2015 QCCA 36, 2015 QCCA 36

Unofficial English Translation Jasmin c. Société des alcools du Québec 2015 QCCA 36 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-023912-132 (500-06-000604-120) DATE: January 14, 2015 CORAM: THE HONOURABLE JACQUES DUFRESNE, J.A. MANON SAVARD, J.A. JEAN-FRANÇOIS ÉMOND, J.A. JEAN-RENÉ JASMIN APPELLANT – Plaintiff v. SOCIÉTÉ DES ALCOOLS DU QUÉBEC RESPONDENT – Defendant JUDGMENT [ 1 ] The appellant appeals from a judgment of the Superior Court, District of Montreal (the Honourable Mr.

Justice Stéphane Sansfaçon), [1] rendered on September 4, 2013, that refused to authorize a class action for damages against the respondent, the Société des alcools du Québec, on the grounds that the facts alleged do not seem to justify the conclusions sought pursuant to paragraph 1003(

b) C.C.P. and the petitioner is not in a position to represent the members adequately, pursuant to the requirements of paragraph 1003(

d) C.C.P. [ 2 ] For the reasons of Dufresne, J.A., with which Savard and Émond, JJ.A. agree, THE COURT : [ 3 ] DISMISSES the appeal, with costs. JACQUES DUFRESNE, J.A. MANON SAVARD, J.A. JEAN-FRANÇOIS ÉMOND, J.A. Mtre David Bourgoin and Mtre Benoît Gamache BGA Barristers Solicitors For the appellant Mtre Gérald R. Tremblay and Mtre Shaun Finn McCarthy Tétrault For the respondent Date of hearing: November 4, 2014

REASONS OF DUFRESNE, J.A. [ 4 ] Year in and year out, the Société des Alcools du Québec, better known as the "SAQ" provides significant dividends for the State. [2] To generate these net profits, which go entirely into the coffers of its sole shareholder, does the SAQ abuse its dominant position as a monopoly and, as the appellant argues, does it violate

section 8 of the Consumer Protection Act [3] (the " C.P.A. ")? [ 5 ] The appellant is convinced that it does. For this reason, he seeks to be ascribed the status of representative in the class action brought against the respondent for [ translation ] "all natural persons, associations, and legal persons, who have had fifty (50) employees at most since April 2, 2011, who have bought at least one alcoholic product from the respondent since April 2, 2009". As one might well imagine, the claim is colossal. According to the trial judge’s

summary assessment, it would amount to almost $2.4 billion. This is far from inconsequential. [ 6 ] The nature of the action is essentially an [ translation ] "action in damages against the respondent to sanction a disproportionate pricing policy and an abusive monopolistic commercial practice". [4] The damages claimed are nothing short of the reimbursement of amounts received by the SAQ exceeding a reasonable profit margin to be determined (but that should not, according to the appellant, be any higher than 30% of its sales), as well as punitive damages because of a violation of an obligation under the C.P.A. , specifically,

section 8 of that statute. [ 7 ] In brief, the appellant faults the SAQ for charging, during the reference period, an excessively high price for the wines and spirits it sells to Quebec consumers in relation to their acquisition cost, thereby resulting in a disproportion. The appellant alleges that the profits thus generated are so considerable that they are tantamount to consumer exploitation. The SAQ therefore violates

section 8 of the C.P.A . The appellant also argues the violation of articles 6, 7, and 1437 of the C.C.Q. [ 8 ] A person who seeks authorization to bring a class action must meet the requirements of

article 1003 of the Code of Civil Procedure , which states: 1003. Le tribunal autorise l'exercice du recours collectif et attribue le statut de représentant au membre qu'il désigne s'il est d'avis que:

a) les recours des membres soulèvent des questions de droit ou de fait identiques, similaires ou connexes;

b) les faits allégués paraissent justifier les conclusions recherchées;

c) la composition du groupe rend difficile ou peu pratique l'application des articles 59 ou 67; et que

d) le membre auquel il entend attribuer le statut de représentant est en mesure d'assurer une représentation adéquate des membres. 1003. The court authorizes the bringing of the class action and ascribes the status of representative to the member it designates if of opinion that: (

