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Introduction

In 2008, Maple Leaf Foods (“MLF”) (two companies) was notified by the Canadian Food Inspection Agency (“CFIA”) that some of their ready to eat meats (“RTE”) they produced for human consumption were contaminated with listeria in sufficient concentrations to be dangerous. In fact, several people fell seriously ill and some died as a result of consuming this contaminated meat. As a result, MLF immediately recalled their products and shortly afterwards closed the plant where they were produced.

MLF supplied two of their contaminated meat types (roast beef and corned beef) under an exclusive supply contract to Mr. Sub. Mr. Sub, in turn, supplied these products to its franchisees through distributors. The franchisees were required to purchase these specified products by contract. There was no evidence that any of the customers of the franchisees had consumed the supplied meats. The franchisees did incur costs in the cleanup and the return of the faulty RTE meats.

The franchisees and Mr. Sub were identified as the sole submarine sandwich business to have received the faulty meats. They felt this had hurt their reputations and given their competitors a significant advantage. They also could not purchase replacement meats for six to eight weeks causing a further disadvantage in having to explain to customers why certain meats were unavailable. They further felt that they had suffered pure economic losses arising from this reputational harm being a loss of past and future sales and the loss of capital value and goodwill.

Class Proceeding Commenced

As a result, a representative plaintiff brought a class action on behalf of the franchisees against MLF. It was certified on motion as a class proceeding. The action sought damages on the basis that MLF foods had:

  1. Negligently manufactured and supplied potentially contaminated meat; and,
  2. Negligently represented that the supplied meats were fit for human consumption.

MLF responded with a motion for summary judgment seeking dismissal of the major claims for economic loss on the grounds that it did not owe a duty of care to the franchisees in the circumstances. The plaintiff, in turn, sought summary judgment in its favour.

There is a Duty of Care

The summary judgment motion was heard by the same judge who had certified the class proceeding. She concluded that MLF did have a duty of care to the franchisees “in relation to the production, processing, sale and distribution of the contaminated meats. She further found that MLF had a duty of care to the franchisees with respect to any representations made that the meats were fit for human consumption and posed no risk of harm. These findings were based on both her reasons on the certification motion and those from the summary judgement motion.

Although somewhat unclear, it appears the motions judge found that the relationship between the parties fell within a recognized duty of a manufacturer to supply a product fit for human consumption.

This was based on three decisions being:

  1. Plas-Tex Ltd. V. Dow Chemical of Canada Ltd;
  2. 376599 Alberta Inc. v. Tanshaw Products Inc; and,
  3. Country Style Food Services Inc. v. 1304271 Ontario Ltd.

She further referred to the Anns/Cooper framework (Anns v. Merton London Borough Council & Cooper v. Hobart) and found that the facts disclosed a relationship of proximity in which a failure to take care might foreseeably cause loss or harm to the plaintiff. Finally, she concluded that there were no policy reasons why the prima facie duty she found should not be recognized.

There is no Duty of Care

The decision was appealed to the Ontario Court of Appeal (“ONCA”) where it was allowed. The court referenced the established approach to be taken in making its decision as follows:

At the first stage of the Anns/Cooper framework, the question is whether the facts disclose a relationship of proximity in which failure to take reasonable care might foreseeably cause loss or harm to the plaintiff. If this is established, a prima facie duty of care arises and the analysis proceeds to the second stage, which asks whether there are policy reasons why this prima facie duty of care should not be recognized; R. v. Imperial Tobacco Canada Ltd., citing Hill v. Hamilton-Wentworth Regional Police Services Board.

However, a full Anns/Cooper analysis is not required in every case. If a relationship falls within a previously established category, or is analogous to one, then the requisite close and direct relationship is shown. So long, then, as a risk of reasonably foreseeable injury can also be shown, or has already been shown through an analogous precedent, the first stage of the analysis will be complete and a duty of care exists.

A complicating factor was the release by the Supreme Court of Canada of its decision in Deloitte & Touche v. Livent Inc. after the hearing of the appeal. Although the parties were given the opportunity to provide further written submissions, the motions judge did not have the case available to her when rendering her decisions.

No Recognized and Established Duty of Care

The ONCA concluded that the relationship between the parties did not fall within a recognized duty of care. The court relied on Livent and the caution expressed there that courts should be cautious in finding proximity based upon a previously established category. A court must be attentive to the factors which grounded the recognized category and ensure that the case at issue is truly analogous. Equally a court must avoid identifying established categories in an overly broad manner. A failure to do so creates the risk that no overriding policy considerations to negate the duty will be considered.

The ONCA concluded that the cases relied on by the motions judge were not supportive of her position as she did not differentiate between the duty of care owed to the end user of a product not to cause physical harm and a duty owed to an intermediary, as here, for purely economic harm.

No Duty based on an Anns/Cooper Analysis

The ONCA similarly disagreed with the motions judge here by reason of her failure to consider the scope of the proximate relationship or the scope of any duty arising from it. The duty to supply meat which is fit for human consumption does not extend to the franchisees for pure economic loss. The first duty is aimed at protecting public health and was owed to the consumers and not the franchisees. The duty alleged here is much different being one said to protect the reputation of the franchisees and to pay for any consequential damages for pure economic loss. This would be an unwarranted expansion of the duty owed to one group to another.

No Duty in Negligent Misrepresentation

The ONCA also reversed the motions judge on her finding of a special relationship between the parties. She failed to consider the scope of the proximate relationship, which in turn affected her foreseeability analysis. The undertaking made by MLF was to Mr. Sub to not supply a product which would cause its ultimate consumers to become ill or die. They did not undertake as well to protect the reputational interest of any intermediaries.

There may yet be a Duty of Care

The matter is not over. The plaintiff successfully obtained leave from the Supreme Court of Canada who will hear their appeal sometime in the future. When they do we will be sure to write an update this post.

At Milosevic Fiske LLP, our team of Toronto corporate commercial lawyers regularly represent clients in complex commercial litigation matters ranging from straightforward contract and partnership disputes to complex multi-party commercial claims including dealing with claims of oppression. Our lawyers also act as defence counsel in class actions claims and have a special interest in helping small to mid-sized companies. Over the years, our team of exceptional litigators has seen it all and has successfully fought for our clients’ rights. Our impressive track record speaks for itself.  Call us at 416-916-1387 or contact us online for a consultation.