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Product Liability

Product liability refers to the liability imposed on manufacturers and/or distributors of products alleged to have caused loss or damages to a purchaser or third party based on defective design or manufacturing.

Ontario and federal law impose obligations on businesses operating in Canada that may result in liability arising from manufacturing defects, design defects, failure to warn, general negligence and contractual liability.

Under the Canadian constitution, the federal government possesses legislative authority to regulate trade and commerce. Pursuant to this legislative power, the federal government regulates certain areas related to product liability. This mainly includes food and drugs, consumer products, hazardous products and safety standards for motor vehicles.

Product liability law in Canada is governed by the common law in all provinces and territories, except in Quebec, which is a civil law jurisdiction. In Ontario, there are three main legal foundations that create obligations of product liability: statutory law, contract law and tort law.

Statutory Legal Obligations

The three primary statutes governing product liability in Ontario are the International Sale of Goods Act, the Sale of Goods Act, and the Consumer Protection Act.

International Sale of Goods Act

The United Nations Convention on Contracts for the International Sale of Goods (CISG) was signed in 1980 at the Vienna Convention for the International Sale of Goods. The purpose of the CISG is “to provide a modern, uniform and fair regime for contracts for the international sale of goods”. The CISG was implemented in Canada in 1992 by the International Sale of Goods Contracts Convention Act, and eventually incorporated into legislation by all Canadian provinces and territories. In Ontario, the CISG was implemented under the International Sale of Goods Act (ISGA), which is comprised of each article of the CISG.

Sale of Goods Act

The Sale of Goods Act (SGA) in the common law provinces, including Ontario, incorporates the following specific conditions into most contracts between buyers and sellers for the sale of goods:

  • The goods are fit for a specific purpose; and
  • The goods are of merchantable quality.

If a product is sold that does not meet these conditions, the seller will be held liable without the plaintiff having to prove fault or negligence (i.e. strict liability) and may rely on breach of these conditions to repudiate the contract and/or claim damages.

To advance a claim under the SGA, a party must establish a contractual relationship between two parties. A purchaser who buys a product from a retailer can sue the retailer under the SGA but cannot sue the manufacturer, as there is no contract between the purchaser and the manufacturer. However, the retailer and every other party in the chain of distribution can rely on the legislation to sue the party from whom it directly purchased the product, ultimately leading back to the manufacturer.

There is an exception: The buyer may be able to assert a contract claim against the manufacturer for breach of warranty if a collateral warranty was provided by the manufacturer and that warranty is found to be a representation inducing the sale.

Generally, parties can contract out of the statutorily implied warranties of fitness for purpose and merchantability found in the SGA.

Implied condition: Fitness for purpose

The SGA provides that there are no implied warranties or conditions in a contract of sale as to quality or fitness of goods for any particular purpose, except:

  • Where the buyer either expressly or implicitly lets the seller know the particular purpose for which the goods are required, to show that the buyer relies on the seller’s skill or judgment; and
  • The goods are those normally supplied in the seller’s course of business.

If these two criteria are met, legislation implies into the contract of sale a condition that the goods be fit for the particular purpose for which they are required.

Implied condition: Merchantable quality

Where goods are bought by description from a commercial seller who deals with goods of that description, there is an implied condition that the goods will be of “merchantable quality”. The rationale for this restriction is that in a commercial sale, the buyer expects that they are receiving the quality of goods customarily sold on the market under that description.

“Merchantable quality” generally means that the goods be commercially saleable under the description by which they are sold, or the goods perform to the reasonable expectations of the average buyer. Therefore, the seller does not need to have actual knowledge of the quality of goods as it will apply even where the seller has not seen the goods. However, where the buyer has examined the goods, there is no implied condition of merchantability regarding effects that ought to have been revealed during the examination (patent defects).

Consumer Protection Act

In Ontario, the Consumer Protection Act (CPA) and its regulations are the main pieces of legislation that set out the rights of consumers and cover the most common forms of transactions consumers make. The CPA provides that the implied conditions and warranties found in the Sale of Goods Act cannot be varied or excluded if the contract involves a “consumer sale” as defined by the CPA.

Product Liability Claims in Contract

Contract law provides a remedy for parties who are injured when enforceable promises are breached. The purchaser of the defective goods may choose to either reject the goods and rescind the contract, or to treat the breach as a breach of warranty and sue for damages.  Therefore, a manufacturer can be held liable for damages arising from the breach of a condition or warranty contained in a contract.

To impose liability, the product must be defective within the meaning of the express or implied warranties established by the agreement and that defect must have caused the injuries or damages that are claimed. In determining whether a contractual term is a condition or a warranty, courts will examine the purpose of the contract and assess whether the promise in question is central to that purpose, or collateral to it.

Breach of a condition

A condition is a stipulation in the contract and may be defined as a fundamental obligation imposed on either of the parties, the performance of which is crucial to the contract. The plaintiff must prove a contract exists and that a condition to the contract was breached that resulted in a loss. Breach of a condition allows the innocent party to treat the contract as repudiated. However, other damages may also be available.

Breach of a warranty

A warranty is a promise or statement of fact about goods that is collateral to the main purpose of the contract of sale and may be express, implied and/or statutory. The scope and meaning of an express warranty will be determined by the actual words used by the seller in making their promise. The scope and meaning of an implied warranty will be determined by the circumstances of the case, including the conduct of the seller.

