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Damages - Pure Economic Loss (2). North v. Bayerische Motoren Werke AG
In North v. Bayerische Motoren Werke AG (Ont CA, 2025) the Ontario Court of Appeal allowed an appeal from a class proceeding certification decision, where the central issue was "the type of losses recoverable at law in a negligence action involving an allegedly defective product".
Here the court considers the 'complex structure theory', a theory of property damage akin to pure economic loss - rejected by the SCC:(2) The complex structure theory and damage to “other property”
[33] As will be seen, an issue in this case is the relevance of the “complex structure theory”, a theory that has its source in English law.
[34] The “complex structure theory”, as it later became known, stems from D. & F. Estates Ltd. v. Church Commissioners for England, [1989] A.C. 177, [1988] 2 All E.R. 992, at pp. 1006-7. In that case Lord Bridge mooted the possibility, in obiter, that in the case of a complex structure or complex chattel, damage to one part of that structure or chattel caused by a defect in another part of the same structure or chattel could arguably qualify as damage to “other property” for the purpose of applying traditional negligence principles. In other words, rather than seeing the entire structure or chattel as defective and giving rise to pure economic loss, it might be possible to see the damage arising from the defect as damage to “other property” (i.e., actual property damage). Specifically, Lord Bridge mused:[I]t may well be arguable that in the case of complex structures, . . . one element of the structure should be regarded for the purpose of the application of the principles under discussion as distinct from another element, so that damage to one part of the structure caused by a hidden defect in another part may qualify to be treated as damage to ‘other property’. [35] In Winnipeg Condominium, La Forest J. recognized that Lord Bridge had later criticized the complex structure theory in Murphy v. Brentwood District Council, [1991] 1 A.C. 398, [1990] 2 All E.R. 908 (H.L.). In Winnipeg Condominium, at para. 15, La Forest J. cited Lord Bridge in Murphy:In Murphy, supra, at pp. 926-28, Lord Bridge reconsidered and rejected the “complex structure” theory he had suggested in D & F Estates, criticizing the theory on the following basis (at p. 928):The reality is that the structural elements in any building form a single indivisible unit of which the different parts are essentially interdependent. To the extent that there is any defect in one part of the structure it must to a greater or lesser degree necessarily affect all other parts of the structure. Therefore any defect in the structure is a defect in the quality of the whole and it is quite artificial, in order to impose a legal liability which the law would not otherwise impose, to treat a defect in an integral structure, so far as it weakens the structure, as a dangerous defect liable to cause damage to ‘other property’.
A critical distinction must be drawn here between some part of a complex structure which is said to be a ‘danger’ only because it does not perform its proper function in sustaining the other parts and some distinct item incorporated in the structure which positively malfunctions so as to inflict positive damage on the structure in which it is incorporated. Thus, if a defective central heating boiler explodes and damages a house or a defective electrical installation malfunctions and sets the house on fire, I see no reason to doubt that the owner of the house, if he can prove that the damage was due to the negligence of the boiler manufacturer in the one case or the electrical contractor in the other, can recover damages in tort on Donoghue v. Stevenson principles. [Emphasis added.] [36] La Forest J. went on to express “full agreement” with Lord Bridge’s criticisms of the “complex structure” theory: Winnipeg Condominium, at para. 15. He agreed that in cases involving the recoverability of economic loss in tort, the use of the theory serves to circumvent and obscure the underlying policy questions. Accordingly, he rejected the “complex structure” theory as articulated in D.& F. and accepted what Lord Bridge had to say in Murphy.
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[70] In the text Lawrence G. Theall, et al., Product Liability: Canadian Law and Practice (Toronto: Carswell, 2023), at p. 9-19, the authors recognize that the limits on recovery for pure economic loss may not seem intuitive:It may seem odd to identify a claim for the cost of repairing a product or structure as “pure economic loss” when a defect in the product or structure itself causes damage to the whole of the product or structure. The layperson would have no difficulty finding property damage in these circumstances. However, the Supreme Court of Canada has rejected the so-called “complex structure” theory, which would allow recovery for the cost of repairs where one part damages the whole. [71] Although this logic has bothered many courts, the legal distinction rests on the ability of parties to allocate the risk among themselves by contract: Allen M. Linden et al., Canadian Tort Law, 12th ed. (Toronto: LexisNexis Canada, 2022), at pp. 471-472.
