Supreme Court of Canada Clarifies Pure Economic Loss

The Supreme Court of Canada had occasion recently to provide guidance on a typically difficult area of the law for both plaintiffs and defendants – pure economic loss. Pure economic loss is economic loss that is unrelated to a physical or mental injury to a person or physical damage to property. In a typical personal injury case or a property damage matter, there is tangible injury to the plaintiff and losses flow from that injury. In those cases, the court will consider and award financial compensation. Similarly, in the case of a contractual arrangement between parties, contract law steps in to provide relief to a party that has suffered financial loss as a result of the breach of the contract.

But what of the situation where there is no contract between the parties and the financial injury is unrelated to a tangible physical (or mental) injury to person or property, is that financial loss recoverable? Plaintiffs have attempted to do so over the years and have been met with mixed success. Canadian courts have limited the circumstances when a party can rely on tort law to claim for economic loss unrelated to personal or property damage. The reasons for doing so are apparent. It would be a slippery slope indeed if the floodgates to this type of claim were opened. As stated by the SCC, citing British Columbia Court of Appeal in Kripps v. Touche Ross & Co. (1992), 94 D.L.R. (4th) 284, at p. 297:

 It seems possible that pure economic loss simpliciter accounts for the overwhelming majority of all loss suffered by one person as a foreseeable and proximate result of the acts or omissions of another . . . . This must necessarily be so in a free market for goods and services, employment and investment, and the continuing struggle for property, promotion and profit.

The trend to limit recovery has continued in the the recent SCC case of  1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35. Many will recall the listeria outbreak that occurred in Maple Leaf sandwich meat in the 2008 timeframe. Mr. Sub franchisees were legally obligated through their franchise agreements with Mr. Sub to purchase Maple Leaf sandwich meat for their stores. As a result of the listeria outbreak, meat products were recalled and the franchisees experienced a shortage of product for six to eight weeks. Mr. Sub franchisees did not have a direct contractual relationship with Maple Leaf. Rather, the head contracting entity of Mr. Sub had the contractual privity with Maple Leaf.

The franchisees commenced a class action against Maple Leaf claiming economic loss and reputational injury. Losses claimed included those for lost past and future sales, past and future profits, capital value of the franchises and lost goodwill.  The SCC reviewed the current categories of allowable pure economic loss – negligent misrepresentation or performance of service, negligent supply of shoddy goods or structures and relational economic loss. The SCC concluded that one cannot argue a case fits into one of those categories and conclude the analysis at that point. The facts of the situation and most importantly, the proximity between the parties remain the main concept. In this case, the SCC found that there simply was not the proximity between the Mr. Sub franchisees and Maple Leaf to establish the necessary proximate relationship to ground a novel duty of care.

The Honourable Justices Wagner C.J., Abella, Karakatsanis and Kasirer issued a dissent concluding that the parties were in a close and direct relationship and a duty of care on the part of Maple Leaf was established. 

This is an important decision of the SCC on this topic. It serves to clarify the continuing effort by Canadian courts to limit such category of tort claims to those where there is sufficient proximity between the parties to ground this novel tort claim.

 * Blackacre Law is available for legal research and content development on this and all areas of the law, contact mtennison@blackacrelaw.ca 

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