A claim for the breach of a warranty can be brought when the plaintiff proves a contract exists and that it includes a warranty regarding the product. Negligence need not be established; the plaintiff need only show that the product did not perform in accordance with the warranty. The typical remedy for breach of warranty is the payment of damages. Courts will attempt to place the parties in the position they would have been in had the warranty been fulfilled. It does not give the injured party the right to reject the goods and treat the contract as repudiated. A claim in breach of warranty imposes a duty on the plaintiff to take reasonable steps to mitigate his losses.

The Sale of Goods Act has codified the calculation of damages for breach of warranty: a seller’s liability extends to all consequential damage caused by the breach of warranty, but is limited by an objective test as to what a reasonable person would have foreseen as the likely consequence of the breach. However, if the breaching party has actual knowledge that a breach is possible and likely to cause a greater loss than would be obvious to a reasonable person, the court will extend damages to include consequences beyond which the objective reasonable person would foresee.

Product Liability Claims in Tort

Tort principles have risen to a place of primary importance in the protection of consumers and users under product liability law in Canada. Although some product liability claims are based on intentional torts (such as fraudulent misrepresentation), the most common basis for tortious product liability claims is negligence.

In Ontario, it has been stated that there is an evidentiary presumption in favour of the plaintiff once a defect has been shown, and a corresponding evidentiary burden on the defendant to disprove negligence.

The law of negligence provides a remedy for parties who are injured when the conduct of a responsible party (usually the party responsible for manufacturing or bringing a product to market) falls below an accepted standard. To support a claim in negligence, an injured party must show:

  • That the defendant owed a duty of care to the plaintiff;
  • That the defendant breached the requisite standard of care;
  • That the plaintiff sustained damages; and
  • That the damages were caused, in fact and in law, by the defendant’s breach.

Negligence does not require a contractual relationship between the injured party and the responsible party. Therefore, liability in negligence can be extended to anyone that came into contact with the defective goods, including manufacturers, designers and distributors.

Claims for design defects

A manufacturer will be held liable under Canadian law for foreseeable injury or damage caused by products that were negligently designed.

In assessing whether there was, at the relevant time, a reasonable alternative design, the court will consider many factors, including:

  • The utility of the product in question to the public as a whole and to the individual user. (This is to be contrasted against the product with the alternative design);
  • The likelihood the product will cause harm in its intended use;
  • The severity or magnitude of the harm that may be caused by the product – A court will be more critical of the design of a product with the potential to cause very severe injuries;
  • The availability and consequences of adopting the alternative design;
  • The probability and severity of harm that may be present in an alternative design, based on an overall safety assessment of the product;
  • The effects of the alternative design on the product’s function and cost; and
  • The manufacturer’s ability to spread any costs related to improving the safety of the design.

None of these factors alone is determinative of whether there is a design defect. They are not given the same weight but are considered together and balanced by the court to reach a conclusion.

Claims for manufacturing defects

In addition to negligent design, a manufacturer will be liable for foreseeable injuries or damage caused by an unintentional defect in the product that originated from a failure to manufacture the product in accordance with the relevant specifications. Manufacturing defects refer to errors or defects in the production process itself and/or a failure in the manufacturer’s quality control systems.

A plaintiff alleging that a product was negligently manufactured must prove:

  • The product in question was defective in that it was not manufactured in accordance with the specifications that the manufacturer intended;
  • The defect arose as a result of the manufacturer’s failure to take reasonable care; and
  • The plaintiff sustained harm that was caused by the defective condition of the product.

The plaintiff must prove all of these elements for the manufacturer to be found liable. The law does not impose strict liability on manufacturers that they are liable for all harm caused without proof of negligence. As such, the law does not require a manufacturer to produce products that are accident-proof.

Failure to warn

Under Canadian law, manufacturers have a duty to warn consumers of the dangers inherent in the use of their products of which the manufacturer has, or ought to have, knowledge. If a manufacturer knows, or ought to know, of a danger associated with the use of its product, the manufacturer has a duty to warn all consumers of the potential danger. Likewise, users of products have a duty to read, and heed, warnings and instructions supplied with a product, or bear the consequences of any resulting injuries.

The manufacturer or distributor must also warn of any foreseeable misuse of the product. Where a danger is obvious, such as the sharp blade of a knife, a manufacturer has no duty to warn of the danger of injury. Likewise, if a product is only designed for use by a skilled person, rather than the general public, there is no need to warn against the danger that should be obvious to such a skilled person.

Manufacturers and distributors not only have an ongoing duty to inform users of all known defects or dangers associated with a product, but they must also warn where there is reason to suspect that there is a danger associated with the use of the product.

In some instances, warnings are required by statute. For example, the Canada Consumer Product Safety Act makes it an offence to label or package a consumer product in a manner that creates “an erroneous impression regarding the fact that the product is not a danger to human health or safety”, or that is misleading as to safety certification or compliance with applicable standards. It is also an offence to advertise or sell such a product. Similarly, vehicle safety recall obligations arise out of statutory duties to warn under the Canada Motor Vehicle Safety Act.

Additionally, the Food and Drugs Act and the Hazardous Products Act regulates the production and distribution of potentially dangerous consumer goods and prescribes the conditions under which hazardous products may be advertised or sold in Canada.

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