Publication
Latent defects and product liability - Supreme Court of Canada confirms that manufacturers are presumptively aware of any latent defect under Quebec law
The Supreme Court of Canada's recent judgment in the case of ABB Inc. v. Domtar Inc.[1] represents a landmark decision on sellers' and manufacturers' liability in Quebec.
The Court maintained Domtar's action against ABB for damages arising from a latent defect in equipment Domtar purchased from ABB, the equipment's designer and manufacturer. ABB was held liable even though the parties' contract of sale included a limitation of liability clause that, on its face, would exclude liability.
The Court reaffirms the classic civil law position that a professional seller ispresumed by law to know of defects in the product it sells. It can only rebut the presumption by showing that a reasonable seller in the same circumstances would have been unable to detect the defect at the time of the sale. The strength of the presumption, therefore, varies depending on the seller's expertise. A manufacturer has special knowledge of the characteristics of the products it manufactures. Therefore, only in truly exceptional circumstances will a manufacturer be able to rebut the presumption that it knew of the defect in its product.
The legal implications for a seller of having knowledge of a defect or being presumed to have such knowledge are serious. A seller who knows of a defect, in fact or by presumption, is not entitled to rely on a limitation or exclusion of liability clause in its contract of sale to avoid paying for damages resulting from the defect.
The novelty of the ABB v. Domtar decision is that it confirms that these classic rules of civil law apply even where the buyer is a sophisticated party. Accordingly, professional sellers, especially manufacturers, must be aware that, under Quebec law, they will not in most cases be able to rely on exclusionary clauses to escape liability for latent defects in their products. This is the case whether they are selling to ordinary consumers or to sophisticated corporations assisted by teams of engineers and lawyers.
The Supreme Court noted that common law rules differ significantly from the applicable rules of Quebec law. At common law, a limitation of liability clause in a contract between two merchants will be valid unless it is declared to be unenforceable either for unconscionability or because failure to discharge the obligation to which it applies would amount to a fundamental breach of contract.
Domtar was represented in this case before all courts by Ogilvy Renault. Olivier F. Kott was lead counsel, assisted by Gregory B. Bordan. To learn more, please see our recent information bulletin on this case or contact Olivier F. Kott or Gregory Bordan.
Class actions - aggregate assessment of damages
The Ontario Court of Appeal has certified a class action[2] alleging that Toronto-Dominion Bank breached its contract with credit card holders by failing to disclose fees on foreign currency transactions and by collecting those fees without authorization. In overturning the decision by the motions judge not to certify the action (which had been upheld by the Ontario Divisional Court), the Court of Appeal determined that an individual assessment of what each individual cardholder would have done had they known of the allegedly undisclosed fees was not required and that, in any event, an aggregate assessment of damages under the Class Proceedings Act would be appropriate. The Court of Appeal also affirmed that various provisions of the Class Proceedings Act provide powerful procedural mechanisms which permit trial courts to take a variety of approaches to assessing individual claims and distributing damages.
In a related development, the Supreme Court of Canada decided not to grant leave to appeal in Markson v. MBNA Canada Bank and in Parsons v. Coast Capital Savings Credit Union. In the first case, the Ontario Court of Appeal had found that the plaintiff need only demonstrate potential liability before having recourse to the provisions of the Class Proceedings Act relating to aggregate assessment. The second case was an application for leave to appeal from a decision of the British Columbia Court of Appeal which had found that the relevance of individual circumstances only required the refinement of certain common issues, not revocation of certification.
These three decisions, all supporting certification, illustrate a continuing trend towards certification and the courts' reluctance to refuse to certify despite the presence of individual issues or the difficulty in assessing each class member's claim. To learn more, please see our recent Information Bulletins on Cassano and Markson.
Arbitration - application of "competence-competence" principle
In a follow-up to the Supreme Court's decision in Dell Computer Corp. v. Union des consommateurs, the "competence-competence principle" was recently considered by the Quebec Superior Court in Placements G.N.P. Inc. et Gilles Lambert c. Chan Tai Kong Kuen (Claude Chan) et al.[3] (French only) Placements GNP involved an action by several shareholders relating to the management structure and decision-making process established in the governing shareholder agreement. The defendants challenged the jurisdiction of the Superior Court, given the presence of an arbitration clause in the agreement. In its analysis, the Court held that a request for referral to arbitration must be granted if and when the conditions set out at Article 940.1 of the Quebec Code of Civil Procedure are met, namely, there exists an arbitration clause or agreement between the parties, the agreement or clause is not null, and the case is not already inscribed for proof and hearing with the courts. When all three criteria are met, as in Placements GNP,a court must refer the matter in its entirety to arbitration. If there remain unresolved issues, once the arbitrator has exhausted his or her jurisdiction, or if the arbitrator specifically remits certain matters to the courts, the general court system then becomes the appropriate forum. To learn more, please contact Martin Valasek.
