Damages Awarded For Misleading Advertising for the First Time in Canada 


June 2009 - (Canadian Corporate Counsel , Volume 18, Number 7,)

Canadian Corporate Counsel , Volume 18, Number 7 and  Lang Michener LLP InBrief Fall 2009
James B. Musgrove, Esther Rossman
In Maritime Travel Inc. v. Go Travel Direct.com Inc., a Canadian court, for the first time in a reported case, awarded damages to a plaintiff for misleading advertising in breach of the Competition Act

This case arose out of advertisements for package holidays placed by Go Travel Direct in various newspapers, including the Halifax Chronicle Herald. Commencing in January 2003, Go Travel Direct ran advertisements comparing the price of southern holidays it offered to the price offered by Maritime Travel for such trips. The following January, Go Travel Direct again ran price comparison advertisements, as it did again in January 2005. Maritime Travel attempted, unsuccessfully, to obtain an injunction against the 2003 advertisements. After the 2005 advertisements, it sued for damages. 

Madam Justice Hood undertook a fairly detailed review of the comparative advertising jurisprudence in Canada, from which she distilled eight principles, as follows: 

1. The general impression of the advertisement must be determined, and to do so, one has to consider the portion of the public to whom the advertisement is directed. 

2. The literal meaning of the advertisement is to be considered as well as the general impression. 

3. To try to determine whether the advertisement is false or misleading in a material respect, outside evidence may be considered, but not for the purpose of altering the general impression created by the advertisements. 

4. The question is whether the advertisement is misleading in a material respect; that is, it must be something that would have an effect on the purchase decision. 

5. Aggressive advertising is permitted, unless it is untruthful disparagement. 

6. The Court should not interfere with advertising unless the advertising is "clearly unfair." 

7. Even advertisements that "push the bounds of what is fair" may not be misleading in a material respect. 

8. In the civil context, the burden of proof on the plaintiff is a balance of probabilities; but it is a heavier burden. In the Court's words there must be "substantial proof of activity that is a very serious public crime." 

The Court found that Go Travel Direct's 2003 and 2005 advertisements were not materially false or misleading. Indeed, it found that they were accurate. In particular, the Court found that some of these advertisements had two possible meanings, one of which was true. This same issue had been analyzed in the case of R. v. R. M. Lowe Real Estate Ltd., where the Court concluded that advertisements with two possible meanings, at least one of which is true, are not misleading. 

While the Court found that the 2003 and 2005 advertisements were not materially false or misleading, it came to a different conclusion in the case of the 2004 advertisements. The Court found that those advertisements were misleading in a material respect, primarily because the advertisements gave the impression that Go Travel's holiday packages were less expensive generally than Maritime Travel's, whereas the specific information in the advertisement was only for one trip, available only for a very limited time. 

The question then was what damages were caused by the misleading advertising. Since no case thus far in Canada has sought to award damages for misleading advertising, this was a case of first impression. The plaintiff led evidence from a chartered accountant and a chartered business valuator. It sought to obtain damages for the defendant's entire advertising campaign and for the defendant's conduct in competing with the plaintiff's campaign, but the Court indicated that damages would only be available with respect to injury caused by the misleading advertisement, and that other factors affecting the industry should not contribute to the damages suffered by Maritime Travel compensable as a result of the conduct of Go Travel Direct.

Maritime Travel also sought an accounting for profits earned by Go Travel Direct, but the Court noted that an accounting for profits is not an available remedy under Section 36 of the Competition Act. Damages can only be awarded for injury actually caused by the improper conduct. 

The Court found, with limited evidence on the point, that the effects of the misleading advertisement were not limited to a week or even a month, but extended for the entire winter travel season even though the ads themselves ran for only a few days. This is because the Court found the false advertisements had given the impression that Go Travel Direct's prices generally were less expensive than Maritime Travel's prices. 

The approach that the Court took was to determine the percentage of the market that Maritime Travel had in years in which there was no misleading advertising, then attempted to ascertain whether there were other factors operating in the year in which the misleading advertising occurred, and to the extent there were no other relevant factors operating, the Court attributed the difference between Maritime Travel's average percentage of sales of holiday packages in other years and its percentage of sales in the year in which misleading advertising had occurred to the market advertising. Based on the average commission that would have been earned on the number of trips not sold over the affected season, the Court found that Maritime Travel had suffered damages of some $216,000 as a result of the misleading advertising. 

As noted, this is the first misleading advertising case in Canada in which it has been necessary to actually calculate damages suffered. It seems to us that the Court got many of the important principles right. While it is possible to take issue with some approaches taken in the case, and in particular, it is possible to question the appropriateness of attributing lower-than-average sales for the entire season to one short set of misleading advertisements, the case nevertheless provides a method for approaching the determination of damages in a misleading advertising setting, which is a very difficult matter. It is the first such method set out in a Canadian case. 

Ed.: The decision in Maritime Travel Inc. v. Go Travel Direct.com Inc. was affirmed on appeal.