The recent decision Arora v. Whirlpool LP, 2013 ONCA 657 by the Ontario Court of Appeal clarified the law on product liability in tort. In refusing to certify a proposed class action, the Court found that Whirlpool was not liable for economic losses stemming from the allegedly negligent design and manufacture of non-dangerous washing machines.  However, the Court was clear that the manufacturer could still be open to liability on contractual or statutory grounds, as could be the retailers that sold the machines.

Facts

The proposed class action sought to compensate consumers who purchased front-loading washing machines manufactured by Whirlpool between 2001 and 2008.  The class alleged that the machines suffered from a common design defect and were prone to developing an unpleasant smell.  They did not plead that the washing machines were dangerous or caused any injury or significant damage to property.  The class elected to sue Whirlpool, and not the retailers from which they bought the machines.

The class claimed damages for breach of express warranty, breach of implied warranty, breach of the Competition Act, negligence, and waiver of tort.  The motions judge determined that the class had not disclosed a tenable cause of action on any of these claims, and therefore did not meet the criteria for certification of a class action.1

The Court of Appeal Decision

The Court of Appeal agreed with the motions judge, and disposed of all of the class’ causes of action individually.

  1. Breach of Express Warranty

Whirlpool had provided three different warranties that covered defects in the materials or workmanship of the washing machines.  The Court saw the matter as one of simple contractual interpretation and found that, given that the class were suing for defectivedesign, rather than materials or workmanship it was plain and obvious that the express warranties did not cover their claim.2

  1. Breach of Implied Warranty

Section 15 of the Sale of Goods Act3 provides for an implied warranty in a contract of sale between a purchaser and seller.  The class argued that Whirlpool had breached the implied condition, namely that the washing machines would be “reasonably fit” for the purpose of washing clothing.

Since Whirlpool does not sell its machines directly to consumers, it argued that it was not a “seller” within the meaning of the Act, so the implied warranty did not apply.4  The Court agreed, stating that the fact that the machines were purchased from third-party retailers was “critical to the viability of the class’ implied warranty claim.”5  Section 15 provides a remedy against the seller with whom the consumer has a contract of sale.  The statutory warranty is implied into this contract. The class had no such contract with Whirlpool, and no exception to the law of privity of contract could be found.6  This being the case, the Court found that there was no reasonable prospect of success for this claim.7

A Notable Exception: Saskatchewan and New Brunswick Sale of Goods Legislation

Residents of Saskatchewan and New Brunswick could still have a cause of action against Whirlpool for breach of an implied warranty because the sale of goods legislation in those provinces expressly provide that lack of privity does not defeat a third party’s claim for damages as a result of a breach of an implied warranty.8  That is, the implied warranty is not limited to agreements between sellers and purchasers, and consumers can make direct claims against manufacturers.

An Unanswered Question for Future Litigation: A Change to the Doctrine of Privity?

The class could have argued that the contract between Whirlpool and the retailers included an implied condition and that they intended to extend the benefit of section 15 to the third-party purchaser.  This would have required the class to establish that allowing the consumer to sue under manufacturer-retailer contracts would be an incremental change to the doctrine of privity.  However, since the class had not plead the issue, the Court of Appeal concluded that it was not necessary to decide the question, and noted that it would be preferable for the courts to await a case focused squarely on that subject.9

  1. Breach of the Competition Act

The class claimed that Whirlpool had breached section 52 of the Competition Act,10 which provides that no person shall “knowingly or recklessly make a representation to the public that is false or misleading in a material respect” for the purpose of promoting the supply or use of a product.11  The statute further empowers a person to sue for damages where a person has acted in contravention with the act.12

Because Whirlpool had never revealed to consumers that the machines suffered from a design defect that exacerbated unpleasant odours, the class argued that Whirlpool had made a representation by omission.13  However, silence is not an actionable misrepresentation unless there is a legal duty to disclose something, and the Court found that there was no such duty under the Competition Act.14  It went on to adopt the holding inWilliams v. Canon Canada Inc., 2011 ONSC 6571, where Ontario’s Superior Court held that a failure to disclose an alleged defect cannot be a “representation” that would violate section 52.15  Nonetheless, it noted that such omissions can still give rise to an action in negligence.

