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REPORT 

ON 

PRODUCTS LIABILITY 



ONTARIO LAW REFORM COMMISSION 




Ontario 



Ministry of the 19 79 

Attorney 

General 



Digitized by the Internet Archive 

in 2011 with funding from 

Osgoode Hall Law School and Law Commission of Ontario 



http://www.archive.org/details/reportonproductsOOonta 



REPORT 

ON 

PRODUCTS LIABILITY 



ONTARIO LAW REFORM COMMISSION 




Ontiinc 



Ministry of the 1979 

Attorney 

General 



The Ontario Law Reform Commission was established by section 1 of 
The Ontario Law Reform Commission Act to further the reform of the law, 
legal procedures and legal institutions. The Commissioners are: 

Derek Mendes da Costa, Q.C., LL.B., LL.M., S.J.D., Chairman 
Honourable George A. Gale, C.C., Q.C., LL.D. 
Honourable Richard A. Bell, P.C., Q.C. 
W. Gibson Gray, Q.C. 
William R. Poole, Q.C. 
♦Honourable James C. McRuer, O.C., LL.D., D.C.L. 

M. Patricia Richardson, M.A., LL.B., is Counsel to the Commission. 
The Secretary of the Commission is Miss A. F. Chute, and its offices are 
located on the Sixteenth Floor at 18 King Street East, Toronto, Ontario, 
Canada. 






*The Honourable J. C. McRuer did not participate in the deliberations of the Commission 
in this Project, and for that reason has not signed this Report. 



TABLE OF CONTENTS 

Page 

Letter of Transmittal vii 

Part I 

Chapter 1 Introduction 3 

Part II 

EXISTING LAW RELATING TO PRODUCTS 
LIABILITY IN ONTARIO 

Chapter 2 The Existing Law 7 

1 . Negligence 7 

(a) Persons Liable 8 

(b) Persons Protected 10 

(c) Loss Recoverable 10 

(d) Type of Product 12 

(e) Method of Distribution 12 

(f) Defects 13 

(g) Intermediate Examination 16 

(h) Basis of Liability 17 

(i) Defences 19 

2. Torts of Strict Liability 20 

3. Warranties 21 

(a) Express Warranties 21 

(b) Implied Conditions of Fitness for Purpose and 
Merchantable Quality: Section 15 of the Ontario 

Sale of Goods Act 23 

(c) Measure of Damages for Breach of Warranty 26 

(d) Privity of Contract 26 

(e) Non-Sale Transactions 27 

4. Breach of Statute 28 

5. Misleading Statements 28 

6. Summary 30 

Chapter 3 Deficiencies in The Present Law: The Case for 

Reform 33 



[iu] 



IV 

Page 
Part III 

LEGAL DEVELOPMENTS IN ONTARIO 
AND OTHER JURISDICTIONS 

Chapter 4 Consumer Protection Developments 39 

1. Saskatchewan Consumer Products Warranties Act, 

1977 39 

2. New Brunswick Consumer Protection Project Report, 
1976, and the Consumer Product Warranty and 

Liability Act, 1978 41 

3. The Ontario Law Reform Commission Report on 
Consumer Warranties and Guarantees in the Sale of 

Goods, 1972 44 

4. The Ontario Consumer Products Warranties Bill, 1976 .... 45 

5. Quebec Consumer Protection Act, 1978 46 

6. Agricultural Machinery Legislation 47 

7. Trade Practices Legislation 47 

8. Safety Standards Legislation 47 

9. Australian Statutes 49 

Chapter 5 General Developments in Products Liability 51 

1 . American Developments 51 

(a) Strict Liability for Defective Products 51 

(b) Recent Statutory Restrictions 55 

(c) Express Statements 56 

2. European and Quebec Developments 57 

3. The English and Scottish Law Commissions' Report 

on Liability for Defective Products, 1977 58 

4. Pearson Commission Report 61 

5. Possible Directions for Reform 61 

(a) Accident Compensation Schemes 61 

(b) Extended Contractual Rights 63 

(c) Strict Liability in Tort 64 

Part IV 

Chapter 6 Economic and Insurance Aspects of Strict Liability . 69 

1. The Economic Basis of Strict Liability 69 



V 

Page 

2. Practical Effects of Strict Liability: Empirical 

Evidence 71 

3. Insurance: The United States' Experience 72 

4. Conclusion 78 

Chapter 7 The Scope of Strict Liability 79 

1 . Type of Damage 79 

2. Monetary Limits on Recovery 85 

3. Limitation and Cut-Off Periods 86 

4. Types of Product 89 

(a) Pharmaceuticals 90 

(b) Components 91 

(c) Natural Products 91 

(d) Conclusion 92 

5. Classes of Defendant 92 

6. Classes of Plaintiff 93 

7. Defences 94 

(a) "State of the Art" 95 

(b) Assumption of Risk 96 

(c) Contributory Negligence 96 

(d) Contracting Out 97 

8. Contribution and Indemnity 98 

9. Civil Procedure 102 

(a) Jury Trials 102 

(b) Class Actions 104 

10. Relationship of Proposed Principle to Existing Law 104 

Chapter 8 Conflict of Laws 107 

1 . Jurisdiction 107 

2. Choice of Law 113 

(a) The Present Rule 113 

(b) Developments in Other Jurisdictions 115 

(i) The Hague Convention 116 

(ii) The American Theories 117 



VI 

Page 

(iii) The Saskatchewan Consumer Products 
Warranties Act, 1977 and the New 
Brunswick Consumer Product Warranty 

