In a previous blog post, we outlined the issues in the case of 1688782 Ontario Inc. v. Maple Leaf Foods Inc, a class action by a group of franchisees against a supplier. The case dealt with a legal concept referred to as ‘pure economic loss’, meaning that the plaintiffs had clearly suffered a loss but the issue of negligence remained to be determined.
Plaintiffs Suffer a Clear Economic Loss
The defendant, Maple Leaf Foods Inc (MLF) produces foods such as deli meats and other meat products for consumption by the public. MLF had an exclusive contract of supply with Mr. Sub, a franchisor, for the purchase of roast beef and corned beef. Mr. Sub in turn had an exclusive supply contract with its franchisees, the plaintiffs. There was then no direct contractual privity between the plaintiffs and MLF.
When the products in question were recalled by MLF after testing positive for listeria, the plaintiffs were left without corned beef or roast beef to serve their customers. As one of the key features of the supply contract was exclusivity, the franchisees could not order cold cuts elsewhere to replenish their supply. This problem persisted for six to eight weeks.
No Mr. Sub customers reported consuming or becoming ill from eating there, however, the franchisees incurred significant expense in cleaning fees, and the cost of returning the product to MLF. Mr. Sub also claimed the incident had caused them to suffer a loss of goodwill through the reputational harm that they suffered. A further important element in their loss was the fact that Mr. Sub was the only submarine sandwich franchise to receive the tainted meat. The franchisees further claimed this gave their competitors a distinct advantage in the marketplace.
Did Maple Leaf Foods Owe a Duty of Care to the Franchisees?
The issue at hand was whether MLF was liable to the franchisees for negligence. This depended on the question of what duty, if any, was owed by MLF to the class of plaintiffs represented in the suit?
MLF’s defence was that it did not owe a duty of care to the class, but only to the meat-consuming public. There was no privity of contract between MLF and the franchisees, and the losses suffered were purely economic. They were not consequential losses arising from a direct injury to a person or their property.
Before the case went before the Supreme Court, the Ontario Superior Court of Justice (ONSC) had granted summary judgment in the favour of the representative plaintiff and the Ontario Court of Appeal (ONCA) had reversed that decision.
The plaintiffs relied on the law of negligence and the fact that that MLF, as a manufacturer, owed a duty to them to supply only meat that was fit for human consumption. They also argued that the case fell into two of the established categories allowing for recovery for pure economic loss, being:
- Negligent misrepresentation or performance of a service
- Negligent supply of shoddy goods or structures.
The ONCA had agreed with MLF and found there was no duty of care owed by MLF to the franchisees. The Court felt such an expansion of the duty, beyond the one to the consuming public, was unwarranted.
SCC: Plaintiffs Could not Clear Hurdle of Establishing Proximity
The SCC released its decision recently. The plaintiff’s appeal was dismissed by a narrow five to four margin.
Proximity is the controlling concept and the foundation of the modern law of negligence. The questions to examine in a case of negligence must always be:
- Were the requirements for imposing a duty of care met?
- Were the parties at the time of the loss in a sufficiently proximate relationship?
In the case at hand, the parties did not have a contract with one another. MLF had a contract with Mr. Sub, and in turn, Mr. Sub had contracts with each of its franchisees. MLF did not have a contract with any of the plaintiffs requiring the producer to supply them with product. There must be a directness or closeness between the two parties, which was absent in this case. Without that proximity, there can be no duty of care.
In order to establish a legitimate claim for pure economic loss, the plaintiffs were required to demonstrate that the case fit into one of the narrow circumstances in which a claim for economic loss was permitted. In this regard, the plaintiffs failed. The majority of the Court held that MLF owed a duty to the public, but not to protect the business owners from losses in profits or goodwill.
Our next post will complete the discussion of this case given the length and complexity of the decision and its importance going forward.
At Milosevic & Associates, 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.