r v. KIA CANADA INC., 2013 QCCQ 14632

Unofficial English Translation JB 4107 Directeur des poursuites criminelles et pénales c. Kia Canada inc. Consumer Protection Act

section 227.1 False or misleading advertising (applicable taxes) 2013 QCCQ 14632 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT DE MONTREAL LOCALITY OF MONTREAL "Criminal and penal division" No.: 500-61-300410-116 DATE: November 27, 2013 ______________________________________________________________________ PRESIDING: DOMINIQUE BENOIT PRESIDING JUSTICE OF THE PEACE ______________________________________________________________________ DIRECTOR OF CRIMINAL AND PENAL PROSECUTIONS Prosecutor v. KIA CANADA INC.

Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Three contraventions to

section 227.1 of the Consumer Protection Act (R.S.Q., c. P-40.1) are alleged against the Kia Canada Inc. company. [ 2 ] These relate to a false or misleading representation concerning the existence or the charge of a duty payable under a federal statute, i.e., the Goods and Services Tax (GST), in three advertisements that appeared in the Le Nouvelliste de Trois-Rivières newspaper on November 22, 24 and 26, 2008. [ 3 ] Each of these advertisements is identical and includes, among other statements, a symbol meaning "no GST", i.e., the letters GST inside a circle with a line drawn through it.

The advertisement is for [ translation ] "The 48-hour sale" of Kia vehicles. [ 4 ] To illustrate the content of the advertisement, it is appended to this judgment. I- QUESTION AT ISSUE [ 5 ] As presented, are the Kia Canada advertisements false or misleading with regard to the application of the GST? II - RELEVANT FACTS [ 6 ] The prosecutor called as a witness Ms. Nicole Rodier, an investigator with the Office de la protection du consommateur (OPC), and filed various documents under exhibit P-1, including a copy of the advertisements at issue. The facts are not disputed by the defendant.

[7] Essentially, the testimony of the investigator shows that the advertisements in question were noticed by the Office followingtheir publication in November 2008. [8] Ms. Rodier explained that the Kia Canada company had already been warned, in a letter to its president in December 2007,about the non-compliance of its previous advertisements with respect to the application of taxes.

As no reply was received to this notice,the Office did a follow-up. [9] Following new publications in November 2008, in the Le Nouvelliste newspaper, the OPC investigation department received amandate to audit the business practices of the Kia company concerning its advertisements. [10] The dispute concerns the factual and legal

interpretation to be given to these advertisements, as the parties have differentopinions on the matter. [11] In the prosecutor's opinion, these advertisements contravene

section 227.1 of the Consumer Protection Act because they give agenerally misleading impression concerning the application of the GST. Consumers who see these advertisements are led to believe thatthe GST does not apply, or that they will not have to pay this tax when they purchase a vehicle. The text in small print on the applicableconditions which accompanies the advertisement is not sufficient to rectify the problem. [12] In the defence's view, the advertisement must be considered as a whole that includes both image and text.

The text in small printexplains the applicable conditions and restrictions, including with respect to the application of the GST that the buyer must pay. KiaCanada agrees to reimburse the amount of the GST to the customer. It is normally expected that consumers who look at thisadvertisement will read it in its entirety to know its exact content. It is their view that the advertisement is complete and complies withthe Act. [13] The parties refer this Court to the recent Supreme Court judgment in Richard v.

Time Inc., 2012 SCC 8 , [2012] 1S.C.R. 265, which examines precisely the question of business practices prohibited by the Consumer Protection Act, specifically itssection 218 (prohibited practice - general impression). [14] That case concerned a sweepstakes type of mailing falsely suggesting that the recipients had won a large cash prize in order toinduce them to subscribe by replying to the correspondence received.

