Canada: Manufacturing, Sales & Distribution Law @ Gowlings: April 22, 2013 - Volume 2, Number 1

Last Updated: April 25 2013
Most Read Contributor in Canada, October 2018

Edited by Debi M. Sutin

In this issue:

  • Navigating the NHP-food transition
  • Quebec Court of Appeal finds Statistical Evidence Insufficient to Establish Proof of Damages to Support Class Action
  • Government Liability for Unnecessary Product Recall
  • Immigration within the Manufacturing Industry

Navigating the NHP-food transition

By: Laura Gomez

In fall 2011, Health Canada began charting a course for the transition of food-like Natural Health Products (NHPs) to the food regulatory framework. The products swept up in this transition were NHPs that Health Canada determined better fit the regulatory definition of a food, including those in traditional food format (for example, energy drinks, vitamin waters, supplements in candy or bar form), as well as certain products at the food-NHP interface (such as powders and chews). Many of these products were licensed as NHPs, while others had been issued exemption numbers that allowed them to be marketed while the Natural Health Products Directorate (NHPD) processed their submissions. For some industry members who had grown accustomed to the NHP regulatory framework, the change in course was not necessarily welcome news. Since 2004, the NHPD had established clear guidelines for claims associated with vitamin and mineral supplementation, caffeine and herbal extracts such as green tea. The food regulatory framework, on the other hand, was uncharted territory.

Taking industry concerns into consideration, Health Canada announced that it would use Temporary Marketing Authorizations (TMAs) as a method of transitioning food-like NHPs to the food regulatory framework. Using the TMA mechanism, Health Canada can issue temporary authorization for the sale of a food that is otherwise non-compliant with the requirements of the Food and Drug Regulations (FDR). During the course of the temporary authorization (two to five years), industry and Health Canada will work together to conduct research and generate information in support of amendments to the FDR. These amendments will likely include new benchmarks for vitamin and mineral fortification of foods and the use of additives such as caffeine.

To accommodate the transition of food-like NHPs, in April 2012 Health Canada's Food Directorate also indicated that it had made a fundamental shift in its approach to health claims for foods. This newly developed approach will permit foods to make health claims without prior approval provided they are true, not false or misleading and do not relate to the Schedule A diseases outlined in the Food and Drugs Act.

In addition, the Jobs, Growth and Long-term Prosperity Act, introduced in April 2012, included provisions which will assist in the transition by reducing the red tape and procedural hurdles associated with market access for new food products and ingredients. These amendments to the FDR gave Health Canada new tools to expedite the regulatory change for foods including the ability to reference administrative lists as part of regulations (for instance, incorporation by reference) and a broader authority to issue Marketing Authorisations permitting the use of new food ingredients and health claims.

In the last year Health Canada has also published new guidance for industry on the TMA process, a revamped TMA submission form and specific guidance on the first category of products to be reclassified as foods, energy drinks. In 2013, consumers will begin to see the effects of this transition as labelling for energy drinks, and eventually all transitioned products, becomes food compliant. Changes include the addition of Nutrition Facts tables and compliance with food allergen labelling requirements.

In the next year, we can expect more changes as Health Canada is expected to release benchmarks for the fortification of food-like NHPs with vitamins, minerals and amino acids. In addition, the regulations for the Safe Food for Canadians Act will outline the new mandatory licensing and registration regime for those who manufacture, store, package, label, import or export food products both within Canada and internationally.

Unfortunately, the journey forward for food-like NHPs remains unpredictable as although permanent regulatory change may be on the horizon, there are still many unknowns. While we can't expect it to be smooth sailing for all food-like NHPs making the transition, Health Canada has charted a course that for the most part has avoided widespread disruption in the marketplace and will hopefully provide a balanced approach to the development of a new food regulatory framework.


Quebec Court of Appeal finds Statistical Evidence Insufficient to Establish Proof of Damages to Support Class Action

By: Belinda Bain and Estelle Hjertaas

In the recent case of Lorraine v. Petro Canada 2013 QCCA 332, the Quebec Court of Appeal refused to authorize a proposed class action based on alleged inaccuracies in the measurement of gasoline, leading to inflated prices at gas pumps.

Facts

The proposed class action is based on statistics compiled by Measurement Canada, which is a federal organization responsible for the integrity and accuracy of measurement in the marketplace. In conducting gas pump inspections from 1999 to 2007, Measurement Canada found a number of errors in the accuracy of the measurement of the delivery of gasoline from the pumps. Under the Weights and Measures Act (R.S.C., 1985, c. W-6), the authorized margin of error is 0.5%, which is equivalent to a difference of 100 millilitres on 20 litres. According to the results of the inspections, 8% of inspected pumps had an error – 6% to the detriment of the consumer, and 2% to the detriment of the seller. The Ottawa Citizen concluded that mistakes were unfavourable to consumers 74% of the time.

