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Go Travel Found Responsible for Misleading Ads
Published in the May 2009 issue of Transportation Notes - View Article
The Nova Scotia Court of Appeal recently dismissed an appeal by direct sale tour operator Go Travel Direct Inc. (“Go Travel”) on a finding of liability and damages awarded against it at trial for misleading advertising in breach of the federal Competition Act. The Court also dismissed a cross-appeal by the successful travel agency, Maritime Travel Inc. (“Maritime”) seeking further damages arising out of a number of other advertisements that the trial judge found were not misleading. Due to space restrictions we will confine our comments to the first decision.
Maritime is an established travel agency operating out of Halifax, which supplies travel packages to Southern destinations. The majority of its offices are located in Atlantic Canada, and many are storefronts. Go Travel is a direct sale tour operator, established in 2000. Go Travel entered the Halifax market in 2003 and offered tour packages exclusively to Cuba, the Dominican Republic and Florida. It exited the Halifax market in 2006.
Advertising for Southern travel destinations is aimed at the peak travel period of February to April and begins in the fall of the previous year. Marketing efforts are intensified in the months of January, February and March.
When it entered the Halifax market, Go Travel launched a number of advertisements, some of which targeted Maritime. In early January 2003, ads were run by Go Travel comparing its prices with those of Maritime. Lawyers’ letters were exchanged. Maritime unsuccessfully sought an injunction.
Maritime sued over the ads. The trial judge found in favour of Maritime with respect to the 2004 ads and awarded damages of upwards of $200,000 for loss of market share. Go Travel appealed, raising the issue of causation of loss and the quantum of damages.
The law relevant to the issue of misleading advertising in this case is the federal Competition Act. Section 52 of the Act prohibits knowingly or recklessly making a false or misleading representation to the public for the purpose of promoting a product or business interest. Section 36 of the Act entitles a claimant who has made out a breach of the Act to a civil remedy. The Court of Appeal endorsed the trial judge’s definition of the applicable test in order to make out a breach of section 52. That test has two steps. First, a judge must determine the general impression conveyed to consumers based on representations made within the advertisement. Once this is determined, it becomes “fixed” by the court as “the impression of the average consumer”. Second, a judge must determine whether this fixed impression is false or misleading in any respect. This can be determined with reference to extraneous evidence that would verify the claims in the ad. Such extraneous evidence cannot be considered at the first step.
The trial judge added a further gloss on the applicable test to the effect that the impugned advertisement must be misleading in a material respect, and that aggressive advertising that “pushes the bounds” of what is fair should not be circumscribed unless it is shown to be an “untruthful disparagement” of the goods and services of a competitor. Both the parties and the Court of Appeal endorsed these general principles.
As to the particular ads at issue in the case, the Court of Appeal upheld the finding of the trial judge that the 2004 advertisement created an impression that was false or misleading, and that this was recklessly made by Go Travel.
Certain features of the advertisement were identified as the source of this misleading impression. The advertisement featured a price comparison for a package at a particular resort in the Dominican Republic. The advertisement further noted “No travel agent. No commission”. In very small print at the bottom of the ad was a disclaimer to the effect that these prices were quoted on January 6, 2004. The trial judge found that this ad created the impression that Go Travel vacations would, in general terms, be substantially less than those offered by Maritime Travel because no commissions would be collected by it. The references to the specific resort at issue and the dates were too small to be noticed, and the ad did not indicate that the price is for a limited time or a special sale price.
With respect to whether this impression was misleading, the trial judge found that this was the case in two specific ways. First, the advertisement was misleading insofar as the price quoted was available for the limited period of time during which the advertisement ran. Prior to and after this approximately five-day period, prices were significantly higher than quoted. Second, the advertisement was misleading insofar as Maritime had adopted a policy that it was putting into practice to match the prices of Go Travel. Accordingly, it was misleading to state that Go Travel would always be cheaper than Maritime.
The misleading impression was material, because it would induce a reasonably informed average traveler to believe that he or she could gain savings from purchasing with Go Travel. This impression was also knowingly or recklessly created by Go Travel insofar as it purposely dropped the price for its package for the period that the advertisement ran, and then raised prices again shortly thereafter. The Court of Appeal endorsed these findings.
Go Travel also appealed the award of damages against it, arguing that there was no causal link between the ad and any loss of revenue suffered by Maritime. The Court of Appeal dismissed this appeal. The Court found that the trial judge properly took into account a number of additional factors, including the decline in market share to Maritime as a result of Go Travel’s arrival on the market and its legitimate advertising, increasing energy prices, shrinking commissions as a result of Internet bookings and increasing environmental concerns, weather-related events and concerns about terrorism. Go Travel also argued that the trial judge failed to give consideration to the fact that, in 2005 and 2006, Maritime increased its discounts, which Go Travel suggested was as a result of trying to “buy back” customers that Maritime lost as a result of being uncompetitive in 2004. The Court of Appeal found that another interpretation might be that Maritime was simply following general market trends, in which case, at least part of its drop in market share in 2004 could still be attributed to the 2004 ad.
The Court of Appeal also rejected Go Travel’s further argument that evidence that individual consumers were misled by the ad was necessary to establish that a loss had been caused. The Court held that a proper interpretation of the Act is that it is not necessary for a competitor (as opposed to a customer) who is bringing an action to demonstrate that a customer had actually been misled in order to prove damages. Finally, the Court of Appeal declined to interfere with the trail judge’s determination of quantum.
Go Travel Direct.Com Inc. v. Maritime Travel Inc., 2009 NSCA 42