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Product Liability e-COMMUNIQUÉ - June 2018

Published: 06/06/2018

By Peter Henein, Suhuyini Abudulai, Stefanie Holland, Jason M. Holowachuk, Tim Pinos, Derek Ronde, Christopher Horkins, Jeremy Martin, Stephanie Kerzner

In This Issue

  1. An Un-waivering Defence: Effectiveness of Liability Waivers Affirmed by the Ontario Court of Appeal
  2. Duty Free: Recent Appellate Decisions Narrow the Duty of Care in Negligence for Manufacturers
  3. United States Federal Trade Commission Cracks Down on Voiding Warranties For Unauthorized Repairs and Parts
  4. Know Your Limitations: The Law Of Misnomer Cannot Save Your Pleading
  5. What We’re Up To

An Un-waivering Defence: Effectiveness of Liability Waivers Affirmed by the Ontario Court of Appeal

By Suhuyini Abudulai

The Ontario Court of Appeal recently determined that the Consumer Protection Act (Ontario) (the CPA) does not invalidate waiver protections available to businesses under the Occupiers’ Liability Act (Ontario) (the OLA), effectively affirming that the CPA cannot be used to vitiate an otherwise valid OLA waiver.The Court of Appeal’s decision is a significant endorsement of general liability waivers in the recreational liability context.

Background to the Cases and the Ontario Court of Appeal Decision

In two cases heard together, the plaintiffs received a favourable verdict at the Superior Court of Justice against two ski resorts for injuries sustained while skiing. We previously reported on Schnarr v Blue Mountain Resorts Limited in our article “Occupier’s Waiver of Liability Invalidated Under the Consumer Protection Act.”

The OLA, with its longer history, contains specific provisions allowing occupiers to contract out of the duty of care requirement under the OLA, which duty requires occupiers to take reasonable care to ensure persons are reasonably safe when the occupier’s premises. On the other hand, the CPA prohibits contracting out of the implied conditions and warranties that are applicable to the respective consumer transaction and negates any waiver of the application of the CPA. The overlapping scope of the two acts gave rise to a conflict in the case of liability waivers signed by customers at ski resorts. While the waivers were specifically permitted under the OLA, the CPA potentially operated to invalidate them on the basis that they were contained in a consumer contract.

In addressing this novel conflict between the Acts, the Superior Court either voided or partially read down the waivers at issue in both cases. These decisions caused great uncertainty for recreational facilities operators who commonly use general liability waivers to limit their litigation risk. As a result, the two appeals garnered considerable interest with six different parties intervening including Ontario’s Ministry of Government and Consumer Services and the Tourism Industry Association of Ontario.

Taking a different approach from the lower court, the Court of Appeal concluded that the waivers should be upheld since the OLA was paramount and the OLA’s specific provisions were intended to be an exhaustive scheme governing the liability of occupiers for persons on their premises. If the CPA was found to apply, its general provisions would undermine the intent of such legislative intent. As such, where an occupier has a waiver of liability under the OLA, the provisions of the CPA will not apply, effectively excluding transactions covered by the OLA from the application of the CPA.

Key Take-away Principles

The decision confirms the statutory right provided to businesses under the OLA, providing comfort in the reliance on liability waivers going forward, subject to any further development in case law or possible amendments to the CPA to address the conflict between the Acts (the Ministry of Government and Consumer Services was one of several interveners that appeared at the Court of Appeal and was favourable to the application of the CPA in the cases).

Suhuyini Abudulai is a partner in the Cassels Brock Financial Services Group and the firm’s resident expert on all matters pertaining to the Consumer Protection Act. She is the author of the Annotated Ontario Consumer Protection Act, an invaluable resource for all things related to Consumer Protection law in Ontario.

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1 Schnarr v Blue Mountain Resorts Limited, 2018 ONCA 313, <http://canlii.ca/t/hr7bp> [“Schnarr”]

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Duty Free: Recent Appellate Decisions Narrow the Duty of Care in Negligence for Manufacturers

By Christopher Horkins

In determining the outcome of a product liability suit based on negligence, a court will first look to whether the manufacturer owed a duty of care to the injured party. A duty of care will often be found if the harm was reasonably foreseeable. Canadian appellate courts have recently considered whether the categories of foreseeable harm should be framed more narrowly. Two recent decisions from the Ontario Court of Appeal and the Supreme Court of Canada have address this question head on, finding that the circumstances of the case did not give rise a duty of care on the part of the defendant. These decisions bode well for limiting the scope of tort liability on manufacturers in product liability cases.
 