Based on this information, on May 21, 2008, Alexandre Lorrain requested authorization to begin a class action and to be designated as representative. The class action targets the errors made by the respondents or people operating gas stations under their banner with regard to the calibration of gas pumps. The group that Mr. Lorrain aims to represent is all physical persons and individual businesses, and all legal persons with less than 50 employees in Quebec who, since January 1, 1999, purchased gas from one of the defective pumps and suffered damages accordingly. The requested damages are the excess paid by consumers for the purchase of gasoline during the affected period.

On July 27, 2011, the Superior Court of Quebec refused to authorize the class action. That decision was appealed on August 26, 2011.

Court of Appeal decision

The Court of Appeal upheld the Superior Court's decision and refused to authorize the class action. In doing so, the Court of Appeal considered four main issues:

1. Did the judge err in setting out the general principles applicable to the authorization of a class action?

The Court of Appeal found that the judge made no error in this regard. Article 4.2 of the Code of Civil Procedure (CPC), which states that "the parties must ensure that the proceedings they choose are proportionate, in terms of costs and time required, to the nature and ultimate purpose of the action or application and to the complexity of the dispute", does not have the effect of importing from other provinces the principle that the judge can refuse to certify a class action if it is not the most appropriate means of bringing the case. However, the principle of proportionality under article 4.2 does apply to class actions, as it does to all other cases under the CPC.

The existence of a serious right or issue is also an appropriate consideration.1

2. Did the judge err in the application of paragraph 1003 b) ("Facts alleged seem to justify the conclusions sought") of the Code of Civil Procedure?

While the Court of Appeal identified two errors by the lower court, which were (1) preferring some expert witnesses despite not having heard any of them testify and (2) determining that the data from Measurement Canada was not reliable, it agreed with the lower court that the requirement under paragraph 1003(b) that the "facts alleged seem to justify the conclusions sought" was not met.

While the appellants argued that the statistical evidence gathered by Measurement Canada demonstrated that some consumers had been overcharged, and thereby prejudiced, the Superior Court noted that there was an absence of any direct evidence of prejudice to the designated persons. None of the designated persons were able to show receipts or other evidence that they had purchased gasoline from one of the affected pumps.

While the appellants further argued that, given time, they would be able to show a direct prejudice,2 this argument flies in the face of the proportionality rule under article 4.2 of the CPC. If the designated persons were launching an individual action, they would have to prove that they had suffered a prejudice – the same must apply for a class action.

3. Did the judge err in the application of paragraph 1003 a) ("Identical, similar or related questions of law") of the Code of Civil Procedure?

As found by the lower court, there was an absence of identical, similar or related questions of law with regard to the prejudice suffered by each member of the group. The level of damages could vary infinitely within the affected class, as one member may have had only one transaction with an affected gas pump and another may have had many. This is doubly so since each transaction may also vary with regard to the level of error at the pump. Combined with the difficulty of proving damages, it is clear that the criteria are not met.

4. Did the judge err in the application of paragraph 1003 d) ("the member to whom the court intends to ascribe the status of representative is in a position to represent the members adequately") of the Code of Civil Procedure?

On this point, the Court found that a person with a weak claim could not adequately represent the whole group, as the representative's claim is the basis for the court to analyze the case, and a class action is not intended as a method to circumvent principles of civil law: there must be a fault, a damage, and a casual relationship between the two.3

In addition to the failure to demonstrate a direct and personal prejudice affecting the designated persons, there are also factors that lead the lower court to question the seriousness and openness of the process to represent the members of the group.

Conclusion

This decision represents a forceful rejection of an increasing trend of attempts to establish proof of harm in class actions through the use of statistical evidence. If similar reasoning is applied elsewhere in Canada, it appears it will not be enough for class counsel to establish that, based on a statistical analysis, someone MUST have suffered harm as a result of the alleged wrong. Rather, it must be established, through direct evidence, that someone DID in fact suffer such harm.


Government Liability for Unnecessary Product Recall

By: Nicholas Kluge

In the recent decision of Los Angeles Salad Co. v. Canadian Food Inspection Agency, 2013 BCCA 34, the British Columbia Court of Appeal addressed the issue of liability — or lack thereof — on the part of a Canadian government regulator for damages arising out of negligent performance of its duties where the performance of those duties led to a recall of the plaintiff's product.

The plaintiff, Los Angeles Salad Co., supplied carrots to Costco outlets in the United States and Canada. According to the statement of claim, in 2007, the Canadian Food Inspection Agency (CFIA), the Canadian government regulator empowered to enforce food safety legislation in Canada, received reports from four consumers of the carrots who had contracted shigellosis, a potentially fatal illness caused by consumption of food contaminated with shigella bacteria. The CFIA, assisted by the Public Health Agency of Canada and Health Canada, inspected the carrots. The inspection was allegedly conducted negligently, and the CFIA informed Los Angeles Salad, Costco, the U.S. Food and Drug Administration and the public that the carrots might be contaminated with shigella bacteria, and advised the public not to consume them. As a result of this information, Costco recalled the carrots from its retail stores in Canada, and Los Angeles Salad voluntarily recalled its carrots from retail stores in the United States. The recalled carrots were destroyed, along with carrots in inventory and "in the ground." It was ultimately determined that the carrots were in fact not contaminated with shigella bacteria and had not been the source of the shigellosis outbreak.