The Supreme Court deemed this practice, including the confusingway of presenting the information, to be contrary to the provisions of the C.P.A. [15] The parties underline paragraphs 55 to 57 of the judgment, which explain the appropriate approach to analyzing anadvertisement as a whole in order to ascertain the "general impression" it conveys and, ultimately, determine whether a commercialrepresentation infringes the Act. III- ANALYSIS 1) Applicable law [16] The relevant sections of the Consumer Protection Act are in Title II, which deals with prohibited business practices (sections215 to 253 C.P.A.): 218.

To determine whether or not a representation constitutes a prohibited practice, the general impression it gives, and, as the casemay be, the literal meaning of the terms used therein must be taken into account. 219.

No merchant, manufacturer or advertiser may, by any means whatever, make false or misleading representations to a consumer. … 227.1 No person may, by any means whatever, make false or misleading representations concerning the existence, charge, amount orrate of duties payable under a federal or provincial statute. (Emphasis added) [17] It is a matter of determining the meaning of the terms "general impression", "false or misleading representation" and"consumer" used by the legislator. [18] Richard v.

Time Inc., supra, answers these questions and is sufficient for the analysis, particularly paragraphs 44 to 87 of thejudgment, where the Supreme Court looks at

section 218 in the historical context of the Consumer Protection Act. [19] In short, the Court examines the objective of the C.P.A. (paragraphs 43 and 44) and the notion of the "general impression"conveyed by an advertisement (paragraphs 55 to 57). The Court establishes the legal standard applicable to the "consumer" that the Act isdesigned to protect (paragraph 67), i.e. an average consumer who is "credulous and inexperienced" (paragraph 78).

[ 20 ] The Supreme Court states that the courts must perform a two-step analysis to determine what constitutes a prohibited practice under the C.P.A. (paragraph 78, the applicable test). [ 21 ] The following excerpt from the

summary of the case offers an understanding of the applicable principles: … According to s. 218 C.P.A. , which guides the application of all the provisions of Title II concerning prohibited business practices, to determine whether a representation constitutes such a practice, it is necessary to consider the “general impression” given by the representation and, where appropriate, the “literal meaning” of the words used in it.

In the case of false or misleading advertising, the general impression is the one a person has after an initial contact with the entire advertisement, and it relates to both the layout of the advertisement and the meaning of the words used. It is analysed without considering the personal attributes of the consumer who has instituted proceedings against the merchant.

To be consistent with the legislature’s objective of protecting vulnerable persons from the dangers of certain advertising techniques, the general impression test must be applied from the perspective of the average consumer, who is credulous and inexperienced and takes no more than ordinary care to observe that which is staring him or her in the face upon first entering into contact with an entire advertisement. Considerable importance must be attached not only to the text, but also to the entire context, including the way the text is displayed to the consumer.

Defining the average consumer as having “an average level of intelligence, scepticism and curiosity” is inconsistent with the letter and the spirit of s. 218 C.P.A. A court asked to assess the veracity of a commercial representation must engage, under s. 218 C.P.A. , in a two-step analysis that involves — having regard, where appropriate, to the literal meaning of the words used by the merchant — (1) describing the general impression that the representation is likely to convey to a credulous and inexperienced consumer; and (2) determining whether that general impression is true to reality.

If the answer at the second step is no, the merchant has engaged in a prohibited practice. [1] (Emphasis added.) [ 22 ] In short, to conclude that a commercial representation is a practice prohibited by

section 218 C.P.A. , a court need only find that the average consumer, i.e., one who is credulous and inexperienced, could be misled by the advertisement. [ 23 ] The primary objective of Title II of the C.P.A. is the consumer's protection from false or misleading representations. Many of the practices it prohibits relate to the veracity of information provided to consumers by merchants. [2] In consumer protection cases, the courts have often used the average consumer test.

And to fully comply with the objective of protection that underlies the legislation, the courts have assumed that the average consumer is "not very sophisticated". [3] [ 24 ] The measures taken by the legislator flow from the principle that it is not up to consumers to be careful or beware, but rather up to merchants to be clear and honest in their representations, failing which they will be subject to the civil or penal consequences provided in the Act . [4] [ 25 ] The Court does not have to determine whether the content did in fact mislead someone; the mere possibility is enough.

