The Supreme Court of Canada is expected to release a ruling today on a class action lawsuit claiming Maple Leaf Foods is responsible for financial losses suffered by Mr. Sub franchisees during the 2008 listeriosis outbreak.
Mr. Sub restaurants were affected by a product shortage lasting six to eight weeks due to a national recall of Maple Leaf products following contamination at one of its plants.
Legal experts say the decision could change the rules on manufacturer liability in product recalls and the way recalls are handled.
Although the listeriosis outbreak was the deadliest in Canadian history, there is no evidence that any Mr. Sub customers were harmed by tainted meat.
Still, the franchisees launched a class action lawsuit against the Toronto-based food processor claiming reputational damage and lost sales.
“There’s no question under Canadian law that a manufacturer of food products generally would owe a duty of care to a consumer of a product who might be injured by ingesting it. But that’s not what happened here,” said Scott Maidment, a partner at McMillan LLP in Toronto.
“The claim here wasn’t arising from anybody’s personal injury … The question here was, did the duty extend to the kind of economic harm that these franchisees were alleging?”
Since its products were supplied by a distributor, Maple Leaf did not have a direct relationship with the franchisees. But the franchisees were bound by an exclusive supply arrangement to purchase meat products through Maple Leaf.
During the recall, the food processor took steps to help franchisees with product shortages and the recovery of contaminated meats.
The scope of liability
In 2016, a motion judge at the Ontario Superior Court of Justice ruled largely in the franchisees’ favour and concluded that Maple Leaf owed a duty of care to the franchisees to supply a product fit for human consumption.
Maple Leaf appealed the decision.
In 2018, the Court of Appeal for Ontario ruled in the food processor’s favour. It found that a duty of care to supply a product fit for human consumption is owed to the franchisees’ customers, not to the businesses themselves.
The Court of Appeal also determined that extending liability for reputational harm would discourage manufacturers from recalling potentially defective products in a timely fashion.
The franchisees then brought the case to the Supreme Court.
“The worry is if the liability were to extend to all the economic losses suffered by people all in the supply chain … that a manufacturer would be reluctant to issue a recall,” said Erika Chamberlain, dean of Western University’s Faculty of Law.
“They would be worried they would have to cover the economic losses for all those franchisees.”
Supreme Court takes a cautious approach
The Supreme Court has taken a restrictive approach over the last several years in how it has interpreted cases involving negligence liability for economic losses, said Andrew Bernstein, a partner at Torys LLP in Toronto.
“The Supreme Court struggles with this issue because they’re worried about two things. On the one hand, they’re worried about letting harms go unremedied, but one the other hand they’re worried about imposing liability too broadly,” he said.
Allan Dick, a partner with Sotos LLP in Toronto, said a decision that favours the franchisees could make liability a matter for negotiation between manufacturers and purchasers.
“It’s very hard to predict whether or not the court will side with broadening the duty of care because they can easily recognize that perhaps economic loss of this type could be foreseeable and it should be a manufacturer’s responsibility to bear,” Dick said.