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Background and parties
The proceeding is a proposed class action under the Class Proceedings Act, 1992, brought in the names of Patricia North and Dinis Rego against Bayerische Motoren Werke AG, BMW of North America, LLC and BMW Canada Inc. The action concerns BMW vehicles equipped with N20 engines, model years 2012 to 2015, acquired in Canada. Each of the two named plaintiffs acquired a BMW with an N20 engine and later experienced a sudden loss of power, which they allege was caused by the failure of the vehicle’s chain assembly system. They say this failure resulted in catastrophic damage to the engine. Faced with high quoted repair costs, they chose to sell their vehicles “as is” instead of repairing them. The plaintiffs seek to represent a proposed class of approximately 66,600 current and former owners and lessees of BMW model year 2012–2015 vehicles with N20 engines. The action is grounded in negligence and is framed as a case of “dangerous and defective goods,” namely the vehicles themselves. It is not alleged that any plaintiff or class member suffered personal injury, nor that any property other than the vehicles was damaged.
Allegations of defect and the chain assembly system
In their Fresh as Amended Statement of Claim, the plaintiffs allege that negligence in the design, engineering, testing and manufacturing of the N20 engine and its chain assembly system rendered the class vehicles dangerous and defective. The Chain Assembly System is pleaded to be integral to the proper functioning of the N20 engine. The timing (primary) chain assembly is said to synchronize the rotation of the camshaft and crankshaft, which control the opening and closing of the valves in the engine’s combustion chambers. The oil pump (secondary) chain assembly is described as driving the oil pump, enabling it to propel oil into the engine to lubricate engine parts and protect them from friction and heat. The plaintiffs plead that failure of this chain assembly system can lead to sudden loss of power and catastrophic engine damage. They also plead that the chain assembly component poses “an unreasonable risk of personal injury or death to drivers, occupants of the Vehicles, and members of the public,” although they do not allege that such harm actually occurred.
The proposed class and scope of the claim
The plaintiffs propose to represent all persons who purchased or leased model year 2012–2015 BMW vehicles in Canada equipped with the N20 engine. They allege that BMW’s negligence caused damage to them “including, but not limited to, the cost of averting the real, substantial, and imminent danger of personal injury or death by replacing the Vehicles (including those that have not suffered catastrophic engine failure) with vehicles whose engines do not fail suddenly whilst being driven.” They similarly plead under negligent manufacturing that their damage includes “the cost of averting the real, substantial, and imminent danger of personal injury or death by replacing the Vehicles” with vehicles whose engines do not fail suddenly. They further allege that BMW has a duty of care to compensate them for the cost of replacing the vehicles because they are dangerous and present a real, substantial and imminent danger. The pleading asserts that it is not feasible to repair the vehicles by installing engines that use a different chain assembly system, such as a B-series engine, without substantial re-engineering of the vehicles or their systems. The plaintiffs plead that class members whose vehicles have suffered N20 engine failure have been forced to incur the significant expense of replacing their vehicles, and that class members whose vehicles have not yet failed are driving inherently dangerous vehicles and will be forced to incur the significant expense of averting the real and substantial danger by replacing the vehicles.
The duty to warn allegations
Under a “Failure to Warn” heading, the plaintiffs allege that BMW, through its employees, officers, directors, agents and dealers, failed in its duty to warn them that the vehicles are defective and dangerous and of the serious safety risks associated with them. They say BMW failed to warn at the time the vehicles were marketed, distributed and sold in Canada and at any point before the plaintiffs and class members purchased or leased the vehicles. They plead that had BMW warned them that the vehicles were defective and dangerous because the N20 engine is prone to sudden and catastrophic failure, they would not have purchased or leased the vehicles. The claimed harm connected to this alleged failure to warn is that the vehicles they purchased are worth less than the amount paid and that they incurred or will incur costs to replace or avoid using them, not that a warning would have prevented actual physical injury or damage to other property.
