The Ontario Superior Court of Justice rendered a decision1 involving a product liability claim that considered new legislation and guidelines arising from the Walkerton water crisis. This case suggests that even if there has been no specific discussion about a product between the buyer and seller, a Court might still find that the buyer has relied on the seller regarding the suitability of a product if the seller had previously provided advice. The decision also suggests that if a supplier knows that a product will be used for an application that has to meet specific local standards, the supplier needs to make an inquiry of the manufacturer to ensure that it meets those standards.
In this case, the plaintiff, Brantford Engineering and Construction Ltd. ("Brantford Engineering"), was hired by an engineering firm to install watermains in the City of Brantford ("the City"). The specifications for the project called for the use of copper tubing in the watermain system. Brantford Engineering retained Underground Specialties Cambridge Incorporated ("the Supplier") to obtain the copper piping to be used in the project. The Supplier hired Wolverine Tube (Canada) Inc. ("the Manufacturer") to manufacture the copper tubing.
As a result of the Walkerton water crisis in 2000, the Ontario government instituted the Safe Drinking Water Act, 2002 ("the Act"), which established minimum water standards throughout Ontario, including the necessity of maintaining a chlorine residual at all times in the water system. Chlorine is used as a disinfectant to eliminate pathogens that can lead to sickness and death. Pursuant to the Act, municipalities were permitted to establish higher standards than those set out in the Act. The City chose to do so, and required a two-step sterilization procedure involving a chlorination test and a chlorine residual test, which had to be met prior to the connection of the watermain to the municipal water system.
Although the copper piping met the chlorination test, it repeatedly failed the chlorine residual test. The Manufacturer did investigations and obtained a report which suggested that the copper's protective layer was attacked during the "superchlorination process" during the first part of the City's sterilization test, which caused the copper to corrode and dissolve and have a negative impact on the chlorine residual level (the second part of the sterilization test). The Manufacturer failed to disclose this report to Brantford Engineering, the Supplier and the City.
Ultimately, Brantford Engineering ordered plastic pipe from the Supplier which was installed as a replacement watermain and passed all tests. Brantford Engineering brought a claim against the Supplier for breach of contract under the implied warranties of the Sale of Goods Act ("the SGA") and against the Manufacturer for negligence, for the losses it incurred to replace the pipe and incidental costs.
Liability of Supplier for Breach of the Implied Warranties
In order to find a breach of the implied warranty, it is crucial to find that the buyer relied on the seller's skill or judgment. The Court found that Brantford Engineering's expertise was in the installation of watermains, but the Supplier was knowledgeable about the material it supplies on watermain projects, and the Supplier's general manager ("GM") knew that the City required that the watermain pass the sterilization process before it could be connected to the water distribution system. The Court also found that the Supplier's GM knew of the special purpose of the copper pipe and would be "applying his knowledge" to the City's requirements.
The Court found that the Supplier had breached the warranty of reasonable fitness. In reaching this conclusion, the Court made three curious statements:
- The court noted that the Supplier's GM had "provided advice and recommendations in the past". However, it is unclear why prior recommendations would have any bearing on the question of whether Brantford Engineering had relied on the Supplier for this specific project. The Court noted that there had been "no specific discussions" regarding the piping used for this project.
- The Court stated that it is of no consequence that the type of copper tubing was specified by the engineering firm that had retained Brantford Engineering. Apparently, the Court believed that the Supplier was under an obligation to tell Brantford Engineering that copper tubing would not meet the City's sterilization procedure.
- The Court held that the seller is obliged to be diligent in acquiring information, and cannot simply rely on the manufacturer. In this regard, the Court stated that it had "long been known a chemical reaction can occur when copper comes in contact with chlorine, particularly when chlorine is of a high concentration", and that the Manufacturer had this information.
Although not strictly necessary, the Court also found that the copper piping was not of merchantable quality, and therefore the Supplier also breached the implied warranty of merchantable quality under the SGA. However, merchantability is a question of whether a good is generally saleable in the market, and it is not clear that the copper piping would not have been saleable for use in other watermains that were not subject to the City's more stringent requirements.
Finally, the Court held that the exclusion under the Supplier's limited warranty did not exclude the implied warranties under the SGA, because the warranty did not use explicit language to exclude "statutory conditions" of fitness or merchantability, which a long line of cases have said is necessary to exclude the implied warranties under the SGA. Interestingly, the Court considered the limited warranty even though it was not in the contract documents, but was solely contained in subsequent documents (i.e. packing slips, invoices) after the contract was signed. The Court said that because prior dealings between Brantford Engineering and the Supplier contained the limited warranty, the post-contractual documents would be considered even though the impact of the warranty stated therein was unclear.
Liability of Manufacturer in Tort
The liability of the Manufacturer in tort also raises some interesting questions. The Court rejected the Manufacturer's argument that the pipe only had to meet ASTM standards, given that the Manufacturer knew the product was going to be used in watermains. The manufacturer was unaware of the City's requirements. Indeed, on cross-examination, when the Manufacturer's witness was asked if they made any inquiries into municipal sterilization specifications following the Walkerton crisis and the legislation that followed, the witness responded "Why would we?"
The Court found that the Manufacturer had a "due diligence obligation" to ensure that its product met regulatory and municipal standards, and that it should have made inquiries after the introduction of the Act. This ruling suggests that a manufacturer can be found liable if its product is sold in municipalities where it does not meet local standards, even if the product would meet standards elsewhere.
The Court also found that the Manufacturer had breached its duty to warn given that it failed to disclose the report that set out the reasons why the copper piping was failing.
Footnote
1 Brantford Engineering and Construction Ltd. v. Underground Specialties Cambridge Inc., 2014 ONSC 4726, 2014 CarswellOnt 11423.
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