and Liability Act, 1978 117 

(c) Conclusion 119 

(i) Constitutional Law 119 

(ii) Recommendation 122 

3. Enforcement of Foreign Judgments 123 

Chapter 9 Uniformity and Miscellaneous Issues 125 

1 . Uniformity 1 25 

2. Miscellaneous Issues 125 



Part V 

SUMMARY OF RECOMMENDATIONS 
AND CONCLUSION 

Summary of Recommendations 129 

Conclusion 133 

APPENDICES 

1. Draft Bill: An Act to impose Liability on Business 

Suppliers of Defective Products 135 

2. Draft Uniform Product Liability Law, 

United States Department of Commerce 139 

3. Strasbourg Convention on Products Liability In Regard 

To Personal Injury and Death 151 

4. European Economic Community Draft Directive 157 

5. Hague Convention on The Law Applicable to Products 
Liability 165 




Ontario 
Law Reform 
Commission 



The Honourable R. Roy McMurtry, Q.C., 
Attorney General for Ontario 



Dear Mr. Attorney: 

Pursuant to section 2(1) (a) of 77?^ Ontario Law Reform Commission 
Act, the Commission initiated a study of the law relating to products 
liability. 

The need to review this area of the law became apparent during the 
course of the Commission's examination of the law relating to the sale 
of goods and, to some extent, this Report may be viewed as a culmination 
of the Reference regarding Ontario's Sale of Goods Act by the former 
Minister of Justice and Attorney General, the Honourable A. A. Wishart, 
Q.C. During the course of our review, we have carefully considered the 
recent developments that have occurred in other provinces, the United 
States, the United Kingdom and Western Europe. 

The Commission has completed its study of this increasingly important 
area of the law and has the honour to submit herewith its Report on 
Products Liability. 



[vii] 



PART I 



[1] 



CHAPTER 1 



INTRODUCTION 



This Report is concerned principally with the nature and scope of the 
civil liability of persons who supply defective products to a purchaser, 
ultimate user or other person for injuries caused by such products. We are 
not concerned here with the right of a buyer to recover the deficient value of a 
defective product. This subject has been fully canvassed in the Commission's 
1972 Report on Consumer Warranties and Guarantees in the Sale of Goods 
and in its recent Report on Sale of Goods. ' Many of the recommendations 
made in the Warranties Report were included in the Consumer Products 
Warranties Bill of 1976. 2 Nor are we concerned in this Report with the 
administrative and criminal law aspects of product standard regulation. 

Deficiencies and anomalies in the law governing products liability 
became apparent during the course of the Commission's study of the law 
relating to the sale of goods. For example, under the present law of contract, 
only a buyer of a defective product can sue for breach of an implied 
warranty and only a seller can be sued for such a breach. Accordingly, 
a retailer, who is usually only a distributor of goods, can be held strictly 
liable for the injuries suffered by his purchaser as a result of a defective 
product. On the other hand, a manufacturer, who is responsible for putting 
defective goods into the flow of commerce, generally speaking, can be held 
liable in tort, but only if the injured party proves negligence. Moreover, 
this remedy may be ineffective as a practical matter if the manufacturer 
is unknown, insolvent or beyond the jurisdiction. 3 The Commission was of the 
view that it would be inappropriate to deal with the tortious aspects of 
products liability law in the context of the sale of goods. Accordingly, 
in 1977, work was commenced on a Products Liability Project. 

From the outset, we have sought to encourage public participation 
in order to obtain the views of all persons and groups having an interest 
in the law relating to products liability. Advertisements requesting briefs were 
placed in major newspapers, and a background paper was prepared and 
circulated to assist persons wishing to make submissions. Questionnaires 
were circulated to members of the Canadian Manufacturers' Association, 
to members of the Insurance Bureau of Canada, and to insurers and unions 



'Ontario Law Reform Commission (1979), chapters 9 and 10. 

2 Bill 110, 3rd Sess., 30th Legislature. This Bill did not proceed beyond first reading, 
which it received on June 15, 1976. 

3 A manufacturer who is beyond the jurisdiction, in certain circumstances, may be served 
out of Ontario under Rule 25(1 )(g), (h) and (o) of the Supreme Court of Ontario Rules 
of Practice, R.R.O. 1970, Reg. 545 as amended. Service ex juris is permitted "in respect of 
a tort committed within Ontario", "in respect of damage sustained in Ontario arising 
from a tort or breach of contract committed elsewhere", and "against a person out of Ontario 
who is a necessary or proper party to an action or proceeding properly brought against 
another person duly served within Ontario". A remedy in these circumstances may 
nevertheless be practically ineffective because the manufacturer has no assets in Ontario, 
and because enforcement of an Ontario judgment in a foreign jurisdiction may be 
problematical. 