BMW’s extended warranty and repair information
The record before the certification judge included a December 2018 extended warranty issued by BMW for the timing chain system of the N20 engine in many of the proposed class vehicles. That extended warranty was accompanied by a service notice to technicians at authorized BMW retailers advising that some N20 vehicles could experience a “whining noise” that would increase in frequency with higher engine RPM due to wear on the engine oil pump chain drive sprockets. Under the extended warranty, any eligible vehicle experiencing such a “whining noise” would receive, free of charge, a replacement of the engine oil pump drive chain module and related components of the engine timing chain system and oil pump drive chain. The warranty applied for up to seven years or 112,600 kilometres from the date of purchase. Approximately 800 vehicles were serviced under this extended warranty. The warranty specified that it was not a recall and that repair was not prophylactically required. In the lead-up to certification, BMW also disclosed that the timing chain system could be replaced with an updated system for a substantially lower figure than full engine replacement, with a repair cost of about $4,000. This information became relevant when the plaintiffs asked the certification judge to read their pleading as encompassing repair-based losses, in addition to replacement-based losses, despite the absence of an explicit repair-cost claim in the original wording.
Evidence of the alleged defect and the expert report
The plaintiffs relied on an expert report by Dr. Peter Frise, a professor of mechanical and automotive engineering at the University of Windsor. Dr. Frise opined that the BMW vehicles with N20 engines “contain either a design defect or a manufacturing defect – or both” and that they are “prone to sudden loss of power due to failures of the chain assembly.” He concluded that there was a universal problem with the timing chain system in N20 engines, which he said indicated negligence in design or manufacture. The certification judge reviewed his report and found that Dr. Frise’s conclusion about a universal problem was “speculative and largely unsupported.” In particular, the judge noted concerns about the reliability of Dr. Frise’s database, his understanding of BMW’s warranty, and the plaintiffs’ own pleading. The judge accepted that there had been timing chain problems in some N20 engines and evidence of defects in at least two vehicles, but found “no basis in fact for asserting that design or manufacturing defects exist in all of the Class Vehicles.” Later, when considering common issues, the judge nonetheless found that Dr. Frise’s report provided some basis in fact for allegations that the timing chain system’s design was capable of malfunctioning in the way alleged and that it set out a “plausible methodology” for analyzing the design on a class-wide basis.
The certification judge’s treatment of damages and pure economic loss
In addressing s. 5(1)(a) of the Class Proceedings Act, the certification judge concluded that this case is governed by Supreme Court of Canada jurisprudence concerning pure economic loss, including Winnipeg Condominium and Maple Leaf Foods. He accepted that the plaintiffs’ claim, apart from certain limited categories, is a claim for pure economic loss—economic loss unconnected to physical or mental injury to the plaintiff’s person or physical property. He noted that the vehicles are pleaded as “dangerous and defective goods – the Vehicles” and that the chain assembly system is described as an integral part of the engine and vehicle. On that basis, he determined that the vehicle or the rest of the N20 engine is not “other property” with respect to the timing chain system. He rejected the argument that damage to the engine from a chain assembly defect could be treated as damage to “other property” within a traditional negligence framework. He held that, in such circumstances, and consistent with Winnipeg Condominium and Maple Leaf Foods, economic loss is recoverable in negligence only in a narrow way: where a design or construction defect poses a real and substantial danger and the plaintiff incurs costs in preventing the injury from occurring. He concluded that, as a matter of law, “the costs of repair incurred in the wake of actual damage caused by the defective structure or product are recoverable in tort, as are the costs of repair done in advance of any harm being done if the work is done to avert imminent damages.” Reading the Fresh as Amended Statement of Claim generously, he accepted that the plaintiffs’ references to replacing vehicles could subsume a claim for repair costs and that this could support a cause of action for negligent design and/or manufacture limited to repair-related losses.