Los Angeles Salad sued the CFIA, alleging that the CFIA's negligence in identifying its products as the source of the shigellosis outbreak was the proximate cause of economic losses suffered as a result of the recall and destruction of its carrots. The CFIA brought an application to strike out the action on the basis that the CFIA owed no private law duty of care to the plaintiffs.

The trial-level British Columbia court agreed with the CFIA and dismissed the action. Los Angeles Salad appealed the decision to the British Columbia Court of Appeal. In a decision released January 29, 2013, the Court of Appeal upheld the trial-level ruling, finding that under Canadian law there exists no private law duty of care owed by the CFIA to food sellers and similarly placed entities, as if such a duty were to be recognized, it would put the CFIA and other government regulatory bodies in the untenable position of having to balance public interests — ensuring food and product safety in the Canadian marketplace — with the private interests of commercial actors, which could produce a chilling effect on the proper performance of governmental duties.

The Court agreed with the views of the judge at first instance that to recognize a duty of care on the part of the CFIA would expose regulators to potentially indeterminate liability, with claims capable of being advanced by retailers, wholesalers, suppliers, food processors, distributors, farmers, and employees of each of them. It also found that there was no generally recognized tort of "negligent inspection/investigation by a government entity" under Canadian law, and although it was possible for a regulator to be liable to a member of the public in certain circumstances, it would not arise in circumstances where the regulator was simply discharging his or her statutory responsibilities in the public interest, even if they otherwise acted negligently.

Lastly, the Court of Appeal noted that although their decision essentially meant that a food seller who suffered a loss as a result of the negligence of a government authority had no recourse, as a policy matter where the defendant is a public body, inferring a private duty of care resulting from discharge of statutory duties would be rare due to the constitutional role of those institutions and the overarching concern of potentially unlimited exposure of the government to private claims that would tax public resources and chill government intervention.

This decision is in keeping with the general trend in Canadian jurisprudence to the effect that government regulators owe no private legal duties to the public when discharging a statutory role. Although arising in relation to a food supplier, the principles set out in this case will likely continue to be applied by Canadian courts in the broader product liability context.


Immigration within the Manufacturing Industry

By: Lesley Love

It is no secret that skilled workers fuel business and boost competitiveness. A shortage of skilled workers is a critical challenge in the manufacturing industry in Canada and the manufacturing sector is feeling the effects. Manufacturing based companies often need to consider immigration solutions to address workforce needs.

As a general rule, no person, other than a Canadian citizen or permanent resident, may work in Canada without valid authorization. Manufacturing based companies must ensure that they comply with immigration rules. Foreign nationals seeking to work in Canada will always require a work permit. The key is to assess the person and the purpose of the entry to determine the best immigration strategy.

Work Permit Categories

There are three key work permit categories that are often used when sending foreign workers to Canada. These are:

1. NAFTA Professional Category

NAFTA may be used by American and Mexican citizens. NAFTA lists 63 professions that are eligible for work permits. Most require a relevant university degree. A three year work permit, which is renewable, may be obtained. NAFTA professions include, but are not limited to: engineer, scientific technician, industrial designer, and management consultant.

2. Intra-Company Transferees

Intra-company transferee provisions may be used to transfer managerial or specialized personnel to a Canadian entity from a related foreign entity. This is the category most often used when sending personnel into Canada to set up a new operation. The transferee must:

  • Be an executive, manager or have "specialized knowledge" and must be transferring into such a position;
  • Have been with the related foreign entity for at least 12 consecutive months in the previous three years.

3. Labour Market Opinion

If no specific work permit category such is available, an employer must apply to Service Canada to request a labour market opinion ("LMO") to offer a job in Canada to a foreign worker. If the LMO is granted, a work permit may then be obtained. Generally, the goal is to avoid the LMO process if possible by trying to bring in someone under one of the work permit categories set out above.

With the recent and proposed changes to Canada's temporary foreign worker program, manufacturing employers need to be aware of the options and potential issues in hiring foreign workers within the manufacturing industry.

The changes reflect a tightening of the process, while ensuring that employers look for Canadian candidates first before turning to foreign national candidates. As a result, it is becoming increasingly difficult to fill gaps in a manufacturing labour force with foreign workers. Manufacturing employers need to be aware that planning ahead is crucial to ensure they have the people they want, where they want them, when they need them.

What Gowlings Immigration Group Can Do

  • Assess entry situations to determine the best work permit option or entry strategy
  • Prepare application packages to obtain work permits
  • Help manufacturing based companies expanding to Canada to get personnel in – involve us early when U.S. based companies want to start doing business in Canada
  • Provide advice on contract language that will help support the entry of U.S. based personnel
  • Develop long term immigration plans and processes to ensure that manufacturing based companies are in compliance with Canada's immigration laws while keeping employing foreign talent

Footnotes

1 Para 66.

2 Para 84.

3 Para 94.

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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