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  • The warranty of fitness for purpose in consumer law – Court of Appeal judgment

     This publication was co-authored by Luc Thibaudeau, former partner of Lavery and now judge in the Civil Division of the Court of Québec, District of Longueuil. Lavery is closely monitoring developments in consumer class actions and, in order to keep the business sector informed on the subject, publishes regular newsletters on recent case law and legislative changes that are likely to affect, if not transform, business practices. INTRODUCTION In Fortin v. Mazda Canada Inc.1, the Québec Court of Appeal reversed the judgment of first instance2 and ordered Mazda to pay damages to the drivers of 2004, 2005, 2006 or 2007 Mazda 3 vehicles affected by a particular design flaw. The locking mechanism on the driver’s side appeared to be defective, such that a strategically delivered impact above the door handle on the driver’s side would be enough to neutralize the car’s locking system. The members in the class action were divided into two sub-classes. The first consisted of the owners of vehicles that had been attacked and who claimed the value of stolen items, the cost of damaged doors and their insurance deductibles, if any (“Group 1”). The second sub-class claimed compensation for the inconvenience of having to bring their cars to their dealerships for the installation at no charge of a reinforcement device for the car’s door locking system (“Group 2”). In addition, both groups claimed a reduction in the sale price on the grounds that Mazda had failed to disclose an important fact, as well as punitive damages. THE JUDGMENT OF FIRST INSTANCE The Superior Court of Québec dismissed the class action on its merits on the ground that the door’s locking mechanism did not have a design flaw because, according to the use for which it was intended, the mechanism created a sufficient obstacle, substantially reducing the possibility of theft. It should be noted that there are no security standards governing the efficacy of car locking systems. Consequently, the ease with which the protection system could be circumvented did not amount to a loss of use. The Court also did not agree that Mazda had engaged in a prohibited business practice in failing to disclose an important fact concerning a security feature. In any event, the criminal intervention of a third party broke the chain of causality between the alleged defect and the damages sustained. As for the claims of the members whose vehicles were not broken into (Group 2), the Court was of the view that they had not suffered any manifestation of the defect. The fact that they had to bring their cars to their dealerships for installation of a reinforcement mechanism in the locking system was one of life’s little annoyances and did not therefore warrant an award of damages. As there was no evidence that Mazda had been reckless regarding its legal obligations, the Court also dismissed the claim for punitive damages. THE COURT OF APPEAL JUDGMENT THE CONSUMER PROTECTION ACT (CPA) AND THE CONCEPT OF LATENT DEFECT The CPA stipulates that goods must be fit for the purpose for which they were normally intended (section 37 CPA) for a reasonable length of time, which will vary according to the price paid, the terms of the contract and the conditions of their use (section 38 CPA). If the goods cannot be used for the consumer’s reasonably expected purpose, there is a presumption that the defect existed prior to the sale. Furthermore, neither the merchant nor the manufacturer can argue that they were unaware of the defect (section 53 CPA). The Court confirmed that the aforementioned warranties are a particular application of the concept of latent defect in Quebec civil law. The Court added an important qualification: by operation of the CPA, a consumer wishing to argue loss of fitness for purpose under section 37 CPA has a less onerous burden of proof than a purchaser invoking the warranty of quality under the Civil Code of Québec (CCQ). Indeed, an action invoking the warranty of quality under the CCQ must satisfy four tests, namely, the defect must: 1) be latent, 2) be sufficiently serious, 3) be unknown to the buyer and 4) have existed at the time of the sale. The Court was of the view that, like the warranty provided in section 38 CPA, the warranty against loss of use under section 37 CPA exempts the consumer from having to prove the existence of a latent defect, provided that the consumer conducts an ordinary examination of the item before purchasing it. The Court stated that the presumption of the existence of a hidden defect broadens the [translation:] “traditional concept” of latent defect in that a consumer could benefit from the fitness for purpose warranty under section 37 CPA without the item being affected by a material defect. The consumer need only show that there is a serious loss of use and that he or she was unaware of its existence at the time of the sale. APPLICABILITY OF THE FITNESS WARRANTY The Court noted that the fitness warranty imposed on merchants and manufacturers creates an obligation of result. That obligation is assessed primarily on the buyer’s reasonable expectations. The courts must apply an objective standard, namely the average consumer’s expectations assessed in light of the nature of the product and of its intended use. The Court noted that although often raised as a defence, the fact that a merchant is in compliance with legal or industry standards does not exonerate it unless there has been a finding of loss of use. Furthermore, it stated that [translation:] “the absence of standards does relieve the manufacturer of its obligation to take into account the needs and reasonable expectations of its customers”. The Superior Court therefore erred in holding that under normal use the locking mechanism worked very well. That analysis does not consider the expectations of the consumer who legitimately believes that his or her vehicle has a locking system capable of creating [translation:] “a reasonable obstacle against malicious intrusions”. Applying the presumptions provided in section 37 CPA regarding the prior existence of the defect and the presence of a latent defect, the consumer need only show that the weakness in the locking system was substantial and that, had the consumer known about it, he or she would not have bought the