Ontario Superior Court Limits Potential Class Action Entitlement for Pure Economic Loss

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Bennett Jones LLPThe authors acted for the defendants in these motions.

While the effects of the Supreme Court of Canada's decision in 1688782 Ontario Inc v Maple Leaf Foods Inc., 2020 SCC 35 [Maple Leaf], begin to reverberate in the decisions of lower courts, Justice Paul Perell's certification decision in Carter v Ford Motor Company of Canada [Carter] illustrates the significant impact of the Maple Leaf analysis in the ever-busy landscape of auto liability class actions. The Court issued two sets of reasons cited as 2021 ONSC 4137 and 2021 ONSC 4138. The Carter decision interprets and applies Maple Leaf and provides much needed guidance on the limited scope of claims for pure economic loss in this area. Relying on Maple Leaf, Justice Perell also rooted out various causes of action which have crept into claims against auto manufacturers over the last several years.

The plaintiffs in Carter sought to certify multiple causes of action in tort, contract and restitution for a proposed class of current or former owners or lessees of the allegedly defective vehicles. The plaintiffs alleged that the defect in the vehicles' water pumps created a propensity to fail after "moderate mileage" (claimed to be after 100,000 km), potentially causing catastrophic engine damage, which may be dangerous. The plaintiffs were seeking not only the cost of repair for the allegedly dangerous defect but also economic loss damages, including diminution in value. The Court struck the majority of the pleaded claims, certifying only the cause of action in negligent design for class members who owned or leased vehicles damaged by manifestation of the alleged defect (including those who suffered personal injury). The Court also determined that issues of causation and damage for each class member would be reserved for individual trials. The decision provides a valuable precedent for future products liability class actions, particularly for its application of Maple Leaf.

The Narrow Exception for Real, Substantial and Imminent Danger

As with many auto products liability class actions, the plaintiffs sought costs to repair the alleged defect and diminution in value for all of the impugned vehicles. Such claims are allegedly based on the real and substantial danger exception to the general bar on negligence claims for pure economic loss. Applying Maple Leaf, the Court held that the claim did not meet the test for the exception because the plaintiffs failed to plead an imminent threat—instead, they pleaded "a yet to be borne danger and one that may never be borne." The Court also held the claims lacked commonality because some of the vehicles' values had diminished so greatly that the class members could have simply discarded the vehicles to avoid the alleged real and substantial danger. Accordingly, the Court dismissed the negligence claims in pure economic loss.

Separately, the Court held that, even if the plaintiffs properly pleaded a claim for pure economic loss, damages for diminution in value were not compensable because the exception only provides for the cost to remove real and substantial danger. This determination follows from Maple Leaf, but it is a notable limitation as applied to an auto products liability class action.

Breach of Contract—Variability in Warranty Claims

The plaintiffs pleaded various claims under this heading, including for breach of express warranty and implied warranty at common law and under consumer protection legislation. The Court held that claims in express warranty were untenable for class members who had not experienced vehicle failure because the manufacturer's warranty only covered "actualities not potentialities." Additionally, though the alleged defect related to the defendants' choice of material used in the water pump, the express warranty (which covered defects in materials) did not cover defects in the choice of material, but rather defects within the materials.

The Court generally concluded that the breach of warranty claims lacked commonality due to variability among the class members as to whether (a) any water pump failure occurred; (b) a warranty claim was made and granted; (c) the vehicle was purchased used or new, and within the coverage period; and (d) the claimant disposed of the vehicle before the water pump failure. The Court also held that variability across applicable legislative regimes, including the variable privity requirements, further removed commonality. This variability made the proposed causes of action unmanageable for a common issues trial. Further, the Court held that claims for implied warranty under Ontario's Consumer Protection Act, 2002, SO 2002, c 30, Sch A, were untenable because none of the plaintiffs had an agreement with the defendants to supply goods—the only agreement between any of the plaintiffs and defendants (the express warranty) was an agreement to supply services. In this respect, the Court followed Williams v Canon Canada Inc., 2011 ONSC 6571, over the plaintiffs' objection.

Unjust Enrichment—No Enrichment

The Court also declined to certify claims in unjust enrichment because the defendants were not enriched by the class members' payments unless they purchased directly from the defendants. In this respect, the Court made a critical determination that franchised Ford dealers are not agents of the defendants. The applicable agreements of purchase and sale also provided a valid juristic reason for any enrichment.

Conclusion

The Court in Carter has helpfully applied the Supreme Court's much needed return in Maple Leaf to delineating the contours of the limited exceptions which exist to recovery for pure economic loss analysis to the consumer product context. In so doing, it has specifically distinguished this case from more broadly certified class actions by noting that they pre-dated or did not reference Maple Leaf. Carter's interpretation and application of Maple Leaf should now provide much greater certainty over what types of claims for pure economic loss are tenable and appropriately adjudicated on their merits.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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