Member Article

This Bill is part of the ongoing measures by the Minister of Justice and the Office de la protection du consommateur (Consumer Protection Bureau) to provide for the comprehensive regulation of commercial practices involving goods and services contracts used by consumers. the Consumer Protection Act (the “CPA”) contains a broad range of content and form requirements affecting the drafting, formation, execution and cancellation of nominate and identified contracts. With this Bill, the Minister of Justice now proposes to legislate with respect to three new types of contracts, and sets out certain rules regarding all the contracts for which the CPA requires a written instrument. the legislator’s goal is to ensure that the consumer has access to all possible information before entering into a contract with a merchant in terms of the price of the contract, the components, terms and conditions of payment and execution, and the amendment or cancellation thereof.

The amendments proposed by the Bill constitute the second phase of the review of the CPA, which was started in 2006 and included, inter alia, the division on distance (or remote) contracts (Bill 48). a third phase is also planned dealing with the regulation of contracts of credit.
The Bill proposes the following main amendments to the CPA:

the prohibition of the unilateral amendment of contracts governed by the CPA (new sections 11.2 and 11.3);

the prohibition of certain specific clauses in contracts governed by the CPA (new sections 11.2, 11.3, 13 and 19.1);

additional conditions governing the sale of extended conventional warranties (new sections 35.1 and 52.1);

new conditions governing the sale of prepaid (gift) cards (new sections 187.1 to 187.4);

a special regime for contracts involving the sequential performance of a service provided at a distance (new sections 214.1 to 214.11);

mandatory disclosure of the total price payable by the consumer (clarifying the terms of section 224(c));

the prohibition of so-called “negative option” billing practices (new section 230(c);

the extension of the scope of injunctive relief (new section 316).

Some of these amendments may impact the activities of numerous merchants. These new provisions merit study to clearly identify the meaning of the proposed changes and their practical effect on merchants’ activities.

The Bill also adds to the regulatory powers of the government (section 350). Some amendments were also made to the Travel Agents Act, An Act respecting prearranged funeral services and sepultures and An Act respecting the collection of certain debts. If adopted, the provisions of the Bill will come into force on the date or dates to be fixed by the government, no doubt in the fall of 2009 or the winter of 2009-10.

A. Unilateral amendment of contract s governed by the CPA

These sections apply generally to all consumer contracts for which the CPA requires a written instrument. These new provisions are intended to inform the consumer of the conditions for the amendment or cancellation of the contract entered into with the merchant. The new sections 11.2 and 11.3 of the CPA

(a) prohibit any stipulation under which a merchant may unilaterally amend a contract, and (b) prohibit any contractual stipulation under which the merchant may unilaterally cancel a fixed-term service contract involving sequential performance. While there are some exceptions to these prohibitions, they are quite limited. The contract must expressly provide for the cases and conditions in which the merchant may amend a clause of its agreement with the consumer, and that the consumer must be given 60 days’ notice thereof.

If the amendment entails an increase in the consumer’s obligations, he may refuse the amendment and cancel the contract. He may also cancel the contract if the amendment entails a reduction in the merchant’s obligations. It is important to note that the new section 11.2 will not apply to the amendment of a variable credit contract under section 129 of the CPA. Interest rates may still fluctuate. A merchant may not amend a provision in a contract relating to one of its essential terms (such as, for instance, the price, nature of the goods or services that are the subject of the contract, or the term of the contract), except in the case of a fixed-term service contract. This also is a provision of general application. These new provisions do not prevent the merchant from amending the contract during the term, but are intended to ensure that the consumer is informed ahead of time and has the opportunity to cancel the contract if he does not agree with or is disadvantaged by the amendments proposed by the merchant.

Any amendment to a contract in contravention of the proposed section 11.2 will be unenforceable against the consumer. As for the proposed section 11.3 of the CPA, it provides that a merchant may not unilaterally cancel an indeterminate-term contract involving sequential performance unless it gives written notice thereof to the consumer at least 60 days before the cancellation date.

In the case of fixed-term service contracts, any stipulation pursuant to which the merchant may unilaterally cancel such a contract is prohibited. However, we are nevertheless inclined to believe that the merchant may still, pursuant to the general rules of the law of obligations, cancel a service contract if the consumer is in default. In our opinion, the legislator should have been more specific with respect to the cases in which merchants would nonetheless be justified in terminating a fixed-term service contract.

