Historically, pure economic loss - economic losses unconnected to personal injuries or property damage - was not recoverable by a claimant in a negligence action. Over time, courts in
Facts
In 2008,
The Franchisees sought to establish Maple Leaf's liability by asserting that their claim fell within two of the accepted pure economic loss exceptions: negligent misrepresentation (i.e., that Maple Leaf had represented that its ready-to-eat meat products were "fit for human consumption") and the negligent supply of a shoddy good (i.e., the ready-to-eat meat products may have been contaminated with listeria). The Franchisees also asserted, in the alternative, that their claim should be allowed on the basis of a newly established fourth exception.
Law
To recover for negligently caused loss (including pure economic loss), a claimant must prove all of the elements of the tort of negligence: (1) that the defendant owed the plaintiff a duty of care; (2) that the defendant's conduct breached the standard of care; (3) that the plaintiff sustained damage; and (4) that the damage was caused by the defendant's breach. The majority decision in
To establish a duty of care, a claimant must show either a previously recognized duty or both a relationship of sufficient proximity and foreseeability of injury. In essence, if the courts have already recognized a particular duty (or an analogous duty), a claimant doesn't need to establish it for a second time. However, if the duty has not yet been recognized the court will perform a full proximity analysis which includes a consideration of the expectations, representations, and reliance of the parties in the circumstances. Ultimately a claimant must prove a close and direct relationship with the defendant to establish a new duty of care.
The trial judge concluded that a duty of care existed because the claim fell within two of the previously established exceptions to the prohibition against recovering for economic loss, namely negligent misrepresentation and the negligent supply of a shoddy good. The
Assessing the negligent misrepresentation portion of the claim, the Supreme Court observed that establishing proximity for this exception turns on the undertaking given by the defendant and the plaintiff's reliance on that undertaking. On the facts of the case, the Supreme Court found neither. Any undertaking made by Maple Leaf in relation to the ready-to-eat meat products was to the consumers and not to the Franchisees. It also found a complete absence of detrimental reliance on the part of the Franchisees. The Franchisees did not alter their behaviour as a result of Maple Leaf's undertaking. They were simply obliged to obtain the ready-to-eat meat products by operation of the franchise agreement.
In addressing the negligent supply of a shoddy good portion of the claim, the Supreme Court accepted that this exception can apply to goods and products other than buildings. However, it noted that the exception requires a defect posing a real and substantial danger to the plaintiff's rights in person or in property. The
The
Absent a relationship of sufficient proximity, the Supreme Court also declined to recognize a "novel" duty of care that would have created a fourth categorical exception to the prohibition against recovery for pure economic loss.
Conclusion
Although courts have grouped cases seeking to recover pure economic loss into three distinct categories, whether the exception applies turns on an examination of the relationship between the parties and, in particular, the proximity of that relationship. Merely asserting that the pure economic loss falls within one of the three established exceptions is insufficient. A claimant must first establish that the defendant owed it a duty of care when the pure economic loss occurred.
The dissent is noteworthy. Four of nine Justices of the
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