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[78] The certification judge was correct that recovery is not possible, as a matter of law, where there are no repair or disposal costs. If there is no physical injury or actual property damage, Maple Leaf Foods limits recoverable damages to the costs of repair or disposal to avert real and substantial danger. The plaintiffs have not pointed to any case law where plaintiffs were permitted to recover for notional or speculative repair costs, and the language of Maple Leaf Foods, at para. 45, talks about “expenditures incurred” or “economic loss incurred” to avert real and substantial danger. . North v. Bayerische Motoren Werke AG
In North v. Bayerische Motoren Werke AG (Ont CA, 2025) the Ontario Court of Appeal allowed an appeal from a class proceeding certification decision, where the central issue was "the type of losses recoverable at law in a negligence action involving an allegedly defective product".
The court distinguishes 'pure economic loss' from physical damages, here in a product liability context:(1) Pure economic loss v. claim for damages arising from injury to person or property
[23] This case highlights the distinction between a pure economic loss claim and a traditional negligence claim.
[24] Pure economic loss is economic loss unconnected to a physical or mental injury to the plaintiff’s person or physical property: 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35, [2020] 3 S.C.R. 504, at para. 17, aff’d 2018 ONCA 407, 140 O.R. (3d) 481.
[25] The legal distinction between a standard negligence claim and a claim for pure economic loss relating to a defective product is explained in Lewis N. Klar, et al., Remedies in Tort, Vol. 3 (Toronto: Thomson Reuters, 2024), at §23:23:In terms of liability, the common [law] draws a significant distinction between a product that is damaged by an external force or incident and a product that is inherently flawed and likely to become damaged and perhaps a safety risk to others. Whereas the former gives rise to a standard negligence claim, the latter raises difficult questions about the recovery of pure economic losses. [26] So, for example, in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., 1995 CanLII 146 (SCC), [1995] 1 S.C.R. 85, La Forest J. observed that the losses claimed by the condominium corporation were all quite clearly under the category of “economic loss”. The corporation claimed damages in excess of $1.5 million, representing the cost of repairing the condominium building subsequent to the collapse of some of its exterior cladding. The corporation did not claim that anyone was injured by the collapse or that the collapse damaged any of its “other property”: Winnipeg Condominium, at paras. 13-14. Rather, as La Forest J. explained, “its claim is simply for the costs of repairing the allegedly defective masonry and putting the exterior of the building back into safe working condition”: Winnipeg Condominium, at para. 13.
[27] Building on Winnipeg Condominium, the majority in Maple Leaf Foods clarified the basis and limits of recovery for pure economic loss arising from shoddy or defective goods.
[28] The common law imposes liability for negligent interference with and injury to “the rights in bodily integrity, mental health and property”: Maple Leaf Foods, at para. 18. There is no general right, in tort, that protects one from the negligent or intentional infliction of pure economic loss. And, to be sure, recovery of pure economic loss is the exception and not the rule.
[29] The current categories of pure economic loss incurred between private parties include “the negligent supply of shoddy goods or structures”: Maple Leaf Foods, at para. 21. However, the fact that a claim arises from a particular kind of pure economic loss does not necessarily signify that such loss is recoverable. Rather, the categories are analytical tools adopted “for ease of analysis in ensuring that courts treat like cases alike”: Maple Leaf Foods, at para. 22. To establish liability, the plaintiff must prove all of the elements of the tort of negligence, including that the plaintiff sustained damage.
[30] Generally speaking, there is no liability for negligence “in the air” and no right to be free from the “prospect of damage”, only a right not to suffer damage resulting from the “exposure to unreasonable risk”: Maple Leaf Foods, at para. 44, citing Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19, [2020] 2 S.C.R. 420, at para. 33 (emphasis in original). That said, the law will view the plaintiff as having sustained actual injury to person or property where a design or construction defect poses a real and substantial danger and the plaintiff incurs costs in preventing the injury from occurring: Maple Leaf Foods, at para. 45. In other words, economic loss incurred to avert danger “is analogized to physical injury to the plaintiff’s person or property”: Maple Leaf Foods, at para. 45.
[31] In such cases, the scope of recovery is limited to the costs of averting real and substantial danger, as explained at paras. 48-49 of Maple Leaf Foods:It follows that the normative basis for the duty not only limits its scope, but in doing so also furnishes a principled basis for limiting the scope of recovery. As La Forest J. explained [in Winnipeg Condominium, at para. 36], the potential injury to persons or property grounds not only the duty but also one’s entitlement to “the cost of repairing the defect”, that is, the cost of mitigating the danger by “fixing the defect and putting the building back into a non-dangerous state”. In other words, allowing recovery exceeding the costs associated with removing the danger goes beyond what is necessary to safeguard the right to be free from injury caused to one’s person or property (see Winnipeg Condominium, at para. 49).