In addition, since this is a regulatory penal matter, no fraudulent intent need be proved. [ 26 ] But who are these average, credulous and inexperienced consumers that the C.P.A. is designed to protect? They are defined as follows by the Supreme Court: [67] The general impression test provided for in s. 218 C.P.A. must be applied from a perspective similar to that of “ordinary hurried purchasers”, that is, consumers who take no more than ordinary care to observe that which is staring them in the face upon their first contact with an advertisement.

The courts must not conduct their analysis from the perspective of a careful and diligent consumer. [5] [ 27 ] This test applies both to the assessment of a false or misleading commercial representation prohibited by

section 219 C.P.A. (general prohibition), and to the more specific prohibition concerning the application of taxes under

section 227.1 C.P.A. [ 28 ] About

section 227.1 C.P.A. , Professor Claude Masse writes: [TRANSLATION] This

section was enacted in 1997 to counter false representations about taxation, especially representations by merchants who claim not to charge the GST and the QST. [6] 2) Application of the law to the facts [ 29 ] What of Kia Canada's advertisements? [ 30 ] The analysis prescribed by

section 218 C.P.A. is a two step-process: (1) the Court must assess the general impression that the advertisement is likely to convey to a credulous and inexperienced consumer; and (2) the Court must determine whether that general impression is true to reality. [7] 1. General impression

[ 31 ] The entire advertisement must be taken into account – the way it is presented, the layout, the images, the text and the context – to determine the general impression it conveys. [8] [ 32 ] The test is not that of a partial reading, a reading of portions, or a rushed reading of the advertisement, nor, on the other hand, is it that of a minute dissection of the text. An advertisement should not be approached as if it were a commercial contract.

Reading over the entire text once should be sufficient to assess the general impression conveyed. [9] [57] In sum, it is our opinion that the test under s. 218 C.P.A. is that of the first impression. In the case of false or misleading advertising, the general impression is the one a person has after an initial contact with the entire advertisement, and it relates to both the layout of the advertisement and the meaning of the words used. [10] [ 33 ] In the present case, the advertisement is more visual than textual. It includes photos of vehicles,

short titles in large print, text and advertised prices in medium print, and information in small print at the bottom of the advertisement. The Court notes that the size of the print varies according to the importance of the information that the merchant wishes to convey to consumers via its advertisement. [ 34 ] The advertisement also includes the acronym "GST" in a circle with a line through it ("no GST"), which is in large print and very prominent.

On the right side of the advertisement, placed vertically, is a text in very small print which explains the applicable conditions and restrictions. [ 35 ] It is these last two elements that are at issue. [ 36 ] Clearly, as far as the taxes are concerned, the immediate impression conveyed by the advertisement is that there is no GST to pay. Consumers who look at the advertisement are led to believe either that the federal Goods and Services Tax (GST) is not applicable, or that they don't have to pay it.

In both cases, the message is inaccurate. [ 37 ] The "no GST" symbol is a predominant and strong visual message in itself. This image conveys an ambiguous message that could mislead consumers about the GST, which does in fact apply and which they will have to pay. [ 38 ] In and of itself, this representation is likely to mislead consumers concerning the taxes and contravenes

section 227.1 C.P.A. [ 39 ] The defence submits that the explanatory text added in small print on the side of the advertisement must be taken into account. This text states, among other conditions and restrictions, concerning the GST: [TRANSLATION] … "We pay the GST" on 2008 and 2009 Sportage/Rondo/Spectra/Spectra 5 models. For customers who choose to lease, the GST is calculated according to the vehicle lease obligation. The customer must pay the GST at the time of purchase; Kia will reimburse the customer for the amount of the GST on the monthly payments or on the initial payment.

