Peace of mind may not be priceless: Québec Court of Appeal authorizes extended warranty class action claiming exploitation of the consumer

On March 22, 2018, the Québec Court of Appeal rendered judgment in the matter of Union des consommateurs c Magasins Best Buy Ltée (the “Best Buy Action”), overturning the decision of the Superior Court of Québec which refused to authorize as a class action a claim that extended warranties sold by Best Buy constitute exploitation of consumers.

The Superior Court had found, based on the prior judgment of the Court of Appeal in Fortier c Meubles Léon ltée (“Fortier”), that extended warranties conferred peace of mind to the purchaser that could not be quantified, such that an action based on exploitation of the consumer could not succeed. The Court of Appeal dismisses this approach, and finds that exploitation of the consumer must be assessed objectively: is there disproportion between the respective obligations of the parties and is it so great as to amount to exploitation of the consumer?

The Court also clarifies appeal rights against class action authorization judgments in light of the entry into force on January 1, 2016 of the new Code of Civil Procedure, notably by confirming that respondents to applications for authorization to institute class actions must always seek leave to appeal from an authorization judgment, even if said judgment has been appealed as of right by the applicant and the respondent wishes to formulate an incidental appeal.

Background

In September 2006, Jessica Desjardins purchased a computer and an extended warranty from Best Buy. The computer does not work. She brings it back to Best Buy, who refuses to repair it on the basis that it is still covered by the manufacturers warranty. Ms. Desjardins therefore sent the computer to the manufacturer for repairs at her own expense, and is unsatisfied with the services offered by Best Buy under the extended warranty she purchased. The Best Buy Action is filed in September 2007.

At the time there are nearly a dozen applications for authorization to institute a class action pending before the Superior Court of Québec that pertain to extended warranties. These proposed class actions argued that in Québec extended warranties are useless because of the existence of the legal warranty set forth in section 38 of the Consumer Protection Act (“CPA”).

This provision provides that retailers and manufacturers of goods sold to consumers warrant that such goods are “durable in normal use for a reasonable length of time, having regard to their price, the terms of the contract and the conditions of their use”. In practice, this means that retailers and manufacturers must honor a warranty on a good sold in Québec for a period of time that in most cases exceeds the manufacturer’s warranty on this good.

By selling extended warranties to consumers on the premise that such warranties allow consumers to avoid having to pay repair costs once the manufacturer’s warranty expires, the proposed class actions alleged that retailers were misleading consumers because under the CPA they would probably still be covered by the legal warranty. In 2010 the CPA was amended to require retailers to disclose the existence of the legal warranty when selling extended warranties.  

In 2014, the Court of Appeal released Fortier, which ruled on 9 of the pending class actions regarding extended warranties. The Best Buy Action had been stayed in anticipation of this ruling. The Court ruled that retailers had no obligation to specifically disclose the existence of the legal warranty when selling an extended warranty prior to the amendment of the CPA in 2010.

However, it authorized class actions against retailers who had specifically represented to consumers that purchasing an extended warranty would allow them to avoid paying for repairs at the expiry of the manufacturer’s warranty, on the basis that this could be a misrepresentation, given that the legal warranty could also achieve this purpose. Finally, the Court of Appeal dismissed the argument that extended warranties were useless, holding that they conferred peace of mind to consumers and were simpler to enforce than the legal warranty.

In 2015, the Best Buy Action was amended in light of Fortier. Rather than arguing that extended warranties are useless, the Best Buy Action raises a new argument that the prices charged for extended warranties amount to exploitation of the consumer, which is prohibited by section 8 CPA and allows Courts to annul such contracts or reduce the obligations of the consumer.

Reasons and conclusions

The trial judge refused to authorize the exploitation of the consumer claim. In essence, he found that the peace of mind conferred by extended warranties, as highlighted in Fortier, was a subjective element that could not be quantified. If the value of this key component cannot be quantified, it is not possible for the Court to conclude that the price charged for the extended warranty amounts to exploitation of the consumer.

The Court of Appeal disagrees. Section 8 CPA provides that exploitation of the consumer must be evaluated objectively – what is the consumer paying, what is the merchant providing in return and is there a disproportion between the two that is so great as to amount to exploitation of the consumer? If so, the contract may be annulled or the consumer’s obligations reduced. The reasons that led the consumer to contract, such as the desire to obtain peace of mind, are not relevant to this analysis.

In the end, the Court finds that there are sufficient allegations in the Best Buy Action to support a claim that the prices charged by Best Buy for extended warranties amount to exploitation of the consumer, and authorizes the class action to proceed with this claim.

The Court also authorizes an additional claim regarding Best Buy’s practice of disclaiming any obligation to repair defective goods while the manufacturer’s warranty is in force. In the Court’s view, Best Buy is obligated to honour the legal warranty in the same manner as the manufacturer, and the consumer can choose to turn to the retailer, the manufacturer, or both.

By stipulating in the extended warranties that consumers must exclusively turn to the manufacturer when the manufacturer’s warranty is force, Best Buy may be violating the CPA by offering an extended warranty that in fact offers less protections than the legal warranty.

 

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Editors

Deborah Glendinning

Partner, Litigation

Sonia Bjorkquist

Partner, National Chair, Litigation

Éric Préfontaine

Partner, Litigation

Christopher Naudie

Partner, Litigation

Craig Lockwood

Partner, Litigation

Tristram Mallett

Partner, Litigation

Karin Sachar

Associate, Litigation