Canada: Product Liability @ Gowlings

Last Updated: April 4 2011

Supreme Court Rules on Enforceability of Consumer Arbitration Clauses

The March 18, 2011 decision of the Supreme Court of Canada in Seidel v. Telus Communications Inc. clarifies the state of the law regarding arbitration clauses in "contracts of adhesion". These are standard form contracts drafted by manufacturers or providers of goods and services and signed by customers without negotiation and usually without even being read.  The arbitration clauses in such contracts typically provide that in the event of a dispute, the parties (in particular, the consumers) agree to submit their dispute to arbitration rather than to the courts. Such clauses have become commonplace. Manufacturers and service providers increasingly rely on them as a means of ousting motions for certification of class actions related to their products.

In recent prior rulings, the Supreme Court of Canada had upheld the enforceability of arbitration clauses in standard form contracts of adhesion.  However legislatures in many provinces enacted laws to invalidate these arbitration clauses thereby allowing consumers to pursue class proceedings. Also lower courts in several provinces sought to circumscribe the ambit of the prior Supreme Court decisions by working to invalidate arbitration clauses where they would prevent consumers from pursuing class proceedings.

In the Seidel v Telus case, the Supreme Court of Canada reviewed consumer protection legislation in British Columbia, which provides consumers with statutory causes of action in respect of violations of that province's Business Practices and Consumer Protection Act, and which contains specific language invalidating arbitration clauses.   The arbitration clause at issue purported to waive the consumer's right to bring any court proceeding, including class actions under the Business Practices and Consumer Protection Act, in favour of arbitration.  In a narrow 5 to 4 ruling, the Supreme Court of Canada found that such legislation was enforceable to invalidate an arbitration or waiver of class action clause in consumer contracts of adhesion. Absent such a prohibition however, such clauses remain prima facie enforceable. 

This decision is in keeping with the general Canadian policy trend that favours access to justice issues in considering class actions, forum and procedure.  

The Supreme Court of the United States is expected to soon release its decision on these same issues in  ATT Mobility v. Concepcion.


New Consumer Product Laws Coming into Force This Summer

On December 13, 2010 the Canadian government passed the Canada Consumer Product Safety Act (CCPSA), which replaces the current consumer product safety system. The CCPSA creates new, and in some cases onerous, obligations for manufacturers, importers, and distributors of consumer goods in Canada.  

The CCPSA will come into force on June 20, 2011.  Some of the important new provisions of the CCPSA are summarized below:

Recalls

For the first time the Minister of Health will have the power to issue product recall orders, which can require the cessation of the manufacture, sale, or advertisement of the product, or any other measure considered necessary.

Ban on Dangerous Products

The manufacture and importation of any product posing a "danger to human health or safety" or which is the subject of a recall order is prohibited, and any person with knowledge of a product danger or a recall order is prohibited from selling or advertising that product. 

Reporting and Record Keeping

An incident anywhere in the world that resulted (or could be expected to have resulted) in death or serious health effects, or a recall or government measure initiated for health or safety reasons, must be reported. All manufactures, importers, distributors or sellers of consumer products must maintain records to permit identification of the source of the product.

Inspection

Inspectors are given broad new powers, including the ability to enter any place (other than a home) if they have reasonable grounds to believe it contains consumer products. Any consumer products found are subject to examination, testing, or seizure.

Penalties

Financial penalties and potential prison terms for contravention of the CCPSA  are significant, with fines up to $5 million and prison terms of up to two years.

For further discussions of these, and other important aspects of the CCPSA and its implications for doing business in Canada, please visit the Gowlings product liability practice group web page at: www.gowlings.com/Services/product-liability or click on the image icon below to view an archived Gowlings webinar which explores the potential impact of the CCPSA.

Webinar

Head Injury Liability and Sport Helmets

The recent trial decision of the B.C. Supreme Court in More v. Bauer Nike Hockey Inc. dismissed a product liability claim involving safety equipment used in Canada's favourite sport – ice hockey.

Darren More, a 17 year old hockey player, hit the boards on the end of the rink awkwardly.  Despite using a helmet, he suffered a catastrophic head injury. The Court found that the incident – but for its severe consequences – was an everyday occurrence regularly repeated in ordinary hockey play.

At the time of the accident More was wearing a Bauer hockey helmet certified by Canadian Standards Association ("CSA") as meeting the applicable Canadian safety standard. The standard had been developed by a volunteer CSA technical committee and approved as a National Standard of Canada by the Standards Council of Canada – the Canadian statutory body empowered to accredit the standards development process.

The plaintiff claimed:

  1. Against Bauer: the helmet was inadequate, because it should have had better impact attenuation characteristics; and
  2. Against CSA: the impact attenuation standard for hockey helmets set by the CSA was not sufficiently robust, and the CSA certification label on the helmet misled the plaintiff to believe that the helmet would fully protect from the risk of serious head injury.

At trial, the plaintiff relied on an engineering witness who criticized the Bauer helmet and the CSA standard. This criticism was ultimately rejected by the Court, which found that the helmet was state of the art, and the CSA standard – developed by a group which included some of the world's leading experts in helmet safety – was reasonable. The Court pointed out that a manufacturer is not an insurer, nor is it to be held to a standard of perfection. Lastly, the Court found that the helmet labelling was clear that serious injury could occur despite proper use of the helmet.

CSA's legal and risk management team – RJ Falconi, Ellen Pekilis, Aliya Ramji, Kent Pengelly and Maria Jimenez worked together with CSA certifier Henry Tran and Project Manager Ian Brodie as well as Dr. Pat Bishop, Chair of the Hockey Helmet Technical Committee, to provide Gowlings' product liability lawyers Mike Adlem and Scott Foster with the assistance required to successfully defend the claim.


Continuing Duty to Warn After Product Recall

The recent case of Hutton v. General Motors of Canada Limited discusses the legal duties, including the continuing duty to warn, that remain after a manufacturer's product recall.

The plaintiffs sued GM of Canada for injuries sustained when the airbags in their Chevrolet Cavalier deployed inappropriately. The car had been the subject of a recall notice for service in 1998 for an increased risk of airbag deployment in a low speed crash, or when an object struck the floor pan. Rather than redesigning the airbag system, GM had recalibrated it to reduce the risk of inappropriate deployment. A redesign and replacement would likely have eliminated the risk entirely. GM viewed redesign and replacement as economically unfeasible.

The particular Cavalier in question was bought as a used car in 2000, and had received the recommended recall servicing. In 2003, the plaintiffs were driving on a gravel road at moderate to low speed (less than 30km/18 miles per hour), when they passed through a puddle 3-4 inches deep and the airbags deployed. The passenger suffered a broken arm, cuts, and abrasions.

The trial Judge accepted that the initial recall to recalibrate the airbag system, rather than to replace or redesign it, was appropriate in the circumstances. GM was therefore not negligent in taking the steps it did to alleviate, but not entirely eliminate, the known problems. However, the Court went on to say that where a risk of harm remains after a product recall, it is the duty of a manufacturer to provide an appropriate warning of that residual risk. The Judge accepted that it was not unreasonable for GM to balance a recall against redesign and replacement, but held that it owed a continuing duty to users to fully inform them of that trade-off, and of the remaining risks with the airbag system.

This case demonstrates that even where a manufacturer shows that a product recall was reasonable in all of the circumstances, its duties to consumers do not end there. The manufacturer must warn of any remaining risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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