Canadian Provincial Bitcoin Law: It’s All About Protecting the Consumer

My name is Matt Burgoyne and I’m an associate at Canadian legal firm McLeod Law. I’m involved with Canadian and international counsel in the developing area of virtual currency law, specifically including bitcoin currency. In this two-part series, I will give a basic primer on the state of Canadian law as it applies to digital currency entrepreneurs.

In the first article I published on Canadian bitcoin law we discussed legislation as it applies at the federal level, where I made the comment that it is at the federal level where most of the ‘action’ lies in respect to Canadian law as it pertains to bitcoin businesses.

This is because in Canada, pursuant to our constitution, currency and coinage, legal tender and other financial activities like banking fall under the exclusive domain of the federal government, and I referred to the piece of legislation that would likely take precedence in bitcoin transactions, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “PCTFA”).

FINTRAC is the ‘watchdog’ if you will, enforcing the PCTFA. As a result, most bitcoin businesses operating in Canada would first and foremost want to be sure their activities are compliant with the PCTFA and FINTRAC.

FINTRAC (like FINCEN in the United States) has the power to compel companies to comply with the PCTFA, in some cases in rather costly ways.

In this article on Canadian bitcoin law, I will cover provincial legislation and accompanying regulations pertaining to companies operating in the bitcoin space.

No money transmittal laws

Unlike the legal framework of regulation in the United States, on a province by province level in Canada, bitcoin businesses should not be concerned about licensing requirements as they pertain to money transmitting, since those activities, if and when the federal government so chooses, would likely be governed under the PCTFA.

Consumer protection laws

What provincial laws would a bitcoin business have to be cognizant about when conducting operations in Canada?

A bulk of the laws relate to how and under what circumstances a bitcoin company can interact with the public (i.e. consumer protection legislation). It is important to note that, with some exceptions, the application of consumer protection legislation in each province is for the supply of goods and services for personal, family and household purposes, not for business purposes.

Some provinces have separate legislation, as discussed below, that deal with unfair business practices. Some provinces have a single ‘hybrid’ law that covers both consumer protection and protection against unfair business practices.

Bitcoin entities operating in Canada need to be aware of how consumer protection legislation and legislation protecting against unfair business practices can affect their businesses.

There are 13 provinces and territories in Canada. For the purposes of this article, I will focus on two of the 13 which are a fair reflection of the provincial laws of other jurisdictions in Canada.

I will focus on Ontario as an example of one province which has consumer protection laws but no ‘business dealing’ protection laws (Ontario has other laws which deal with business dealings and businesses in general and it is beyond the scope of this article to delve into that legislation), and British Columbia as an example of a province which has a hybrid consumer and business protection law which could apply to bitcoin businesses.

Ontario

Consumer protection image via Shutterstock

Make no mistake, the Ontario Consumer Protection Act and its single Regulation (together, the “Ontario Act”) are both lengthy documents and the following summary is meant to be very general at best.

Often the best way to deal with a specific issue is, if your bitcoin business is selling consumer goods to an end user in Ontario (or any other province in Canada for that matter), contact a lawyer in Ontario who is familiar with the Ontario Act and who can pinpoint what section of the Act may apply to your specific issue.

At the outset, it’s important to note that the Ontario Act specifically does not apply to financial services related to investment products, income securities or consumer transactions that involve financial products or services regulated under other more ‘business’ friendly Ontario Acts such as the Securities Act and the Insurance Act.

As you will see, the legislation in Ontario is fairly heavily weighted in favour of the consumer. Bitcoin businesses offering consumer products to purchasers in Ontario should keep this in mind.

Cooling off period

In Ontario, consumers may be entitled to a cooling off period. Let’s say a consumer makes a purchase or signs an agreement in her home via the internet to purchase some bitcoin mining hardware for her own personal use and then decides to change her mind.

If the deal is worth more than $50, she has the right to cancel within 7 days in respect to an internet purchase and 10 days for a purchase made through other means and could get her money back. The legislation permits cancellation by registered mail.

