Distributors' Liability in Canada for Defective Products |
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September 2012 Presented at MB's Product Liability Seminar In today's expanding global marketplace, product liability claims are common. Typically, these claims involve a chain of defendants of whose hands the product has passed through. Liability stemming from negligence can occur at any stage of the process, from design, to manufacturing, to consumption. Thus, anyone involved in the process of creating a product can find themselves held liable when the product is defective and/or if the product injures a plaintiff. Historically, a plaintiff was only able to sue the manufacturer through a breach of contract for the express or implied warranty of fitness of the good purchased. However, in Donoghue v Stevenson, the Court created an avenue for a plaintiff to sue negligent parties in tort as well.1 This effectively stopped negligent manufacturers from hiding behind the shield of privity of contract, which the plaintiff could not penetrate. Now, a plaintiff is able to bring a claim for breach of the standard and duty of care owed to them (as well as for breach of contract) against the retailers, parts suppliers, distributors and manufacturers of the product.2 The distributors of products typically have no involvement in the manufacturing of the products that they distribute and put into circulation.3 However, a distributor's negligence could contribute to or cause a plaintiff's injury. As a result, distributors are not held strictly liable for every defective product that they distribute. The distributor's liability will depend on:
Liability Under the Sale of Goods Act Section 15 of the Sale of Goods Act5 states:
Section 15 applies to every contract for the sale of goods that fulfils the conditions set out in subsection (1) unless it is inconsistent with either an express warranty or condition in the contract, or, the parties have expressly excluded its application. Therefore, if it can be established that the distributor knew the particular purpose for which the goods were required, and distributed the goods to be sold in the normal course of its business, there will be a rebuttable inference that the buyer relied upon the distributor's skill and judgment to provide goods that would be reasonably fit for the communicated purpose. If it can be proven that the distributor deals in the goods sold, whether or not they are also the manufacturer of the goods, there is an implied condition that the goods will be of merchantable quality. Breach of either implied condition will likely render the distributor liable.6 As per the Act, distributors may be strictly liable for supplying a defective product. In turn, distributors may pass on some or all of this liability onto the next party in the chain above them, such as the wholesaler or another distributor. However, the amount of liability passed on will depend on the terms of any applicable contracts.
Liability pursuant to the Act will depend on the essence of the contract. In ter Neuzen v. Korn, the Supreme Court of Canada held that if the sale of the goods is only an incidental part of a contract for services, then the Act does not imply a warranty of fitness under section 15(1).7 In ter Neuzen, the contract was for medical services to aid the plaintiff in becoming pregnant, and not primarily for the sale of semen. Therefore, if the distributor contracts for a service that requires the use of a product, the Act does not automatically imply a warranty of fitness for the product used. However, the main purpose of the statutorily-implied warranty under the Act is to hold the manufacturer responsible to the recipients of their products (regardless of whether the manufacturer was negligent). Thus, depending on the circumstances, the court may still imply a common law warranty (for the fitness and merchantability of the goods and services used) into a contract for services.8 Standards of Care owed by Distributors The standard of care of the distributor is similar, but not synonymous to the standard of care owed by the manufacturer.9 Distributors have positive duties of care to the consumer of a product.10 In determining the standard of care for these duties, the courts take into consideration the reliability of the manufacturer, the ease of testing, and the part played by the distributor in promoting the product.11 For instance, if jurisdiction becomes an issue, it can shift liability from the unreliable foreign manufacturer to the reliable domestic distributor. In the recent decision of Hutton v. General Motors of Canada, Ltd., a Canadian vehicle distributor was held liable for the negligence of the design and manufacture of the vehicle by the US parent company.12 The courts will not typically hold the distributor to as high a standard of care as they would a manufacturer. For example, in Fong v. Mercedes-Benz Canada Inc., the distributor did not contribute to the design or manufacturing of the product. Thus, the court held that the distributor was not liable to the same extent as the manufacturer, as the distributor was only loosely connected to the manufacturer.13 However, when the facts dictate the need, the courts have gone as far as to hold the distributor to the same very high standard of care as the manufacturer.14 For example, in Pack v. Warner (County) 15, the Court held that if the manufacturer is of an unscrupulous character, then the distributor is the closest 'neighbour'16 to the customer, and thus, will likely be held liable.17 Specific Duties of Care owed by Distributors Distributors may have a duty to examine the products they distribute if they are aware of a potential for problems with the product.18 However, if the distributor was not aware and had no reason to be aware of the defect, then they are typically not going to be held liable for the defect. For instance, in Gregorio v. Intrans-Corp., Paccar did not act as a distributor as it never had physical possession of the truck. Thus, it had no opportunity to inspect the truck, and could not know about the alleged defects prior to delivery. The Court held that as the truck never passed through Paccar's hands, and since it had no reason to believe the truck would malfunction, Paccar could not be held accountable for failing to detect the manufacturing defects.19
A distributor can be held liable for the careless handling of a product, but can also be liable for failing to warn of dangers, defects or hazards associated with the product or its use, that the distributor knows about20 or by inspection reasonably ought to have discovered.21 Further, if the distributor is aware of the defect, and it is known to the distributor that customers rely on the distributor for advice or instructions, the distributor will be held liable to the customer for the defect.22 For instance, a distributor may be liable for failing to provide a clear warning on a product's container where the product contains toxins,23 but may not be held liable if it can be proven that the plaintiff had previous knowledge of the risks associated with the toxic product.24 Distributors may also face liability for recommending a product that later injures the customer. Specifically, a distributor will likely be liable if the recommended use for a product is not specified by the manufacturer of the product's label and resulted in injury.25 This liability may stretch as far as requiring the distributor to conduct reasonable research on the product before recommending it. Thus, if the distributor blindly trusts the accuracy of the manufacturer's recommended use26 without conducting its own examination of the product, the court may impose a higher standard of care and hold the distributor liable for the hazardous product.27 This is seen in the English decision of Watson v. Buckley et al, where the distributor was held liable when high levels of acid in the hair dye caused the plaintiff severe dermatitis. The Court held that the duty of care extended to a distributor that accepted the manufacturer's representations.28 A distributor may also be liable for misleading advertising. In Leitz v Saskatoon Drug & Stationary Co., a distributor who falsely advertised sunglasses as being impact resistant was held liable for the injuries resulting from the glasses shattering.29 Conclusion Canadian distributors can be liable to the claimant in contract, but may also be liable in tort for breaching the duty of care owed, particularly with respect to consumer goods. Distributors have a duty to examine their products if they are aware of the potential for a defect, and may also have a duty to warn of any hazards associated with the product. They also may face liability if they blindly rely on the statements or representations of a manufacturer. However, if the customer is aware of the defect and proceeds to use the product anyway, then the distributor may face limited or no liability. Thus, the prudent distributor will take steps to inspect any product that has a potential for defect, and will verify any recommendations on the packaging of these products, in order to protect itself from any resulting product liability. 1 Donoghue v Stevenson, [1932] AC 562 (HL). [hereinafter Donoghue]
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