Securities litigation - Supreme Court confirms post-filing disclosure obligation limited to material changes
The Supreme Court of Canada has dismissed a shareholder class action brought against Danier Leather Inc. and its senior officers for an alleged misrepresentation concerning an earnings forecast in a prospectus.[4] The issue arose from Danier's failure to revise a sales forecast contained in the final prospectus for an initial public offering. Although the forecast was accurate when the prospectus was filed, at the time of closing, and as a result of unseasonably warm spring weather, sales were lagging behind the projection. Approximately two weeks after the closing, Danier issued a revised forecast reducing its projected financial results. Danier's share value subsequently dropped by about 20%. Purchasers of the securities commenced a class action alleging that Danier's prospectus contained a misrepresentation. In a unanimous decision, the Supreme Court held that issuers only have an obligation to amend a prospectus or make public disclosure after a receipt has been issued for a final prospectus where a "material change" has occurred. Under Ontario's Securities Act, a material change is limited to a change in the business, operations or capital of an issuer. The notion is more limited than a "material fact", which includes any fact which would reasonably be expected to have a significant effect on a security's market price. The Supreme Court held that to impose a disclosure obligation for matters not amounting to a material change as defined in the legislation would be contrary to the disclosure scheme of the Act and the legislator's intent. To learn more, please see our information bulletin on this case.
Credit insurance - clause permitting an insurer to limit or cancel coverage upheld by Quebec Superior Court
The Quebec Superior Court has upheld a clause in a credit insurance policy allowing the insurer to cancel or amend approved credit coverage.[5] The plaintiff, IOC, was insured by Export Development Canada ("EDC") for risks inherent in its foreign market transactions. The insurance policy provided that EDC would indemnify IOC for 90% of the losses sustained with respect to the sale and shipping of ore to customers whose credit was pre-approved. However, section 3 of the policy stated that EDC could at any time cancel or amend the approved credit limit of a customer by giving written notice transmitted in person, by mail or by any other means. EDC used this clause to cancel the credit approval of one of IOC's customers and sent the requisite notice by fax. IOC continued to export ore to the customer for several months until the date when it claimed it was duly informed of the cancellation. The customer subsequently became insolvent and IOC asked its insurer to pay out the coverage. EDC refused, arguing that the insurance policy had been duly cancelled before the losses were incurred.
Although the Court held that the insurance policy constituted a contract of adhesion, it rejected IOC's argument that section 3 of the policy was abusive and unreasonable. The Court held that it was legitimate for EDC to evaluate the solvency of IOC's customers. Moreover, the possibility of cancelling a credit limit was found to be standard in the credit insurance field and an essential element of the insurance policy. Although the Court concluded that EDC did not commit an abuse of right in cancelling the approved credit, it nonetheless ordered EDC to indemnify IOC for its losses. It held that EDC had the burden of proving receipt of the written notice of cancellation. Since the fax coversheet did not prove the content of the notice and the presumption of receipt was countered by the testimony of IOC's director that he did not receive the notice, EDC was ordered to pay approximately $4.5 million to IOC. This part of the Superior Court's judgment stands as a stark reminder that means of communication that ensure proof of receipt must be used for important notices. François Fontaine and Emmanuelle Demers of the Montreal office successfully acted for IOC. To learn more, please contact François or Emmanuelle.
Class actions - certification ordered against Health Canada
The Ontario Superior Court of Justice has certified a class action alleging that Health Canada was negligent in failing to exercise its powers and responsibilities under the Food and Drugs Act.[6] This is the first successful certification of a class action relating to Health Canada's role under the Food and Drugs Act with respect to medical devices and represents an important development in both class action and medical device liability litigation. It is also interesting in that the action was brought against Health Canada after a class action against the distributor of the allegedly defective device had been settled. To learn more, please see our information bulletin on this case.
Construction law - Failing to inform bidders can be expensive
The Quebec Superior Court has expanded on work providers' obligation to inform bidders in the context of a call for tenders. In Construction BSL inc. c. Ste-Agathe-de-Lotbinière (Municipalité de),[7] (French only) the municipality issued a call for tenders for the construction of a water reservoir without obtaining the appropriate approval from the provincial Department of the Environment and, importantly, without disclosing this fact to the bidders. Approval was eventually obtained, but the project was significantly delayed, which resulted in unforeseen costs for the construction company, which had entered into a fixed priced contract with the city. In its reasons, the Court noted that bidders do not have the luxury of negotiating the terms of a call for tenders and consequently, the work provider is responsible for drafting the documents clearly and not misrepresenting the risks involved. The Court ultimately decided that by not disclosing the situation, the municipality was responsible for the total cost overrun incurred by the successful bidder, despite the fact that the contract was for a fixed price. An appeal is currently pending before the Quebec Court of Appeal. To learn more, please contact Éric Dunberry.
