Heated water battle clarifies consumer protection law

The Ontario Court of Appeal gave the Consumer Protection Act[1] a pro-consumer interpretation in Weller v. Reliance Home Comfort Limited Partnership,[2] but the “consumer” who brought the Application still lost. He argued that the respondent water heater company infringed consumer protection law when it amended an agreement with its customers. The court agreed, but required the applicant to follow the amended agreement anyway. Under the Act, judges can bind consumers to contracts that fall short of consumer protection requirements, if annulling the contracts would be unjust. Weller v. Reliance provides guidance on when this happens and sheds light on how judges currently approach consumer protection law.

The case was one of the latest battles in what the court of first instance described as “The Water Heater War”. As chronicled in the Superior Court’s decision,[3] Reliance Home Comfort Limited Partnership and National Energy Corporation, carrying on business as National Homes Services, were fierce competitors in the Ontario water heater market since early 2010. Their struggle spilled into the courts several times, with National bringing two actions and two applications against Reliance on allegations of defamation, levying unlawful charges, and implementing an unlawful policy.

Reliance argued that the allegedly unlawful policy was a response to one of National’s business tactics, which, according to Reliance, involved a door-to-door sales force convincing Reliance customers to switch to National. Reliance claimed the sales reps would act as agents of the customers and terminate their water heater rental agreements with Reliance. Reliance’s policy required customers to personally call Reliance for a “Removal Reference Number” before they could terminate their agreements.

A Vice-President from National then made an application at National’s behest for a declaration that he could appoint an agent to terminate his rental agreement with Reliance. On this point, the Superior Court ruled in National’s favour, finding that if Reliance wished to refuse to deal with a customer’s agent, Reliance should have addressed this in the rental contract.[4]

Reliance proceeded to amend its standard rental contract to specifically provide that it could refuse to deal with anyone acting as a customer’s agent. In response, National asked Scott Weller, the husband of its parent company’s Senior Vice-President, Finance, to bring another application challenging the amendment under the Act.

Weller argued that the amendment failed to comply with s. 42(2) of the Act’s General Regulation,[5] which imposes special requirements for amending certain consumer agreements, including “remote agreements” above $50. These are defined as consumer agreements reached when the consumer and supplier are not present together. If suppliers wish to amend a remote agreement, consumers must have the option to terminate it, if they do not explicitly agree to the amendment or have the option to retain the contract unchanged.

The Superior Court found that Weller had the right to terminate the agreement before the amendment took effect and dismissed his arguments. Weller’s right to terminate was contingent on paying any outstanding rental fees, an account closure charge, and other charges for removing the water heater, but the court found that these were reasonable requirements.

The court also found that even if the amendment did not comply with the Regulation, it would be inequitable if Weller was not bound by it. One reason was the lack of evidence that the amendment would prejudice Weller or any other consumer. Another was the collateral purpose for which Weller had initiated the proceeding at National’s request. Under these circumstances, the court applied s. 93(2) of the Act, which allows the court to bind a consumer to an agreement that may not fully comply with the Act and the Regulation, if letting the consumer walk away from the agreement would be inequitable.[6]

Weller appealed and succeeded in overturning the Superior Court’s ruling on s. 42(2). The Court of Appeal found that if a supplier wants to amend a remote agreement, the consumer’s right to terminate must be unconditional. Even if the supplier attaches reasonable conditions to termination, this is unacceptable because it would “add a level of uncertainty…encourage litigation and undermine the consumer protection objectives of the [legislation].”[7]

But the Court of Appeal turned off the heat on Weller’s victory by upholding the Superior Court’s application of s. 93(2). Weller argued that s. 93(2) should not apply because Reliance’s non-compliance was more than a “technical oversight”. The Court of Appeal rejected this, emphasizing that the applicable test is not the type of non-compliance, but whether it is inequitable if the contract becomes non-binding on the consumer. In reviewing the Superior Court’s application of the test, the Court of Appeal simply noted that s. 93(2) rulings involve discretion and attract deference on appeal. On the basis that the Superior Court took appropriate matters into consideration, the Court of Appeal chose not to interfere, and Reliance’s amendment was allowed.

This ruling provides the Court of Appeal’s first reference to the Supreme Court of Canada’s recent pro-consumer decision in Richard v. Time.[8] That case arose after Jean-Marc Richard, a Quebec resident, received a letter promoting Time Magazine. The letter prominently wrote that Richard would get a large cash prize if he replied to the letter. Less prominently, the letter and an enclosure explained that Richard could only get the prize if he had the winning number, or if he won a draw with estimated odds of one in 120 million.

Richard thought he won the prize and sent the reply coupon to collect his money. When the money did not arrive, he contacted Time Inc. and learned that the letter was only an invitation to participate in the magazine’s promotional sweepstakes. He sued Time Inc. and Time Consumer Marketing Inc. (“Time”) on the grounds that he was entitled to the prize. His case made its way to the Supreme Court, where the issues were whether Time had made a misleading representation and whether Richard was entitled to compensatory and punitive damages.

Much of the Supreme Court’s decision was devoted to interpreting Quebec’s Consumer Protection Act;[9] but Weller v. Reliance shows that this will not stop courts in other provinces from looking to Richard v. Time for guidance on consumer protection law. In particular, the Supreme Court considered the type of consumer that this law is meant to protect. The Quebec Court of Appeal ruled that Time’s conduct should be judged by its impact on a consumer with “an average level of intelligence, scepticism and curiosity.” The Supreme Court disagreed, explaining that the legislature intended to protect consumers even if they were not prudent or well-informed. Rather, the court held that Time’s conduct should be judged from the perspective a “credulous and inexperienced” consumer.

While the Ontario Court of Appeal stopped short of applying the “credulous and inexperienced” standard in Weller v. Reliance, it recognized Richard v. Time as a strong precedent for interpreting consumer protection laws in a manner that protects consumers. Following the letter and spirit of these laws is the surest way for suppliers to stay out of hot water. But as s. 93(2) demonstrates, even when suppliers fall short of full compliance with consumer protection law, relief may be available for those suppliers who treat their customers fairly.

In Weller v. Reliance, this relief was granted because the supplier was neither harming consumers nor subject to a genuine consumer complaint. The main issue was not whether the supplier had committed a technical oversight or a more serious infraction of the Consumer Protection Act. The focus was ensuring fairness between the supplier and its customers.