[3] 



in an attempt to gauge the practical effect of any change. 4 During the course 
of our Project, six working papers were prepared for the Commission. We 
were particularly concerned with the economic implications and the effect 
on insurance of any change in the law. Accordingly, two of the six working 
papers prepared for the Commission examined these topics. In addition, 
we sought the views of the Consumers' Association of Canada, the 
Commercial, Consumer and Corporate Law Section of the Canadian Bar 
Association (Ontario Branch), the Ministry of Consumer and Commercial 
Relations and the federal Department of Consumer and Corporate Affairs. 

This Report contains the Commission's recommendations for reform of 
the law of products liability. With the assistance of Mr. L. R. MacTavish, 
Q.C., former Senior Legislative Counsel, to whom the Commission is deeply 
indebted, we have prepared a Draft Bill that gives legislative form to a 
proposed Products Liability Act. The Draft Bill is annexed to this Report 
as an Appendix. 5 

We are particularly grateful to Professor Stephen M. Waddams of the 
Faculty of Law, University of Toronto, Director of the Products Liability 
Project. His direction and scholarship in this area of the law are reflected 
throughout this Report. We are also pleased to express our appreciation 
to the other members of the Research Team: Professor J.B. Dunlop, Faculty 
of Law, University of Toronto; Professor B.P. Feldthusen, Faculty of Law, 
University of Western Ontario; Professor H.R. Hahlo, Faculty of Law, 
University of Toronto; Professor R.A. Hasson, Osgoode Hall Law 
School, York University; Professor P.W. Hogg, Osgoode Hall Law School, 
York University; and, Professor J. Swan, Faculty of Law, University of 
Toronto. We extend our sincere gratitude to Ms. C.L. Sugiyama and 
Ms. CD. Rees for their able assistance. 



4 The Commission acknowledges with gratitude the assistance of the Canadian Manu- 
facturers' Association and the Insurance Bureau of Canada. 
5 See Appendix 1. 



PART II 

EXISTING LAW RELATING TO PRODUCTS 
LIABILITY IN ONTARIO 



[5] 



CHAPTER 2 



THE EXISTING LAW 



A person who suffers damage as a result of an injury caused by a 
defective product may have a number of legal remedies. These remedies 
may sound both in tort and in contract. The tortious remedies may be 
based on negligence or on strict liability. 1 Contractual claims may be 
founded on the breach of one or more of the implied warranties and 
conditions set out in The Sale of Goods Act, 2 or on the breach of some 
express warranty. In this part of our Report, we will consider the present 
state of the law of products liability in Ontario, as it is reflected in the 
various remedies available to a person injured by a defective product. 

1. Negligence 

The present law of products liability in Ontario, as in the other 
Canadian common law jurisdictions, and in other parts of the Common- 
wealth such as Australia and New Zealand, is based on English law. The 
most significant case from the point of view of the development of the 
law of products liability, as indeed for the law of negligence generally, 
is the well-known decision of Donoghue v. Stevenson. 2, In that case, 
the House of Lords held that if a plaintiff could prove, as the pursuer 
alleged, that she had been injured by the partly decomposed remains of 
a snail in a bottle of ginger beer, she would have a cause of action against 
the manufacturer for negligence. In what was plainly a carefully considered 
statement, Lord Atkin, delivering one of the speeches in the House of 
Lords, said: 4 

... a manufacturer of products, which he sells in such a form as to 
show that he intends them to reach the ultimate consumer in the 
form in which they left him with no reasonable possibility of 
intermediate examination, and with the knowledge that the absence 
of reasonable care in the preparation or putting up of the products 
will result in injury to the consumer's life or property, owes a duty to 
the consumer to take that reasonable care. 

This statement has proved to be the source and origin of almost 
all subsequent developments in the law of products liability based on 
negligence. It is in some ways like a code, in that subsequent cases look 
back to it and base their results upon this statement. Unlike a statutory 
code, however, the statement has not proved to be restrictive. As cases 
have arisen that do not fit comfortably into the words chosen by Lord 
Atkin, the courts have had little difficulty in expanding his formulation to 
cover the new cases. There can be no doubt that this development has 



'In some jurisdictions, such as the United Kingdom and the United States, a remedy based on 
a breach of statute may be available, even though the statute itself does not provide expressly 
for a remedy. Courts in Canada have not been so willing to grant a remedy on the same 
ground. For a brief discussion of liability imposed for breach of statute, see infra, at p. 28. 

2 R.S.O. 1970, c. 421. 

3[1932] A.C. 562 (H.L.) (Scot.). 

