Written by Nick Noonan, JD, LLM
In 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35, the Supreme Court of Canada provided clarity on the duty of care for pure economic loss. The case revolved around a listeria outbreak in 2008 at one of Maple Leaf’s factories, leading to a recall of several products, including two ready-to-eat meat products used by Mr. Sub franchisees. Maple Leaf was the exclusive supplier for 14 core ready-to-eat meat menu items served in all Mr. Sub restaurants, and the franchisees were required to purchase such products exclusively from Maple Leaf. This relationship was governed through a multi-party arrangement comprising a chain of contracts. Following the recall, the franchisees experienced a product shortage for six to eight weeks, which they alleged caused them economic loss and reputational injury. Unable to sue Mr. Sub for the supply shortage due to terms in the franchise agreements, the franchisees sued Maple Leaf in a class action, seeking compensation for various economic losses.
The court was asked to determine whether Maple Leaf owed a duty of care to the Mr. Sub franchisees to supply a product fit for human consumption and whether Maple Leaf had been negligent in its discharge of that duty. The foundational element of claims in negligence is that the defendant owed the plaintiff a duty of care, and the key question was whether the law recognized a duty of care for economic loss in these circumstances.
A majority of the Supreme Court, in a 5-4 decision, held that Maple Leaf did not owe a duty of care to the franchisees of Mr. Sub in respect of the reputational harm and pure economic loss that they suffered as a result of the recalls. The majority found that there was no proximate relationship between Maple Leaf and the franchisees. They concluded that Maple Leaf’s undertaking to provide ready-to-eat meats fit for human consumption was made to end consumers, not to the business interests of commercial intermediaries such as the Mr. Sub franchisees. The majority also focused on the chain of contracts between the franchisees, Mr. Sub, and Maple Leaf, warning that courts must be cautious about allowing parties to circumvent that allocation by way of tort claims.
The dissenting judges, however, found it would have been just and fair to impose a novel duty of care in this case. They focused on the fact that there was a close and direct relationship between Maple Leaf and the franchisees, citing the exclusive supplier relationship, direct line of communication, and support provided directly to franchisees.
The decision is significant for several reasons. It confirms that there is no general right in tort protecting against the negligent or intentional infliction of pure economic loss in Canadian law, and that the circumstances in which pure economic loss may be recovered remain limited. It emphasizes the manufacturer’s implied undertaking as to the safety of its goods is made to the end consumer, and it serves as a reminder of the courts’ reluctance to afford commercial parties in a chain of contracts with extra-contractual rights against the other parties to the chain. For businesspeople going forward, this decision underscores the importance of carefully considering contractual arrangements and the allocation of risk. It highlights the reticence of the courts to allow parties to circumvent the contractual distribution of risks by the imposition of extra-contractual duties of care. In multi-party commercial relationships, courts will consider the relevant contractual terms as a whole, so as not to defeat the expectations of all parties with respect to their obligations and entitlements. Commercial parties should be mindful of third-party agreement terms and be cautious not to rely on expectations of extra-contractual rights or protections, especially where the parties have addressed the risk at issue in their contractual relationship.
The views and opinions expressed in the blogs and case reporter are the views of their authors, and do not represent the views of the Desautels Centre for Private Enterprise and the Law, the Faculty of Law, or the University of Manitoba. Academic Members of the University of Manitoba are entitled to academic freedom in the context of a respectful working and learning environment.