Banking for Federalism: SCC to hear Appeal in Bank of Montreal (BMO) v Marcotte

Banque de Montréal v Marcotte, 2012 QCCA 1396 [Marcotte, QCCA] is part of a trilogy of cases (Federation des Caisses Desjardins du Quebec v Marcotte, 2014 SCC 57, and Amex Bank of Canada v Adams, 2014 SCC 56) that question the banks’ role in society. All three of them will be heard at the Supreme Court of Canada (“SCC”) in Winter 2014. Marcotte in particular is a class action against nine banks (Bank of Montreal, Royal Bank of Canada, National Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Scotiabank, Laurentian Bank of Canada, Amex Bank of Canada, and Citibank Canada) that centers on the definition of conversion fees (normally 1.5-2.5 percent of the purchase price) for foreign currency payments and the federal-provincial jurisdiction to regulate conversion fees. If they are not credit charges, then the banks obeyed both the federal laws (the Bank Act, SC 1991, c 46, the Cost of Borrowing (Banks) Regulations, SOR/2001-101, and the Financial Consumer Agency of Canada Act, SC 2001, c 9) and the provincial law, specifically the Quebec Consumer Protection Act, CQLR c P-40.1 [QCPA]. If they are credit charges and the province is able to regulate the activity, then the banks breached the QCPA by not disclosing properly disclosing charges to their customers. Consequently, the case is significant beyond the Quebec border because it asks courts, and the public for that matter, to seriously consider what federalism means to Canada.

Quebec Superior Court

In 2009, the Quebec Superior Court in Marcotte v Banque de Montréal, 2009 QCCS 2764 [Marcotte, QCCS], held that where there is a conflict, banks must comply with both the federal and provincial laws. The banks violated the QCPA because they did not disclose the conversion fee policy. So, the court ordered the nine banks to pay approximately $200 million (cumulatively) in punitive damages.

Quebec Court of Appeal

In 2012, the Quebec Court of Appeal (“QCA”) dismissed the claims against Scotiabank, RBC, Imperial, Amex, and Laurentian because computing interest charges are not credit charges under the QCPA. It also reduced the damages awarded against BMO, National and Citibank to a total of $13 million because they breached the duty to disclose under s. 12 of the QCPA and s. 452 under the Bank Act for the conversion fees that do fall under the QCPA’s definition of credit charges. It also limited the period of recovery against TD but kept the total award constant because the “bank failed to supply the information required to order collective recovery” (Marcotte, QCCA, para 125).

To arrive at this decision, the court held that the inter-jurisdictional immunity doctrine, which gives the federal government exclusive jurisdiction to regulate subject matters that fall within s.91 of The Constitution Act, 1867, 30 & 31 Vict, c 3, did not apply because credit card services and currency exchange conversion services were “innovative forms of financing” and not part of the “core banking activities” as outlined in Canadian Western Bank v Alberta, [2007] 2 SCR 3 (para 86, citing Canadian Western Bank, para 89). It also held that there was no inconsistency of operation or of intention between the federal and provincial laws, which is required to invoke the federal paramountcy doctrine and thereby make the QCPA inoperative. In other words, the federal and provincial laws did not require subjects to do things that were polar opposites. It was also not practically impossible to obey both federal and provincial laws. And, following the provincial law did not hinder the fulfillment of the federal provision’s purpose, as outlined in Quebec (Attorney General) v Canadian Owners and Pilots Association, [2010] 2 SCR 536 [Canadian Owners] (para 99, citing Canadian Owners, para 64). The court also clarified the tension between two previous class action cases (Bouchard v Agropur Coopérative, 2006 QCCA 1342 and Regroupement des CHSLD Christ-Roy (Centre hospitalier, soins longue durée) v Comité provincial des malades, 2007 QCCA 1068), stating that “it is not necessary in Quebec for the representatives to justify a personal cause of action against them” (para 81). This allowed Marcotte to represent the class even though he only had credit cards from two of the nine banks.

 Supreme Court of Canada

Both parities appealed the QCA’s decision. The Canadian Bankers Association claim that the decision violates the federal paramountcy doctrine. The class action plaintiffs are appealing to have the damages awarded at the trial level restored.

As is customary, the SCC granted leave without providing reasons. But, it is presumably because the decision has the potential to create repercussions across Canada. First and most importantly, it could challenge the principles of federalism that make Canada the state it is today. If the SCC decides that the inter-jurisdictional immunity doctrine does not apply because the services are not “core banking activities,” it may trigger a wave of new cases that also seek to take advantage of the court’s restricted interpretation of the constitution instead of the more flexible living-tree approach in Canadian Western Bank v Alberta, [2007] 2 SCR 3, where the court discouraged a “rigid demarcation” of federal and provincial jurisdiction (para 89). If it decides that the inter-juridictional immunity doctrine does apply, then it may undermine the provinces’ power to regulate “property and civil rights” under s. 92 of the Constitution Act, 1867. Its decision regarding the federal paramountcy doctrine will pose a similar challenge.

Second, the decision will likely shape the national security regulator discussion. Should the SCC decide in favour of provincial power, it may be more difficult to establish a convincing argument that a national security regulator is in Canada’s best interest. On a similar note, the SCC may be extremely cautious in making its decision with the full understanding that anything it says may be used in the national security regulator debate.

Third, the decision regarding class actions will also influence future class actions. Should the SCC agree with the QCA’s broader scope, it could fuel a wave of new class actions. This could be beneficial for those who otherwise would not have had a sufficient causal link to bring a class action. On the other hand, it could punish the new defendants who never had a contractual link with the new plaintiffs.

The SCC, consequently, will need to be cautious about the path it decides to take as the repercussions will reach beyond the parties in Marcotte. Most notably, the decision will shape the future of federalism, the prospects of a national securities regulator, and the scope of class action litigation.