1688782 Ontario Inc. v Maple Leaf Foods Inc. : Disenfranchised Franchisees Demand Tort Damages for Lost Profit

In 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2018 ONCA 407 [Maple Leaf], the Court of Appeal for Ontario (“ONCA”) evaluated whether a duty of care arose in the well-publicized case of listeria outbreak involving Maple Leaf Foods, which resulted in 22 deaths across Canada back in August 2008.

The novelty facing the court was that the plaintiff was not some ill-struck consumer of deli meat, but instead a number of Mr. Sub franchisees that sought to recover damages for economic and reputational harm arising from the product recall. Do these franchisees fall into a previously-recognized category of care? If not, should a new duty of care arise? In its analysis, the ONCA was also given the opportunity to consider tort principles very recently enumerated in Deloitte & Touche v Livent Inc., 2017 SCC 63 [Livent].

Maple Leaf presents several consequential takeaways for product liability tort cases. Yet it also leaves several key questions unanswered, particularly around “undeterminable liability.”

The Established Law

To review, the bedrock of tort law is rooted in the seminal British case Anns v Merton London Borough Council, [1978] AC 728 [Anns] and its Canadian counterpart Cooper v Hobart, 2001 SCC 79 [Cooper]. Together, the Anns-Cooper test lays out the factors to consider in determining whether a defendant owes a plaintiff a duty of care.

Certain relationships have been recognized to give rise to a prima facie duty of care, including between lawyers and their clients, doctors and their patients, manufacturers and their consumers, and a train station and its commuters. However, where a prima facie duty of care does not exist, the Anns-Cooper test steps in to evaluate whether a novel duty of care should arise based on how “proximate” two parties are to one another and how “foreseeable” the consequence of the defendant’s act is.

In Maple Leaf, we ask: “Does a party in a supply-chain owe a duty of care to downstream retailers for their reputational harm and lost profits?” This question has generated differing opinions, as seen from the case history below.

Facts

Listeria is a foodborne bacteria found in improperly processed deli meats. It can cause serious harm when consumed. At the time of the listeria outbreak in 2008, Maple Leaf was in a contractual relationship with the restaurant chain Mr. Sub, which required its franchisees to purchase deli meat exclusively from Maple Leaf. Mr. Sub franchisees did not purchase directly from Maple Leaf. Instead, they placed their orders through distributors, who would provide them with Maple Leaf products.

On August 17, 2008, Maple Leaf issued a nationwide press release and a notice of recall for two of its deli meat products due to positive traces of listeria. Neither of these two products was purchased by the franchisees.

On August 19, 2008, Maple Leaf voluntarily expanded the scope of its recall to cover over 191 products, including corned beef and roast beef, which were purchased by the franchisees.

It was at this time that media reports covering the listeria outbreak drew an association between Maple Leaf and food sellers such as Mr. Sub. However, at no time was any customer of Mr. Sub known to suffer any ill effects as a result of the outbreak. Nonetheless, as a result of the recall, Mr. Sub franchisees were left without corned beef and roast beef products for a period between six and eight weeks.

The franchisees launched a class action. In its amended statement of claim, the franchisees highlighted Maple Leaf’s negligence, asserted that they were owed a duty of care, and claimed that the widely-publicized recall resulted in a loss of sales, profits and goodwill for the franchisees. Put plainly, they claimed that customers stopped eating at Mr. Sub due to news of the recall. In particular, the Mr. Sub franchisees alleged that the nature of the damages was for “economic losses arising in large part from the reputational harm they say they experienced from being publicly associated with Maple Leaf in the aftermath of the listeria outbreak” (Maple Leaf, para 2).

At issue in the case was whether an analogous duty of care existed in this scenario, and if not, whether one should be established under the Anns-Cooper test.

At Trial

At trial, it was found that a prima facie duty of care arose due to analogous and previously recognized categories of care. The trial judge relied on three cases to make this finding: Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd., 2004 ABCA 309 [Plastex]; 376599 Alberta Inc. v. Tanshaw Products Inc., 2005 ABQB 300 [Tanshaw]; and Country Style Food Services Inc. v. 1304271 Ontario Ltd. (2005), 200 O.A.C. 172 [Country Style].

Generally, the inquiry stops where a prima facie duty of care is found. However, the trial judge took the additional step of analyzing proximity and foreseeability, perhaps out of an abundance of diligence and caution.

As part of her analysis, the trial judge made several observations about the relationship between Maple Leaf and the franchisees, focusing on, among other things, the fact that Maple Leaf knew the names and addresses of the franchisees; that Maple Leaf was the exclusive supplier of 14 core menu items; that Maple Leaf had direct dealings with the franchisees around the recall and in its aftermath; and that Maple Leaf was aware that their products were an integral and essential part of the franchisees’ business.

Ultimately, the trial judge found that the parties were in a proximate relationship, and that it was reasonably foreseeable that the sale of a product that could injure a consumer would harm the franchisees’ reputation and cause economic harm. Maple Leaf appealed the ruling.

 At the Court of Appeal for Ontario

In contrast to the trial court, the ONCA found that there were no analogous duties of care, and, moreover, that the Anns–Cooper test did not provide for one. The appeal was allowed, and the lower court decision overturned.

