In OCHC v. Sloan Valve Company, 2024 ONSC 1493, Justice Corthorn of the Ontario Superior Court of Justice affirmed two product liability principles: (a) privity of contract is required for a buyer to be entitled to rely on the implied warranties and conditions under s. 15 of the Sale of Goods Act (SGA);[1] and (b) to have a cause of action in negligence, the plaintiff must demonstrate actual damage to person or property, or real and substantial danger to person or property.
Though not a class action, this case considering motions to strike under rule 21 of the Rules of Civil Procedure has important implications for product liability class actions against manufacturers who are not direct sellers, and where there are no allegations of injury to person or property. In particular, class action plaintiffs may struggle to meet the cause of action threshold of the certification test under section 5(1)(a) of the Class Proceedings Act, 1992.[2]
Background
After communicating with the defendant, Sloan Valve Company (Sloan), the plaintiff, the Ottawa Community Housing Corporation (OCHC), purchased Sloan’s “Flushmate System”, a toilet flushing system which purports to reduce water consumption and water costs. OCHC pursued the Flushmate System as an energy retrofit for the 15,000 residential units it owns and operates. The defendant, Wolseley Canada Inc. (Wolseley) was the successful bidder for the contract for the sale and supply of the system.
Approximately five years after implementing the system, OCHC noticed a rise in water consumption and higher water costs at several of its properties. OCHC concluded that the cause of this increase was the mass failure of a cartridge forming part of the system.
In 2022, OCHC commenced an action against Sloan and Wolseley, seeking damages of over $7 million for, among other things, excess water costs arising from the alleged failure of the system. OCHC advanced three causes of action as against the two defendants: (1) breach of warranty under the SGA; (2) negligence; and (3) negligent misrepresentation.
The defendants brought a motion to strike the claim in breach of implied warranty against Sloan and the claim in negligence for economic losses against both defendants.
Justice Corthorn ordered that both claims be struck.
No Claim in Breach of Implied Warranty or Condition Without Privity
The defendants relied on Arora v. Whirlpool Canada LP[3] for the principle that statutory warranties and conditions do not apply to manufacturers who are not sellers. The plaintiff submitted that in certain circumstances, a manufacturer can be considered a seller, in particular where there is direct pre-sale communication with the manufacturer.
Justice Corthorn declined to deviate from the overwhelming majority of case law, which established that a party does not have a claim in breach of implied warranty or condition against a party from whom it did not directly purchase the product. Justice Corthorn held that the implied warranties and conditions are narrowly prescribed, and the pleaded facts could not support such a “monumental change” to the doctrine of privity.
Lost Water is Not “Damaged Property”, and Cannot Ground a Claim in Negligence
In respect of the claims in negligence, OCHC argued that the damages it sought were not in fact for pure economic loss (which is not compensable in negligence), but rather that the water flowing through its units constituted “property”, which it owned and lost as a result of the defendants’ conduct.
Justice Corthorn rejected this argument, holding that OCHC’s damages were not damage to property, and were instead economic losses. OCHC did not own the water it alleged it lost – it was an end user of the water supplied by the municipality.
Justice Corthorn’s conclusion echoes those reached in Rego v. Bayerische Motoren Werke AG,[4] and M. Hasegawa & Co. v. Pepsi Bottling Group (Canada) Co.[5] – that damage to a product caused by the design of that product itself is not damage to property, and is therefore not compensable in negligence. Reinterpretations of what constitutes “damage” or “property” for the purposes of a negligence claim plainly asserting only economic losses may not be accepted by a court.
[1] R.S.O. 1990, c. S. 1.
[4] 2023 ONSC 5244 at paras 53-58.
[5] 2002 BCCA 324 at para 27.
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