Did They "Meat" The Duty of Care? The ONCA’s Maple Leaf Decision
 
In 1688782 Ontario Inc. v Maple Leaf Foods Inc., the Ontario Court of Appeal granted summary judgment to a manufacturer, finding that the manufacturer owed no duty of care to restaurants in respect of the reputational harm and business losses arising out of contaminated products.1
 
In August 2008, Maple Leaf Foods found that certain brands of their ready-to-eat meats (RTE Meats) were contaminated with listeria monocytogenes. Upon discovering this, they recalled the meats and closed the plant. At this time, Maple Leaf was the exclusive supplier of meats for Mr. Sub franchisees. A class action was commenced and certified on behalf of Mr. Sub franchisees against Maple Leaf. The representative plaintiff claimed that Maple Leaf negligently manufactured and supplied meat that could be contaminated, and negligently represented that the supplied meats were fit for human consumption. The plaintiff also claimed damages for loss of sales, profits, and goodwill.
 
Maple Leaf brought a motion for summary judgment seeking to have these claims dismissed. The motion judge concluded that Maple Leaf owed a duty to the franchisees “in relation to the production, processing, sale and distribution of the RTE Meats” and a duty “with respect to any representation made that the RTE Meats were fit for human consumption and posed no risk of harm.” Maple Leaf appealed this decision.
 
The Court of Appeal reversed the lower court’s decision on appeal, finding that the trial judge erred in finding that Maple Leaf owed a duty of care to the plaintiff restaurant owners. The Court stated that, in determining whether a duty of care exists, one must determine whether there is a relationship of proximity, and the scope of duties resulting from that relationship.
 
The Court found that Maple Leaf’s duty to supply meat fit for human consumption was a duty owed to Mr. Sub’s customers, rather than the franchisees. Based on this, the Court ruled that the representative plaintiff could not “bootstrap” their claim for damages based on their loss of sales and reputation on the duty owed to customers. The Court additionally decided that the scope of Maple Leaf’s duty to Mr. Sub’s franchisees did not extend to protecting their reputation. In short, the Court stated that pure economic losses arising from reputational harm did not fall within the scope of the duty that Maple Leaf owed to the Mr. Sub franchisees.
 
Driving Towards a Narrower Framing of Foreseeability: The SCC’s Rankin Decision
 
Although not a product liability action, the Supreme Court of Canada’s recent decision in Rankin (Rankin’s Garage & Sales) v J.J. took a similarly restrictive approach to the duty of care analysis which will be helpful to manufacturer defendants in product liability cases.2
 
The Rankin case was a negligence action stemming from a car accident sustained by two minors while joyriding in a stolen vehicle. After drinking alcohol and smoking marijuana, the two minor plainitffs stole an unlocked vehicle from a commercial garage owned by the defendant, Rankin’s Garage & Sales. The garage had left the car unlocked with its keys in the ashtray. While driving on the highway, the plaintiffs crashed the car, and the passenger suffered a catastrophic brain injury. The passenger sued Rankin’s Garage, claiming that they owed a duty to secure the vehicles to prevent possible harm arising from theft of the vehicle.
 
The trial judge and the Ontario Court of Appeal both held that Rankin owed a duty of care to the plaintiff. Both judgments found that the harm was reasonably foreseeable, as Rankin knew it had the obligation to secure its vehicles, and could have foreseen that theft could occur and could possibly lead to an accident. Rankin appealed.
 
A majority of the Supreme Court of Canada reversed the decision of the lower courts, finding there was no duty of care owed by the garage owner and that the courts below erred in allowing a category of duty as broad as “foreseeable physical injury.” The Court further held that a risk of theft does not necessarily lead to a risk of physical injury, and that such a leap would extend liability too far. The Court concluded that “a business will only owe a duty to someone who is injured following the theft of a vehicle when, in addition to theft, the unsafe operation of the stolen vehicle was also reasonably foreseeable.”
 
Key Takeaway Principles
 
The Maple Leaf and Rankin decisions both work to narrow the analysis of whether a duty of care exists in ways that will be helpful to manufacturers defending product liability actions. Specifically, both decisions effectively work to require more scrutiny throughout the duty of care analysis. Whether suggesting that the analysis must take into greater account the scope of the duty (as in Maple Leaf) or the nature of the duty (as in Rankin), both cases support a narrower focus. A principle of framing a duty of care in a narrower way would give further protection to manufacturers by preventing them from being held liable for harms that are outside of the realm of foreseeability.
 
The author of this article gratefully acknowledges the contributions of summer student Robert Sniderman.