When a consumer takes advantage of her 7 or 10 day cooling off period and notifies the business (preferably in writing) that she has changed her mind, the company has 15 days to return the purchaser’s money. The business has the right to take back the goods provided under the agreement by either picking them up or paying for the cost of sending them back.

Unsolicited goods

If a consumer is sent unsolicited goods they didn’t ask for, the consumer doesn’t have to accept or pay for them. In fact, a consumer may use them or throw them out.

Pre-paid goods or future service oriented agreements

Pre-paid goods or future performance agreements over $50 must have a written agreement. When some part of the agreement occurs in the future, (e.g. a bitcoin organization membership or a pre-paid bitcoin gift card) and the goods or services are worth more than $50, a written agreement is required. The agreement must contain complete details of the transaction and full disclosure of any credit terms.

All agreements must be clear and understandable. Vague language is discouraged in agreements. All required information must be clear, prominent and easy to understand. If there is a dispute over unclear language, the Ontario Act requires that it be interpreted in favour of the consumer.

So if you are a bitcoin entity trying to sell a consumer good it would be prudent to ensure your lawyer drafts up an agreement that cannot allow for more than one reasonable interpretation; there can be no room for ambiguity.

Consumer assistance rights

Some bitcoin businesses, like other businesses, add arbitration clauses to their agreements that require users to use a private arbitration process to resolve complaints instead of going to court or seeking assistance from the consumer services division of a provincial government.

In Ontario, consumers are not legally bound by these clauses, even if the consumer has accepted the agreement. Bitcoin businesses conducting any consumer related activity in Ontario must have competent legal advice ahead of time, prior to the time that contracts are drafted and executed.

Misrepresentation is illegal

All charges in an agreement must be what they say they are. For example, a bitcoin business may not add a $20 surcharge for a “tax” that is not really for tax. Consumers are advised to understand what each charge is for and that it’s valid and bitcoin vendors need to understand this at the outset.

Consumer agreements require extensive detail

If a consumer has entered into an agreement in which a cooling off period applies and he discovers that the bitcoin business failed to disclose something they were required to by law, the consumer has the right to cancel the agreement within one year.

Timely delivery of product

Deliveries must be on time. For example, a supplier of bitcoin mining equipment must deliver within 30 days from the promised date. After that, a consumer can cancel the contract by sending a cancellation letter; however the consumer loses the right to cancel the agreement if he accepts delivery after the 30 day period has elapsed.

Individuals who violate certain sections of the Ontario Act are liable to a fine of up to $50,000 or imprisonment of up to two years less one day or both. A corporation can be fined up to $250,000.

British Columbia

Judge’s hammer image via Shutterstock

As with the Ontario Act, the British Columbia Business Practices and Consumer Protection Act and its associated 10 regulations (together, the “BC Act”) is a very lengthy piece of legislation and it is the intent of the writer to deal with the BC Act in a very general way.

Readers are advised to consult a lawyer for specific advice if they are a bitcoin business selling goods to consumers or businesses in British Columbia and have a specific issue they are unsure about.

The BC Act applies to all consumer transactions. “Consumer transactions” means a supply of goods or services by a supplier to a consumer for purposes that are primarily personal, family or household, or a solicitation, offer, advertisement or promotion by a supplier with respect to a transaction previously referred to.

“Consumer transaction” can also mean a solicitation of a consumer by a supplier for a contribution of money or other property by the consumer.

Interestingly, and this is what sets the BC Act apart, makes it a ‘hybrid act’ if you will, and differs it from some other provincial acts that simply protect the interests of consumers in consumer transactions, are the sections in the BC Act on credit reporting and debt collection apply to all transactions (not just ones involving consumers but also to unfair business dealings).

However, after my review of the BC Act I can’t see how these ‘business dealing’ sections would apply to bitcoin businesses since bitcoin entities are not (at least not at the time of the writing of this article) in the business of credit reporting or debt collection.

