currency conversions in credit card transactions. Initially the Quebec Superior Court ruled in favour of the plaintiffs and ordered the financial institutions to pay damages amounting to almost $200-million. The Quebec Court of Appeal, however, overturned the ruling.
By the time the Supreme Court took the case on, it had become a landmark lawsuit with implications for all federally regulated industries, such as banking and telecommunications, because the issue of provincial power is thrown into question. Canadian banks are governed by the federal Bank Act, and therefore argued that this legislation was "paramount" to Quebec's Consumer Protection Act.
The Supreme Court, however, has ruled otherwise.
The "paramountcy" rule is applicable in Canada when there is a conflict between provincial and federal law; when one arises, the federal law prevails. Yet the Supreme Court ruled there are areas in which provincial rules must be followed, despite a broad federal framework.
"If the banks' argument amounts to claiming that the federal scheme was intended to be a complete code to which no other rules at all can be applied, that argument must also fail as the federal scheme is dependent on fundamental provincial rules such as the basic rules of contract," the Supreme Court wrote in its ruling.
The decision could impact other federally regulated industries, such as media and telecommunications, when provinces impose their own standards. "This is a very detailed and complex decision that will require further study to determine what the implications will be for consumers," Terry Campbell, head of the Canadian Bankers Association, which represented banks at the Supreme Court, said in a statement.
The country's top court also ruled that the punitive damages from the initial trial judgment should be restored, but divided the defendants into two groups, ruling that only some institutions did not adhere to Quebec's code of conduct. These institutions are: Bank of Montreal, National Bank of Canada, Citibank Canada, Toronto-Dominion Bank and Amex Bank of Canada.
The top court ruled that these banks' actions occurred "without any explanation for a period of years" and for that reason, "the trial judge did not make a palpable and overriding error in awarding punitive damages as a preventive measure, not only to deter the banks, but all merchants, from this kind of careless behaviour."
The ruling also solidified the parameters around class-action lawsuits. Until now, it was unclear whether a single person could bring a class-action suit against multiple defendants when that person does not have a directly relationship or a contract with each defendant. The Supreme Court ruled that a single person can do so, so long as the issue at hand apply to a broad population.
Tim Kiladze