The certified cause of action and narrowed class definition
The certification judge certified only one cause of action, narrowed from what the plaintiffs proposed. He certified the claim of negligent design and/or manufacture of the timing chain systems in model year 2012–2015 BMW vehicles equipped with the N20 engine in Canada, but “resulting in a loss reflected in the cost of repairing damage incurred to an engine in a Class Vehicle, or the cost of repairing an engine in a Class Vehicle to avert imminent damage to persons or property.” Correspondingly, he narrowed the class definition. The class was limited to those who had incurred repair expenses related to the timing chain system in their vehicles as of the date of the judgment. More specifically, he restricted the class to persons who purchased or leased 2012–2015 N20-equipped BMW vehicles in Canada and who, prior to October 5, 2023, incurred repair expenses relating to damage incurred, or damage imminently averted, due to malfunction or imminent malfunction of their vehicle’s timing chain system. He found that the expert evidence regarding how the claimed losses might occur, combined with statistical data from the extended warranty, provided sufficient evidence of an identifiable class of two or more persons. He concluded that a class proceeding was the preferable procedure, an aspect not challenged on appeal.
Treatment of the duty to warn claim at certification
The certification judge declined to certify the duty to warn claim. He reasoned that a viable duty to warn claim would require pleading that negligent design or manufacture caused the plaintiffs to suffer personal injury or damage to “other property” and that such damage would have been avoided had an adequate warning been given. He found this had not been pleaded. Instead, the plaintiffs pleaded that the vehicles they purchased are worth less than the amount paid. He held that such a diminution in value could not be recovered directly through a negligent design or manufacture claim, and likewise could not be recovered indirectly through a negligent failure to warn claim. He concluded that, because the harm pleaded was pure economic loss and no basis in fact had been adduced to support a proper failure to warn claim tied to compensable damage, there was no viable duty to warn cause of action for certification.
The representative plaintiff analysis in the Superior Court
Under s. 5(1)(e), the certification judge evaluated the suitability of the named plaintiffs. He found that Ms. North was not a suitable representative plaintiff because she had not incurred a legally cognizable loss: she had neither paid for repairs nor disposal costs, and her claim was limited to the replacement of her vehicle and alleged diminution in value. However, he concluded that Mr. Rego was a suitable representative plaintiff. He relied on an invoice from Budds’ BMW dated March 6, 2018, which showed a service charge of $185.89 (comprised of $164.50 plus $21.39 HST) for inspection and diagnosis related to his engine problem. He characterized this service charge as a “reasonably foreseeable cost in discarding the product,” analogous to a regulatory disposal fee discussed in Maple Leaf Foods, and therefore as a recoverable loss in tort. On that basis, he held that Rego had a cause of action and could act as representative plaintiff. Given that the plaintiffs obtained certification, albeit on a narrower basis than they had sought, he declined to order costs against either side, finding the result of the motion mixed.
Issues raised on appeal and cross-appeal
On appeal, the plaintiffs advanced four principal issues. They argued that Ms. North had pleaded losses recoverable in negligence even though she incurred no repair or disposal costs; that the certification judge erred in not certifying the failure to warn claim; that he erred in failing to certify what they described as a claim for breach of a “duty to compensate for shoddy and dangerous goods”; and that he erred in making a distributive “no costs” award on the motion. They submitted that his decision unjustly excluded Ms. North and other class members who did not incur repair or disposal costs and that, in Ms. North’s case, her reasonable decision not to repair a vehicle when it was uneconomic should not deprive her of a remedy. They also pointed to the absence of any notice from BMW to class members about the alleged defect, which, they argued, meant that class members were unaware of the need to repair their vehicles. BMW’s cross-appeal contended that the certification motion should have been dismissed outright or, at minimum, that the class should have been narrowed further. BMW argued that the plaintiffs had failed to establish some basis in fact that a design or manufacturing defect was common among class vehicles; that the plaintiffs had failed to plead legally recoverable losses because they sought primarily the replacement value of the vehicles; that there was no adequate representative plaintiff because Rego had not incurred a recoverable loss and North had no viable cause of action; and that, alternatively, any class should exclude owners and lessees who paid engine repair costs after timing chain failure in their vehicles.