B. Prohibited or inaplicable clauses

The legislator also intends to amend section 13 of the CPA by providing that, from now on, any contractual stipulation requiring a consumer to pay charges, penalties or damages, other than accrued interest, upon the non-performance of his obligations, is prohibited. This new section seeks to counteract certain case law according to which the current section 13 does not prohibit penal clauses intended to set the amount of the merchant’s damages in advance upon the consumer’s non-performance of an obligation.

However, it is quite realistic and reasonable from a commercial standpoint to expect that a merchant may sustain damages due to the cancellation of a contract by a consumer or the non-performance of the consumer’s obligations. Moreover, this principle was recognized by the Quebec Court of Appeal. In addition, the courts always have the power to amend any such liquidated damages clause where they deem it unreasonable. One should also ask if accelerated payment clauses in case of default will still be allowed.

Furthermore, this new section would not prevent a merchant from claiming damages from a consumer, but it must then prove them in accordance with the balance of probabilities rule. Further on, we will consider the special regime applicable to sequetial performance service contracts, particularly Internet hosting and cell-phone contracts. In the proposed section 19.1, the legislator has also provided that any clause, in a contract between a merchant and a consumer, that is not applicable in the province of Quebec must be immediately preceded by a prominently presented statement to this effect.

This provision will obviously affect the operations of many merchants. Efforts should be made here to ensure that merchants do not become victims of regional disparities because of the distinctiveness of certain Quebec statutes. Everyone is familiar with the old saying “ignorance of the law is no excuse”. This saying should also apply to the consumer. Are we also to conclude here that the legislator recognizes that the rules will be different in Quebec? Is the legislator not bound by the agreements and models agreed on between the federal and provincial governments which are intended to harmonize certain rules of consumer law? The act remains that, by adopting this provision, the legislator will be acknowledging that certain contractual clauses may be legal elsewhere but not in Quebec.

C. Extended conventional warranties

Section 35.1 provides that before proposing to enter into a contract with a consumer that offers an extended conventional warranty on goods, the merchant must inform the consumer, orally and in writing, of the content of the legal warranty set out in section 38 of the CPA, as well as the existence of any manufacturer’s conventional warranty. This section is not particularly clear. The legislator would be wise to specify what is meant by “inform the consumer orally and in writing”. Does this imply that the merchant and its staff must be versed in legal matters in order to be able to interpret section 38 of the CPA for consumers who make such a request? As for the conventional warranty, what does the disclosure of “the object and duration” of the warranty entail? Understandably, the consumer needs to be aware of the content of the warranties attached to a product (whether legal or conventional) to avoid concluding an extended warranty contract when it is not really necessary. Since one of the obvious reasons for the adoption of this new section 35.1 is to prohibit the sale of an extended conventional warranty unless it really provides the consumer with additional protection to the manufacturer’s warranty, it is important to consider whether a “turnkey” warranty will meet these conditions, or whether such a program should not rather be characterized as after-sales service? What will happen to true after-sales service contracts? We must also consider how the information required for the purchase of an extended warranty will be disclosed for a contract concluded at a distance. These are just a few of the questions the courts will have to resolve if the Bill is passed. For some time now, the Office de la protection du consommateur has been working on regulating the sale of extended warranties. Much has been written on the topic and it was even the subject of a class action suit. In our opinion, the legislator might well have considered a “middle ground”, such as giving the consumer a grace period to cancel an extended warranty contract in certain very specific cases. Such a grace period would allow the consumer to make an informed decision about the warranty, while allowing merchants to fulfill their obligations without having to give legal training to their staff.

D. Contracts for the sale of prepaid (gift ) cards

Sections 187.1 and following constitute a new division of the Act, i.e. division V.1 dealing with the sale of prepaid cards, in the chapter on contracts. This division applies to the issue, sale and use of gift certificates, gift cards or any other similar medium of exchange that are paid in advance and allow a consumer to acquire goods or services from one or more merchants.

These provisions do not state whether they will govern gift cards issued as part of a promotion (therefore without payment of a consideration) or any cashbacks given by a merchant. We assume that this is not the case since the consumer makes no payment in these cases. The same should hold true for credit notes given under a product returns policy. Hopefully, the legislator will clarify these issues when the regulations are enacted, as was done in Ontario.

 

Link to article