Simon's Megalomaniacal Legal Resources

Torts - Negligence - Pure Economic Loss

. McDonald v. Toronto-Dominion Bank

In McDonald v. Toronto-Dominion Bank (Ont CA, 2022) the Court of Appeal considers proximity in the context of a claim for 'pure economic loss':

[55] As noted, in cases of pure economic loss arising from negligent performance of a service, the proximity analysis is driven by two factors: the defendant’s undertaking and the plaintiff’s reliance: Livent, at para. 30; Maple Leaf, at para 32. Where the defendant undertakes to provide a service in circumstances that invite the plaintiff’s reasonable reliance, the defendant becomes obligated to take reasonable care: Livent, at para. 30; Maple Leaf, at para. 32. It is “these corollary rights and obligations [that] create a relationship of proximity”: Livent, at para. 30; Maple Leaf, at para. 32.

....

[64] The trial judge’s analysis is consistent with Livent and Maple Leaf, which recognize that a plaintiff’s entitlement to rely on the defendant “operates only so far as the [defendant’s] undertaking goes”: Maple Leaf, at para. 35; Livent, at para. 31. In other words, reliance by the plaintiff that “falls outside of the scope of the defendant’s undertaking of responsibility – that is, of the purpose for which the representation was made or the service was undertaken – necessarily falls outside the scope of the proximate relationship and, therefore, of the defendant’s duty of care”: Livent, at para. 31; Maple Leaf, at para. 35. ...

. Subway Franchise Systems of Canada, Inc. v. Canadian Broadcasting Corporation (I)

In Subway Franchise Systems of Canada, Inc. v. Canadian Broadcasting Corporation (I) (Ont CA, 2021) the Court of Appeal considers at length the test for a negligence duty of care where the claim is in pure economic loss [paras 73-131].

. 1688782 Ontario Inc. v. Maple Leaf Foods Inc.

In 1688782 Ontario Inc. v. Maple Leaf Foods Inc. (SCC, 2020) the Supreme Court of Canada held that pure economic loss was not covered by a negligence duty of care:

[18] To recover for negligently caused loss, irrespective of the type of loss alleged, a plaintiff must prove all the elements of the tort of negligence: (1) that the defendant owed the plaintiff a duty of care; (2) that the defendant’s conduct breached the standard of care; (3) that the plaintiff sustained damage; and (4) that the damage was caused, in fact and in law, by the defendant’s breach. To satisfy the element of damage, the loss sought to be recovered must be the result of an interference with a legally cognizable right. As Cardozo C.J. explained in Palsgraf v. Long Island Railroad Co., 162 N.E. 99 (N.Y. 1928), “[n]egligence is not actionable unless it involves the invasion of a legally protected interest, the violation of a right” (p. 99; see also Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263, at para. 45; Livent, at para. 30; R. Stevens, Torts and Rights (2007), at p. 24). It is well established that the law imposes liability for negligent interference with and injury to the rights in bodily integrity, mental health and property (Saadati, at para. 23, citing A. Ripstein, Private Wrongs (2016), at pp. 87 and 252‑53). Recovery for injuries to these rights is grounded in the duty of care recognized in Donoghue v. Stevenson, [1932] A.C. 562 (H.L.).

[19] This explains why the common law has been slow to accord protection to purely economic interests. While this Court has recognized that pure economic loss may be recoverable in certain circumstances, there is no general right, in tort, protecting against the negligent or intentional infliction of pure economic loss. For example, economic loss caused by ordinary marketplace competition is not, without something more, actionable in negligence (A.I. Enterprises Ltd. v. Bram Enterprises Ltd., 2014 SCC 12, [2014] 1 S.C.R. 177, at para. 31, citing Mogul Steamship Company v. McGregor, Gow & Co. (1889), 23 Q.B.D. 598 (C.A.), at p. 614, aff’d [1892] A.C. 25 (H.L.)). Such loss falls outside the scope of a plaintiff’s legal rights — the loss is damnum absque injuria and unrecoverable (E. J. Weinrib, “The Disintegration of Duty” (2006), 31 Adv. Q. 212, at p. 226; D. Nolan, “Rights, Damage and Loss” (2017), 37 Oxf. J. Leg. Stud. 255, at pp. 262‑68). Indeed, the essential goal of competition is to attract more business, which may mean taking business away from others. Absent a contractual or statutory entitlement, there is no right to a customer or to the quality of a bargain, let alone to a market share. As Taylor J.A. wrote for the British Columbia Court of Appeal in Kripps v. Touche Ross & Co. (1992), 1992 CanLII 923 (BC CA), 94 D.L.R. (4th) 284, at p. 297:

It seems possible that pure economic loss simpliciter accounts for the overwhelming majority of all loss suffered by one person as a foreseeable and proximate result of the acts or omissions of another . . . . This must necessarily be so in a free market for goods and services, employment and investment, and the continuing struggle for property, promotion and profit.