a) the recourses of the members raise identical, similar or related questions of law or fact; (

b) the facts alleged seem to justify the conclusions sought; (

c) the composition of the group makes the application of

article 59 or 67 difficult or impracticable; and (

d) the member to whom the court intends to ascribe the status of representative is in a position to represent the members adequately. [ 9 ] The Supreme Court has often reiterated that these criteria for authorizing a class action should receive a flexible and liberal

interpretation. The judge knew this. If fact, he referred to Infineon , [5] a recent leading case of the Supreme Court, which was cited by Fortier v. Meubles Léon Ltd. , 2014 QCCA 195 , from which excerpts are reproduced here below: [ translation ] [70] At the authorization stage, the review is not intended to be a detailed assessment of the merits of the class action, but a verification of whether the motion and the evidence that sometimes completes the record show an arguable case or, to use synonyms, one that is sustainable or justifiable. The screening function consists of [ translation ] "reserving the same fate for actions that, while perhaps not

frivolous, are clearly unfounded" [citation omitted] – that is, refusing to authorize the class action. [71] The very nature of this exercise is discretionary. It follows that the corollary of an authorizing judge's discretion in assessing the requirements of

article 1003 C.C.P. is an exacting standard of review on appeal, as pointed out by LeBel and Wagner JJ., in Vivendi Canada : [34] The Quebec Court of Appeal, mindful of the importance of the motion judge’s discretion with respect to the criteria set out in art. 1003 C.C.P. , has stated on many occasions that its power to intervene in this regard is limited and that it must show deference to the motion judge’s decision.

It will therefore intervene in an appeal from a decision on a motion for authorization to institute a class action only if the motion judge erred in law or if the judge’s assessment with respect to the criteria of art. 1003 C.C.P . is clearly wrong: [citations omitted]. [ Vivendi Canada Inc. v. Dell’Aniello , 2014 SCC 1 at para. 34 .] [ 10 ] The parties concede that the appellant's motion for authorization meets the criteria and requirements of paragraphs (

a) and (

c) of

article 1003 C.C.P . The judge clearly took note of this. There is no need to say any more on the subject. [ 11 ] The same cannot be said of the requirements of paragraphs ( b ) (sufficiency of the facts alleged) and ( d ) (adequate representation of the members of the group) of

article 1003 C.C.P . In a particularly careful judgment, the judge refused to authorize the action because these two requirements had not been met. [ 12 ] At the authorization stage, the petitioner's burden is one of demonstration only. The allegations of the motion are taken as true [6] and the judge must also [ translation ] "take into consideration the exhibits filed into the record and take into account the examinations in the record". [7] [ 13 ] Sections 4 and 8 of the C.P.A. and their main components also merit discussion: 4.

Le gouvernement, ses ministères et organismes sont soumis à l'application de la présente loi. 8. Le consommateur peut demander la nullité du contrat ou la réduction des obligations qui en découlent lorsque la disproportion entre les prestations respectives des parties est tellement considérable qu'elle équivaut à de l'exploitation du consommateur, ou que l'obligation du consommateur est excessive, abusive ou exorbitante. 4. The Government and the Government departments and agencies are subject to the application of this Act. 8.

The consumer may demand the nullity of a contract or a reduction in his obligations thereunder where the disproportion between the respective obligations of the parties is so great as to amount to exploitation of the consumer or where the obligation of the consumer is excessive, harsh or unconscionable. [ 14 ] First, we observe that the SAQ is subject to the C.P.A. , supra , which is generally characterized as a protective public order statute. [8] It is not exempt from it, as is the case for the Hydro-Quebec contracts of sale of electricity (s. 5 C.P.A. ). Second,

section 8 C.P.A. codifies the notion of objective lesion. This notion is defined as follows by authors Baudouin and Jobin: [ translation ] Strictly speaking, from an objective point of view, lesion is an imbalance in the economy of the contract arising from the inequality of the parties' reciprocal obligations. It is therefore lesion resulting from an assumed and unwanted economic error as to the value of the promised benefit. ... [9] [ 15 ] There is therefore objective lesion if the respective obligations of the consumer and the merchant are so disproportionate that the consumer is seriously prejudiced. [10] [ 16 ] What of the refusal to authorize based on paragraph 1003(

