As mentioned at the end of our last blog post, we are continuing the discussion of the recent Supreme Court of Canada decision 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.
In our previous post, we focused on the history of the case and the fact that the SCC decision hinged on the concept of proximity. In today’s post, we continue the focus on proximity and the principles relied upon by the SCC in reaching the conclusion it did.
Reasonable Foreseeability, Reliance & Proximity
The majority in the case at hand relied on the court’s previous decision in Stewart v. Petite, which quoted Fleming (The Law of Torts). This emphasized that the question of duty is a question about the relationship between the parties as opposed to their conduct. Did the nature of the relationship between Maple Leaf Foods (MLF) and the Mr. Sub franchisees in the case at hand warrant placing an obligation of care on MLF for the benefit of the franchisees?
No Detrimental Reliance
Instead of looking into whether the actual losses suffered by the franchisees were foreseeable, the Court looked at whether the type of injury the plaintiffs suffered could have been foreseen. This analysis is based on the intention behind MLF’s “undertaking” which must create a reliance on the franchisees’ part. It is this type of relationship which is proximate enough to warrant imposing a duty of care on MLF with respect to the franchisees. If one party solicits another’s reliance, and it is received, a duty arises.
Did MLF create an undertaking that induced a reasonable and foreseeable reliance by the plaintiffs? The plaintiffs felt MLF had created such an undertaking when the company asserted that it would produce meats that were fit for human consumption. An undertaking yes, but that is not enough in itself. For what purpose was any such undertaking given and to whom? Where the scope and purpose of the undertaking or representation lay elsewhere, then any such reliance on it by the franchisees was neither foreseeable nor reasonable. This all follows from the Court’s decision in Deloitte & Touche v. Livent Inc. (“Livent“).
The majority in the case at hand accepted the ONCA’s conclusion that the undertaking made when properly construed was made to the ultimate consumers of the food and not the franchisees.
The majority further concluded that there had been no detrimental reliance suffered by the plaintiffs as a result of any suggested reliance on the undertaking. The franchisees did not alter their positions as a result of any reliance on the undertaking, and in fact, they could not do so under the terms of their franchise contracts. They accepted those contracts which restricted their autonomy in ways that foreclosed their ability to seek damages for negligent misrepresentation.
Both the majority and the minority agreed that the factual matrix of this case did not fit into the two “established” categories for recovery of pure economic loss advanced by the plaintiff/appellants. The majority’s view on the first is set out above.
The majority was very adamant about the process and the criteria for establishing proximity between the parties. It required the Court to conduct an inquiry into the relationship between the parties and the answer the question of whether they are in such a close and direct relationship that it would be just and fair to impose a duty of care in law. This is to be done in two steps:
- Is the necessary proximity established by the factual matrix fitting into, or being analogous to an established category of recovery?
- If answered in the affirmative, proximity would be established. The plaintiff must prove that the authorities they rely on arise from an analogous relationship and factual circumstance.
- If the first stage is unsuccessful for the plaintiff, then a full proximity analysis must be undertaken.
- In doing so, all aspects of the relationship are potentially relevant. This includes considering representations made, reasonable expectations, reliance, loss of autonomy, the losses claimed by the plaintiff, and the rights affected. This is all based on the Court’s decision in Livent.
Here we are dealing with the supply of shoddy goods. Could the parties have protected their interests by contract? Although there is no privity of contract, the Court recognized the interconnection of the parties and suggested that the various contracts between the franchisees, MLF, and the franchisor, read together, may reflect where the risks lay. That being a possibility, the proximity analysis must deal with two issues:
- Could the plaintiff have protected or altered their risk through reasonably available contractual protections? If so, this mitigates strongly against the imposition of a duty of care against MLF. If the plaintiff could foresee or anticipate a risk, they could have sought to remove, confine, or lessen the risk through a contractual term.
- The plaintiff cannot seek to circumvent a contractual relationship by seeking a duty in tort law. The regulation of commercial relationships is primarily accomplished through the law of contract. When parties have done so, as they have here, this mitigates strongly against imposing a duty.
The Correlative Right & The Duty of Care
In the second category, the SCC relied on the recovery decision in Winnipeg Condominium v. Bird Construction. The case established a rule that protects one’s right to be free of a negligently caused real and substantial danger from the provision of shoddy consumer goods. This right does not exist with respect to most consumer products, as the danger can be removed by the disposal of the item. Where goods were defective and dangerous but the danger could be averted by disposal, then the disposal is the route to take. In such cases, the cost of disposal would be the extent of the damages.
Here, the goods were such that they could not be repaired. The only option was disposal of the recalled products. This rules out recovery by the plaintiff for their substantial claims of loss of business and goodwill.
No Duty of Care Created
The appellant plaintiff had failed to prove sufficient proximity with MLF to establish either a novel duty of care or to fit their facts within the Winnipeg Condominium decision, in order to establish a correlative right to a duty of care. The appeal was dismissed by the majority of the Court.
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.