Mr. Sub Franchise Meat’s deception in Supreme Court of Canada decision: product manufacturers owe no duty of care to business intermediaries


introduction

In 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 53, the Supreme Court of Canada delivered its long-awaited judgment on whether a product manufacturer owes a duty of care to commercial intermediaries, absent a direct contractual relationship. In that case, the Supreme Court considered Maple Leaf Foods’ duty of care to franchisees of the Mr. Sub franchise system in the context of the 2008 listeriosis outbreak involving Maple Leaf Foods meats.

In a very close ruling at 5: 4, the Supreme Court ruled that a manufacturer’s failure to fulfill its obligation to supply products safe for human consumption does not empower commercial intermediaries, in this case the third M Sub franchisees, to recover damages from the manufacturer for purely economic loss or damage to reputation.

Principles of due diligence

The basic legal principles applicable to this case derive from the UK case Anns v Merton London Borough Council, 1978 AC 728 (“Anne”), Which has been adapted for Canada in Cooper vs. Hobart, 2001 SCC 79 (“Cooper“). Anne / Cooper recognize that in some relationships there is a duty of care, including between lawyers and their clients, physicians and their patients, manufacturers and consumers, etc.

However, if the plaintiff alleges a new duty of care, the Anne / Cooper The test sets out the factors to be considered in determining whether a duty of care exists. The Anne / Cooper the test is:

Step 1 – Was the harm that occurred a reasonably foreseeable consequence of the defendant’s act? Do the parties also share a close relationship?

Step 2 – Are there policy reasons, notwithstanding the proximity between the parties established in Part 1 of this test, that tort should not be recognized here?

Substantive facts

Mr. Sub had a contractual relationship with Maple Leaf Foods and required all of its franchisees to purchase deli meats exclusively from Maple Leaf Foods. However, Mr. Sub’s franchisees did not purchase any Maple Leaf Foods products directly. Instead, franchisees placed their orders through distributors, who would supply them with Maple Leaf Foods products.

Listeria is a food-borne bacteria found in poorly processed meats. It can cause serious damage when consumed, including death. In August 2008, Maple Leaf Foods announced that some of its meats may have been exposed to Listeria and recalled two of its deli products due to Listeria. Neither of these two products was purchased by the franchisees. A few weeks later, Maple Leaf Foods broadened the scope of its recall to cover more than 191 products, including two products purchased by franchisees. The recalled products did not involve any confirmed cases of Listeria.

Neither Mr. Sub nor any of his clients have reported any confirmed cases of Listeria at any time. However, due to the widespread publicity received by the Maple Leaf Foods recall, customers have formed an association between Maple Leaf Foods and restaurants such as Mr. Sub. In addition, following the recall, Mr. Sub franchisees were left without the two recalled products for a period of six to eight weeks.

The franchisees have launched a class action lawsuit. The franchisees pointed to Maple Leaf’s negligence, claimed they had a duty of care and claimed that the widely publicized recall resulted in lost sales, profits and goodwill for franchisees. They alleged that the Listeria outbreak had a negative impact on customers’ perception of Mr. Sub and that customers had stopped dating Mr. Sub because of the actions of Maple Leaf Foods. The franchisees claimed damages for economic losses resulting from the damage to reputation they allegedly suffered as a result of their public association with Maple Leaf Foods following the Listeria outbreak.

When the complaint was lodged, there was no duty of care established between manufacturers and retailers. As such, the court was compelled to consider whether a similar duty of care existed and, if not, whether it was a relationship in which a new duty of care could be founded.

Judge of motions

At first instance, the motions judge concluded that the parties were in a close relationship and that it was reasonably foreseeable that the sale of a product that could harm a consumer would damage the reputation of franchisees and cause economic harm. . Maple Leaf has appealed the decision.

Ontario Court of Appeal

Unlike the trial judge, the Ontario Court of Appeal concluded that there were no similar duty of care and that the AnneCooper the test did not provide for any. The appeal was allowed and the lower court’s decision was overturned. The Ontario Court of Appeal concluded that the trial judge was correct in concluding that there was a duty of care on manufacturers who provide safe products to customers, but that he was wrong to ” extend its reach to cover reputation loss and subsequent damage to retailers.