4 Ibid., at p. 599. 

[7] 



8 

been assisted by reliance on Lord Atkin's even more famous general 
statement in the same case, where he laid the foundation for the modern 
law of negligence. 5 The statement of Lord Atkin, quoted above, has been 
expanded in light of subsequent cases, and a convenient way to summarize 
the negligence side of the law of products liability is to examine each phrase 
in the statement and the degree to which the law has been extended. 6 

(a) PERSONS LIABLE 

Lord Atkin spoke of "a manufacturer of products", and the manu- 
facturer is the most common defendant in products liability cases. The 
terms "manufacturer's liability" and "producer's liability" are not, however, 
sufficiently comprehensive to embrace the whole of the field of liability 
for defective products. Lord Atkin himself spoke of the care required in 
the "preparation or putting up" of the product. By these words he evidently 
meant to include some classes of defendant other than those who were 
manufacturers in the narrow sense. Indeed, on facts like those of Donoghue 
v. Stevenson, a defendant could well be the bottler of the beverage, even 
though he had not manufactured either the bottle or its contents. 7 Again, 
the "manufacturer" may be a party who assembles a completed product 
from parts manufactured by other persons: if he is negligent in the assembly, 
there is no doubt that he can be held liable, even though, in the strict 
sense, he could not be said to have "manufactured" any particular part 
of the completed product. 8 The manufacturer of a component part may 
also be held liable for a defect in that part, even though he would not, 
in the ordinary sense, be thought of as the manufacturer of the completed 
product. 9 

Other persons in the chain of distribution of products besides the 



5 Ibid., at p. 580: "The rule that you are to love your neighbour becomes in law, you must not 
injure your neighbour; and the lawyer's question, Who is my neighbour? receives a restricted 
reply. You must take reasonable care to avoid acts or omissions which you can reasonably 
foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? 
The answer seems to be -- persons who are so closely and directly affected by my act 
that I ought reasonably to have them in contemplation as being so affected when I am 
directing my mind to the acts or omissions which are called in question." 

6 The cases discussed in this part of the Report are not all cases in which the statement 
of Lord Atkin in Donoghue v. Stevenson was considered. However, they are all cases 
in which it was alleged that an injury was occasioned by a defective product. 

7 See Shandloff v. City Dairv Ltd. and Moscoe, [1936] O.R. 579, [1936] 4 D.L.R. 712 
(C.A.); Zeppa v. Coca-Cola Ltd., [1955] O.R. 855, [1955] 5 D.L.R. 187 (C.A.); 
Ruegger v. Shell Oil Company of Canada Ltd. and Farrow, [1964] 1 O.R. 88, (1963), 
41 D.L.R. (2d) 183 (H.C.J.); Hart v. Dominion Stores Ltd. et al., [1968] 1 O.R. 775, 
(1968), 67 D.L.R. (2d) 675 (H.C.J.); Swan et al. v. Riedle Brewery Ltd. (1942), 50 Man. 
R. 62, [1942] 1 W.W.R. 577, [1942] 2 D.L.R. 446 (K.B.); and, see Bradshaw et al. v. 
Boothe's Marine Ltd. et al., [1973] 2 O.R. 646 (H.C.J.) (filler of gas cylinder). 

*Murphy v. St. Catharines General Hospital et al., [1964] 1 O.R. 239, (1963), 41 D.L.R. 
(2d) 697 (H.C.J.); Malfroot v. Noxal, Ltd. (1935), 51 T.L.R. 551 (K.B.); Howard v. 
Furness Houlder Argentine Lines, Ltd. and A. & R. Brown, Ltd., [1936] 2 All E.R. 
781 (K.B.); Stennett v. Hancock and Peters, [1939] 2 All E.R. 578 (K.B.). See also 
MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 (1916); Ford Motor 
Co. v. Mathis, 322 F. 2d 267 (1963). 

9 Evans v. Triplex Safety Glass Co., Ltd., [1936] 1 All E.R. 283 (K.B.), at p. 286; 
Clark v. Bendix Corporation, 345 N.Y.S. 2d 662 (1973). Note: The English and 
Scottish Law Commissions were divided on the issue of the liability of manufacturers 
of components incorporated into a completed product. See Law Com. No. 82 (Scot. 
Law Com. No. 45), Liability for Defective Products (1977), paras. 46 and 81, at pp. 
14 and 26. 



manufacturer have also been held liable. Importers, 10 wholesalers," distri- 
butors, 12 and retailers 13 have all been held liable in negligence by the 
application of Lord Atkin's statement. It must be added, of course, that 
the practical application of the standard of care to all persons will vary 
with the circumstances, so that not all will be held liable so readily as 
the manufacturer. A retailer, for example, may be liable in negligence if 
it is reasonable for him to inspect a used car before it is sold. 14 He would 
not be liable for failing to inspect inaccessible parts of a new car purchased 
from a reliable manufacturer. The single test of negligence applicable to 
all these defendants results, as a practical matter, in a very different 
standard of care in different cases. 

