In the case of Axa assurances Inc. vs. Claude Joyal Inc. & CNH Canada Ltd, CNH Canada Ltd (hereinafter “CNH”) presented a motion to dismiss warranty proceedings instituted by Claude Joyal Inc. (hereinafter “Joyal”) which was granted by judgement rendered on February 14, 2012.  

Although the Court granted the motion to dismiss concluding that ‘’despite the absence of a demand letter and the fact that the vehicule was destroyed, the recourse is ill-founded in law’’, the Court reviewed the principles governing notification in matters of latent defects.

Within the scope of the principal proceedings, Axa Assurances Inc. (hereinafter “Axa”) instituted proceedings against Joyal in recovery of $348,529.92, representing sums paid to its insured as a result of a fire destroying a combine harvester purchased from Joyal.

The fire occurred on November 20, 2008, Axa indemnified its insured in February 2009 and soon thereafter obtained salvage value ($8,242.72) for the sale of the debris of the vehicle.

Joyal received its expertise report on the causation on October 1, 2009 which essentially concluded that the cause of the fire remains undetermined.

Legal proceedings were instituted on October 19, 2010 by Axa against Joyal alleging that the vehicule was defective since it failed prematurely (Art.1729 C.C.Q). Joyal, in turn, instituted warranty proceedings against CNH, the manufacturer of the vehicle, on April 26, 2011, 6 months later. A letter of demand was never sent to CNH: First notice of the loss was the receipt of the warranty proceedings.

Joyal unsuccessfully argued that failure to send a letter of demand to CNH did not constitute a bar to instituting proceedings. He also unsuccessfully argued that the delay to notify commenced when Axa sued and pleaded premature failure.

The Court reiterated the well enshrined principles governing notification in matters of latent defect as provided for in article 1739 C.C.Q. which reads as follows:

1729. A defect is presumed to have existed at the time of a sale by a professional seller if the property malfunctions or deteriorates prematurely in comparison with identical items of property or items of the same type; such a presumption is not made, however, where the defect is due to improper use of the property by the buyer.

The principles are summarized as follows:

  • A party has the right to a complete and full defense;
  • A debtor has the right to carry out its own expertise and not rely solely on the expertise carried out by its creditor;
  • A creditor must give a debtor the opportunity to verify whether a defect exists;
  • The debtor must be given the opportunity to rectify the situation prior to repairs being carried out; and
  • The reasonable delay commences when the creditor discovers the defect.

The Superior Court stated that in the circumstances, CNH was deprived of its right to a complete and full defense since it had not been given the opportunity to inspect the vehicle and was being forced to rely on the expertise carried out by another party.