The Court of Appeal’s treatment of property damage and the complex structure theory
The Court of Appeal upheld the certification judge’s conclusion that the plaintiffs had not pleaded actual property damage to “other property” or personal injury. It accepted the finding that the timing chain system, as pleaded, was an integral part of the N20 engine and the vehicles, not a distinct system whose failure caused damage to “other property.” The Court reviewed the certification judge’s discussion of the “complex structure theory” derived from English law, including Lord Bridge’s suggestion in D. & F. Estates and subsequent criticism and rejection of that theory in Murphy v. Brentwood District Council, which had been adopted by La Forest J. in Winnipeg Condominium. The Court noted that La Forest J. had expressed “full agreement” with Lord Bridge’s criticisms of the complex structure theory and had rejected its use to circumvent underlying policy questions regarding economic loss. Applying this approach, the Court held there was no error in the certification judge’s conclusion that this was not a traditional negligence claim based on damage to other property, but a pure economic loss case. It agreed that the vehicle, or the rest of the N20 engine, could not be treated as “other property” in relation to the timing chain system.
Correction of the certification judge’s approach to repair costs after failure
However, the Court of Appeal concluded that the certification judge erred in certifying claims tied to “the cost of repairing damage incurred to an engine in a Class Vehicle.” It emphasized that, under Maple Leaf Foods, the costs of repairing a defective structure or product are recoverable only when they are necessary to avert danger; costs beyond what is needed to remove the danger are not recoverable through negligence. It noted that the point is not to preserve continued use of a product but to avert a real and substantial danger of “personal injury or damage to other property.” The Court pointed to the plaintiffs’ own pleading that once the Chain Assembly System fails, “the engine is catastrophically damaged.” It observed that a catastrophically damaged engine cannot be driven and that repairing such an engine would serve to restore the use or functionality of the vehicle rather than avert any real and substantial danger. It accepted the plaintiffs’ acknowledgement in their factum that once the engine has been destroyed, “there is no further risk to life or limb and there is no danger to avert.” On this basis, the Court held that the certification judge erred by certifying causes of action and defining a class that included persons whose losses were reflected in the cost of repairing damage already incurred to an engine in a class vehicle.
Analysis of the alleged “duty to compensate for shoddy and dangerous goods”
The plaintiffs argued that the certification judge had wrongly struck what they described as a claim for breach of a “duty to compensate for shoddy and dangerous goods,” relying on language from several lower-court decisions. The Court of Appeal found that the certification judge had not, in fact, struck such a claim. It noted that the judge had recognized, in line with Winnipeg Condominium and Maple Leaf Foods, that the cost of repairing a dangerous product that presents a real and substantial danger can be a legally cognizable damage, and he had certified a cause of action explicitly limited to repair costs incurred in respect of personal or other property damage or imminent damage. The Court further held that there was no basis in case law for recovery where no repair or disposal costs had been incurred. It relied on Maple Leaf Foods’ references to “expenditures incurred” or “economic loss incurred” to avert real and substantial danger and concluded that, if there is no physical injury or property damage, recoverable damages are confined to repair or disposal costs actually incurred to avert such danger. The Court found no support for recovery of notional or speculative repair costs by people who had neither repaired their vehicles nor incurred disposal expenses.