Standard (direct) sales contract information

Under the British Columbia Act, any sales contract entered into between a supplier and a consumer for the supply of goods or services that is entered into in person at a place other than the supplier’s permanent place of business (a “Direct Sales Contract”) must contain very specific information, including but not limited to the following:

(a) the supplier’s name;
(b) business address, telephone number and the date on which the contract is entered into;
(c) a detailed description of the goods or services to be supplied under the contract and an itemized purchase price list for the goods or services being acquired;
(e) the total price under the contract, including the total cost of credit and terms of payment; and
(e) a notice of the consumer’s rights of cancellation, in the prescribed form and manner, if any.

Internet (distance) sales contract information

In the event a bitcoin business that is not physically located in British Columbia is selling goods to consumers in British Columbia via the internet (a “Distance Sales Contract”), the Distance Sales Contract, in addition to the information above, must contain extra information, including but not limited to the following:

(a) the supplier’s email address;
(b) a description of any relevant technical or system specifications;
(c) the currency in which amounts owing under the contract are payable;
(d) the supplier’s delivery arrangements; and
(e) the supplier’s cancellation, return, exchange and refund policies.

A supplier must give a consumer who enters into a Distance Sales Contract a copy of the contract within 15 days after the contract is entered into.

Cooling off period/right of cancellation

Similar to the Ontario Act, a consumer is entitled to cancel a Direct Sales Contract within 10 days of the date the consumer receives a copy of the contract, by giving notice to the supplier in writing via registered mail, delivery in person or delivery via email.

In the case of a Distance Sales Contract, the cancellation period is 7 days (same notice provisions apply as in a Direct Sales Contract).

A consumer can cancel a Distance Sales Contract within 30 days after the contract is entered into if the supplier does not provide the consumer with a copy of the contract listing the above disclosure requirements or if the product is not delivered within the 30 day period from the date the Distance Sales Contract was entered into.

Unfair and deceptive acts or practices

The British Columbia Act broadly defines a ‘deceptive act or practice’ to mean any conduct by a supplier that has the ultimate effect of deceiving or misleading a consumer.

“Representation” includes any term written on any website or promotional item.

This is not an exhaustive list, however any one or more of the following can constitute a deceptive act or practice under the British Columbia Act:

(a) a representation by a supplier that a particular product has sponsorship, approval, performance characteristics or uses or benefits that they do not have;
(b) a representation that a particular good is of a particular standard, quality, grade, style or model if it is not;
(c) a description by a supplier of a product that uses exaggeration, innuendo or ambiguity about a material fact or that fails to state a material fact, if the effect is misleading.

If it is alleged that a bitcoin company selling pre-paid gift cards loaded with bitcoin committed or engaged in a deceptive act or practice, the burden of proof that the deceptive act or practice was not committed would be on the bitcoin company.

An individual who commits an offence under the British Columbia Act is liable to a fine of not more than $10 000 or to imprisonment for not more than 12 months or to both.

A corporation who commits an offence under the British Columbia Act is liable to a fine of not more than $100 000.

Final thoughts

In this article I focused on consumer protection acts in two sample provinces because I believe that bitcoin businesses operating in a specific province or territory in Canada are going to be most concerned with consumer protection legislation; that type of legislation is the most relevant and in my opinion the most important for bitcoin businesses operating in Canada.

That being said, there are a number of other provincial acts which could apply (not only to bitcoin businesses but to any business), in a more generic ‘no brainer’ sense:

– Employment Standards Codes;
– Business Corporations Acts;
– Personal Property Security Acts; and
– Privacy Acts.

So far I have covered Canadian Federal law as it may (or may not) apply to bitcoin businesses, discussed Canadian provincial law as it applies to bitcoin businesses and pondered the question of how the Canadian federal government views bitcoin, either as a barter good or as a currency (it’s the former).

Expect my next article to focus on the Canadian banking industry and how it views bitcoin businesses, since that has been a major issue for my clients and others operating in the Canadian bitcoin landscape.

Matthew Burgoyne is a lawyer, but he is not your lawyer, and this is not legal advice. You can reach Matthew at McLeod Law.

Canadian flag image via Shutterstock