The GST will not be reimbursed on options or additional equipment. See your Kia dealer for more details. … (Emphasis added.) [ 40 ] This excerpt on the terms of payment of the tax is situated in the middle of a long and dense text and is lost, for all practical purposes, in a sea of information concerning various other purchase and lease conditions. It is worth noting that the defence provided the Court with an enlarged version of the text so that it could be read.

Even in the actual size of the advertisement as published (8" x 9"), the text in small print is almost illegible to the naked eye. [11] [ 41 ] The defence argues that this text forms part of the advertisement and that a complete reading of the entire advertisement includes the text added in small print. [ 42 ] The Court does not agree. This reasoning clearly conflicts with the Supreme Court's analysis in Time Inc. , supra , particularly with regard to the general impression mentioned in

section 218 C.P.A. [12] [ 43 ] The text explaining that the GST is actually applied is defective in several respects: (1) the information is in very small print and almost illegible; (2) the text is placed vertically, so it is perpendicular to the direction in which one normally reads; and (3) the text is outside the visual framework of the advertisement. [ 44 ] As presented, using the expression of Dansereau J. in a case that was brought to this Court’s attention, this information is unlikely to draw the reader's attention. [13] [ 45 ] The Kia advertisement requires of readers interested in knowing exactly what to expect that they either turn their newspaper 45 o or risk a stiff neck, and, moreover, that they put on glasses or use a magnifying glass to ultimately discover that they will have to pay the GST, which will then be reimbursed by the dealer; In short, they must do all this to discover that the federal tax is applicable. [ 46 ] As the Supreme Court put it, the consumer must take "concrete action to find the 'real message' ", which is not consistent with the recommended approach to advertising representations. [14] [ 47 ] Of course, a more curious, sceptical or well-informed consumer may take the trouble to go beyond the visual layout of the advertisement and read the minute details.

Such a consumer, more prudent than average, is not the credulous and inexperienced consumer that the Act is designed to protect.

[ 48 ] The Court reiterates that a written advertisement is not the same as a contract. A party to a contract is expected to carefully read the entire content before agreeing to the contract, as a well-informed and prudent consumer. It would be inappropriate to expect as much from consumers who read an advertisement in a newspaper.

It is the merchant’s responsibility to be clear and accurate in the message it conveys to the public. [15] [ 49 ] To conclude on this point, the Court finds that a first reading of the advertisement presented by Kia Canada leaves consumers with the general impression that they will not have to pay the GST should they purchase a vehicle. [ 50 ] The text added in small print, which accompanies the advertisement, is not likely to negate this first impression, because the information is not very accessible and practically illegible. 2.

Is Kia Canada's advertisement true to reality? [ 51 ] As discussed above, the answer is no. [ 52 ] The advertisement says: [ translation ] "no GST". [ 53 ] In reality however, the tax is applicable and the consumer will have to pay it when purchasing or leasing a vehicle.

Kia undertakes to reimburse the customer. [ 54 ] And although the added text in small print states the truth about the application of the GST, this is not sufficient to correct the general impression left by the layout of the advertisement. [ 55 ] In conclusion, the Court finds that the Kia Canada advertisements are misleading with regard to the applicable federal tax, and therefore constitute a prohibited commercial practice under the Consumer Protection Act ,

section 227.1 in particular. FOR THESE REASONS, THE COURT: CONVICTS the defendant Kia Canada Inc. of the three offences as charged; ORDERS payment of the fines provided by law, i.e. an amount of $2,000 for each count, for a total of $6,000 (section 278 C.P.A. ); ORDERS payment by the defendant of the applicable costs, on the first count only; THE WHOLE to be paid within 90 days. _______________________________________ Dominique Benoit, Presiding Justice of the Peace Me Maurice Paquette For the prosecutor, Director of criminal and penal prosecutions Me André Durocher For the defendant, Kia Canada Inc. Hearing date: October 10, 2013 APPENDIX : Kia Canada advertisement (P-1)