Supreme Court of Canada States That Duty of Care Is Owed to Restaurant Customers; Not Franchise Operators

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Moshiuzzaman
Moshiuzzaman holds a 2:1 LL.B degree from BPP University (UK). He is currently pursuing the CFA chartership and working as an independent legal researcher at the American Society of International Law (ASIL)

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In the case of Ontario INC. V. Maple Leaf Foods INC, the Supreme Court of Canada, in a 5-4 majority decision, has sided with Maple Leaf Foods Inc., a supplier to Mr. Sub (the restaurant) over a tort of negligence dispute arising out of a Listeria outbreak that resulted in economic loss to Mr. Sub franchisees.  

Background

In 2008, several Mr. Sub franchisees were affected by the decision of Maple Leaf Foods to recall their meat products that had been processed in one of its factories, where a listeria outbreak had occurred. Consequently, the franchisees experienced a shortage of meat-products for six to eight weeks, incurring, arguably, substantial sums of economic loss and loss of profit on future sales. 

At the time, the relationship between Mr. Sub and Maple Leaf Foods was governed exclusively through a supply agreement pursuant to which Maple Leaf Foods was the sole supplier of ready-to-eat meat products in all of Mr. Sub restaurants. To give effect to this arrangement, the franchise agreement between Mr. Sub and its franchises required them to purchase ready-to-eat meats products manufactured exclusively by Maple Leaf Foods. No contractual agreement ever existed between the franchisees and Maple Leaf Foods; each being linked to the other indirectly through separate contracts with Mr. Sub. 

In time, a class-action lawsuit was filed against Maple Leaf Foods on behalf of the franchisees, in which franchisees alleged to have suffered economic loss and reputational injury due to their association with contaminated meat products; and advanced claims in tort law, seeking compensation for lost past and future profits, the capital value of the franchise and loss of goodwill. 

Judgment

The Supreme Court of Canada noted the history of the case in question. The case was first filed in the Ontario Superior Court of Justice for certification of a class action, which Maple Leaf Foods requested be dismissed on the grounds that Maple Leaf Foods only owed a duty of care to Mr. Sub (the restaurant); not its franchisee operators. Moreover, Maple Leaf Foods also argued that there was no direct contractual relationship between the franchisees and them that could be used to impose a duty of care in relation to a tort of the negligence claim. The Ontario court ruled in favour of Maple Leaf Foods based on the arguments it put forward. However, on appeal, in the Ontario Court of Appeal, the decision of the lower court was overturned, finding a duty to supply a fit product owed to restaurant customers, not to be the franchise operators themselves. 

On appeal to the Supreme Court of Canada, the court stated, through a majority, that although the common law readily imposed liability for negligence associated with injury or property damage, it was not convinced to permit protection to purely economic interests. 

The court stated that under the supply agreement that existed between Mr. Sub (the restaurant) and Maple Leaf Foods, the latter was responsible for providing safe, ready-to-eat meats, which was fit for consumers; the duty was not owed to look after the commercial welfare of intermediaries such as the franchisees in question. Based on this, the majority, which included Brown and Martin JJ (along with Moldaver, Cote, and Rowe JJ concurring), held that the business interest of the franchisees lies outside the scope and purpose of the undertaking by Maple Leaf Foods. Hence, any danger associated with the supply of meat products that could be a hazard was only to diners at the restaurants and not the franchise owners. Moreover, to exclude future litigation on the matter by consumers, the court stated that whatever “real and substantial danger” existed in relation to the contaminated meat had been mitigated since the goods had been recalled and destroyed. 

Notably, the Supreme Court judgment included dissenting opinions from Karakatsanis J, with whom Chief Justice Wagner, Abella, and Kasirer JJ concurred. Karakatsanis J, agreed with Brown and Martin JJ, although the claim in question did not fall within any of the existing categories of economic loss or established or analogous relationships of proximity, it was pertinent, in pursuit of justice and fairness, that a novel duty of care is admitted to set liability on Maple Leaf Foods. Restating the reasons given by Leitch J, in the Ontario Superior Court of Justice, Karakatsanis J held that Maple Leaf Foods owed a duty of care to the franchisees in relation to the production, processing, sale, and distribution of meats. In addition, Maple Leaf Foods also owed a duty of care with respect to any representations that the meats were fit for human consumption. Based on this, the dissenting Justice(s), including the Chief Justice, Richard Wagner held that a duty of care should be imposed on Maple Leaf Foods.

To access the judgment, click here.


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