Does an Analogous Duty of Care Exist?

The ONCA distinguished all three examples cited by the trial judge as analogous. The ONCA  relied on the Supreme Court’s (“SCC”) warning against “an overly broad characterization of an established category of proximity which fails to consider the scope of the activity in respect of which proximity was previously recognized” (Livent, para 52, emphasis added). Admittedly, the trial judge did not have the benefit of consulting Livent, which had yet to be decided at the time of the lower court decision.

First the ONCA considered Plastex, decided by the Court of Appeal of Alberta. The ONCA distinguished Plastex from Maple Leaf by noting that the defendant in Plastex knowingly supplied a product they knew to be defective, whereas Maple Leaf did so unwittingly, and immediately initiated a recall upon realization of such. The ONCA noted that in Tanshaw, another analogous case, there was real harm done to plaintiffs, whereas there was no one harmed by eating Maple Leaf meats at a Mr. Sub restaurant. Lastly, the ONCA held that the Country Style case did not concern a product nor its fitness for human consumption, and did not have direct bearing on the case at hand.

 Does a Novel Duty of Care Exist?

Undertaking the Anns-Cooper test, the ONCA likewise found that no duty of care arose after an analysis of proximity and reasonable foreseeability. Again, the ONCA was guided by Livent, quoting:

“[T]he proximity analysis not only determines the existence of a relationship of proximity, but also delineates the scope of the rights and duties which flow from that relationship” (emphasis in original) (Maple Leaf, para 62).

On the question of scope, the Court of Appeal found that the trial judge had overreached. As the ONCA saw it, the scope of the duty extended only to “supply a product fit for human consumption” (Maple Leaf, para 72), and not to encompass a duty of care to protect against economic and reputational losses. As the Court of Appeal summarized quite succinctly:

“In other words, the franchisees cannot bootstrap their claim for damages for reputational loss to the different duty owed by Maple Leaf to their customers” (Maple Leaf, para 66).

Put plainly, the trial judge was correct to find a duty of care for supplying safe products to customers, but incorrect to extend its scope as covering subsequent reputational loss and damages for the franchisee.

My Thoughts

The Court of Appeal takes a very cramped view of the relationship between Maple Leaf and Mr. Sub franchisees. This is incorrect, in my respectful opinion.

As an initial point, I find that ONCA’s approach de-emphasizes the profit-making purposes of a supply chain. Maple Leaf and other parties participate in restaurant supply chains in order to bolster the economic prospects of other participants. Mr. Sub franchisees rely on these parties to help them sell sandwiches as a profit-generating enterprise. The notion that end consumers receive safe food is of high importance. That the supply chain was likewise formed to create mutual economic value is not to be ignored.

Clearly, Maple Leaf’s scope of the duty to Mr. Sub encompasses both safe human consumption of the product and ensuring against reputational loss — there was no need to artificially limit it to one or the other. To wit, when a Nike basketball shoe exploded visibly on national television and injured a prominent player, the scope of Nike’s scope of duty would seem to cover both the safety of that player and the subsequent economic and reputational harms that retailers of that shoe would suffer. To find otherwise is to temporarily forget the motivation of its participants.

Two More Persuasive Paths of Reasoning

We may still conclude that Maple Leaf should not be liable for damages, but for a different and more plausible set of justifications, that of (1) reasonable foreseeability and 2) indeterminate liability.

First, I wish to comment on reasonable foreseeability. In the SCC’s recently released decision in Rankin’s Garage & Sales v JJ, 2018 SCC 19 [Rankin], which I have previously written about, it was found that an entire chain of events must be reasonably foreseeable in order for tort damages to arise. In Rankin, a trio of inebriated teenagers stole a vehicle off a commercial property, subsequently crashed it, and suffered catastrophic injuries. The SCC accepted that the theft of the vehicle was reasonably foreseeable, but dismissed the idea that such a catastrophic crash could be considered reasonably foreseeable as well. This “chain of events” view lends itself well to the case at bar. The affirmative harm from someone eating tainted deli meat is clearly made out. The negative harm of scaring away hypothetical customers may not be. At the time of their decision, the ONCA did not have the benefit of consulting Rankin, which had yet to be released by the SCC.

Second, the issue of indeterminate liability lingers. Are reputational damages determinable? In a competition class-action case, the ONCA previously concluded that limitations in tort, such as the requirements of proximity and foreseeability, safeguarded defendants from indeterminate liability. In the near future, however, the SCC may not agree.

The SCC is currently considering the issue of indeterminate liability in Godfrey v Sony Corporation, 2017 BCCA 302, which recently saw oral arguments under the consolidated name Pioneer v Godfrey. Several judges (Justice Abella and Justice Brown) have expressed concerns about indeterminate liability in the context of product liability and business supply chains. Our lens on the issue may well change, and draw Maple Leaf into an appeal.

What Are We Now Left With?

We now have a trilogy of cases (Livent, Maple Leaf and Rankin) that have analyzed tort in a business context. Taken as a whole, the cases have significantly narrowed the availability of tort damages against businesses based on scope and reasonable foreseeability.