The Supreme Court will decide how far down a supply chain manufacturers should owe a duty of care
Almost a dozen years after a listeriosis outbreak at a Maple Leaf Foods Inc. plant killed 22 people, the Supreme Court of Canada will hear in October what could be the final chapter in a story that focused attention on the nation’s food safety.
The crisis hit in August 2008, after food inspectors tested Maple Leaf products, leading to recalls. Mr. Sub was identified in press reports and recall notices as serving Maple Leaf products. It says that, after being singled out, sales fell.
Mr. Sub sued, arguing its businesses suffered economic loss and reputational harm and that Maple Leaf — the exclusive supplier of lunch meats to 424 Mr. Sub franchisees under a franchise agreement — had a duty to provide it meat safe for human consumption.
Legal experts are watching the case closely because it has the potential to expand tort law deeper into supply chains.
Western Law School dean Erika Chamberlain, a tort expert, says duty of care cases “don’t come to the Supreme Court of Canada every day. Any time they can make a decision on that is useful.”
Michael Peerless, a product liability lawyer at McKenzie Lake in London, Ont., says the case has the “potential to significantly change” and “rationalize” tort law in economic loss cases.
Allan Dick, a franchise and commercial litigator at Sotos LLP, adds it is “a very important matter for manufacturers of products.”
Franchisees won at the Ontario Superior Court. The Ontario Court of Appeal ruled for the manufacturer, finding it had a duty to provide safe meat, but that did not create liability for the franchisees’ economic losses. Moreover, establishing such a duty flies in the face of public policy because it dissuades manufacturers from recalling defective goods.
The SCC factums tell two very different tales. Franchisees say they were “in a vulnerable position, with no ability to protect themselves contractually against Maple Leaf or Mr. Sub [the franchisor] regarding Maple Leaf’s negligent supply of shoddy products. Tort law provides the only available remedy to the franchisees and the only means of holding Maple Leaf accountable for causing reasonably foreseeable economic losses.”
Maple Leaf’s factum suggests the sky will fall if the court sides with franchisees. Consider it hysteria over listeria. The representative franchisee “never had a right to a market of consumers willing to purchase its products, it had no right to have its reputation protected by Maple Leaf, and it had no right to receive any product from Maple Leaf on an ongoing basis. The appellant has no right that tort law should protect.” Rather, franchisees should use recall and business interruption insurance to protect themselves from unsafe meat.
In a Trumpian statement, Maple Leaf blames the media. Any damages “arose out of and are conditional upon media spin, something out of the control of both Maple Leaf and the Franchisees. The ‘harm’ is actually in the control of the media.”
Dick says, “The issue is did the economic loss that arose from the reputational harm fall within the scope of Maple Leaf’s duty.”
Chamberlain says if the SCC “changes the scope of a manufacturer’s duty to provide a safe product to include not just the consumer but the retailer who suffers economic loss, that’s a pretty substantial expansion.”
She adds that “the goodwill of a business is an important asset. If you can prove they owe you a duty and whatever they did caused you to suffer a substantial loss of goodwill, I don’t see why that shouldn’t be compensable.”
The ball is now in the SCC’s court at a time when supply chains are expanding and food recalls seem like an everyday occurrence. Will it take the safe, sure route and leave franchisees out in the cold? Or will it make a bold statement and send manufacturers a signal that they need to respect their supply chains and provide safe, secure products or pay all of the pipers and not just end consumers?
Jim Middlemiss blogs about the legal profession at Web News Management.com and can be followed on Twitter @JimMiddlemiss.