vehicle. In that respect, the Court accepted the appellant’s arguments and held that any consumer aware of the weakness of the locking system would have refused to purchase that model for the price paid. The Court therefore reversed the judgment of first instance and held that the Mazda vehicles covered by the class action were affected by a significant loss of use giving rise to the compensatory measures provided for in section 272 CPA. THE DUTY TO INFORM Section 228 CPA prohibits the merchant, manufacturer, or advertiser from failing to mention an important fact. Unlike the judge of first instance, the Court of Appeal was of the view that the “important fact” referred to in section 228 CPA is not [translation:] “aimed solely at protecting the physical safety of consumers”, but also targets any key element of a contract. An element will be key if it is likely to interfere with the consumer making an informed decision. Mazda had the obligation to disclose the defect in the protection system as soon as it became aware of it given that the members of the group would not have contracted under the same terms and conditions. Therefore, all consumers who purchased a vehicle between the date Mazda learned that its locking system was defective (October 3, 2006) and the date it launched its special correction program (January 28, 2008), and who were unaware of the defect in the security system, are entitled to claim a reduction of the price pursuant to section 272 CPA. PUNITIVE DAMAGES The Court of Appeal reiterated that violation of a provision of the CPA does not automatically give rise to punitive damages, emphasizing the onerous nature of the burden of proof required in this instance. Agreeing with the judge of first instance, the Court of Appeal stated that an analysis of the facts does not demonstrate that Mazda acted [translation:] “in a deliberate, malicious or vexatious manner, or that its conduct could be characterized as seriously ignorant, reckless or negligent of such a degree of severity” and, hence, the members are not entitled to punitive damages. EXTRACONTRACTUAL DAMAGES (GROUP 1) According to the Court of Appeal, the criminal intervention of a third party did not break Mazda’s chain of responsibility (novus actus interveniens). The protection system of the vehicles was affected by a design weakness, and it is because of that weakness that wrongdoers were able to take advantage of that condition. The damage sustained by members whose vehicles were damaged or stolen is therefore the result of the fault committed by Mazda of not having designed a locking system that could provide [translation:] “a reasonable obstacle against malicious intrusions”. TROUBLE AND INCONVENIENCE The Group 2 members claimed compensation for the inconvenience resulting from Mazda’s recall campaign aiming to correct the defect of the safety system of its vehicles. Now, although the Court of Appeal acknowledged that the campaign may have caused inconvenience, it was of the view that it did not exceed the [translation:] “normal inconvenience suffered by all vehicle owners here and there over the normal course of a year”. From a procedural perspective, the Court again acknowledged that where adjudication of such a claim requires consideration of subjective elements specific to each member of a group, collective action is not the appropriate recourse. Indeed, claims based on inconvenience sustained present highly individual aspects. Referring to the latin maxim de minimis non curat lex, the Court of Appeal noted that it would be inadequate to take up the time of the courts to deal with claims of small consequence. Both groups also claim damages for trouble and inconvenience for having been under the fear that their vehicles would be vandalized and the inconvenience associated with the constant search for safe parking. That claim was dismissed. The Court of Appeal noted that the purpose of compensating a party is not to indemnify all the [translation:] “frustrations and sensitivities associated with the slightest breach by a person with whom that party interacts”. It further noted that considering its individual nature, this type of claim does not readily lend itself to collective indemnification. CONCLUSION The Court of Appeal held that Mazda 3 vehicles for the years 2004 to 2007 were affected by a significant loss of use. However, Mazda has proved that it remedied that effect in its correction campaign (272 (a) CPA). The members of Group 1 may not therefore obtain, in addition to that remedy, additional indemnification in the form of a reduction of their obligation. However, the members of Group 1 are entitled to compensatory damages (272 CPA) pursuant to the independent action for any of the specific remedies provided for in section 272 (a) to (f) CPA. As far as Group 2 is concerned, the Court was of the view that their claims were unfounded. Lastly, in the Court’s view, Mazda had failed to disclose important information to its customers (228 CPA) and that violation of the law allowed certain members in Group 1 and Group 2 to have their obligations reduced (272 CPA), namely those consumers who were unaware of the defect in the security system and who purchased a vehicle between the date Mazda learned that its locking system was defective and the date it launched its special correction program. COMMENTS This Court of Appeal decision clarifies a number of aspects of procedural and substantive law. The Court stated that under the legal warranty a merchant may acquit its obligations in kind, pursuant to section 272 (a) CPA. This shows the importance of swift reaction by a manufacturer who becomes aware of the existence of use affecting a product that it puts on the market. In such cases, the Court imposes stringent transparency obligations on manufacturers, who in return receive a measure of comfort resulting from the preventive or curative measures that they may implement and that will help them eliminate potential liability or reduce it to a minimum. If the Court’s decision is followed, claims for compensation on the grounds that a recall procedure that was launched inconvenienced those affected by the recall, would be disallowed. The importance of informing its customers of defects affecting its products is an integral part of performing the obligation to inform incumbent on all manufacturers and merchants.   2016 QCCA 31. 2014 QCCS 2617.