b) C.C.P. ? [ 17 ] The judge observed, first, that the legality of the Act respecting the Société des Alcools du Québec , supra , is not impugned, such that the [ translation ] "debate surrounding the SAQ's profit margins is therefore in the court of politicians rather than that of judges". [ 18 ] He then considered the SAQ to be subject to the C.P.A. , but not necessarily to

section 8 : [ translation ] [56] It appears from the allegations of the motion that the fault alleged against the SAQ is that it took advantage of its [ translation ] "total monopoly without independent guidelines" to [ translation ] "artificially inflate" the price of its products and thereby generate [ translation ] "inordinate profit margins”. [57] The syllogism proposed by the petitioner states that the disproportion between the SAQ's cost for a bottle of wine and the price it charges the consumer for the same bottle, much like the disproportion between its actual profits and the profits that it should make, is so considerable that it is tantamount to consumer exploitation within the meaning of

section 8 of the C.P.A. and lesion within the meaning of

article 1406 C.C.Q. or to a situation that is unreasonably detrimental within the meaning of 1437 C.C.Q. [58] In the Court's view, the syllogism proposed by the petitioner suffers from a fatal flaw given that, although the SAQ is in principle subject to the C.P.A. , its pricing policies, like its high profit margins, cannot be characterized as consumer exploitation or as unreasonable or unconscionable within the meaning of these statutes because they are a direct result of the legislature's decision to create

a State monopoly. ... [70] In its infinite wisdom, the legislature chose to give the SAQ free reign, at least as far as controlling the market and fixing the price of its products is concerned.

It knew that in so doing, there would likely be an actual increase of prices to levels that would hardly be achievable in a free market, and that this price increase, added to the discounts obtained when purchasing the products due to its purchasing power, would allow the SAQ to generate profit margins that would in all likelihood be exceptionally high compared with profits generated by other types of retail businesses. ... [73] Obviously, the fact that the SAQ has a monopoly does not exempt it from complying with the other provisions of the C.P.A. such as those pertaining to warranties, advertising or any other matter. [74] Thus, even if it were proved on the merits that the profit margins and the pricing policies for the products sold by the SAQ are very high, they cannot be characterized as offending.

The syllogism proposed by the petitioner suffers from a flaw that precludes finding that there is a serious colour of right or that the facts alleged in the motion seem to justify the conclusions sought. [11] [Citations omitted.] [ 19 ] First, let us be clear on the following point, as the appellant has in fact been: the lawfulness of the State monopoly for the sale of wine and spirits is neither called into question nor challenged, nor was it debated at trial. What is at issue here, and what must be taken as true at this stage, is the profit margin the SAQ makes on all of the products it sells.

These profit margins are characterized by the appellant as disproportionate within the meaning of

section 8 C.P.A . [ 20 ] The appellant faults the trial judge for finding that

section 8 C.P.A. did not apply to the SAQ and therefore finding that the requirement of paragraph 1003(

b) C.C.P. had not been met. [ 21 ] At the outset, overall, I share the opinion expressed by the trial judge. Like him, I believe that the request for authorization was bound to fail (para. 1003(

b) C.C.P. ), but I would insist on one slight difference or precision, namely, that like any other merchant, the SAQ is indeed subject to

section 8 C.P.A . In the present case, however, the action is without merit. I will explain. [ 22 ] The appellant is a consumer who, between January 27, 2012, and March 16, 2012, bought several alcoholic products from the SAQ for a total of $578.70. During a trip to Florida, he realized that a 1.5 L bottle of a specific wine was sold for $12, the same price as a 750 mL bottle of the same wine in an SAQ branch. Discussing this price gap with his friends and family, he concluded that the SAQ sold its products at prices that were too high and consequently brought this class action.

As a result of these conversations, he is under the impression that the SAQ's profits are excessive. [ 23 ] Ultimately, the appellant challenges the SAQ's business model.

