Justice Perell of the Ontario Superior Court of Justice recently dismissed the plaintiffs’ class certification motion in Arora et al. v. Whirlpool Canada LP and Whirlpool Corporation on the basis, in part, that there can be no recovery in a product liability negligence action for pure economic losses against the manufacturer of a non-dangerous consumer product.
The named plaintiffs sought to represent a class of persons who owned front-loading washing machines manufactured by the defendants between 2001 and 2008. The plaintiffs alleged that the washing machines suffered from a design defect that led to buildup of biofilm, mould, mildew and bacteria. The pleadings alleged that biofilm buildup led to a variety of health problems as a result of exposure to “toxins and allergens.” However, plaintiffs’ counsel argued the motion on the basis that the defendants were liable in negligence for the class members’ pure economic losses. In addition to the claims based on negligent design, the plaintiffs also alleged negligent failure to warn, breach of warranty, and misrepresentation contrary to section 52 of the Competition Act.
In considering the requirement on a class certification motion to plead a sustainable cause of action, Justice Perell ruled that there can be no recovery for pure economic losses in a product liability action in negligence against the manufacturer of a non-dangerous product. Justice Perell grounded his decision in an analysis of past jurisprudence as well as an analysis from first principles, both of which led him to the same conclusion.
The jurisprudential analysis begins with a review of the four policy considerations behind the law on recovery for pure economic loss discussed by Justices Iacobucci and Major in Martel Building Ltd. v. Canada:
- economic interests are less compelling of protection than bodily security or proprietary interests;
- unlimited ability to recover for pure economic loss could lead to indeterminate liability;
- economic losses often arise in a commercial context, in which parties are best suited to guard against them through contracts; and
- recovery for economic loss could encourage inappropriate lawsuits.
Justice Perell then noted the five exceptions to this rule cited by the Supreme Court of Canada (SCC) in Canadian National Railway Co. v. Norsk Pacific Steamship Co.: negligent misrepresentation; negligence of public authorities; negligent performance of a service; supply of shoddy goods or structures; and relational economic losses.
The SCC elaborated on the exception for the supply of shoddy goods or structures in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co. There, Justice La Forest held that the exception required the defect to be “dangerous” and not merely “shoddy,” since the rationale behind the exception was that courts should not require a person to be physically injured in order to sue, when the danger is readily apparent in advance. On the whole, Justice Perell interpreted the Winnipeg Condominium decision to stand for the proposition that the exception is narrowly limited to pure economic losses caused by “substantially dangerous products” (generally, the costs to repair a product to prevent danger from materializing), noting that “[d]angerousness was the cornerstone to the duty of care analysis and a critical precondition to liability.”
Justice Perell reviewed a number of decisions discussing recoverability of pure economic loss and only allowing recovery for “dangerous” products, as well as a number of earlier class certification decisions, including some that held claims for pure economic loss could proceed to trial and certified the class actions proposed: Griffin v. Dell Canada Inc.; Gariepy v. Shell Oil Co.; Bondy v. Toshiba Canada Ltd.; and Barwin v. IKO Industries. Justice Perell distinguished most of these latter decisions but generally held that, insofar as any of them stands for the proposition that a plaintiff can recover in tort for pure economic loss, he believes they are wrongly decided.
First Principles Analysis
Justice Perell also offered a theoretical explanation for why the law should not recognize tort claims for pure economic loss. He found that, although manufacturers owe consumers a prima facie duty of care, that duty is negated by public policy considerations when the losses claimed are pure economic losses. He found that the reasons given for why economic loss should not be actionable reflect a policy decision that compensation for economic losses is best regulated by contract and property law absent, some countervailing policy (e.g., protecting injury from a dangerous product) to justify tort law regulating economic activity. He therefore concluded that the “century old policies … against negligence law providing compensation for pure economic losses apply in the case at bar to negate a duty of care…”.
CONTRACTUAL AND STATUTORY CLAIMS
The plaintiffs also claimed that Whirlpool breached an express or implied warranty to supply goods free from material defects and fit for their intended purpose. While the washing machines did include a warranty, Justice Perell found that the warranty only covered defects in materials or workmanship, and that there was no express or implied term of the warranty covering design defects. Thus there was no tenable cause of action for breach of warranty.
Justice Perell also ruled that there was no tenable cause of action with respect to the Competition Act claims. The plaintiffs argued that Whirlpool had made false and misleading representations by omission, that is, that Whirlpool failed to disclose a defect to customers. Justice Perell agreed that in some circumstances an omission can constitute a false and misleading representation within the meaning of the Competition Act. However, absent a duty of care, statutory duty to disclose or a fiduciary duty to speak, silence will generally not be considered a representation. In this case, given that the alleged design defect was not dangerous, Justice Perell held that Whirlpool “was not under a duty to disparage its own product and disclose the alleged design defect.”
This decision is of significant importance to the products liability bar. It confirms that product liability negligence claims for non-dangerous products are not actionable, a ruling that should help manufacturers resist class actions in similar cases and rely more strongly on their contracts.