Outside the distributive chain itself, liability for negligence has been 
imposed on repairers and installers of various kinds of product. 15 Those 
who inspect and certify products may also be liable for their negligence. 16 
Occupiers of premises, particularly those inviting persons on to their 
premises for business purposes, will be liable for failure to exercise 
reasonable care in respect of products on the premises. 17 One recent case 



i0 Phillips et al. v. Ford Motor Co. of Canada Ltd. et al., [1970] 2 O.R. 714, (1970), 
12 D.L.R. (3d) 28 (H.C.J.), reversed on other grounds [1971] 2 O.R. 637, (1971), 
18 D.L.R. (3d) 641 (C.A.). 

11 Watson v. Buckley, Osborne, Garrett & Co., Ltd., and Wyrovoys Products, Ltd., 
[1940] 1 All E.R. 174 (K.B.); Graham v. Bottenfield's, Inc., 176 Kan. 68, 269 P. 2d 
413 (1954); Canifax v. Hercules Powder Co., 46 Cal. Rptr. 552 (1965). 

n Pack v. Countv of Warner No. 5, Michelson and Oliver Chemical Co. (Lethbridge) 
Ltd. (1964), 46 W.W.R. 422, 44 D.L.R. (2d) 215 (Alta. S.C., App. Div.); Rivtow Marine 
Ltd. v. Washington Iron Works and Walkem Machinery & Equipment Ltd., [1974] S.C.R. 
1189, [1973] 6 W.W.R. 692, (1973), 40 D.L.R. (3d) 530; Watson v. Buckley, Osborne, 
Garrett & Co., Ltd., and Wyrovoys Products, Ltd., footnote 11, supra. 

"Nernberg v. Shop-Easy Stores Ltd. (1966), 57 W.W.R. 162, 57 D.L.R. (2d) 741 (Sask. C.A.); 
Andrews v. Hopkinson, [1957] 1 Q.B. 229; Fisher v. Harrods, Ltd., [1966] 1 Lloyd's 
Rep. 500 (Q.B.); Santise v. Martins, Inc., 17 N.Y.S. 2d 741 (1940). 

14 Andrews v. Hopkinson, footnote 13, supra. 

15 Repair: Marschler v. G. Masser's Garage, [1956] O.R. 328, (1956), 2 D.L.R. (2d) 484 
(H.C.J.); Stewart v. Domingos, [1967] 2 O.R. 37, (1967), 62 D.L.R. (2d) 282 (C.A.); 
Cudnev v. Clements Motor Sales Ltd., [1969] 2 O.R. 209, 5 D.L.R. (3d) 3 (C.A.); Ives 
v. Clare Bros. Ltd. et al., [1971] 1 O.R. 417, (1970), 15 D.L.R. (3d) 519(H.C.J.); Malfroot 
v. Noxal, Ltd., footnote 8, supra; Stennett v. Hancock and Peters, footnote 8, supra; 
Herschtal v. Stewart and Ardern, Ltd., [1940] 1 K.B. 155; Haseldine v. C.A. Daw & Son 
Ltd., [1941] 2 K.B. 343 (C.A.); Power v. The Bedford Motor Co., Ltd. and Harris 
Bros., Ltd., [1959] I.R. 391 (S.C.); Maindonald v. Marlborough Aero Club and New 
Zealand Airways, Ltd., [1935] N.Z.L.R. 371 (S.C.). Installation: Terminal Warehouses Ltd. 
v. J. H. Lock & Sons, Ltd. (1957), 9 D.L.R. (2d) 490 (Ont. H.C.J.), affd (1958), 12 D.L.R. 
(2d) 12 (Ont. C.A.); Lock and Lock v. Stibor et al., [1962] O.R. 963, (1962), 34 D.L.R. 
(2d) 704 (H.C.J.); Kirk et al. v. McLaughlin Coal & Supplies Ltd., [1968] 1 O.R. 311, 
(1967), 66 D.L.R. (2d) 321 (C.A.); Ostash v. Sonnenberg, Reid and Reginam; Ostash v. 
Aiello (1968), 63 W.W.R. 257, 67 D.L.R. (2d) 311 (Alta. S.C., App. Div.); London & 
Lancashire Guarantee & Accident Co. of Canada v. La Cie F. X. Drolet, [1944] S.C.R. 82; 
Malfroot v. Noxal, Ltd., footnote 8, supra; Howard v. Furness Houlder Argentine Lines, 
Ltd. and A. & R. Brown, Ltd., footnote 8, supra. 

lb Ostash v. Sonnenberg, Reid and Reginam, footnote 15, supra; London & Lancashire 
Guarantee & Accident Co. of Canada v. La Cie F. X. Drolet, footnote 15, supra; Dutton v. 
Bognor Regis Urban District Council, [1972] 1 Q.B. 373 (C.A.); Anns v. Merton London 
Borough Council, [1978] A.C. 728 (H.L.). 