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  • Francization – Bill No 14 amending the Charter of the French language

    This publication was authored by Luc Thibaudeau, former partner of Lavery and now judge in the Civil Division of the Court of Québec, District of Longueuil. The title of this newsletter gives a good summary of the explanatory notes that serve as an introduction to Bill 14, entitled An Act to amend the Charter of the French language, the Charter of human rights and freedoms and other legislative provisions (the “Bill”). The legislator is concerned that English is being used systematically in certain workplaces. The Bill was tabled on December 5, 2012 and the proposed amendments are designed to reaffirm the primacy of French as the official and common language of Quebec.

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  • The Canada Consumer Product Safety Act: Are you ready?

    After more than three years of delays, studies and public consultations, the Canada Consumer Product Safety Act came into force on June 20, 2011. The Act imposes new obligations on manufacturers, importers and sellers of consumer products and grants significant powers to Health Canada. It will impact this critical sector of our economy.

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  • Expedition Helicopters Inc. V. Honeywell Inc. – Case Comment - Published in “Insurance Law” (2011)

    In Expedition Helicopters Inc. v. Honeywell Inc., a decision released on May 14, 2010, the Ontario Court of Appeal took a robust approach to the enforcement of a forum selection clause in a commercial agreement. The Court decided that if the parties agree to a particular forum for the adjudication of disputes related to their agreement, that fact will trump and make the effect of other factors usually considered in a choice of forum motion insignificant.

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  • Damages that result from inadequate product performance and tacit waiver of the right to assert a ground for exclusion: the Quebec Court of Appeal clarifies the situation

    On September 24, 2008, the Court of Appeal reversed a decision by the Superior Court that had allowed an insured’s claim against its insurer for damages caused as a result of the removal of a product manufactured by the insured.The Court of Appeal ruled that a multi-peril civil liability insurance policy did not cover the damages claimed as a result of the removal of a defective product manufactured by the insured. It also ruled on the consequences of the failure to raise a ground for exclusion at the proper time.This decision clarifies that the sole fact that an insured’s product is defective cannot be considered a loss. Liability insurance does not cover monetary claims resulting from defective products where there is an exclusion clause to this effect. Only losses and damages resulting from accidents are covered.The insurer who fails to raise the appropriate exclusion in its letter of denial and in its defence risks having to pay the price for its inadvertence.Therefore, from the moment a claim is made, the file must be thoroughly studied in order to ensure that all the grounds of defence are invoked. 

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  • Manufacturers, Importers, Distributors and Retailers: the Public’s Safety is your Business

    The increasing number of recalls of consumer products in recent years is indicative of a trend that has raised concerns for governmental authorities. In response, the Canadian government announced, on April 8, 2008, a reform of the existing legislation to strengthen the protection of human health and safety. The first step was the introduction of the Canada Consumer Product Safety Act and the second, the reform of the Food and Drugs Act.Both elements of this reform may have considerable impact on this critical sector of our economy. The Canada Consumer Product Safety Act is ambitious and may have serious repercussions on the activities of any number of businesses, and so it warrants particular attention.A contravention of the provisions of the Bill (if it becomes law), its regulations or an order issued pursuant to it may lead to sanctions, including fines and imprisonment. Where a corporation contravenes the Bill, its directors, officers, agents and representatives who acquiesced or participated in the commission of the offence will be considered parties to the offence and be liable on conviction to the punishment provided for by the Bill. Although Bill C-52 is making its way through the legislative process, the government has already made it clear that the current regime does not provide consumers with sufficient protection and that it intends to clamp down on manufacturers and importers. Although the proposed legislation will in all likelihood be adopted, much of the detail will be contained in the regulations which have yet to be published.

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  • The Chicken, the Egg, the Producer - the Quebec Court of Appeal Knows Which Came First!