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1 2018 ONCA 407, <http://www.ontariocourts.ca/decisions/2018/2018ONCA0407.htm> [“Maple Leaf”].
2 2018 SCC 19 (CanLII), <http://canlii.ca/t/hrxsd> [“Rankin”].

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United States Federal Trade Commission Cracks Down on Voiding Warranties For Unauthorized Repairs and Parts

By Stephanie Kerzner

While it is common practice for product manufactures to insist that consumers will void their warranties if they use an unauthorized repair service or “aftermarket” parts, the United States Federal Trade Commission (FTC) recently cracked down this practice clarifying that these policies are illegal under US law.

From the manufacturer’s perspective, if they provide a warranty on a product, they want to rest assured that a third party has not interfered with that product, or that the product has not malfunctioned due to the use of an unauthorized third-party part. Thus, it is typical that a product manufacturer or dealer will include qualifying language in any warranty, voiding the warranty if the customer has used an unauthorized repair service or parts.

In a recent enforcement action, the FTC sent warning letters to six automobile, cell phone and video game companies reminding them that it is illegal to stipulate that warranty coverage is dependent on using prescribed parts and service providers for repairs. The FTC demanded that the six companies cease voiding warranties for this reason and that they remove statements on other materials that threaten to do so within 30 days.

Although the FTC did not name the six subject companies of the enforcement action, the FTC did provide examples of warranty terms that violate the rules:

a) An automotive manufacturer’s warranty stating that "the use of [the manufacturer’s] Genuine Parts is required to keep your [...] manufacturer’s warranties and any extended warranties intact."

b) A video game console manufacturer’s warranty stating that "this warranty shall not apply if this product is used with products not sold or licensed by [the manufacturer]."

c) A video game console manufacturer’s warranty stating that "this warranty does not apply if this product... has had the warranty seal on the [product] altered, defaced, and removed."

Section 102(c) of the United States Federal statute, the Magnuson-Moss Warranty Act4 (the Act), already makes it illegal for manufacturers to claim that a warranty is void or to deny coverage under a warranty simply because someone other than the warrantor did the work:

Prohibition on conditions for written or implied warranty; waiver by Commission

No warrantor of a consumer product may condition his written or implied warranty of such product on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name; except that the prohibition of this subsection may be waived by the Commission if—

(1) the warrantor satisfies the Commission that the warranted product will function properly only if the article or service so identified is used in connection with the warranted product, and

(2) the Commission finds that such a waiver is in the public interest.

While language voiding warranties for unauthorized repairs and parts is prohibited by the Act, product manufacturers can include such a provision in their warranties pursuant to section 102(c)(1) and (2) if they can demonstrate to the satisfaction of the FTC that their product will not function correctly without a particular item or service. A warrantor can also require a consumer to use select items or services if those items or services are provided free of charge under the warranty. Last, it is permissible to disclaim warranty coverage for defects or damage caused by the use of parts or services the manufacturer didn’t provide.

The following is an example of a prohibited provision voiding unauthorized repairs or ‘aftermarket’ parts:

To keep your new [manufacturer] Brand Vacuum Cleaner warranty in effect, you must use genuine [manufacturer] Brand Filter Bags. Failure to have scheduled maintenance performed, at your expense, by the [manufacturer], voids this warranty.2

In contrast, the following is a permissible provision voiding a warranty where defects or damage is caused by unauthorized repairs or parts:

While necessary maintenance or repairs on your [manufacturer] Stereo System can be performed by any company, we recommend that you use only authorized [manufacturer] dealers. Improper or incorrectly performed maintenance or repair voids this warranty.3

The FTC has initiated enforcement actions for void warranties in the past, but this appears to be the first time that the FTC has targeted specific companies in the automobile, cell phone, and video game industries. Looking ahead, manufacturers should be cognizant of these restrictions and ensure that the language in their warranties is compliant with relevant requirements on both sides of the border. While Canada has no direct equivalent to the US’ Magnuson-Moss Act, these types of waiver provisions may still run afoul of provincial consumer protection laws or the federal Competition Act. It is worthwhile for manufacturers to consult with counsel to assist in selecting permissible language in order to avoid running afoul of the FTC and their regulatory counterparts in Canada moving forward.

