In This Issue
“Take This Implied Warranty With A Grain of Sand”: Different Results in Contract and Tort Claims Over Defective Septic System Filter Sand
The Ontario Superior Court’s recent decision in Parkhill Excavating Limited v Robert E. Young Construction Limited is an interesting snapshot of how Canadian courts treat product liability claims differently based on whether they are framed in contract or in tort.1
Background of the Case
The Parkhill decision stems from the trial of a Third Party Claim by the defendant to a product liability action concerning 35 septic systems which failed after being installed in a rural subdivision. The main action commenced by the builder against the contractor who installed the septic systems was settled mid-trial. The contractor sought to recover the amounts paid and its legal fees from the supplier and manufacturer of the filter sand used in the installed systems on the basis that a deficiency in the sand was the principal reason for the failure of the septic systems. The contractor’s claim was framed in both contract and tort.
Two Different Causes of Action, Two Different Results
With respect to the contractual claim, the contractor alleged that the supplier had breached the implied warranty of fitness under the Ontario Sale of Goods Act. The Act implies that the goods supplied will be reasonably fit for the purpose where the purpose is made known, expressly or by implication, between the buyer and seller, the buyer relies on the seller’s skill or judgement, and the goods are sold in the ordinary course of the seller’s business.2 In this case, there was no express discussion between the contractor and the sand supplier regarding the intended use for the sand. Despite that the filter sand had a number of purposes in addition to being used as filtration sand in septic systems, the Court ultimately found that it could be implied that the sand being purchased was for use in a septic system and that the contractor was entitled to rely on the supplier’s skill and judgment that the sand was fit for such use.
The Court found that the sand’s failure to meet relevant requirements under the Ontario Building Code was sufficient to find that the implied warranty of fitness was breached. Although the Court acknowledged that regulatory laws, such as the Building Code, do not inform product liability cases under Canadian law, where the failure to meet Building Code regulations results in a requirement to remove and replace building materials such as the filter sand at issue, the implied warranty of fitness includes compliance with the Building Code. As such, the supplier was found liable for breaching the implied warranty of fitness, subject to certain reductions to damages to account for the contractor’s own negligence in installing the septic systems.
With respect to the tort claim, the Court reached a different conclusion. The Court readily accepted that the filter sand supplier owed a duty of care to the contractor, but found that it did not have sufficient evidence to find that the standard of care was breached. Unlike the contract claim, the contractor’s claim for negligence imposed an onus to prove the applicable standard of care for a reasonable manufacturer and supplier of filter sand. The Court found that it could not make such a determination without expert evidence on the subject, of which there was none. The Court did find, however, that the filter sand supplier had taken reasonable steps to have its product tested in the manufacturing process to ensure compliance with the Building Code. Although the sand ultimately was found to have not met those requirements, the Court found there was no evidence to suggest that there were any deficiencies in the manufacturing process and the contractor’s tort claim was dismissed.
Key Take-Away Principles
The Parkhill decision is an interesting example of the different ways that Canadian courts look at causes of action in product liability claims. The framing of a claim, either in contract or tort or both, may impose different evidentiary burdens on the plaintiff and may lead to different results stemming from the same set of facts. Manufacturers defending such claims should be aware of how claims are pleaded against them, as it will have an impact on what evidence the plaintiff needs to put forward to succeed and how the claim can be successfully defended.
Sometimes, All You Have To Do Is Care: The Ontario Court of Appeal Considers the Standard of Care in The Context of Contractual Duties and Industry Practice
Determining the appropriate standard of care in product liability actions based on negligence, will often determine the outcome of a case. The issue of standard of care was recently considered by the Ontario Court of Appeal in the context of contractual duties and industry practices.1
Background of the Claim
In Mabe Canada Inc. v. United Floor Ltd., the appellant sustained damages when a drainage pipe, running underneath a floor installed by the respondent, was punctured and caused a flood in the appellant’s warehouse. The appellant’s claim was dismissed by the trial judge, who found that although the respondent damaged the drainage pipe by puncturing it with a stake, the respondent met the standard of care.
The contract between the parties required the respondent to notify the builder of the warehouse in writing if the subsurface conditions differed from those in the contract. The trial judge accepted expert evidence that the respondent had no reason to foresee that the pipe would be installed at a shallow depth and that it had no obligation to do more than to determine the location of the drainage pipe. None of the building drawings showed a drainage pipe in the location where the damaged pipe was found. As a result, the respondent's duty to notify the builder did not arise, and the trial judge concluded that it did not breach the standard of care. The Appellate Court upheld this decision.
Key Take-Away Principles
In product liability claims, defendant manufacturers commonly rely on the defence of conformity with standard industry practice when faced with an allegation that it breached the standard of care. Standard industry practice will be determined as negligent only where the practice does not conform with basic care – or in the words of the Supreme Court of Canada, “that which is easily understood by the ordinary person who has no expertise in the practices of the industry.”2
This will not necessarily insulate a manufacturer from a finding of negligence. However, as indicated by this decision, while contractual duties may modify the standard of care in some circumstances, courts will first look at standard industry practices and potential foreseeability of the alleged damage, before determining whether or not such duties were triggered.
Quarterbacking a Crisis
With Super Bowl LII looming this weekend, it seemed an apt time to reflect on the role of external counsel ‘quarterbacking’ a crisis response in the product liability realm.
In some cases, manufacturers with a deep, veteran legal department can (and do!) manage their own crisis response with the benefit of specialized teams and integrated corporate resources like insurance personnel, a PR department and employee relations staff. External counsel, to the extent they are required at all, can provide some of the heavy lifting of client-directed regulatory response and, if necessary, litigation.
In other cases, though, external counsel are relied upon to provide guidance not only in staffing the client’s needs, but in identifying them. Among many other things, external counsel are relied upon for our network of contacts and our knowledge of the multifaceted procedure a manufacturer is required to follow in as short a time as 48 hours after the report of a product failure.
There are a number of support teams external counsel are typically asked to muster for a client in the midst of a potential advisory or recall situation:
Every case is different, but these pieces are generally set into motion right from the snap, in the early days of a product liability file. Particularly since counsel can provide the benefit of privileged communications with these team members, it is often worthwhile to make inquiries of counsel at the outset as to just how broad their crisis response capabilities might be.
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