"Gartshore v. Stevens et al., [1967] 2 O.R. 593, (1967), 64 D.L.R. (2d) 582 (H.C.J.); 
Nernberg v. Shop-Easy Stores Ltd., footnote 13, supra; Indermaurv. Dames (1866), L.R. 1 
C.P. 274, 35 L.J. C.P. 184, affd (1867), L.R. 2 C.P. 311 (Ex. Ch.). For a discussion of the 
categories of entrants and different duties owed by occupiers, see Fleming, The Law of Torts 
(5th ed., 1977), at pp. 432 ff. 



10 

goes so far as to give to a person injured by a plate glass door at a shopping 
mall the benefit of the doctrine of res ipsa loquitur 1 * in an action against 
the occupier of the premises. 19 Even the user may himself be liable. In 
one recent case, the owner of a truck was held liable for injuries caused 
to a repairman by an exploding tire. 20 The doctrine of res ipsa loquitur 
was also invoked in this case, suggesting, it would seem, that the defendant, 
as owner of the truck, should have inspected the tire at regular intervals 
in order to detect the defect. 

(b) PERSONS PROTECTED 

Lord Atkin, in describing the class of persons protected, used the 
word "consumer". Further, the area of law now generally known as products 
liability was formerly known in England as consumer protection. 21 Lord 
Atkin spoke of "the ultimate consumer" and of a manufacturer owing "a 
duty to the consumer" to take reasonable care. It is plain, however, that 
many persons injured by products will not fall into the class of "consumer". 
In the narrowest sense, perhaps, only food and drink can be said to be 
"consumed". It should be noted that the word "consumed" may include 
the concept of use, but even this wider sense of the word is too limited. 
A pedestrian, for example, injured by a defective car that runs onto the 
sidewalk as a result of a brake failure, can hardly be called either a 
consumer or a user of the car. 22 Nor can this expression apply to the 
spectator at a fireworks display who is injured by defective fireworks. 23 
The Anglo-Canadian law of products liability has had no difficulty in 
accommodating such cases. The general principle of remoteness, however, 
continues to exercise some limit on the class of persons entitled to recover. 

(C) LOSS RECOVERABLE 

In relation to recoverable loss, the focus of discussion in products 
liability cases has generally been personal injuries. The most common 
justification put forward for the extension of liability is the desirability 
of compensating individuals in respect of personal injuries caused by 
defective products. Moreover, it can hardly be doubted that this justification 
and the desirability of risk-spreading have played a part in the willingness 
of judges to extend the law in this area. Liability, however, has never 
been limited to personal injuries. In Donoghue v. Stevenson, Lord Atkin 
spoke of injury to the consumer's "life or property", 24 and it has never 
been doubted that property damage is compensable under the principle of 



x% Res ipsa loquitur is a rule of law that may be invoked whenever the mere occurrence 

of an event may be considered as evidence that it was preceded by a failure to exercise 

reasonable care. 
"Pearson v. Fairview Corp. Ltd. (1974), 55 D.L.R. (3d) 522 (Man. Q.B.). 
^Westlake v. Smith Transport Ltd. (1973), 2 O.R. (2d) 258, 42 D.L.R. (3d) 502 (H.C.J.). 
2l There is now an English book by Miller and Lovell entitled Product Liability (1977), and 

the phrase, products liability, is now in common English use. 
n Stennett v. Hancock and Peters, footnote 8, supra. 
23 Martin v. T. W. Hand Fireworks Co. Ltd., [1963] 1 O.R. 443, (1962), 37 D.L.R. (2d) 

455 (H.C.J.). 
24 Footnote 3, supra, at p. 599. 



11 

that case. A common example is that of defective animal feed, where only 
injury to property is foreseeable. 25 

Where a plaintiff can prove personal injury or property damage, he 
can attach to his claim consequential economic losses. 26 The problem 
of pure economic loss, that is, loss unconnected with any physical damage, 
has, however, given rise to considerably more difficulty. It was held by the 
House of Lords in 1963 in Hedley Byrne & Co. Ltd. v. Heller & Partners 
Ltd. 21 that pure economic loss can be recovered for some kinds of negligence, 
at least, as in that case, for a negligent misstatement. More recent English 
cases have suggested that pure economic loss standing alone is not 
recoverable. 28 In Ministry of Housing and Local Government v. Sharp, 19 
however, Salmon, L.J., said: 30 

So far, however, as the law of negligence relating to civil actions is 
concerned, the existence of a duty to take reasonable care no longer 
depends on whether it is physical injury or financial loss which can 
reasonably be foreseen as a result of a failure to take such care. 

