The Supreme Court of Canada revisits pure economic loss

In 1688782 Ontario Inc. v. Maple Leaf Foods Inc. (Maple Leaf Foods),¹ the Supreme Court of Canada (SCC) revisited the ability to recover for claims constituting pure economic loss.

In a 5-4 decision, the five-justice majority a) demonstrated a reluctance to impose novel duties of care between commercial actors who choose not to directly contract with one another, and b) clarified the liability rule in Winnipeg Condominium Corp. No. 36 v. Bird Construction Co. (Winnipeg Condominiums),² which states that a duty of care will arise between a supplier of goods and a subsequent purchaser if the defective goods present a risk of real and substantial danger that must be repaired. 

Implicit in Maple Leaf Foods is the reminder that negligence law in Canada serves to protect bodily integrity and property. Injury to a plaintiff’s economic interest will only constitute a legal right capable of protection under negligence when the injury is analogous to physical harm to a plaintiff’s person or property and sufficient proximity is established.

Background 

Mr. Sub is a fast food restaurant that operates a franchise structured business model that exclusively sources ready-to-eat (RTE) meats from Maple Leaf. In 2008, Maple Leaf issued a meat recall due to a listeria outbreak in one of its factories.

The appellant franchisees argued Maple Leaf owed them a duty of care to supply a product fit for human consumption. They claimed they had suffered loss of good will and sales, resulting in pure economic loss in the form of negligent misrepresentation or performance of a service and the negligent supply of shoddy goods or structures.

Maple Leaf brought a motion for summary judgment to dismiss the franchisees’ claims. The Ontario Superior Court of Justice held that a duty of care was owed to the franchisees by Maple Leaf. The Ontario Court of Appeal reversed this decision, finding that the facts did not fall within a well-established category of duty to supply a product fit for human consumption. The SCC affirmed that decision.

Recoverable pure economic loss

The SCC majority acknowledged the three categories of pure economic loss that it had previously narrowed in Deloitte & Touche v. Livent Inc. (Receiver of)³ : 1) negligent misrepresentation or performance of a service; 2) negligent supply of shoddy goods or structures; and 3) relational economic loss. There was no expansion of these categories by the court. 

In reaching its decision, the SCC majority affirmed the liability rule in Winnipeg Condominium relating to negligent supply of shoddy goods or structures. The court found the rule to be consistent with the general principle in negligence law that liability does not protect a plaintiff’s right to be free of any potential damage. Instead, liability for negligence only protects a plaintiff’s legal right not to suffer damage to their person or property. The court noted the reasoning of the Alberta Court of Appeal in Blacklaws v. 470433 Alberta Ltd⁴ that economic loss incurred to repair defective goods to a non-dangerous state is analogous to physical injury actually suffered by a plaintiff. 

The SCC majority did not, however, expand this exception to the general prohibition regarding pure economic loss. Costs for repairing shoddy, but non-dangerous, products that do not pose an imminent risk of serious harm remain unrecoverable under the law of negligence. Instead, these types of claims are better addressed through contract law. 

Further, the plaintiff must suffer injury to their economic interest through the act of repairing the shoddy goods or structures in question for the shoddy goods and structures exception to apply. In the present case, the RTE meats contained a defect that was only resolved through disposal. Without a necessity to repair and mitigate the dangerous goods, the court found there can be no breach of a legal right and thus, no grounds for a claim in negligence. 

Finally, when carrying out its duty of care proximity analysis, the SCC majority found no proximate relationship between the parties. Rather, the duty of care owed by Maple Leaf was to the ultimate consumer, and not a commercial actor who entered into a franchisor-franchisee relationship that contained no privity of contract with their exclusive product supplier. 

Key takeaways 

Despite the strong four justice dissent regarding the imposition of a novel duty of care, Maple Leaf Foods serves to notify commercial actors that Canadian courts will not establish a duty of care where commercial actors choose not to structure their relationships such that privity of contract exists between all parties. Where no duty of care is present, no exception to the prohibition on pure economic loss can be found. Accordingly, special care should be taken to ensure privity of contract exists in commercial relationships, where possible.  

This decision also clarified the scope of the shoddy goods and structures exception by affirming the analyses in Winnipeg Condominium and Blacklaws. The supply of shoddy goods and structures will only attract protection in negligence if the goods or structures in question present a real and substantial danger that is comparable to physical harm which must be repaired.

What constitutes a “real and substantial danger” is not definitively stated in Maple Leaf Foods or any of its cited authorities. However, a defect that is repairable and presents an imminent risk of harm to the community (including property) will likely give rise to a claim in negligence. Expert evidence will generally be required to help the courts assess the level of risk present in a defect.

The author wishes to thank Jenine Urquhart, articling student, for her help in preparing this legal update.