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February 16, 2013

Earlier this month, the Ontario Court of Appeal dismissed an appeal in the Yellow Pages Marketing misleading advertising case (see: Competition Bureau v. Yellow Pages Marketing).

In this case, an individual found liable last year by the Ontario Superior Court to pay a $500,000 “administrative monetary penalty” or “AMP” for misleading advertising appealed the lower court’s judgment (see: here).  The Ontario Superior Court had found a group of companies and individuals liable under the civil misleading advertising provisions of the Competition Act for sending deceptive faxes designed to lead recipients to believe that they were merely confirming online directory information for the legitimate Yellow Pages Group (“YPG”) when, in fact, the companies, that were unrelated to YPG, used fine print disclaimers to sign-up recipients to new two-year online directory contracts with significant fees.

In finding the companies and individuals liable, the Superior Court reviewed the relevant law under the civil misleading advertising provisions of the Competition Act, finding that the faxes were misleading, material and that fine print disclaimers used failed to cure otherwise misleading claims.  The Court ordered penalties that included a ten-year prohibition order, compensation for consumers and more than $9 million in AMPs, including more than $1 million against individuals – the highest award to date in contested proceedings for a Canadian misleading advertising case.

On appeal, one individual appellant argued that he had been deprived of a fair hearing and opportunity to adduce evidence relevant to his defense, in particular evidence of a lack of involvement in the marketing practices and relevant to the Competition Act’s factors for determining the size of AMP to be imposed.  The appellant also argued that the lower court hearing should have been adjourned to allow him to adequately protect himself.

In a short but interesting decision, the Court of Appeal rejected all of these arguments.  With respect to evidence, the Court of Appeal found that the appellant chose not to file his own affidavit, affidavit evidence that had been filed addressed the appellant’s involvement in the misleading conduct and financial status and that it was, in any event, open to the lower court judge to decide what weight to give to the available evidence.

As to the fairness of the proceeding, the Court of Appeal found that there was no evidence that any concerns were raised about the evidence in the prior proceedings (or an adjournment requested) and that the lower court judge had no independent obligation to become involved in the presentation of the appellant’s case or evidence called.  The Court of Appeal referred to these matters as the “exclusive domain of client and counsel”.  The Court held that “other than in extraordinary circumstances such as when it is apparent that a conflict has arisen between a client and his or her counsel, the court should not, on its own accord, become involved in the actual presentation of the case.”

On liability, the Court of Appeal found that the lower court’s finding was “unassailable”, based on evidence the appellant knew the companies were making false and misleading representations, was aware of prior efforts to obtain compliance – for example, in the U.S. – and a 2010 Competition Bureau warning that had specifically been brought to his attention.  In upholding the liability finding, the Court of Appeal also pointed to the appellant’s responsibility for complaints and key aspects of the companies’ deceptive marketing activities.

Finally, regarding the amount of AMP, the Court of Appeal found that the application judge made no error in setting the amount at $500,000.  In coming to this conclusion, the Court accepted the lower court’s finding of the appellant’s significant financial circumstances and that the companies were “only vehicles for their principles”.  Since being amended in 2009, the Competition Act sets out a number of relevant factors for determining AMPs that include the reach of the conduct, frequency and duration, whether vulnerable people were targeted, likelihood of self-compliance, market effects and revenues and parties’ financial positions.

In all, this short decision is interesting, among other things, for confirming that significant misleading advertising penalties sought by the Bureau may be upheld, shedding a little more light on who may be liable for misleading advertising as well as showing that Canadian courts remain willing to pierce the corporate veil finding individuals liable for misleading and deceptive marketing.

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