Canada: Out Of Scope – The Court Of Appeal Finds That The Duty To Supply Product Fit For Human Consumption Does Not Extend To Franchisees' Pure Economic Loss

Last Updated: May 4 2018
Article by Marie-Andrée Vermette

On April 30, 2018, the Court of Appeal for Ontario released its decision in  1688782 Ontario Inc. v Maple Leaf Foods Inc., 2018 ONCA 407, reversing a decision granting summary judgment (in part) in favour of Mr. Sub franchisees in a class action commenced against Maple Leaf Foods Inc. following the listeria contamination of certain Maple Leaf ready-to-eat meats in 2008. The Court of Appeal's decision makes numerous references to the Supreme Court's decision in Deloitte & Touche v Livent (Receiver of), 2017 SCC 63, and highlights the importance of properly defining the scope of any duty of care arising from a relationship between parties.

The class action commenced on behalf of Mr. Sub franchisees alleged that Maple Leaf had: (a) negligently manufactured and supplied potentially contaminated meats; and (b) negligently represented that the supplied meats were fit for human consumption. While there was no evidence that any Mr. Sub customer was harmed by any contaminated product, the Mr. Sub franchisees alleged that they suffered economic loss arising from the reputational harm that they experienced from being publicly associated with Maple Leaf after the listeria outbreak. They claimed damages for loss of past and future sales, past and future profits, and loss of capital value and goodwill.

At first instance, the motion judge found that Maple Leaf owed a duty of care to the Mr. Sub franchisees in relation to the production, processing, sale and distribution of the ready-to-eat meats. This duty of care included the duty to supply a product fit for human consumption. In relation to the claim for negligent misrepresentations, the motion judge similarly found that Maple Leaf owed a duty of care with respect to any representations made that the ready-to-eat meats were fit for human consumption and posed no risk of harm.

The Court of Appeal held that the motion judge made three fundamental errors in her duty of care analysis. First, the motion judge erred in finding that the relationship between Maple Leaf and the Mr. Sub franchisees fell within an established category of relationships in which proximity had already been found to exist and which gave rise to a duty to supply a product fit for human consumption. After referring to the fact that the majority of the Supreme Court in Livent had warned against "an overly broad characterization of an established category of proximity which fails to consider the scope of the activity in respect of which proximity was previously recognized", the Court of Appeal found that there were fundamental differences between this case and the cases relied upon by the motion judge. As a result, a full Anns/Cooper analysis was required to determine whether there was a duty of care.

Second, the motion judge erred in failing to consider the scope of the proximate relationship between the parties or the scope of any duty of care arising from it. According to the Court of Appeal, to the extent that there may be a duty to supply meat fit for human consumption, it does not extend to the damages for pure economic loss alleged by the franchisees. Writing for the Court, Fairburn J.A. stated:

[66] To conclude that Maple Leaf owed a duty of care in tort to the franchisees to protect them against the kinds of damages at issue on this appeal would be to enlarge the duty to safeguard the health and safety of customers by supplying fit meat to include a quite different and added duty to franchisees to protect against reputational harm. In my view, to do so would constitute an unwarranted expansion of a duty owed to one class of plaintiffs and extend it to the fundamentally different claim advanced by the franchisees. In other words, the franchisees cannot bootstrap their claim for damages for reputational loss to the different duty owed by Maple Leaf to their customers.

Third, in the context of the claim for negligent misrepresentations, the motion judge also erred in failing to consider the scope of the proximate relationship between the parties. In Livent, two factors were identified as being determinative when conducting a proximity analysis in a case of negligent misrepresentation: the defendant's undertaking and the plaintiff's reliance. The Court of Appeal pointed out that while Maple Leaf undoubtedly undertook to supply meat safe for human consumption by Mr. Sub customers, the purpose of this undertaking was not to protect the reputational interests of the Mr. Sub franchisees. Here, the reputational damage alleged by the franchisees was said to flow from the supply of tainted meet to others (i.e. not Mr. Sub franchisees or customers), and the recall of potentially tainted meat from Mr. Sub franchisees. Given the source of the alleged damage, the Court of Appeal found that it fell outside the scope of Maple Leaf's undertaking to the franchisees and that the alleged injury was not reasonably foreseeable. As a result, Maple Leaf's duty of care with respect to any representations made that the ready-to-eat meats were fit for human consumption and posed no risk of harm did not extend to the Mr. Sub franchisees' alleged damages for pure economic loss.

The decision of the Court of Appeal in 1688782 Ontario Inc. v Maple Leaf Foods Inc. is a good reminder that there needs to be a link between the duty of care and the damages suffered. Establishing any duty of care is not sufficient. The scope of the duty of care that is alleged must be broad enough to encompass the nature of the damages claimed, and the damages claimed must flow from a breach of the duty of care as defined.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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