Important Guidance From the Supreme Court on Misleading Advertising

On February 28, 2012, the Supreme Court of Canada (SCC) released its decision in Richard v. Time Inc., 2012 SCC 8. In its decision, the SCC discussed the factors that are relevant to a determination of whether a commercial representation is false or misleading, and established a fairly low threshold which may require some companies to carefully consider certain advertising practices.

At issue in this case was the prohibition against false or misleading advertising in Québec’s Consumer Protection Act (CPA). However, and as mentioned by the SCC, the "general impression" test used to determine whether advertising is false or misleading applied in this case is similar to that used when assessing false or misleading advertising under other provincial consumer protection legislation and the federal Competition Act. While based on Québec consumer protection law, the SCC decision is likely to inform how other courts across Canada and regulators such as the Competition Bureau apply the "general impression" test in misleading advertising cases.

In 1999, Jean-Marc Richard received an "Official Sweepstakes Notification" (Notification) in the mail. In large, boldface, capitalized type, the Notification proclaimed, "OUR SWEEPSTAKES RESULTS ARE NOW FINAL: MR JEAN MARC RICHARD HAS WON A CASH PRIZE OF $833,337.00!"

Closer inspection however revealed that the above statement was preceded by, "If you have and return the Grand Prize winning entry in time and correctly answer a skill-testing question, we will officially announce that". This qualifying language was written in small print, and in lowercase letters.

The Notification contained several other exclamatory statements which were similarly preceded by conditional language in smaller print, such as, "If you have and return the Grand Prize winning entry …"

Convinced that he was about to receive the prize, Mr. Richard returned the reply coupon and subscribed to Time magazine. When he did not receive the prize, he contacted Time Inc., and was advised that the Notification had merely been an invitation to participate in the sweepstakes, and that his Notification had not been the winning entry.

Mr. Richard commenced proceedings and asked the Québec Superior Court (QSC) to declare him to be the winner of the prize on the basis that the Notification had been an offer to contract, and that he had accepted the offer by returning the reply coupon. The QSC did not agree with the contractual portion of the claim, but awarded him $1,000 in damages for "moral injuries" and $100,000 in punitive damages, on the basis that Time Inc. had violated the misleading advertising provisions of the CPA.

The Court of Appeal overturned the QSC’s decision on the basis that the general impression test should be applied from the perspective of a consumer with "an average intelligence, scepticism and curiosity" and that a careful reading of the Notification would have been sufficient to dispel Mr. Richard’s impression that he had just won a prize. The Court of Appeal further noted that consumers should be suspicious of advertisements that seem too good to be true.

The SCC upheld the decision of the QSC and awarded Mr. Richard $1, 000 in compensatory damages and $15,000 in punitive damages.

In finding that Time Inc. was in violation of the CPA, the SCC first noted that the "general impression" test is one of first impression, and that considerable importance must be attached to the entire context of the advertising in question, including the way the text is displayed to the consumer. The SCC further held that in determining whether a commercial representation is false or misleading, the general impression of an advertisement should be assessed through the perspective of an "ordinary hurried purchasers," "relatively unsophisticated" and "not particularly experienced at detecting the falsehoods or subtleties found in commercial representations." Then, the court must determine whether that general impression is true to reality. If it is not, then the merchant is engaging in a prohibited practice.

The SCC found it highly likely that the average "credulous and inexperienced" consumer would conclude, based on his or her first reading of the Notification that Mr. Richard held the winning entry and had only to return the reply coupon to initiate the claim process. As such, the general impression conveyed to the average consumer was that Mr. Richard had won the prize. Even if the Notification did not contain statements that were actually false, the Court found it "riddled with misleading representations," and therefore found Time Inc. in violation of the CPA.

McCarthy Tétrault Notes

As mentioned above, while this decision specifically considers Québec’s consumer protection legislation, it is likely that this decision will impact how other courts and regulators such as the Competition Bureau apply the "general impression" test when considering matters relating to allegedly false or misleading advertising claims.

When advertising to the Canadian public, great care must be taken to ensure that the general impression conveyed to the ordinary hurried and relatively unsophisticated consumer is not false or misleading. This applies whether or not the advertisement is actually true. Further, it cannot be assumed that the average consumer will exercise diligence in reviewing and attempting to understand an advertisement. Companies should also keep in mind that first impressions count, and remember that size and layout matter, as disclaimers may not be sufficient to change the general impression conveyed by an advertisement.