1688782 Ontario Inc. v Maple Leaf Foods Inc.: Limiting Duty of Care in Cases of Pure Economic Loss

I. BACKGROUND INFORMATION

On November 1, 2020, the Supreme Court of Canada, in its decision in 1688782 Ontario Inc. v Maple Leaf Foods Inc.,¹ denied the appeal of the class representative of 424 Mr. Submarine Limited franchisees (“Franchisees”).² This decision represents an end to an issue that arose over twelve years ago when Maple Leaf Foods Inc. (“Maple Leaf Foods”) recalled many of its ready-to-eat sandwich meats following the discovery of a listeria outbreak at one of its factories.³ The recall created product shortages for many Franchisees over the following weeks, which the Franchisees claimed caused them economic loss and reputational injury.⁴ While the Franchisees had experienced success in the certification of their representative action at the Ontario Superior Court of Justice,⁵ the Ontario Court of Appeal relied, inter alia, on Deloitte & Touche v Livent Inc. (Receiver of)⁶ to deny damages for pure economic loss and allowed Maple Leaf Foods’ appeal.⁷

One issue for the Franchisees throughout was the lack of a direct contractual relationship connecting them to their supplier. Maple Leaf Foods contracted with Mr. Sub, the franchisor, to be an exclusive supplier of several sandwich meats that made up the core of the menu items available.⁸ Mr. Sub required, within its franchisee agreement, that the Franchisees purchase the sandwich meats exclusively from Maple Leaf Foods.⁹ This “chain of contracts” between the parties left the Franchisees with no contractual privity, which would have otherwise allowed them to succeed at a contractual claim against Maple Leaf Foods; therefore, the claim was forced into tort law.¹⁰

II. PURE ECONOMIC LOSS

Absent any direct harm emerging from the consumption of the products supplied, the Franchisees claimed damages under pure economic loss,¹¹ traditionally a very limited area of negligence law.¹² The Franchisees argued that the claim fell within two established categories of proximity in pure economic loss: “negligent misrepresentation or performance of a service, and the negligent supply of shoddy goods or structures.”¹³ This decision by a majority of the Supreme Court of Canada reiterates and clarifies the principles the Court laid out in Livent for application of negligent misrepresentation or performance of service. The Court also updated the framework in Winnipeg Condominium Corporation No. 36 v Bird Construction Co.¹⁴ for the negligent supply of shoddy goods or structures.

The majority first elucidated that a duty of care “cannot be established by showing that a claim fits within a category of pure economic loss.”¹⁵ To demonstrate a duty of care, it must be shown that the relationship between the parties exhibits sufficient “closeness and directness, such that it falls within a previously established category of proximity or is analogous to one.”¹⁶ In the case of negligent misrepresentation or performance of a service, the analysis from the relatively recent Livent ruling largely applies.¹⁷ The two determinative factors in establishing proximity for such a claim are “the defendant’s undertaking, and the plaintiff’s reliance.”¹⁸ That is, when a plaintiff relies to its detriment on a defendant's undertaking, a proximate relationship is established.¹⁹ A “[r]eliance that exceeds the purpose of the defendant’s undertaking is not reasonable, and therefore not foreseeable,” meaning that the requisite level of proximity will not be found.²⁰ This determination involves an analysis of the intended purpose and recipients of the undertaking.²¹ In this case, the majority found that Maple Leaf Foods’ undertaking, which was that the products they provided would be safe for consumption, was made to the final consumers rather than to the Franchisees.²² As a result, the claim could not succeed on this ground.

Regarding the negligent supply of shoddy goods or structures, the Court made more noticeable changes to the analysis used in Winnipeg Condominium by bringing the framework into line with recent developments in negligence law.²³ In Winnipeg Condominium, the Supreme Court held that the defining feature of such a claim was the presence of a “real and substantial danger” that the defendant’s conduct would cause injury to persons or property within the community.²⁴ On this basis, in the present case, the majority determined that complaints involving “merely shoddy products, as opposed to dangerous products…do not implicate a right protected under tort law.”²⁵ They also noted that such matters are better handled through contractual agreements.²⁶ The majority, however, did extend this category from buildings to include dangerous goods, but similarly limited the scope of recovery to the cost of averting danger.²⁷

Supplementing statements made in Winnipeg Condominium, the Supreme Court adds the subsequent condition “that where it is feasible for the plaintiff to simply discard the defective product, the danger to the plaintiff’s rights, along with the basis for recovery, falls away.”²⁸ Additionally, with regard to sandwich meats and other similar products that cannot be repaired, the plaintiff can only recover costs to remove and dispose of the danger and cannot recover the loss of other interests, such as goodwill, reputation, sales, or profits.²⁹ Applying these standards to the Franchisees’ claim, the Court determined that the danger could only be to the ultimate consumer, namely Mr. Sub customers,  and that there was no relevant actionable danger being posed to the Franchisees.³⁰

