Court of Appeal Narrows the Scope for Duty of Care between Supplier and Retailer

22 May 2018

By Uri Snir

The Court of Appeal recently overturned a summary judgment awarded in favour of Mr. Sub franchisees for reputational harm stemming from the 2008 listeriotic outbreak.

In 1688782 Ontario Inc. v. Maple Leaf Foods Inc., the Court of Appeal held the motion judge erred in finding the supplier of ready-to-eat (“RTE”) meats owed a duty of care to retailers for pure economic losses suffered from the negative publicity associated with the recall of meats.

Background: In August 2008, certain Maple Leaf brand RTE meats became contaminated with listeria monocytogenes. Maple Leaf, the exclusive supplier of RTE meats to Mr. Sub franchises, initiated a recall of certain meats, including two core menu items from Mr. Sub.

There was no evidence to suggest that any of the recalled meat supplied to Mr. Sub franchises was actually contaminated, and no Mr. Sub customers were harmed from consuming meat. Nevertheless, Mr. Sub franchisees brought class proceedings against Maple Leaf, alleging negligence and negligent misrepresentation causing reputational harm from the negative press that followed the recall.

Summary judgment was awarded in favour of the franchisees. The motion judge found that Maple Leaf owed “a duty to supply a product fit for human consumption.” The motion judge also ordered that Maple Leaf “owed a duty of care with respect to any representations made that the RTE meats were fit for human consumption and posed no risk of harm.” Maple Leaf appealed.

The appeal turned on two issues: (1) did this case fall within a recognized category of duty of care; and (2) if not, was the Anns/Cooper framework properly applied to establish a duty of care in this case?

No Recognized Duty of Care: As per the recent Supreme Court decision in Deloitte & Touche v. Livent Inc. (Receiver of) (which was not released until after the motion judge’s decision in this case), courts should be cautious in finding the requisite proximity of the parties based upon a previously established or analogous category. A finding of proximity based upon a previously established or analogous category must be grounded not only on the identity of the parties, but on the particular relationship at issue in each case.

The Court found that this case did not involve a recognized category of duty of care and distinguished all three cases relied on by the motion judge to conclude that Maple Leaf’s relationship with the franchisees fell within an already recognized category of duty of care; the most important distinguishing factor being that Maple Leaf did not knowingly supply a defective product to the franchisees.

The Anns/Cooper Framework: At the first stage of the Anns/Cooper framework, the question is whether the facts disclose a relationship of proximity in which failure to take reasonable care might foreseeably cause loss or harm to the plaintiff. If this is established, a prima facie duty of care arises and the analysis proceeds to the second stage, which asks whether there are policy reasons why this prima facie duty of care should not be recognized.

The Court of Appeal held that the motion judge erred in failing to consider the scope of the proximity relationship and any duty arising from it. As such, the Anns/Cooper framework failed at the first stage.

Although it may have been reasonably foreseeable that consumers would stop going to Mr. Sub after the recall, the Court found that a finding of reasonable foreseeability is not enough to give rise to a duty of care in tort to the franchisees. Such duty of care can only arise where the foreseeable harm falls within the scope of a proximate relationship. In other words, the type of injury claimed must fall within the scope of any duty owed to the franchisees.

In this case, the type of injury claimed by the franchisees (economic losses arising from reputational harm) did not fall within the scope of any duty owed by Maple Leaf to the franchisees. Maple Leaf’s duty of care to supply meat fit for human consumption was owed to the franchisees’ customers, not the franchisees themselves.

The Court of Appeal also found no duty of care in the negligent misrepresentation context. Citing Livent, the Court of Appeal clarified that in establishing a duty of care for negligent misrepresentation, the proximity analysis will often drive the foreseeability analysis because “[w]hat the defendant reasonably foresees as flowing from his or her negligence depends upon the characteristics of his or her relationship with the plaintiff, and specifically…the purpose of the defendant’s undertaking.” In other words, the defendant’s undertaking and the plaintiff’s corresponding reliance limits the type of injury which could have been reasonably foreseen.

In this case, Mr. Sub undertook to supply meat safe for human consumption. The purpose of such undertaking was to ensure customer safety. The purpose of the undertaking was not to protect the reputational interests of the franchisees.

The Court of Appeal also stated that both the negligence and negligent misrepresentation claims would have failed the second stage of the Anns/Cooper framework. According to the Court there is strong public interest in encouraging manufacturers to act expeditiously in recalling potentially dangerous products from the marketplace. Therefore, suppliers should not be concerned with the reputational harm retailers may experience from such a recall.

The Takeaway: This is the first time the Court of Appeal has conducted a thorough duty of care analysis in light of the Supreme Court’s decision in Livent. With its decision, the Court of Appeal appears to have taken a narrow approach to the proximity analysis between suppliers and retailers. The type of injury claimed will often help drive the duty of care analysis. In this case, economic losses arising from reputational harm did not fall within the scope of the duty owed to the franchisees.

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