He does not challenge one or even a few specific products that he bought by alleging abuse or the disproportionate profit margin on these products, for which he could seek to cancel the contract (or in other words, restitution) – which is not always easy when it comes to liquids destined to be ingested – or, if the alcohol is already consumed, the reduction of the obligations arising from the contract by seeking reimbursement for the overpayment beyond a reasonable profit. Instead, he challenges the profit margin generated by all of the SAQ's sales during the reference period, since April 2, 2009.

Therein, in my opinion, lies the problem. [ 24 ] Let us state things plainly. To do so, we need only discuss the issue from the perspective of a single merchant who does not benefit from a monopoly. It is difficult to fathom that clients who have bought one or more products from this merchant over a given period of time could bring an action in damages, whether individual or collective, based on a disproportion profit margin on all the merchant's annual sales. [ 25 ] Now, let us take this example one step further.

Let us suppose that the client goes to the retail business to purchase a consumer good, such as the latest television set. If, following that purchase, the client discovers that the merchant's asking price is abusive – the merchant's profit margin is disproportionate to the product sold – when he compares it to the market price for a similar product, and this disproportion is considerable, the client may then return the product to the merchant and demand a reimbursement or a reduction in the sales price. That is one way in which

section 8 C.P.A. can be applied. That said, the consumer must not rush to the merchant seeking to be restored to his prior condition or to obtain a reduction of the sales price as soon as he notices that his price is higher than the price offered by another merchant. [ 26 ] For there to be lesion within the meaning of

section 8 C.P.A. , there must be more. Two conditions must exist for objective lesion within the meaning of

section 8 C.P.A to exist. First, there must be disproportion between the value of the respective obligations of the parties to the consumer contract, and second, the disproportion must be considerable. The examination performed by a court hearing an action based on

section 8 C.P.A. consists in verifying whether the disproportion between the obligations of the parties is so considerable that the consumer is seriously prejudiced. If so, the court can then conclude that the consumer is exploited. The consumer may then obtain the cancellation of the contract or the reduction of his or her obligations arising therefrom. And that, in broad strokes, is the

interpretation that

section 8 C.P.A. [12] should receive. Practical applications abound in case law. [ 27 ] To decide whether the disproportion observed with respect to a given product is tantamount to exploitation, a simple mathematical exercise is not necessarily enough. A court may have to take several factors into account, including the nature of the product, its price, the merchant's profit margin on the sale of this product (but not only on a unit base), the type of business, the particular market characteristics and one or more comparables in the relevant market. [ 28 ] Sometimes, the conclusion is obvious. For example, a judge hearing an application under

section 8 C.P.A. found that a 400% profit margin on the sale of a sabre was so disproportionate that it was tantamount to exploitation. That is not surprising considering that,

in that case, the evidence established that the market value of the sabre was between $400 and 500, that the price paid by the merchant was $420 and that the price ultimately paid by the consumer was $1,700. [13] In other more complex situations, there may be more factors to consider. [ 29 ] What of the class action brought against the SAQ? [ 30 ] First, the action must successfully pass the screening stage, that is, the authorization stage of the class action (art. 1003 C.C.P. ). The legislature quickly understood that, by its very nature, this type of action is likely to be a considerable drain on resources.

It therefore subjected it to a preliminary authorization procedure. While the class action is sometimes criticized, it nevertheless remains a useful and even necessary procedural avenue. This method, when the requirements to exercise it are met, is quite useful in situations where the multitude of individual actions would clog up the legal system. [ 31 ] The syllogism proposed by the appellant suffers from a flaw that precludes us from finding that there is a serious colour of right.

This was the trial judge's conclusion, and I share his view on this point. [ 32 ] Basing himself mainly on a financial impact study [14] and various other documents, the appellant challenges the SAQ's overall profit margin. In short, the action concerns all the products sold by the SAQ to all of its clients during the reference period.

