Bank of Montreal v Marcotte

is a ruling of the Supreme Court of Canada. Together with and  (collectively known as the "Marcotte trilogy"), it represents a further development in Canadian constitutional jurisprudence on the doctrines of interjurisdictional immunity and paramountcy, together with significant clarifications on the law concerning class actions in the Province of Quebec, which is similar to that in operation in the common law provinces.

Background
In Canada, holders of credit cards are allowed to use them to make purchases in foreign currency, and the conversion of the purchase price into Canadian dollars follows a similar pattern among all card issuers:


 * 1) Conversion from the foreign currency through the interbank rate.
 * 2) Application of a conversion charge by the issuer, which is disclosed by only some issuers to the cardholder.
 * 3) Inserting the total amount of the transactions onto the cardholder's monthly statement.

In April 2003, Réal Marcotte applied to the Superior Court of Quebec for authorization to launch a class action against several financial institutions:


 * Bank of Montreal
 * Amex Bank of Canada
 * Royal Bank of Canada
 * Toronto-Dominion Bank
 * Canadian Imperial Bank of Commerce
 * Bank of Nova Scotia
 * National Bank of Canada
 * Laurentian Bank of Canada
 * Citibank Canada
 * Fédération des caisses Desjardins du Québec

Marcotte alleged that the defendants, contrary to the Consumer Protection Act in Quebec, failed to disclose the conversion charges as part of their "credit charge" as defined under the Act, which would have allowed cardholders who make payments before the due date to do so without paying such charge. In addition, he asserted that five of the banks failed to disclose the existence of the conversion charge, which was also in breach of the Act. It was estimated that the total amount of the charges in question was over $242 million.

The class action became a group of three because of procedural considerations:


 * Amex sought to be removed because Marcotte was not an American Express cardholder. Bernard Laparé, who was, joined as co-representative and co-plaintiff. Amex, relying on a ruling of the Quebec Court of Appeal that questioned the validity of the class action, sought to be removed from the action, but its application was dismissed.
 * The Desjardins part of the action was separated, as the other banks (who were established under the Bank Act) sought to raise constitutional issues relating the relationship between the Bank Act and the Consumer Protection Act.
 * The main action and the Desjardins action were heard jointly, on application of the parties.
 * Sylvan Adams instituted a separate class action against Amex with respect to the same issues but also asserted that restitution was due to all cardholders even if they were not consumers. This case was heard by the same judge that presided over the other actions.

The defendants sought to have the actions dismissed on several grounds:


 * 1) All banks other than BMO and Amex sought to be removed from the action, as Marcotte and Laparé had no direct connection since they held no cards issued by them.
 * 2) The conversion charges were not "credit charges" as defined by the CPA, but instead fell within the definition of "net capital".
 * 3) Five of the banks, which did not specifically disclose the conversion charge in their cardholder agreements, submitted that the charge was related to the exchange rate and not the interest rate posted on the monthly statements. The plaintiffs did not challenge the disclosure made by the four other banks.
 * 4) In any case, all banks submitted that, by paying their balances in full each month, cardholders extinguished any rights they may have had in the matter.
 * 5) For any accounts created before 17 April 2000 (three years before the commencement of the action), the rules concerning prescription would provide that those cardholders were statute-barred from participating in the action.
 * 6) The constitutional doctrines on interjurisdictional immunity and paramountcy meant that the COA did not apply, as the Act attempted to regulate activity that fell under the federal banking power, and it conflicted with existing federal legislation.
 * 7) In the event that these doctrines did not apply, the Code of Civil Procedure in Quebec did not support a claim for punitive damages in the action.
 * 8) The claims for reimbursement and punitive damages were not capable of being calculated with precision.

In its separate proceeding, Amex asserted essentially the same grounds. In its case, Desjardins submitted that payments by credit card fall within the federal power over bills of exchange, and is thus protected under interjurisdictional immunity and paramountcy grounds.

Superior Court
Gascon J (as he then was), in decisions released on the same day, found for the plaintiffs in all three actions. In reasons that were closely interlinked, he held:

Court of Appeal
The appeals produced varying results. In his reasons, Dalphond JA held:

Supreme Court
The appeals generally went in the plaintiffs' favour:


 * In Marcotte (BMO), the banks' appeals were dismissed and the appeal by Marcotte and Laparé allowed in part.
 * In Adams, Amex's appeal was dismissed.
 * In Marcotte (Desjardins), Marcotte's appeal was allowed in part.

Marcotte (BMO) constituted the main opinion, written by Rothstein and Wagner JJ for a unanimous Court. Their opinions in the other two appeals, while adopting the main opinion's principles, also addressed matters unique to them.

Adams v. Amex
Gascon J's finding of fact was allowed to stand and so his order for restitution remained. As Marcotte did not cross-appeal, the issue of punitive damages did not arise even though Marcotte (BMO) applied, as Amex had breached its section 12 obligations as well.

In addition, the CPA does not apply to non-consumer cardholders and so restitution is founded on the provisions of the CCQ, which the judge properly applied. According to the principles applicable to receipt of a payment not due, the basis for restitution is not the commission of a wrongful act, and the potential remedy is not damages. Rather, the basis for restitution is that there was no obligation to perform the prestations, and the remedy is a return of any prestations made without obligation, by virtue of and.

Marcotte v. Desjardins
It was agreed that payments by credit card do not fall within the federal bills of exchange power, and the natural limits of its wording prevent it from being expanded.

In addition, in applying Marcotte (BMO), Desjardins breached its obligations under section 12 of the CPA and in not disclosing the existence of the conversion charge until it issued a monthly statement showing such charges. Reimbursement of such charges is the appropriate remedy, but the rules on prescription mean that some cardholders' claims are now statutes barred, as notice began upon publication of such statement.

The matter was sent back to the Superior Court to determine the appropriate procedure for effecting recovery. It was agreed that Desjardins' behaviour did not justify assessment of punitive damages, as its conduct was neither negligent nor careless.

Impact
The Court held that federal and provincial laws can complement one another, and the fact that Canadian banks are federally chartered does not confer sweeping immunity from provincial laws:

With respect to the Banks' broader argument that provinces cannot provide for additional sanctions on top of federal sanctions, in our view this argument is similar to their argument respecting interjurisdictional immunity, whereby they seek a sweeping immunity for banks from provincial laws of general application. There are many provincial laws providing for a variety of civil causes of action that can potentially be raised against banks. The silence of the Bank Act on civil remedies cannot be taken to mean that civil remedies are inconsistent with the Bank Act, absent a conflict with ss. 16 and 988. In the present appeals there is no such conflict as the Plaintiffs are not seeking to invalidate their contracts.

The ruling is likely to affect other federally regulated businesses, as constitutional arguments may be ineffective to immunize them from class actions arising from provincial consumer protection legislation. It may also encourage greater provincial oversight, absent more active federal regulation.