The Supreme Court’s decision

Writing for a slim majority, Justices Martin and Brown noted that it is difficult, but not impossible, to assert the protection of purely economic interests. The court questioned whether the nature of the relationship between the parties was such that it would be fair and equitable to impose a duty of care.

The franchisees invoked two categories of claims for economic losses in which the required qualities of proximity and franchise were recognized by the Supreme Court: misrepresentation through negligence or negligent performance of a service, and negligent supply of goods or structures of poor quality. .

With respect to the alleged misrepresentation or negligent performance of a service, the majority concluded that Maple Leaf Foods’ claims were made to consumers of their food products, “for the purpose of ensuring [consumers] that their interests were kept in mind ”, and that the representation was not made to protect the business interests of intermediaries such as Mr. Sub or his franchisees. Maple Leaf Foods had warned, and the majority seemed to agree, that if there was a duty of care in this relationship, Maple Leaf Foods would be exposed to the specter of unlimited liability.

Regarding the allegation of negligent supply of poor quality products, the majority concluded that the food products presented no real danger to franchisees. In addition, once Maple Leaf Foods prematurely recalled the deli meats, it eliminated any real danger that could have been posed to consumers.

In arriving at this decision, the majority emphasized that the parties could have chosen to protect themselves against this type of loss by contract. The franchisees chose to operate as a franchise and therefore were not directly bound by contract to Maple Leaf Foods. The court recognized that the franchise model has strategic advantages and disadvantages, and that this was one of the potential disadvantages. If franchisees wanted to mitigate potential losses, franchisees should have purchased commercial liability insurance that covers unexpected business losses. In addition, the majority said that it is not for the court to intervene in a contractual relationship that two independent actors with legal advice had chosen to enter and reconfigure that relationship. Finding an obligation of diligence in this case would undermine the contractual framework chosen by the parties.

Dissent

Justice Karakatsanis, writing on behalf of the minority, reportedly concluded that Maple Leaf Foods owed a duty of care to franchisees because they relied on Maple Leaf Foods to provide safe products to their businesses. The minority analysis concluded that in this case, although there is no previously established duty of care or similar duty of care, it would have been appropriate to create a new category of claim .

The Minority wrote that the loss suffered by the franchisees was in fact a reasonably foreseeable loss, given that Mr. Sub is primarily a deli restaurant and had an exclusive supply agreement with Maple Leaf Foods.

The minority believed that the plaintiffs were not really in a position to take this risk into account and enter into contractual agreements to protect themselves. The dissent highlighted an imbalance of power that existed in this relationship, where franchisees could only contract with their franchisor. In addition, franchisees generally cannot negotiate their agreements with the franchisor. As such, franchisees were vulnerable throughout their business relationships. They were also dependent on Maple Leaf Foods, due to Maple Leaf Foods’ exclusive supplier agreements with Mr. Sub, which the franchisees could neither renegotiate nor rewrite. In addition, there was a close relationship in this case, as Mr. Sub provided franchisees with their own customer support service.

Thus, the dissent would have concluded that Maple Leaf Foods had the duty of franchisees to provide them with products suitable for consumption.

Implications for franchise systems

Overall, this decision will have a significant impact on product liability laws in Canada. In franchise law, this decision will be welcomed by franchisors and their suppliers, as it makes it more likely that franchisors can enter into favorable supply contracts, as there will be no direct liability of suppliers to franchisees. .

However, in many franchise systems, the franchisees’ suppliers may in fact be companies related to the franchisor, and in these relationships it is not clear whether this analysis would still apply.

In addition, if franchisees suffer reputational or economic losses, those losses will eventually affect the finances and business policies of the franchisor as well. As such, it would be prudent for franchisors to ensure that all suppliers they contract with are properly vetted.

Franchisees, on the other hand, are likely to be more cautious when entering into new agreements with their franchisor. New franchisees may request more coverage when negotiating contracts with franchisors, or may need to find new insurance for unforeseen business losses. In accordance with a franchisor’s duty of good faith, franchisees may also request more flexible supply arrangements, particularly in situations where the franchisor’s preferred supplier cannot deliver the required products on time.

About Leah Albert

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