[20] Citing the work of Professor Feldthusen (B. Feldthusen, “Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow” (1991), 17 Can. Bus. L.J. 356, at pp. 357‑58; B. Feldthusen, Economic Negligence: The Recovery of Pure Economic Loss (2nd ed. 1989), at para. 200 (currently in its sixth edition)), this Court has applied a classificatory scheme that identifies four categories of pure economic loss that can arise between private parties (Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC), [1992] 1 S.C.R. 1021, at p. 1049; Winnipeg Condominium, at para. 12).[1] In Livent, the Court effectively reduced the categories to three, by its treatment of two of the previously stated categories ⸺ negligent misrepresentation, and negligent performance of a service ⸺ as a single kind of pure economic loss. This made sense, because the considerations that inform the proximity analysis are identical for both. In particular, the same two factors ⸺ the defendant’s undertaking, and the plaintiff’s reliance ⸺ are in such cases determinative of the proximity analysis (para. 30), upon which we will elaborate below.

[21] The current categories of pure economic loss incurred between private parties are, therefore:

(1) negligent misrepresentation or performance of a service;

(2) negligent supply of shoddy goods or structures; and

(3) relational economic loss.

The distinguishing feature among each of these categories is that they describe how the loss occurred. Focussing exclusively upon how the loss occurs can, however, put strain on the analysis by obfuscating both fundamental differences and similarities among cases of pure economic loss (J. Stapleton, “Duty of Care and Economic Loss: A Wider Agenda” (1991), 107 Law Q. Rev. 249, at pp. 262 and 284). Further, it obscures the starting point in a principled analysis of an action in negligence, which is to identify what rights are at stake and whether a reciprocal duty of care exists (Livent, at para. 30). It is proximity, and not a template of how a loss factually occurred, that remains a “controlling concept” and a “foundation of the modern law of negligence” (Norsk, at p. 1152; Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737, at para. 25).

[22] Properly understood, then, these categories are simply “analytical tools” that “provide greater structure to a diverse range of factual situations . . . that raise similar . . . concerns” (Martel, at para. 45; Design Services, at para. 31). Organizing cases in this way was and is therefore done for ease of analysis in ensuring that courts treat like cases alike. The fact that a claim arises from a particular kind of pure economic loss does not necessarily signify that such loss is recoverable.[2] Where the loss is recoverable, however, this Court has clarified that the decided cases within these categories should be regarded as reflecting particular kinds of proximate relationships (Cooper, at para. 36; Livent, at paras. 26‑27). But to be clear, the invocation of a category, by itself, offers no substitute for the necessary examination that must take place “of the particular relationship at issue in each case” between the plaintiff and the defendant (Livent, at para. 28; see also Dorset Yacht Co. v. Home Office, [1970] A.C. 1004 (H.L.), at p. 1038). In other words, what matters is whether the requirements for imposing a duty of care are satisfied ⸺ and, in particular, whether the parties were at the time of the loss in a sufficiently proximate relationship. Where they are, it may be because the relationship falls within a previously established category of relationship in which the requisite qualities of closeness and directness were found, or is analogous thereto (Livent, at para. 26; see also Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, at para. 15; Mustapha v. Culligan of Canada Ltd., 2008 SCC 27, [2008] 2 S.C.R. 114, at para. 5). Or, a plaintiff may seek to establish a “novel” duty of care after undertaking a full Anns/Cooper analysis.

[23] With respect, the appellant’s submissions reflect a misunderstanding of the significance of the categories of pure economic loss. The appellant argues that a duty of care in this case “is established through the application of two well‑established categories of recovery for pure economic loss [of] negligent misrepresentation or negligent performance of a service, and negligent supply of dangerous goods” (A.F., at para. 50). Again, a duty of care cannot be established by showing that a claim fits within a category of pure economic loss. It is necessary to determine whether the appellant’s alleged loss represents an injury to a right that can be the subject of recovery in tort law and possesses the requisite factors to support a finding of proximity under that category. We repeat: the manner in which pure economic loss is said to have occurred or how that loss has been catalogued within the categories of pure economic loss does not signify that the defendant whose negligence caused that loss owes the plaintiff a duty of care. The relevant “category” for the purpose of supporting a duty of care is that of proximity of relationship. Meaning, what is necessary to support a duty of care is that the relationship between a plaintiff and a defendant bear the requisite closeness and directness, such that it falls within a previously established category of proximity or is analogous to one (Livent, at para. 26; see also Childs, at para. 15; Mustapha, at para. 5).