Politics

Supreme Court dismisses appeal against Maple Leaf Foods over tainted meat

The Supreme Court of Canada has dismissed an appeal by Mr. Sub franchisees claiming Maple Leaf Foods is responsible for financial losses suffered by the restaurants during a 2008 listeriosis outbreak.

Mr. Sub franchisees were seeking damages for reputational harm and lost sales

A Maple Leaf Foods worker clad in protective clothing sprays down equipment on one of the suspect food processing lines at the facility in Toronto in August 2008. (Frank Gunn/The Canadian Press)

The Supreme Court of Canada has dismissed an appeal by Mr. Sub franchisees claiming Maple Leaf Foods is responsible for financial losses suffered by the restaurants during a 2008 listeriosis outbreak.

In a 5-4 decision Friday, the high court found Maple Leaf did not owe the franchisees a duty of care — the legal responsibility held by a person or organization to avoid any acts that could reasonably be foreseen to cause harm to others.

"We are disappointed with the result," wrote Peter Kryworuk, a senior partner with Lerners LLP representing the restaurants, in an email statement to CBC News.

"As a result of this decision, 424 Mr. Sub franchisees which suffered significant losses, through no fault of their own as a result of the Maple Leaf listeria outbreak, will not have the ability to obtain compensation for their losses."

Mr. Sub restaurants were affected by a product shortage lasting six to eight weeks as a result of a national recall of Maple Leaf products following contamination at one of its plants.

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?"

Scott Maidment, a Toronto-based lawyer specializing in tort litigation, said the main question before the high court was whether Maple Leaf Foods owed a duty to Mr. Sub franchisees with respect to damages they suffered as a result of what they allege was harm to their reputation. (CBC)

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.

The restaurants made a claim of negligence because there was no direct contract between the franchisees and Maple Leaf.

During the recall, the food processor took steps to help franchisees with product shortages and the recovery of contaminated meats. 

In a statement emailed to CBC News, Maple Leaf's legal team said it's pleased with the high court's ruling, particularly the intention to respect the arrangements entered into by parties in a commercial environment.

"The result is that tort law will not serve as an after-the-fact insurer to address all economic harms that parties might suffer in the marketplace," wrote lawyers Elizabeth Bowker, Steve Stieber, and Nicola Brankley from Stieber Berlach LLP.

"Through this decision, the SCC [Supreme Court of Canada] has also signalled that the primary interests protected by tort law are bodily integrity and property, and the courts will tread carefully in cases involving pure economic loss suffered by a party in a commercial environment."

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

Kryworuk said the five-judge majority took a very restrictive approach by finding that the manufacturer's duty to provide safe products was owed to the ultimate consumers, and suggesting that the franchisees could have protected themselves with contracts or insurance.

"This will have significant impacts in product liability and franchise law, and will require often vulnerable small businesses and intermediary suppliers in the supply chain to proactively seek to protect themselves through contract negotiations with large manufacturers and obtaining expensive insurance which may not be possible for many franchisees and small businesses," he said.

The Supreme Court has taken a cautious 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 on 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 favoured the franchisees could have made 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 before the decision was released.

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