Liability

Product defects

How is a ‘product defect’ defined in your jurisdiction?

Tort liability in Canadian common law provinces can arise from defects in any type of tangible personal property. Non-tangible products, such as operational systems or business protocols, are incapable of grounding a claim for product liability. 

The overarching question in Canadian common law product liability cases is whether the product is defective. A defect has commonly been described as “a defective condition unreasonably dangerous to the user or consumer or to his property”. There must be a determination that the product itself falls short of reasonable standards. The onus is on the plaintiff to prove, on the balance of probabilities and considering all circumstances, that the product, as designed, manufactured or labelled, fell below reasonable standards.

Generally, the adequacy of a product will be judged by the standard existing at the time the product entered the marketplace, not when the product caused the injury. In the province of Quebec, while a ‘product defect’ is not defined per se in the legislation, Article 1726 of the Civil Code of Quebec describes the notion of ‘latent defects’ as something that renders the product “unfit for the use for which it was intended or which so diminish its usefulness that the buyer would not have bought it or paid so high a price if he had been aware of [it]”.

Causation and burden of proof

How is causation of loss or damage established in relation to product liability claims and where does the burden of proof lie? Can this burden be shifted in any way?

Canadian courts require the plaintiff to demonstrate not only that the product was defective, but also that the defect caused or contributed to the plaintiff’s injury. The general test for causation applied by Canadian common law courts is the ‘but for’ test, which requires the plaintiff to show that the loss would not have occurred but for the negligence of the defendant. In Quebec, the plaintiff bears the burden of proving on a balance of probabilities that the damages are a direct result of the defect.

The law will not excuse a defendant from liability merely because other causal factors may have contributed to the plaintiff’s injuries (eg, Walker and Mississauga). Rather, where there is more than one potential cause of the plaintiff’s loss, causation will be established where the plaintiff can prove on the balance of probabilities that the defendant’s negligence materially caused or contributed to the injury. In the context of a ‘failure to warn’ claim, the plaintiff must prove that they would not have used the product or would have used the product in the manner prescribed, if properly warned.

In Quebec, the legislature has created a legal presumption to help the buyer prove its case, but only where the product was purchased from a professional seller, which encompasses all parties in the chain of distribution of a product, including manufacturers. In such a case, a defect is legally presumed to have existed at the time of the sale if the product malfunctions or deteriorates prematurely as compared to similar products.

This legal presumption shifts the evidentiary burden of the buyer from proving that a defect existed at the time of the sale, to proving the product’s objective malfunctioning or deterioration, as compared to similar products. Once the malfunction is proven, a defect is presumed to have existed at the time of the sale. However, the presumption is not absolute and will be rebutted if the professional seller can show that the deterioration or malfunction of the product was due to improper use by the buyer.

Legal bases for claims

On what legal bases can a product liability claim be brought?

A manufacturer or supplier of a defective product may be liable to a consumer or other party injured by the product on the basis of either contract or tort law principles. Where a contractual relationship exists between the manufacturer and the customer, liability will normally be founded on contract law principles, although independent and concurrent liability in tort law may also exist. There is no strict liability for manufacturers in Canada.

Tort liability for damages or injuries caused by a defective or dangerous product is based on the claim of negligence. In Canada, there are three main types of negligence establishing tort liability for damages or injuries caused by defective products:

  • negligent manufacture;
  • negligent design; and
  • negligent failure to warn. 

To prove negligence, the plaintiff must plead and establish that:

  • the defendant owed a duty of care to the plaintiff with respect to the product;
  •  the product was defective or unreasonably dangerous;
  • the defendant failed to meet the applicable standard of care;
  • the defect caused or contributed to the plaintiff’s damages; and
  • the plaintiff’s damages were reasonably foreseeable.

Where there is a contractual relationship between the plaintiff (typically the consumer) and the defendant manufacturer or supplier of the product, the plaintiff can enforce the express terms of the contract or warranty under the law of contract. 

Additionally, consumer contracts in common law provinces are typically governed by provincial sale of goods and consumer protection legislation. These acts legislate into consumer contracts (which encompasses most retail sales of products) implied conditions as to description, fitness, merchantability and durability. Further, the United Nations Convention on Contracts for the International Sale of Goods has also been incorporated into Canadian law.

