Top Up or Give Up: Prepaid Phone Card Class Action Dismissed

Prepaid mobile phone services offer flexibility and freedom to those who do not wish to be locked into a monthly plan. The downside is that prepaid phone cards only remain active for a certain period of time, called the “active period”. At the end of the active period any unused credits expire, unless the user “tops up” the account before the end of the active period.

The Ontario Court of Appeal has recently upheld Bell’s practice of expiring unused credits at the end of the active period in Sankar v Bell Mobility Inc., dismissing an appeal from summary judgement granted in favour of Bell in February 2015.

Use it or lose it

Bell’s prepaid wireless phone cards allow customers to access its wireless network for a specified period of time. The customer can extend the activation period by topping up the account, that is, by adding additional credits on the account. Customers who do not top up lose the credits on the account, as it is Bell’s practice to claim the unused funds the day after the end of the active period. For instance, if the active period ended on June 30 and the account had not been topped up, Bell would claim the balance on the account on July 1.

The plaintiffs, a class consisting of consumers who had purchased pre-paid mobile phone cards, alleged that Bell’s policy of expiring unused credits breached its service contract and was also contrary to Ontario’s Gift Card Regulation under the Consumer Protection Act, which prohibits the imposition of expiry dates on gift cards.

No breach of contract

The breach of contract argument boiled down to whether Bell was contractually entitled to seize the unused credits remaining on the account on the stated expiry date, or after the expiry date. To answer that question, the court had to interpret the expiry provisions in the agreements during the class period. Bell and Solo’s agreements stated:

Value deposited into your prepaid account is available as prepaid credits for your Service and such credits are non-refundable, non-transferable, and will expire after a specified time period.

Virgin Mobile’s agreement provided that:

All Top Ups […] have specified active periods and an expiry date.  The active period starts on the date you place the Top Up on your account.  Any Top Up balance on your account after the expiry date is forfeited and non-refundable.  If you Top Up your account before your existing credit expires or is used up, then your existing credit is added to the new Top Up value and the active period of the earlier Top Up is extended so that the later expiry date of the two Top Ups is valid for the entire amount.

To determine the parties’ understanding at the time of the contract, Belobaba J. examined a number of other documents given to the class members, including the brand brochures and pamphlets, information written on the back of the prepaid cards, receipts for top up transactions (called “PIN receipts” because they contain a personal information number used to activate the credit), and information available on the defendants’ websites. All of these documents contained consistent and unambiguous language which led the Belobaba J. to conclude that the defendants intended and the subscribers understood that any unused credits would expire at the end of the active period, and could be seized any time after that date. Thus if the active period ended on June 30, the credits could be seized on July 1.

On appeal, the plaintiffs argued that Belobaba J. should not have relied on extrinsic materials such as the PIN receipts, phone cards, brochures and websites, and instead should have considered subsequent communications from Bell to its customers stated in the subscriber-account information, which could have been interpreted in favour of the plaintiff.

The Court of Appeal disagreed, holding that the motion judge was entitled to rely on other documents that formed part of the contractual relationship at the time the agreement was made.

Because modern contracts are often made partly on paper and partly on the internet, it is not uncommon for contract terms to be found in a number of documents. Information contained on the PIN receipts, phone cards, and websites were not contemporaneous, but were interrelated with the initial agreements.

On a plain reading of all the documents, the credits expired at the end of the active period, and Bell was entitled to collect the unpaid funds on the following day, the court held. While Bell’s subsequent communication to its customers was misleading, the plaintiffs did not claim for misrepresentation or promissory estoppel on a class-wide basis as it would require proof of individual reliance.

Not a gift card

The prohibition on expiry dates for gift card agreements found in the Gift Card Regulation made under the Consumer Protection Act did not apply, Belobella J. held, because the Regulation only covers cash-equivalent credits or vouches that are purchased as gifts for third parties rather than for personal consumption. While the Regulation would apply to prepaid phone cards purchased as a gift for a third party, there is no breach of the Regulation because none of the defendant’s PIN Receipts had expiry dates. The Regulation is only concerned with expiry dates on the gift card itself, and not with any time-limitations on the services that are provided once the card is activated.

The Court of Appeal did not find it necessary to address the issue of whether the Gift Card Regulation applies only to cards or vouchers purchased as gifts. Instead, the court agreed with the motion judge that the Regulation only prohibits an expiry date on the future performance of the agreement. Nothing in the language of the Regulation prevents an agreement from being time limited, similar to the situation where a gym membership expires 30 days after activation.

Consumer contracts in the internet age

This case provides an interesting example of interpretation of contracts in the age of the internet. Belobaba J.’s approach, which was accepted by the Court of Appeal, highlights how virtually all of the communications by a business to its customers might be used to interpret the contract. Here, the fact that Bell’s communications were, for the most part, consistent with the interpretation sought by Bell, won the day. Still, the suggestion that subsequent communications that are inconsistent might give rise to an estoppel highlights the importance of consistency of terms across all communications by a business to its customers.

The two decisions also provide a useful clarification of the law on gift cards, clarifying the distinction between the expiry of a gift card, which is not allowed, and a time limitation on a service provided pursuant to a gift card once activated, which is allowed.