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1 Magnuson-Moss Warranty Act of 1975, 15 United States Code section 2302.
2 Federal Trade Commission, “Understanding the Magnuson-Moss Warranty Act: Businessperson's Guide to Federal Warranty Law”, online: <https://www.ftc.gov/tips-advice/business-center/guidance/businesspersons-guide-federal-warranty-law#Magnuson-Moss>.
3 Federal Trade Commission, “Understanding the Magnuson-Moss Warranty Act: Businessperson's Guide to Federal Warranty Law”, online: <https://www.ftc.gov/tips-advice/business-center/guidance/businesspersons-guide-federal-warranty-law#Magnuson-Moss>.

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Know Your Limitations: The Law Of Misnomer Cannot Save Your Pleading

By Stefanie Holland

Under the law of misnomer, correcting a party who has been misnamed or misdescribed is permitted, even where the limitation period to bring a claim has expired.1 This type of amendment can be granted typically in two scenarios: one, where it is a case of true misnomer; and two, where the action was commenced against the original defendant prior to the expiry of the limitation period. It is the second situation that is of particular interest – specifically, in cases where a plaintiff is attempting to rely on the law of misnomer simply to get around a statute-barred claim.

Here is an example. A plaintiff commences a claim against a motor vehicle manufacturer for damages arising out of a motor vehicle accident well beyond the two year limitation period. The plaintiff subsequently learns that it sued the wrong manufacturer. The plaintiff  brings a motion to substitute the named defendant manufacturer for the correct manufacturer on the basis of misnomer.

The above example is not the case of a classic misnomer involving a mere irregularity, such as a spelling mistake or a misnamed party.  It is also not the case where the “litigation finger” was pointed at the named defendant manufacturer and the proper unnamed defendant manufacturer is attempting to avoid liability by relying on a technical defence under the Limitations Act.2 Rather, this is a case where a plaintiff failed to exercise reasonable diligence within the two-year limitation period to identify any manufacturer, let alone the correct one. This is a tactic commonly used by plaintiffs in product liability cases to dodge the expiry of a limitation period.

Where leave is granted to correct a misnomer, such leave is granted on the basis that the claim was commenced by or against the misnamed party within the applicable limitation period.3 Permitting amendments on the basis of misnomer after the passage of a limitation period requires the plaintiff’s intention to name the correct party.4 In such cases, the role of the court is to guard against a plaintiff using the doctrine of misnomer simply as a tool to avoid an expired limitation period. In Brown-Vidal v John Doe5, the Divisional Court stated that “while the courts are prepared to override limitation periods where there has been a misnomer, the misnomer must be clear and the delay in discovering the identity of the tortfeaser must be explained.”6

When facing a potential misnomer issue, defendant manufacturers need to investigate potential limitation period issues early and take action from the outset. The law of misnomer cannot be used to save a plaintiff’s pleading where the plaintiff failed to exercise due diligence to identify the, or any, manufacturer, within the time required by the Limitations Act. (Click here to read more on the law of misnomer we previously reported on back in November 2017.)

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1 Limitations Act, 2002, SO 2002, c 24, Sched B, ss 21(1) & (2).
2 See 970708 Ontario Inc v PCS Security Systems Inc, 2014 ONSC 4433 at para 44, citing Brand Name Marketing Inc v Rogers Communications Inc, 2010 ONSC 2892 (Ont Master) at para 84 for an example of this scenario.
3 Corp of Township of North Shore v Grant, 2018 ONSC 503 at para 35.
4 Patrick v Southwest Middlesex (Municipality), 2017 ONSC 17 at paras 27 and 46.
5 2016 ONSC 4359, at para 16.
6 Brown-Vidal v John Doe, 2015 ONSC 3362 at para 58; affirmed 2016 ONSC 4359.

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What We’re Up To

  1. Members of the Cassels Brock Product Liability Group, Peter Henein and Chris Horkins have been appointed to leadership positions within the Defence Research Institute (DRI) Product Liability Committee:
              • Peter was appointed as the Chair of the Recreational Products Specialized Litigation Group; and
              • Chris was appointed the Marketing Chair for the Manufacturers’ Risk Specialized Litigation Group.
    In these roles, Peter and Chris will assist with planning DRI’s 2019 Product Liability Conference in Austin, Texas.
  2. Jeremy Martin was reappointed to the Executive of the Ontario Bar Association Class Actions Section.
  3. Cassels Brock was a proud sponsor of the International Association of Defence Counsel (IADC) Canadian Regional Meeting in Toronto on June 4, 2018.
  4. Derek Ronde and Jeremy Martin will be participating on behalf of Cassels Brock in a consultation with the Law Commission of Ontario regarding potential reforms to class actions legislation in Ontario on June 8, 2018.
  5. Chris Horkins will be attending the DRI Young Lawyers’ Conference in Portland, Oregon from June 20-22, 2018.

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