Bank of Montreal v. Marcotte, 2014 SCC 55, Marcotte v. Fédération des Caisses Desjardins du Québec, 2014 SCC 57

The Supreme Court of Canada rendered two decisions affirming the right of consumers of federal banks to benefit from provincial consumer protection legislation. Réal Marcotte and Bernard Laparé won a victory for consumers of five Canadian chartered banks (the “Banks”) and of the Fédération des caisses Desjardins du Québec (Desjardins), Québec’s largest credit union. In 2003, the plaintiffs filed a class action seeking the restitution of foreign exchange conversion fees varying from 1.8 per cent to 2.5 per cent charged by Desjardins and nine of the major Canadian chartered banks on each credit card transaction processed in a foreign currency, in addition to punitive damages. 

These class actions raised important issues, including the right for financial institutions to charge foreign exchange conversion fees independently from the cost of borrowing, consumer law disclosure requirements and a constitutional challenge based on the division of powers in relation to the authority of Parliament over Banks and Banking (raised by the Banks) and Bills of Exchange and Promissory Notes (raised by Desjardins).

First, the Supreme Court of Canada, confirming the Québec Court of Appeal and overruling the judgments of the Superior Court, found that the billing of foreign exchange conversion fees by the Defendants was legal and in accordance with Québec’s Consumer Protection Act (the “CPA”). Foreign exchange conversion fees relate to a more distinct service than the granting of credit and thus do not have to be included in the cost of borrowing (“credit charges” within the meaning of the CPA). The Banks’ and Desjardins’ practices in this regard were confirmed as being adequate and in conformity with the applicable regulatory framework.

However, the Court found that the financial institutions that failed to appropriately disclose the foreign exchange conversion fees at the time the revolving credit agreement for the use of the credit card was entered into were in breach of the disclosure obligation of the CPA.  The Banks and Desjardins found themselves in such a situation for varying time periods during the class period and were ordered to reimburse the foreign exchange conversion fees to the corresponding consumers.

As for the constitutional challenge, the Court held that federal banks are subject to the provincial consumer protection provisions at issue in this case. Applying Canadian Western Bank, the Court found that banks don’t have a blanket exclusion from provincial laws of general application. 

The decision further established two principles for class actions. First, it ruled that a single consumer can bring a class action against multiple defendants to challenge a common business practice. The Court confirmed the Court of Appeal’s ruling that neither the nature of class action procedure nor the authorization criteria in Article 1003 of the Québec Code of Civil Procedure require the representative plaintiff to have a direct legal relationship with each defendant. When in presence of an appropriate set of circumstances, a single representative plaintiff can thus bring a class action against multiple defendants so long as his or her cause of action unites all class members.

Secondly, the Court established that an order for collective recovery in a class action is not relevant to the assessment of punitive damages. The Court of Appeal had overturned the trial judge’s punitive damages award against the Banks (Desjardins was not condemned to punitive damages) of $25 to each class member because “collective recovery often comprises an important punitive aspect as compared to individual recovery.” The Court rather found that the mode of recovery in a class action is not a valid factor to consider when assessing punitive damages. Collective recovery does not have a deterrent or punitive effect but rather constitutes the full extent of a defendant’s obligation to plaintiffs who proved their case.

As a result of these two decisions, the financial institutions will pay approximately $56 million to the class.

Trudel & Johnston and Lauzon, Bélanger, Lespérance represented the Plaintiffs, Messrs. Marcotte and Laparé with a team comprising Bruce Johnston, Philippe Trudel, André Lespérance and Andrew Cleland.

Osler, Hoskin & Harcourt LLP and Deslauriers & Co., Attorneys s.a. represented the Canadian chartered banks, Bank of Montreal, Citibank Canada, the Toronto‑Dominion Bank and the National Bank of Canada, the Amex Bank of Canada, the Royal Bank of Canada, the Canadian Imperial Bank of Commerce, the Bank of Nova Scotia and the Laurentian Bank of Canada. The Osler team comprised Mahmud Jamal, Silvana Conte, Anne-Marie Lizotte, David Rankin and Alexandre Fallon. The Deslauriers & Co. team comprised Sylvain Deslauriers and Alberto Martinez.

Langlois Kronström Desjardins, LLP represented Fédération des caisses Desjardins du Québec with a team comprising the late Raynold Langlois, QC, Vincent de l’Étoile and Chantal Chatelain.

Torys LLP represented the intervener the Canadian Bankers Association with a team comprising John Laskin and Myriam Seers.

The Attorney General of Canada represented itself with a team comprising Michel Miller, Bernard Letarte and Pierre Salois.

Bernard, Roy (Justice Québec) represented the Attorney General of Quebec with a team comprising Jean-François Jobin, Francis Demers and Samuel Chayer.  

Allard, Renaud et Associés represented the Président de l’Office de la protection du consommateur, with Marc Migneault and Joël Simard serving as counsel.

The Attornies General of Ontario and Alberta intervened on the constitutional questions raised by the appeal. Janet Minor and Robert Donato represented the Attorney General of Ontario; Robert Normey represented the Attorney General of Alberta.