Under these considerations, the majority found that the Franchisees’ claim had no foundation. Nevertheless, the majority laid out the proximity analysis that will now apply to the negligent supply of dangerous goods or structures. Specifically, the majority details that the first step is to determine “whether proximity can be made out by reference to an established or analogous category of proximate relationship.”³¹ In determining whether proximity can be established, “‘a court should be attentive to the particular factors which justified recognizing that prior category.’”³² Second, if a court finds no existing or analogous category, “it must conduct a full proximity analysis” in light of the relevant factors.³³ These factors will include “‘expectations, representations, reliance, and the property or other interests involved.’”³⁴ The SCC’s analysis in Maple Leaf Food also considers the “reasonable availability of adequate contractual protection”³⁵ and whether “the possibility of reasonably addressing risk [contractually]…presents a compelling argument against allowing a plaintiff to circumvent a contractual arrangement” via tort law.³⁶ In the end, the majority rejected the argument that the Franchisees were a vulnerable party that was unable to protect themselves from a supplier’s negligence. Furthermore, the majority denied the existence of a sufficiently proximate relationship, as they concluded that these facts ultimately resulted from a business choice.³⁷

III. DISSENTING OPINION

Under the majority’s framework, having already found insufficient proximity between the parties, there was no reason to undertake an analysis of a novel duty of care.³⁸ In contrast, the dissent adopted a different framework of analysis, using the decisions in Rankin (Rankin’s Garage & Sales) v J.J.³⁹ and Hercules Managements Ltd. v Ernst & Young,⁴⁰ to consider the possibility of a proximate relationship between the parties.⁴¹ Their resulting approach led the dissenting justices to give far more effect to the vulnerability of the Franchisees,⁴² their “illusory” ability to allocate risk,⁴³ and the imbalance of power between the parties.⁴⁴ The dissenting justices would therefore have recognized that “Maple Leaf owed the [F]ranchisees a duty to take reasonable care not to place unsafe goods into the market that could cause economic loss to the [F]ranchisees as a result of reasonable consumer response to the health risk posed by those goods.”⁴⁵

---

^* JD Candidate (Saskatchewan).

¹ 2020 SCC 35, 450 DLR (4th) 181 [Maple Leaf Foods SCC].

² Ibid at para 1.

³ Ibid at paras 1, 10.

⁴ Ibid at para 1.

⁵ 1688782 Ontario Inc. v Maple Leaf Foods Inc., 2016 ONSC 4233. See also 1688782 Ontario Inc. v Maple Leaf Foods Inc., 2018 ONCA 407 at paras 3–4, ­425 DLR (4th) 674 [Maple Leaf Foods ONCA].

⁶ 2017 SCC 63, [2017] 2 SCR 855 [Livent].

⁷ Maple Leaf Foods ONCA, supra note 5 at paras 86, 88.

⁸ Maple Leaf Foods SCC, supra note 1 at para 8.

⁹ Ibid.

¹⁰ Ibid at paras 2, 6.

¹¹ Ibid at paras 2, 17ff.

¹² Ibid at para 19.

¹³ Ibid at para 2.

¹⁴ [1995] 1 SCR 85, 1995 CanLII 146 [Winnipeg Condominium cited to CanLII].

¹⁵ Maple Leaf Foods SCC, supra note 1 at para 23 [emphasis omitted].

¹⁶ Ibid, citing Livent, supra note 6 at para 26, Childs v Desormeaux, 2006 SCC 18 at para 15, [2006] 1 SCR 643, Mustapha v Culligan of Canada Ltd., 2008 SCC 27 at para 5, [2008] 2 SCR 114 [emphasis omitted].

¹⁷ Maple Leaf Foods SCC, supra note 1 at paras 29ff.

¹⁸ Ibid at para 32, citing Livent, supra note 6 at para 30.

¹⁹ Maple Leaf Foods SCC, supra note 1 at para 32, citing Livent, supra note 6 at para 30.

²⁰ Maple Leaf Foods SCC, supra note 1 at para 35, citing Livent, supra note 6 at para 35.

²¹ Maple Leaf Foods SCC, supra note 1 at para 38.

²² Ibid at paras 39–40.

²³ See ibid at paras 59–60, citing Cooper v Hobart, 2001 SCC 79, [2001] 3 SCR 537 [Cooper], Livent, supra note 6.

²⁴ Winnipeg Condominium, supra note 14 at para 38.

²⁵ Maple Leaf Foods SCC, supra note 1 at para 47 [emphasis omitted].

²⁶ See ibid.

²⁷ Ibid at para 49.

²⁸ Ibid at para 50.

²⁹ Ibid at para 55.

³⁰ Ibid at para 57.

³¹ Ibid at para 64, citing Livent, supra note 6 at paras 26–28­.

³² Maple Leaf Foods SCC, supra note 1 at para 65, quoting Livent, supra note 6 at para 28.

³³ Maple Leaf Foods SCC, supra note 1 at para 66, citing Livent, supra note 6 at para 29.

³⁴ Maple Leaf Foods SCC, supra note 1 at para 66, quoting Cooper, supra note 23 at para 34.

³⁵ Maple Leaf Foods SCC, supra note 1 at para 68.

³⁶ Ibid at para 71 [emphasis omitted].

³⁷ Ibid at paras 88–90.

³⁸ Ibid at para 95.

³⁹ 2018 SCC 19, [2018] 1 SCR 587.

⁴⁰ [1997] 2 SCR 165, 1997 CanLII 345.

⁴¹ Maple Leaf Foods SCC, supra note 1 at para 135.

⁴² Ibid at paras 145–52.

⁴³ Ibid at para 150.

⁴⁴ Ibid at paras 144–151.

⁴⁵ Ibid at para 167.