This dictum was adopted by the majority of the Supreme Court of Canada 
in Rivtow Marine Ltd. v. Washington Iron Works and Walkem Machinery 
& Equipment Ltd. 21 In that case a crane, manufactured by the defendant 
and used by the plaintiff, was discovered to be dangerously defective. 
The crane was withdrawn from use at the busiest time of the year, and 
the plaintiff sued for the cost of repair and loss of profits. The Supreme 
Court of Canada permitted the plaintiff to recover part of its lost 
profits: namely, the excess of profits lost because of the withdrawal of 



25 Pack v. County of Warner No. 5, Michelson and Oliver Chemical Co. (Lethbridge) 
Ltd., footnote 12, supra; Western Processing & Cold Storage Ltd. et at. v. Hamilton 
Construction Co. Ltd. et al. (1965), 51 W.W.R. 354, 51 D.L.R. (2d) 245 (Man. C.A.); 
Grant v. Cooper, McDougall, and Robertson, Ltd., [1940] N.Z.L.R. 947 (S.C.). 

26 For example, lost wages and the cost of repairing damaged property. See Seaway Hotels 
Ltd. v. Consumers Gas Co., [1959] O.R. 581, (1959), 21 D.L.R. (2d) 264 (C.A.), affirming 
[1959] O.R. 177, at p. 182, (1959), 17 D.L.R. (2d) 292 (H.C.J.), at p. 297: "[I]f an actionable 
wrong has been done to the plaintiff he is entitled to recover all the damage resulting 
from it even if some part of the damage considered by itself would not be recoverable." 
Also Algoma Truck & Tractor Sales v. Bert's Auto Supply Ltd. et al., [1968] 2 O.R. 
153, (1968), 68 D.L.R. (2d) 363 (D. Ct.); British Celanese Ltd. v. A. H. Hunt (Capacitors) 
Ltd., [1969] 1 W.L.R. 959, [1969] 2 All E.R. 1252 (Q.B.). 

27 [1964] A.C. 465 (H.L.). 

™S.C.M. (U.K.) Ltd. v. W. J. Whittall & Son Ltd., [1971] 1 Q.B. 337 (C.A.); Spartan 
Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd., [1973] 1 Q.B. 27 (C.A.). 
Economic loss in some circumstances may be recoverable: see Dutton v. Bognor Regis 
Urban District Council, [1972] 1 Q.B. 373 (C.A.); Sparham-Souter v. Town and Country 
Developments (Essex) Ltd., [1976] Q.B. 858 (C.A.); Anns v. Merlon London Borough 
Council, [1978] A.C. 728 (H.L.); and, Battv v. Metropolitan Realisations Ltd., [1978] Q.B. 
554 (C.A.). 

29 [1970] 2 Q.B. 223 (C.A.). 

™Ibid, at p. 278. 

31 [1974] S.C.R. 1189, [1973] 6 W.W.R. 692, (1973), 40 D.L.R. (3d) 530, reversing [1972] 
3 W.W.R. 735, (1972), 26 D.L.R. (3d) 559 (B.C.C.A.), which reversed (1970), 74 W.W.R. 
110 (B.C.S.C.). For a recent Australian case concerning recovery of pure economic loss, 
see Caltex Oil (Australian) Ptv. Ltd. v. The Dredge "Witlemstad" (1976), 51 A.L.J.R. 
270(H.C.A.). 



12 

the crane at the busiest time of year, over the loss that would have 
occurred had the defendant given timely warning of the defect. The case 
turned on the breach by the manufacturer of its duty to warn of a defect 
of which it had knowledge, and the application of the case to economic 
loss in general remains unclear. However, the implications may be far- 
reaching, as the Court appears to have accepted that there is no general 
rule excluding economic loss from the scope of recovery. 

(d) TYPE OF PRODUCT 

Donoghue v. Stevenson was concerned with a food product, but 
liability has never been limited to food and drink. Lord Atkin was 
careful to state his principle in wider terms: he spoke of "products". 32 
It was for many years supposed that the application of the principle was 
limited to chattels, but even this limitation has now been abandoned. 
The mass production of houses has assumed some of the characteristics 
of mass production of goods, and it seems anomalous for the liability 
of a manufacturer to disappear if his product is incorporated into real 
property. As Adamson, J., said in Johnson v. Summers'.^ 

I can see no reason why the legal liability for negligently erecting 
a heavy fixture in a cottage should be different from negligently 
erecting a similar fixture in a railway coach or in a large motor bus. 

In a recent case, the same sentiment was expressed by Lord Denning, M.R.: 34 

The distinction between chattels and real property is quite unsus- 
tainable. If the manufacturer of an article is liable to a person 
injured by his negligence, so should the builder of a house be 
liable .... 

... If a visitor is injured by negligent construction, the injured 
person is entitled to sue the builder, alleging that he built the house 
negligently. The builder cannot defend himself by saying: 'True I 
was the builder; but I was the owner as well. So I am not liable.' 
The injured person can reply: T do not care whether you were the 
owner or not. I am suing you in your capacity as builder and that 
is enough to make you liable.' 

It appears, therefore, that such special immunity as in the past may have been 
enjoyed by the manufacturer of a product that is incorporated into 
realty has now disappeared. Indeed, Lord Atkin's choice of the word 
"product" suggests that he had no such restriction in mind. 

(e) METHOD OF DISTRIBUTION 

Lord Atkin spoke of a manufacturer "who sells" a product. 35 Sale 
is, of course, the typical method of distribution of products. Many cases 



"Footnote 3, supra, at p. 599. 