Duty to warn claim on appeal
On the duty to warn claim, the Court of Appeal agreed with the certification judge’s analysis. It accepted that the plaintiffs had pleaded that, had BMW warned them, they would not have purchased or leased the vehicles, rather than pleading that a warning would have prevented personal injury or property damage. It noted that the pleading alleged that the vehicles purchased were worth less than the amount paid and that this alleged diminution in value could not be recovered through a claim for negligent design or manufacture, nor indirectly through a failure to warn claim. The Court rejected the plaintiffs’ argument that the certification judge should have “read down” the duty to warn claim in the same way he read the damages claim to include repair costs, holding that there was no basis to infer from the pleading that, if warned, the plaintiffs would have purchased the vehicles and then repaired them. Even if such an inference were drawn, the Court regarded it as amounting to an allegation that they would have incurred repair costs they otherwise would not have incurred, which still reflected pure economic loss rather than an avoidance of physical injury.
Representative plaintiff analysis in the Court of Appeal
The Court of Appeal then turned to whether a suitable representative plaintiff existed. It agreed that Ms. North had no viable cause of action. It also examined more closely whether Mr. Rego’s service charge could qualify as a recoverable loss. It highlighted Maple Leaf Foods’ discussion that a “reasonably foreseeable cost in discarding the product – such as a regulatory disposal fee – is recoverable as a cost of removing the danger,” but only as part of recovery confined to the cost of removing a real and substantial danger to the physical integrity of person or property. It reviewed evidence from Mr. Rego’s affidavit that he had been told it would cost between $1,800 and $2,500 for a full diagnosis of his engine’s problem, with an estimated repair cost between $10,000 and $20,000 if the suspected problem was confirmed. He had received a diagnostic report at a cost of $185.89 and declined to incur the cost of a full diagnosis. The Court concluded that this diagnostic fee was not a foreseeably necessary cost of discarding a dangerous product; rather, it was incurred in connection with the possibility of repairing and restoring the non-operational vehicle. It noted that, according to the pleadings, his engine was “catastrophically damaged,” and reasoned that the danger was already removed because the car was no longer driveable. Accordingly, even if the fee could be said to relate to disposal, it was not a cost of removing danger and was therefore not recoverable under the Winnipeg Condominium and Maple Leaf Foods principles. On that basis, the Court held that Rego, like North, had no recoverable loss in negligence and thus no viable cause of action. It concluded that there was no suitable representative plaintiff anchoring the proceeding as a member of the proposed class.
Common issues and evidentiary foundation
BMW argued that the certification judge’s reasons were inconsistent in his treatment of the factual basis for common issues. The Court of Appeal addressed the passage where the judge had found that the record contained “no basis in fact for asserting that design or manufacturing defects exist in all of the Class Vehicles” and reconciled it with his later finding that Dr. Frise’s report provided some basis in fact and a plausible methodology for negligent design common issues. The Court observed that the earlier finding addressed the plaintiffs’ attempt to show a universal defect across the entire proposed class, which failed, while the later finding concerned a narrower class of vehicles that had actually incurred repair expenses related to the timing chain system. It noted that the certified common issues were framed to allow for “one or more” design or manufacturing defects making vehicles prone to sudden loss of power, and asked when BMW knew or ought to have known of any such defects. The Court accepted that, after the class and causes of action were narrowed, it was open to the certification judge to find that there was some basis in fact to support those common issues for vehicles within the narrowed class. These aspects of the certification decision were not the source of the Court’s ultimate disposition.
Outcome, successful party and monetary amounts ordered
In its final disposition, the Court of Appeal stated that it would dismiss the plaintiffs’ appeal, allow BMW’s cross-appeal, and set aside the order below certifying the action as a class proceeding. It also set aside the certification judge’s “no costs” order, directing the parties to provide brief written submissions regarding costs at first instance. The decision does not state the amount of any costs that might later be ordered for the certification motion; that amount cannot be determined from this judgment. The Court ordered that the plaintiffs pay costs of the appeal in the amount of $25,000. In this appellate decision, BMW is therefore the successful party, and the only specific monetary amount ordered in its favour is $25,000 in costs of the appeal, with any further costs below to be fixed in a subsequent determination not contained in this text.
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Court of Appeal for OntarioCase Number
COA-23-CV-1180Practice Area
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