In the province of Quebec all sellers, whether professional or not, are bound by the legal warranty of quality in the Civil Code of Quebec. Moreover, by exception to the ‘privity of contract’ principle, manufacturers, any persons who distribute products under their name or as their own, and suppliers of a product, including wholesalers and importers, are also bound to warrant the buyer in the same manner as the seller. Quebec Courts define ‘manufacturer’ as any person whose transformation activities allow the product to be used for its intended purpose.

As such, the buyer of a defective product has a contractual recourse against anyone involved in the manufacturing and sales of the product, even if his or her contractual relationship is with the seller only. Likewise, the Quebec Consumer Protection Act provides that the buyer of a defective product with a contractual recourse against the merchant or manufacturer, even if his or her contractual relationship is with the seller only.

Criminal liability

Can a defendant be held criminally liable for defective products?

Under the Canada Consumer Product Safety Act, a company, its directors and officers can be found liable of a criminal offence for breach of the act. Penalties include fines of up to C$5 million and imprisonment of up to two years. Certain offences under the Criminal Code may apply to corporations and their directors, officers and employees relating to the manufacture and distribution of products in Canada. These offences may include fraud and criminal negligence. Additionally, breaches of the Competition Act, Hazardous Products Act, Food and Drugs Act and Consumer Packaging and Labelling Act may be deemed to be criminal offences attracting fines or imprisonment. 

In order for the manufacturer or distributor of products in Canada to be criminally liable, there must be separate and independent criminal prosecution by the Crown or the governing regulatory body. Criminal liability will not arise from civil litigation relating to product liability. 

Liable parties

Which parties can be held liable for defective products?

Canadian courts have now held that the duty of care has been extended to almost all participants in the chain of product distribution, including:

  • manufacturers;
  • importers, wholesalers, distributors and retailers;
  • repairers and installers;
  • inspectors and certifiers; and
  • product owners. 

The fact that a manufacturer or other party in the distribution chain is not incorporated in or does not conduct business in Canada, will not prevent Canadian common law courts from assuming jurisdiction over such a party. Canadian courts generally accept the concept that when a manufacturer releases its product into the normal channels of trade, the court of the territory where the manufacturer knew or could have reasonably foreseen that its product would be purchased, used or consumed may be entitled to take jurisdiction over a claim for damages suffered in that jurisdiction as a result of an alleged defect in the product.

Any persons who distribute products under their name or as their own, and suppliers of a product, including manufacturers wholesalers and importers, are bound to warrant the buyer in the same manner as the seller. The buyer of a defective product therefore has a contractual recourse against anyone involved in the manufacturing and sales of the product, even if his or her contractual relationship is with the seller only.

Limitation of liability

Can liability be excluded or mitigated in any way?

A manufacturer or supplier of products in Canada can, in certain circumstances, contractually limit or exclude liability for defective products. This is commonly done through sales contracts with terms and conditions expressly setting out the extent of the seller’s obligations. Contracts between commercial entities containing clauses which exclude or limit warranties and liability for product defects are commonly enforced. In contracts with consumers, some provinces prohibit contractual limitation or exclusion of statutory warranties in consumer contracts. Equally, some courts have found certain types of consumer contracts of adhesion seeking to limit a manufacturer’s tort and warranty liability to be unenforceable. Manufacturers also cannot contract out of mandatory, statutory obligations.

Although Quebec law generally allows contractual limitations of the obligations of warranty against hidden defects, a professional seller cannot exclude or limit its liability for latent defects that it knew or is presumed to have known about and that were not disclosed to the buyer at the time of the sale. A limitation or exclusion of liability clause in a sales contract will not protect a seller from liability in such a situation.

As such, professional sellers in Quebec are legally presumed to know about defects affecting their products. As a result, they cannot rely on a limitation of liability clause to protect them from liability for defective products, unless they can successfully rebut the presumption of knowledge of defects affecting their products. A professional seller can do so only if it can establish that it did not know of the defect, so that it could not have discovered the defect even if it had taken every precaution that the buyer would be entitled to expect from a reasonable seller or manufacturer in the same circumstances. In the case of a non-professional seller, an exclusionary or limitation of liability clause may apply.

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