    One more lengthy battle in a legal saga has just come to an end. Indeed, on June 4, 2008, the Court, comprised of Quebec’s Chief Justice, Michel Robert, and Justices Jacques Chamberland and Louis Rochette, rendered a unanimous judgment.To set the stage, consider a salmonella outbreak in Abitibi, some premature deaths, dozens of persons poisoned, three producing farms... Seventy-two (72) days of hearings in Superior Court and four (4) days in the Court of Appeal were required, a rarity in both venues. Even more unusual, this major case led to a legislative amendment allowing the judge designated to deal with it in Superior Court and appointed to the Court of Appeal during the trial to continue and complete it.This key decision, highlighting the fundamental principles of product liability, applies the recent Domtar judgment rendered by the Supreme Court of Canada in November 2007 and innovatively rules that an agricultural producer must be likened more to a manufacturer than to a professional seller within the meaning of the Civil Code and is subject to the same obligations as a manufacturer.Furthermore, we spend some time on the system of production and distribution of eggs destined for consumption in Quebec. Also, we have analyzed the points raised in the court of first instance as well as in the Court of AppealIn conclusion, this judgment breaks new ground by clearly applying the same very strong presumptions to which manufacturers are subject (articles 1726 et seq. C.C.Q.) to “sophisticated” agricultural producers. In addition, we note that the determination to pursue a claim for punitive damages even after the court’s comments leaving little room for doubt regarding the chances of having them awarded can result in an order to pay an opponent’s legal costs, a rarity given past Court of Appeal decisions in this respect.In the event one of the parties in question files an application for leave to appeal, it remains to be seen if the Supreme Court of Canada will agree to hear the argument - which came first, the chicken or the egg ...

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  • In the Wake of Domtar: Manufacturers' and Professional Vendors' Liabilities - Separate Defences

    In one of the first decisions in Quebec since the landmark Domtar case, the Québec Court of Appeal has refined the parameters of the liability of a professional vendor and of a manufacturer for a latent defect. In this case, Joseph Élie Limitée had sold an oil tank manufactured by Réservoirs d’acier Granby, and supplied the oil to its customer, who was insured by Federation Insurance Company of Canada. When sued by Fédération after the new tank had leaked, Joseph Élie Limitée called in warranty the subcontractor that had removed the old tank and installed the new one Confort Expert Inc.We summarize you the analysis of the conclusions in the judgement in the first instance and the analysis of the conclusions in the judgment in appeal. Following the judgment issued by the Supreme Court in Domtar, the Court of Appeal has confirmed the essential criteria for the application of the presumption of knowledge provided for in Article 1729 C.C.Q. As in the Domtar case, the Court of Appeal confirms that a manufacturer has a heavy burden to overcome when the product it manufactured is defective.However, this judgment also shows that a professional vendor (or a distributor) may nevertheless defeat the presumption of knowledge by demonstrating that the product sold was not intended to be opened by anyone other than the purchaser-user, although, evidence must be adduced to support this. The manufacturer and the professional vendor are therefore not necessarily in the same boat!

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  • The Manufacturer-Seller's Warranty in Québec: Still "Distict"!

    In late November 2007, the Supreme Court rendered a judgment on the law of sale in Quebec in the case of ABB Inc. v. Domtar Inc. in which it pointed out important differences between Quebec law and the law of the other Canadian provinces regarding limitation of liability clauses. It also clarified its thinking on the scope of the presumption of knowledge of the defect and the defences available to the anufacturer/seller and it dealt with the manufacturer/seller’s duty to inform and the extent of the buyer’s duty to inform himself.This judgment is certainly a landmark decision, because it clarifies the Kravitz decision and older rulings concerning the rebuttability of the presumption of knowledge. It also makes a clear distinction between the rules applicable in the common law provinces and those applicable in Quebec. All manufacturers and professional sellers who sell products in Quebec will be affected by this decision. It will be difficult for them to invoke a clause excluding or limiting liability unless they have succeeded in establishing that the presumption of knowledge and bad faith applicable to them has been rebutted by the rare admissible defences. These are the buyer’s own fault, the fault of a third person, an event of force majeure (superior force), or the existing state of technical knowledge at the time the good was manufactured. One may now have to consider the potential impact that a detailed disclosure of a product’s characteristics may have on establishing the state of technical knowledge at the time of manufacture.

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  • Do the costs of a correcting manufacturing defect result from an accident?

    Can the cost of remedying a manufacturing defect be considered as damage resulting from an "accident" covered under a liability insurance policy?This is the question the Quebec Court of Appeal considered recently. Its judgement is of interest not only as regards to the Court of Appeal's answer but also for its extra-provincial implications, as the underlying litigation is pending before the Newfoundland Supreme Court.

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  • The liability of manufacturers and specialized sellers: the Court of Appeal tightens the screw

    The Court of Appeal rendered an important decision on October 31, 2006, which dealt with the liability of manufacturers and professional sellers, as well as several other related issues. More specifically, the Court of Appeal tightened the screw on the issue of manufacturers' presumed knowledge of defects, deciding that such presumption is "virtually unchallengeable". In addition, the Court seemed to limit the possibility of overturning the presumption to four cases only.The Court of Appeal further decided that the liability between the manufacturer and the professional seller is joint and several. We invite you to read our newsletter on the subject.

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