[W]hat a plaintiff can recover, irrespective of whether the claim is in respect of a building structure or a good, will be confined by the duty’s concern for averting danger. The point is not to preserve the plaintiff’s continued use of a product; rather, recovery is for the cost of averting a real and substantial danger of “personal injury or damage to other property” (Winnipeg Condominium, at para. 35). [Italics in original; underlining added.] [32] Accordingly, there is no basis for any recovery exceeding the costs associated with removing the real and substantial danger. In the words of Maple Leaf Foods, “a breach of the duty recognized in Winnipeg Condominium exposes the defendant to liability for the cost of averting a real and substantial danger, and not of repairing a defect per se”: Maple Leaf Foods, at para. 51 (italics in original; underlining added). In other words, what is protected is a right to be free of a negligently caused real and substantial danger, “not to the continued use of a product”: Maple Leaf Foods, at para. 54. This means that if the danger can be removed without repair, “the right is no less vindicated”: Maple Leaf Foods, at para. 54. In that situation, “if the plaintiff incurs a reasonably foreseeable cost in discarding the product – such as a regulatory disposal fee – that is recoverable as a cost of removing the danger”: Maple Leaf Foods, at para. 54 (emphasis added).
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[70] In the text Lawrence G. Theall, et al., Product Liability: Canadian Law and Practice (Toronto: Carswell, 2023), at p. 9-19, the authors recognize that the limits on recovery for pure economic loss may not seem intuitive:It may seem odd to identify a claim for the cost of repairing a product or structure as “pure economic loss” when a defect in the product or structure itself causes damage to the whole of the product or structure. The layperson would have no difficulty finding property damage in these circumstances. However, the Supreme Court of Canada has rejected the so-called “complex structure” theory, which would allow recovery for the cost of repairs where one part damages the whole. [71] Although this logic has bothered many courts, the legal distinction rests on the ability of parties to allocate the risk among themselves by contract: Allen M. Linden et al., Canadian Tort Law, 12th ed. (Toronto: LexisNexis Canada, 2022), at pp. 471-472.
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[78] The certification judge was correct that recovery is not possible, as a matter of law, where there are no repair or disposal costs. If there is no physical injury or actual property damage, Maple Leaf Foods limits recoverable damages to the costs of repair or disposal to avert real and substantial danger. The plaintiffs have not pointed to any case law where plaintiffs were permitted to recover for notional or speculative repair costs, and the language of Maple Leaf Foods, at para. 45, talks about “expenditures incurred” or “economic loss incurred” to avert real and substantial danger.
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[94] In Maple Leaf Foods, at paras. 54-55, the majority discussed the recoverability of disposal costs:[T]here is the good whose dangerous defect can realistically be addressed by discarding it. This will, we expect, apply to most defective consumer goods. Again, the liability rule in Winnipeg Condominium protects a right to be free of a negligently caused real and substantial danger, not to the continued use of a product. If the danger can be removed without repair, the right is no less vindicated. (To be clear, if the plaintiff incurs a reasonably foreseeable cost in discarding the product – such as a regulatory disposal fee – that is recoverable as a cost of removing the danger).
Secondly, there is the kind of good like the RTE meats, for which “repair” is simply not possible. The good must, therefore, also be discarded. While in such circumstances the plaintiff may recover any costs of disposal, that is the extent of its possible recovery under this liability rule. It must be remembered that, because the right protected by this liability rule is that in the physical integrity of person or property, recovery is confined to the cost of removing a real and substantial danger to that right – by, where possible, discarding it. Conversely, it does not extend to the diminution or loss of other interests that the appellant invokes here, such as business goodwill, business reputation, sales, profits, capital value or replacement of the RTE meats. [Italics in original; underlining added.] ....
[96] According to Maple Leaf Foods, “a reasonably foreseeable cost in discarding the product” is recoverable “as a cost of removing the danger”: at para. 54. What is protected is “a right to be free of a negligently caused real and substantial danger, not the continued use of a product”: Maple Leaf Foods, at para. 54. Recovery of disposal costs “is confined to the cost of removing a real and substantial danger” to “the physical integrity of person or property”: Maple Leaf Foods, at para. 55. In other words, disposal costs, like repair costs, are recoverable if they are incurred to avert real and substantial danger.
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