Need to Know
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Over the past 18 months, the Superior Court of Québec, in three class actions1, conducted an analysis of unilateral amendment clauses2in service contracts pertaining to the telecommunications industry. In these decisions, which we will refer to hereinafter as the “Telecom Trilogy”, the Court refused to recognize the validity of the clauses that were submitted to it and ordered the restitution of additional fees paid by consumers pursuant to rate changes.
The Court highlighted the importance of disclosing to a co-contracting party the entire range of fees that such party may be called upon to pay over the term of a service contract, including related or additional fees.3The disclosure of fees is subject to strict parameters set out in the provisions of the Consumer Protection Act4 and the Civil Code of Québec.5
These cases reiterate, as a matter of principle, the importance of a fixed-term service contract’s enforceability, with little regard for the inherent risks to which merchants are exposed due to the unpredictability of market conditions. In a fixed-term contract, merchants are generally the ones assuming such risks.6 However, in the context of an indeterminate-term contract, the consumer, upon receipt of the notice of amendment sent by the merchant, must decide whether to accept such amendments and the new terms of the contract or to terminate the contract.
UNILATERAL AMENDMENT CLAUSES AND SECTION 12 OF THE C.P.A.
In the three cases analyzed by the Superior Court, the service contracts contained clauses allowing for the unilateral amendment by the service provider of certain contractual terms and conditions, including rates and/or usage fees, upon delivery of a 30 days’ written notice.7 In two of those cases, the service provider had introduced new fees that applied to incoming text messages, whereas in the other case, the service provider had set an internet usage allowance system that resulted in increased charges to the user. In all three cases, the service providers had provided their clients with 30 days’ prior notice of the amendments to the terms of the contract. The Court found that the amendment procedure that was followed breached section 12 of the C.P.A., which prohibits merchants from claiming fees from the consumer when they are not precisely indicated in the contract.8 The objective of the provision is to [TRANSLATION] “ensure that the consumer enters into a consumer contract in an informed manner”9, with a clear understanding of the circumstances.
The unilateral amendment clauses contained in the service providers’ contracts failed to set out objective criteria specifying the nature or frequency of such future amendments or increases10, which resulted in the consumer being unable to specifically foresee the magnitude of further cost increases that would be added to the obligations already set out in the initial contract.
UNILATERAL AMENDMENT CLAUSES AND THE CIVIL CODE OF QUÉBEC
In the Laflamme case, the Court also analyzed this issue in the light of the provisions of the C.C.Q.11Article 1373 C.C.Q. states that a prestation arising out of a contract must be “possible and determinate or determinable”. Article 1374 C.C.Q. adds that the prestation “may relate to any property, even future property, provided that the property is determinate as to kind and determinable as to quantity”. In applying these provisions, Justice Nantel determined that a unilateral amendment clause is not automatically invalid, but that in order to be valid, it must contain the following elements:
- The subject of the modification; and
- Prior indications, objective criteria and thresholds that [TRANSLATION] “are not solely controlled by the beneficiary of the clause”12 allowing for the co-contracting party [TRANSLATION] “to anticipate the triggering event and the extent of the modification”.13
In Laflamme, the terms of the unilateral amendment clause14 did not make it possible to establish or clearly determine the specific value of the increase in costs which may result from such an amendment to the contract, making such clause illegal under the C.C.Q.
UNILATERAL AMENDMENT CLAUSES AND SECTION 11.2 C.P.A.
On June 30, 2010, the legislator introduced section 11.2 C.P.A. which, in certain circumstances, allows for the unilateral amendment of consumer contracts where prescribed conditions are met,15 such as the delivery by the merchant of a 30 days’ prior notice to the consumer stating the nature of the amendment, its effective date, as well as the right of the consumer to refuse it and terminate the contract without penalty up to 30 days after the amendment becomes effective.
However, under section 11.2 C.P.A., the amendment of an essential element of a fixed-term contract is prohibited, which includes the nature of such goods or services that are the object of such contract, the price of the goods or services or, if applicable, the term of the contract.