News From Ogilvy Renault's Litigation Group
Lexpert Magazine published its Guide to the U.S./Canada Cross-border Litigation Lawyers in Canada, which features the following Ogilvy Renault lawyers: Thomas I.A. Allen, Q.C. (international commercial arbitration); Robert L. Armstrong (corporate commercial, class action and securities); Jean Bertrand (corporate commercial, class action and securities); Pierre Bienvenu (corporate commercial, class action and securities, and international commercial arbitration); L. Yves Fortier C.C., O.C., Q.C. (international commercial arbitration) and Derrick C. Tay (insolvency and corporate restructuring). In addition, Orestes Pasparakis, Sylvie Rodrigue and Steve Tenai were named as Canadian Litigation Lawyers to Watch.
Practical Law Company's 2008 Life Sciences Handbook continues to rank Ogilvy Renault as the only leading law firm in Life Sciences: Regulatory, and as a preeminent law firm for intellectual property and product liability. Ogilvy Renault has more lawyers listed in the Life Sciences Handbook than any other Canadian law firm. In addition, PLC lists Penny S. Bonner as the only leading lawyer for regulatory matters, an area in which she has consistently been a leader for six years. Highly recommended lawyers from Ogilvy Renault include Brian Gray, Patrick Kierans and Judith Robinson (intellectual property). Two litigation lawyers are also recommended lawyers, Martha A. Healey (regulatory) and William McNamara (product liability).
Christine Carron and Sophie Melchers were both selected by Quebec's Le Monde Juridique magazine as being amongst the Top 10 female lawyers in business litigation in Quebec.
Olivier F. Kott was profiled in a December article in La Presse addressing Ogilvy Renault's recent Supreme Court victory, representing Domtar in the 18-year case, ABB Inc. v. Domtar Inc. Olivier and his team have represented Domtar since the beginning of the case in 1989.
Lexpert Magazine has named Martin Valasek and Jane Caskey among 45 Leading Lawyers under 40. Orestes Pasparakis and Geoffrey Gilbert were also named as finalists. Both Martin and Orestes are members of the Litigation Group and were recognized not only for their expertise, but also for the exceptional confidence and trust they inspire in both colleagues and clients.
Pierre Bienvenu has been appointed Co-Chair of the International Bar Association's (IBA) Arbitration Committee for a two-year term beginning January 1, 2008. Pierre's appointment was announced at the recent IBA Annual Conference in Singapore.
Sylvie Rodrigue, Co-Chair of Ogilvy Renault's Class Actions team, was profiled in the Legal Post. Sylvie is continuing her class actions practice in Toronto since relocating from Montréal last year.
L. Yves Fortier has been interviewed by The American Lawyer. The feature story in the magazine's Canada Report discusses Yves Fortier's career and his impressive record as an international arbitrator.
Lexpert Magazine profiled Ogilvy Renault litigators in two matters in its Big Suits section. Alan Mark, Susan Rothfels and Marc Kestenberg worked on a dispute on behalf of Quebecor Media Inc. in respect of its acquisition of Osprey Media Income Fund. Alan Mark and Randy Sutton worked on the cross-border restructuring of Muscletech Research and Development Inc. and its subsidiaries under the Companies' Creditors Arrangement Act.
Two new practice teams have been formed by Ogilvy Renault. The Recall and Crisis Management practice team will advise and represent domestic and international clients on all aspects of recalls. The team's expertise includes recall and crisis management planning, stakeholder communications, business strategy and minimizing litigation risk. The Cleantech practice team advises private sector entrepreneurs in the cleantech sector on all aspects of their business. To learn more about these practice areas, please consult our website.
Ogilvy Renault Engagements
Experts from Ogilvy Renault's Litigation Group continue to be recognized for their expertise and have been invited to provide their insight on a variety of topics. To learn more, please contact the author or speaker:
Kelly Friedman will co-chair a conference on E-Document Management and Discovery organized by the Canadian Institute.
Sally Gomery will speak on Expert Evidence: Admissibility and Disclosure Considerations, at the 4th annual Lexis Nexis Commercial Litigation Conference.