  1. Negligence: Economic Loss for Negligent Design of a Non-Dangerous Consumer Product

The class’ claim for economic losses stemming from a shoddy, but not dangerous product was novel in the realm of tort law.  Ultimately, the Court of Appeal upheld the motion judge’s finding that the class’ claim was untenable, and supported the broader statement that, “compensation for economic losses are best regulated by contract and property law.”16  The Court of Appeal wrote:

At its core, the appellants’ economic loss claim is for diminution in value – that is, the difference in value between the product they thought they were getting and the one actually received.  In my view, it is clear that such a claim has no reasonable prospect of success in light of the jurisprudence and the relevant statutory framework...17

The Court further concluded that:

... in my view policy considerations negate recognizing a cause of action in negligence for diminution of value for a defective, non-dangerous consumer product. On the pleaded facts, I agree with the motion judge that the appellants should be left to their statutory and contractual remedies, including express, implied or statutory warranties and ‘should not look to tort law to negotiate a better bargain for themselves.’”18

Understanding Pure Economic Loss

The Class’ claim was characterized as one for “pure economic loss” because there was no significant damage to clothing or property, and no person had suffered bodily harm.19  Pure economic loss is defined as “a financial loss which is not causally consequent upon physical injury to the plaintiff’s own person or property.”20

Canadian courts have traditionally limited recovery in tort for pure economic loss.  This is partly because economic interests are seen as “less compelling of protection than bodily security or proprietary interests.”21  Courts are also concerned about the “spectre of indeterminate liability” and the encouragement of inappropriate lawsuits.22

A Policy-Based Distinction Between “Dangerous” and “Shoddy” Workmanship

Tort law was expanded to recognize claims for pure economic loss stemming from dangerous goods in Winnipeg Condominium Corporation v. Bird Construction Co., [1995] 1 SCR 85.  In that case, the Supreme Court of Canada found that there were compelling policy reasons to impose tortuous liability on contractors for the cost of repairing dangerous defects of a building, but expressly declined to settle whether a similar duty should be recognized when the defect is not dangerous.23  The washing machines inArora were alleged to be shoddy, but not dangerous,24 thus the Court of Appeal was compelled to consider the issue.

The Court in Arora determined that the extension of liability for dangerous defects inWinnipeg Condominium was derived from “conventional concerns of protection of bodily integrity and property interests.”25  In contrast, the class did not suggest there was a danger to the health and safety of the proposed class members, nor did their claim involve damage to property.26  Consequently, the Court stated that “recognizing the possibility of tort liability on the pleaded facts of this case would represent such a quantum leap [in the law] that it is plain and obvious that the class’ negligence claim will not succeed.”27  The rationale for extending tort liability for a potentially lethal condominium building simply would not reach into the realm of merely defective, somewhat smelly washing machines.

The Class’ Claim was Properly Contractual

Even though the damages sought by the class were not a recognizable claim in tort, they could have been appropriately pursued as expectation damages for breach of contract.28 As the Court of Appeal stated:

At its heart, the appellants’ claim is that they paid more for their washing machines than they are worth. It is squarely about relative product quality – a matter that, as LaForest J. noted in Winnipeg Condominium, is customarily dealt with by contract and not easily defined by tort.29

The Court also stated that to require courts to analyze “a myriad of consumer transactions ... in tort, without the framework of consumer protection legislation, to determine whether the consumer received value for his or her money, would burden an already taxed court system.”30 Of course, pursuing the matter as a contractual claim would have required the class to sue the individual retailers with whom they had contracts, rather than a single manufacturer.

The Availability of Alternative Remedies: Consumer Protection Legislation

The Court of Appeal was heavily influenced by what it perceived to be readily available remedies under various statutory regimes. It wrote:

... it must be remembered that this is not a case where the appellants were without a remedy. The SGA31 and CPA32 provided a statutory remedy against the seller of the machines for breach of implied warranties of quality and fitness for purpose, and the BPA33 and CPA34 provided remedies against Whirlpool for unfair practices.35

To the extent that Ontario’s legislation dealing with breach of implied warranties limits consumers to remedies against individual retailers, it must be acknowledged that class actions will be fractured and multiplied, and likely uneconomical.  Recognizing this, the Court encouraged Ontario’s legislature to reconsider amendments to the CPA to include an exception to privity of contract that would allow consumers to recover against manufacturers for breach of implied warranties.36

  1. Waiver of Tort

The Court of Appeal reinforced that waiver of tort requires, at minimum, that a defendant has committed some form of wrong.  Since the class had not pleaded any tenable cause of action, there was no wrongdoing to support a finding of waiver of tort, regardless of whether it was plead as a remedy or a cause of action.37

Conclusions on Liability in Tort for Defective, Non-Dangerous Consumer Goods 

While the Court’s invocation of policy reasons suggests a broad moratorium on tort claims for economic losses stemming from non-dangerous goods, the Arora decision ultimately centres on the specific facts of the case.  Though the class’ claim could not pass through, the door to tort-based recovery for defective goods remains slightly ajar for future plaintiffs who may wish to give it another spin.

It is also noteworthy that the class had dropped their initial claim under the CPA,38 had made some concessions about the nature of their losses,39 and had failed to plead all of the potential claims available to it under contract law.  The dismissal of their appeal may instigate a renewed caution on the part of plaintiffs’ counsel to exhaust every legal avenue in their pleadings and refrain from making concessions at the pre-certification stage.  As a result, defendants of product liability class actions may find themselves faced with increasingly complex claims.