To date, no court has applied or interpreted section 11.2 C.P.A., which was not applicable in the context of the three class actions discussed above, since the contested clauses were used by the suppliers prior to this provision being passed. However, Justice Paquette, in Martin, commented on the matter.16 She noted that section 11.2 C.P.A. was passed in line, and not inconsistently with section 12 C.P.A. and that its purpose is to consolidate the principle according to which the consumer must not be taken by surprise. She concluded that had section 11.2 C.P.A. been in force when the supplier increased the cost of a service included in the contract, the amendment would have been unenforceable against the consumer since the consumer could not terminate the contract without penalty. Moreover, the amendment was made in respect of the price, which is an essential element of the contract that cannot be modified, notwithstanding section 11.2 C.P.A., given the fact that the contract was for a fixed-term.
Although section 11.2 C.P.A. provides for a strict process that merchants must follow when amending the terms of a consumer contract, it appears from the interpretation of the Court in the Telecom Trilogy, that this provision is nevertheless more flexible than articles 1373 and 1374 C.C.Q. Indeed, section 11.2 C.P.A. does not require that a unilateral amendment clause contain [TRANSLATION] “predetermined indications which [...] illustrate the type of amendments which may be brought about” or of the “objective criteria and markers”. Furthermore, section 11.2 does not include any requirement for [TRANSLATION] “the clause [...] to clearly allow the consumer to have detailed knowledge of the amount of the fees which will be charged to him for any given service during the contract”.
RECONCILING THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION’S (THE “CRTC”) WIRELESS CODE AND SECTION 11.2 C.P.A.
The Wireless Code adopted by the CRTC (the “Code”) came into force on December 2, 2013. It is the result of a series of consultations with various stakeholders of the telecommunications industry and aims to regulate its practices. The Code prohibits telecommunication enterprises from unilaterally amending the main clauses in their service contracts, but not the other terms therein. Nothing is specified in respect of amendments to other terms where they would affect the price. The Code was invoked in two cases, and the Court explicitly dealt with the argument in the Martin case.
However, the judges concluded that the Code could not apply to the facts put before them as such facts had occurred prior to its coming into force.
Justice Paquette did however mention that the terms of the contract dealing with pay-per-use services, such as text messaging fees, were not considered to be key terms, and could therefore be unilaterally amended pursuant to the Code.17 This interpretation will certainly be the subject of comments and reactions. The interpretation of “principal terms” and “accessory terms” will most likely be the subject of a debate to be closely followed in the coming years.
Courts may soon answer these questions as a class action against two other service providers was recently authorized by the Superior Court of Québec, whose decision was upheld by the Court of Appeal.18
Merchants who do not comply with section 12 C.P.A. are liable to the penalties listed at section 272 C.P.A.19, including the possibility for the consumer to ask for the termination of the contract and the award of punitive damages. In each of the Telecom Trilogy cases, the Court ordered that the clients be compensated for the additional fees they incurred as a result of the amendments to their contracts. In Union, the Court also awarded punitive damages in favour of one of the subclasses20, since the provider had failed to inform its new clients, who entered into same contracts, of the imminent increase in fees despite the fact that the decision to increase such fees had already been made. In the Court’s opinion, the provider had failed to communicate an important fact, in breach of section 228 C.P.A. This breach, alone, justified the granting of punitive damages for an amount of $500 per member of the subclass. The Court’s award of punitive damages illustrates that a class action award can amplify the C.P.A.’s deterrent force.
The Telecom Trilogy reminds merchants that they must disclose the amount of all fees that will be charged to their clients. Furthermore, section 11.2 C.P.A. adds to this principle a number of procedures for merchants to follow when relying on a unilateral amendment clause. These three decisions were appealed. It will be interesting to see whether the Court of Appeal will clarify the scope of section 11.2 C.P.A. and define the conditions under which such provision may cohabit with section 12 C.P.A. We might also wonder if the CRTC’s policy will soften the application of the C.P.A. and give service providers arguments that focus the debate, not on price, but rather on distinctions as to what constitutes “principal terms” versus “accessory terms” of a contract.
Other decisions are anticipated in respect of unilateral contractual amendments. We might consider, for example, loyalty programs.21 Indeed, two class actions in which it is alleged that illegal amendments of such programs were made have already been authorized22and a third application was recently filed.23 It is to be expected that the courts will, in a subequent trilogy, provide additional clarifications in respect of the rights and obligations of merchants when amending consumer contracts unilaterally.