Olivier Kott will speak on the Management of Risks in Construction Contracts, at a seminar organized by the Canadian Institute and will be speaking at seminars in Montreal and Quebec City on the Supreme Court of Canada's judgment in ABB Inc. v. Domtar Inc. discussed above.
Alan Mark will speak on Recent Developments in Contract Law, at Insight Information's seminar on Negotiating and Drafting Major Business Agreements.
Christine Carron and Martha Healey will be speaking at a conference on privacy issues organized by Federated Press.
Martin Valasek will co-chair a panel discussion in New York at a Symposium of the Young International Arbitration Group (YIAG) of the London Court of International Arbitration (LCIA).
Olivier Kott will speak at the Canadian Bar Association's National Construction Section Conference on The Efficient Management of Complex Litigation.
Dominic Dupoy spoke on the impact of the recent decision of the Supreme Court of Canada in Dell Computer Corporation at the Canadian IT Law Association meeting and will also speak on this topic at a conference on computer security.
Hélène Lefebvre spoke at the Canadian Bar Association's Insurance and Civil Litigation Section, on Directors and Officers' Insurance: What You Always Wanted to Know but Never Dared to Ask.
Jeremy Devereux and Sophie Melchers spoke by way of a webcast to the Investment Dealers Association on the dangers of e-mail communication.
Pierre Michaud spoke as a member of a Canadian Bar Association panel discussion on how to draft arbitration clauses.
Kateri-Anne Grenier spoke at an Insight Conference on preventing security leaks and protecting personal information.
Jeremy Devereux spoke and acted as a moderator at a conference organized by the Canadian Institute entitled the Annual Advanced Forum on Securities Litigation. His topic was Establishing and Maintaining Peaceful Coexistence with Securities Enforcement Regulators.
Christine Carron spoke at a conference organized by the Quebec Bar on class actions and whether de minimis is a defence to such actions.
Steve Tenai and Lynne O'Brien spoke at a conference organized by the Canadian Institute on Protecting Directors and Officers from Liability. Steve's topic was Derivative Actions against Officers and Directors, and Lynne's was Potential Investor Claims for Losses in Structured Products.
Sally Gomery and Claudia Déry spoke at the Canadian Bar Association's Construction Law Meeting, respectively from common and civil law perspectives, with regard to the Double N Earthmovers decision.
Jean-François Michaud was asked to provide his views on possible changes to the civil judicial system at the Annual Meeting of the Justices of the Superior Court of Quebec.
Pierre Michaud was the keynote speaker at the close of a two-day conference of the professional orders of Quebec.
Randy Sutton spoke on the topic of international class actions at the Class Actions Conference organized by the Canadian Institute.
William McNamara spoke on class actions at a Managing Counsel seminar.
Sally Gomery spoke on Negotiating Confidently and Effectively, at the Women in Leadership Conference at the Rideau Club in Ottawa.
André Legrand spoke on Preventing Claims Against Directors in the event of Bankruptcy, Insolvency, Reorganization: What to Do and Not to Do, at a conference organized by the Canadian Institute.
Martin Valasek spoke at a Symposium of the Young Canadian Arbitration Practitioners (YCAP) on the Supreme Court of Canada's latest word on international arbitration, as set out in Dell Computer Corporation v. Union des Consommateurs et al. Martin became President of YCAP this year.
Jeremy Devereux, Alan Mark and Steve Tenai published an article on Recent Developments in Securities Litigation, in the 2007 Lexpert Guide to the U.S./Canada Cross-border Litigation Lawyers in Canada.
[2]. Cassano v. The Toronto-Dominion Bank, 2007 ONCA 781.
[3]. Placements G.N.P. Inc. et Gilles Lambert c. Chan Tai Kong Kuen (Claude Chan) et al., 2007 QCCS 4855.
[4]. Kerr v. Danier Leather Inc., 2007 SCC 44.
[5]. Iron Ore Company of Canada c. Export Development Canada (French only), 2007 QCCS 4296.
[6]. Taylor v. Canada (Health), 2007 CanLII 36645 (ON S.C.).
[7]. 2007 QCCS 4415.
About Ogilvy Renault
Ogilvy Renault is a full-service business law firm with close to 450 lawyers, patent and trade-mark agents practising in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, and London (UK), and serves some of the largest and most successful corporations in Canada, and in more than 120 countries worldwide. Ogilvy Renault is the 2006 International Law Office Client Choice Award winner among all Canadian law firms.
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.
© Ogilvy Renault LLP 2008 - All Rights Reserved
Contacts
Richard L. Desgagnés
Montréal
514.847.4431
rdesgagnes@ogilvyrenault.com
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Randy C. Sutton
Toronto
416.216.4046
rsutton@ogilvyrenault.com
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