Without repeating the trial judge's detailed analysis of this issue, I find that he was right to assert that we cannot call into question all the pricing policies or the SAQ’s average profit margin, as high as it may be, [15] on its overall annual sales (about 12,000 products, according to the respondent), because they are the result of a legislative decision to create a government monopoly for the sale of wines and spirits. [16] [ 33 ] Respectfully, I find that the SAQ is, like any other merchant, subject to

section 8 C.P.A. when the consumer can establish that the profit margin on a given product is so disproportionate that it is tantamount to exploitation within the meaning of the C.P.A . If the legislature had wanted to exempt the SAQ from the application of

section 8, it would have said so, as it did regarding Hydro-Quebec electricity contracts. [ 34 ] The SAQ does not benefit from any immunity under the law. It is not protected from an action under

section 8 of the C.P.A. , but that does not mean that it does not enjoy a great deal of leeway with respect to establishing its pricing policy. [ 35 ] As previously stated, the courts generally apply

section 8 C.P.A . when the difference between the merchant's asking price and the usual market value of a product or service is so great it results in a disproportion so considerable that it is tantamount to consumer exploitation. [ 36 ] Simply to illustrate, it is easy to imagine that the status and mandate of the SAQ will be considered to determine whether, based on a meaningful market comparison the asking price of a given product is so disproportionate or exorbitant that it is tantamount to consumer exploitation.

The specific characteristics of the SAQ's distribution network throughout Quebec and the one price policy are relevant factors that should be taken into consideration, but these are not at stake here. [ 37 ] In short, the SAQ may be sued under

section 8 C.P.A. based indiscriminately on the profit margin achieved on its overall sales without calling into question the business model intentionally established by the legislature. Moreover, the appellant's legal interest in bringing such an action is questionable, although it need not be determined today in light of our conclusion. [ 38 ] The appellant's motion does not meet the requirements of paragraph 1003(

b) C.C.P . The appellant's action, like his appeal, is bound to fail. [ 39 ] Although the outcome of the appeal does not require a consideration of the criterion of the capacity of the representative (para. 1003(

d) C.C.P. ), I find it useful to touch upon the subject nonetheless. [ 40 ] In this case, the appellant initiated the action. According to the evidence, he approached the legal firm and gave the mandate. [ 41 ] The judge was well aware that the threshold for this requirement is low, but he nevertheless found that the appellant did not meet it. [ 42 ] It goes without saying that it is easier to be particularly demanding of those seeking authorization to institute a class action when, as in this case, the authorization is refused on other grounds (absence of an arguable case).

This criterion, however, should receive the same treatment regardless. The Supreme Court has repeatedly warned against being too demanding or strict with respect to the capacity of the representative (para. 1003(

d) C.C.P. ). [17] [ 43 ] Thus, the fact that a representative is or is not present for every hearing in first instance is not an absolute criterion. A petitioner is not ascribed the status of representative merely by being present for the entire hearing, as in this case in appeal. Furthermore, the petitioner's degree of knowledge of the legal case does not necessarily indicate a flagrant lack of interest on his part.

I cannot imagine what this collective procedure would become if it were necessary to use super-petitioners who would appear in every file and who would of course know all the answers in an examination on discovery or out of court prior to the authorization. It would not be very reassuring. In

summary, we must strive for the middle ground, while keeping in mind the saying that sometimes "perfect is the enemy of good". [18] [ 44 ] In all fairness to the trial judge, however, his conclusion regarding the requirement of paragraph 1003(

d) C.C.P. is based on a very detailed analysis of several relevant factors, some of which are more objective than others. Since the refusal to authorize the appellant's action is also based on his failure to meet the requirement of 1003(

b) C.C.P. , it is not necessary in this case to say any more about this requirement. [ 45 ] I would therefore dismiss the appeal, with costs.

JACQUES DUFRESNE, J.A. [2] The Act Respecting the Société des Alcools du Québec (C.Q.L.R., c. S-13) confers upon the SAQ a monopoly for the sale of wines and spirits on the Quebec territory. Its sole shareholder is the Government of Quebec.

Section 58 of this statute states that the dividend is fixed by the minister. The evidence reveals that, year after year, the minister fixes this dividend at 100% of the business's net income.