33 [1939] 1 W.W.R. 362, at p. 365, [1939] 2 D.L.R. 665 (Man. K.B.), at p. 667. 
i4 Dutton v. Bognor Regis Urban District Council, footnote 28, supra, at pp. 393-94. 
"Footnote 3, supra, at p. 578: "The question is whether the manufacturer of an article . . . 

sold by him to a distributor ... is under any legal duty to the ultimate purchaser 

or consumer . . ." (emphasis added). 



13 

decided since Donoghue v. Stevenson, however, have made it clear 
that a sale by the defendant is not a requirement of liability. 36 A wider 
concept, which would seem to restate the present position more accurately 
than the concept of sale, would be "putting into circulation". Difficulty, 
however, has arisen with the case of gratuitous transfer; that is to say, 
gifts or gratuitous bailments. Some cases have suggested that the donor 
or gratuitous bailor is not liable, even for negligence. 37 No doubt there 
is good reason for reluctance in imposing liability on one who gives 
home-made jam or who lends a ladder to a neighbour. On the other hand, 
where the distribution is made for business purposes, as in the case of 
a manufacturer's samples, there seems no reason why liability should not 
be imposed on the same basis as where a manufacturer sells the product. 
It is neither relevant to the patient injured by a defective drug that his 
physician received it from the manufacturer as a free sample, nor to the 
injured pedestrian that the defective car that ran him down had been 
gratuitously lent by the manufacturer to a potential customer. There is 
some uncertainty still on this question; but, in a case decided in 1954, 
Denning, L.J., (as he then was) said that the "decision of the House of 
Lords in Donoghue v. Stevenson makes the earlier cases on gifts quite 
out of date". 38 It would seem probable, therefore, that the principle of 
liability for negligence extends to all persons who supply goods, whatever 
means of distribution they use; that is, at least when the distribution 
is for business purposes. 

(f) DEFECTS 

For there to be liability under Lord Atkin's statement, it is clear 
that a product must fall short in some way of what it ought to be; a product, 
in other words, must be defective. Some test of the concept of "defect", 
therefore, is required. This must be a general and flexible test; and, it 
would seem that the concept cannot be defined except in terms of what it 
was reasonable to expect of the product in all the circumstances. Products 
will not last forever; developments in knowledge and technology will 
introduce safety devices that did not exist when particular products were 
manufactured; and, of course, an expensive product can be expected to 
be better than a cheap product. 

The concept of defect includes both what may be called accidental 
defects, such as snails in bottles of ginger beer, and also defects due to 
unsatisfactory design. 39 The distinction is sometimes said to be one 



36 For a discussion of privity of contract, see infra, at pp. 26-27. 

"Blakemore v. The Bristol & Exeter Ry. Co. (1858), 8 E. & B. 1035, 120 E.R. 385 (K.B.); 
MacCarthy v. Young (1861), 6 H. & N. 329, 158 E.R. 136 (Ex.). 

** Hawkins v. Coulsdon and Purley Urban District Council, [1954] 1 Q.B. 319 (C.A.), 
at p. 333. 

39 A plaintiff has an easier task when arguing accidental or production defects than he does 
when arguing design defects. However, there is no reason he should not succeed if he can 
show that the product fell short of a reasonable standard. See Davie v. New Merton 
Board Mills Ltd., [1959] A.C. 604 (H.L.), at p. 626, per Viscount Simonds: "I agree 
that [a manufacturer] would [be liable] if the fault lay in the design and was due to 
lack of reasonable care or skill on his part." In Rivtow Marine Ltd. v. Washington 
Iron Works and Walkem Machinery & Equipment Ltd., footnote 12, supra, liability was 
based on a defective design. 



14 

between production defects and design defects. Cases involving inadequate 
labelling of products are an instance of the latter class. 

A product is not defective simply because it has inherent risks. 
Some products, for example, a sharp kitchen knife, must be dangerous 
in order to be useful. 40 In other cases, such as cigarettes, there is an inherent 
danger that is generally known and seems accepted by the users of such 
products. In the case of medical drugs, there may also be an inherent risk. Any 
such risk, however, must be balanced against the need to alleviate a 
more serious medical condition. Rabies vaccine is not defective simply 
because it may be dangerous. A different case is that of a drug, such 
as thalidomide, that proves to have serious unknown and unexpected 
side effects. There can be no doubt that such a drug is defective. 

As was mentioned above, the development of technology and the 
growth of public concern with dangerous products may result in the 
introduction of safety precautions after a product has been distributed. 
The development of seat belts in automobiles is one example; the development 
of child-proof containers for drugs is another. The liability of a manufacturer 
is grounded upon the fact that he has put into circulation a defective 
product. Accordingly, the time at which he puts the product into circulation 
would seem to be the relevant time forjudging its adequacy. 41 

Nevertheless, the duties of the manufacturer or other supplier of a 
defective product are not necessarily at an end when the product leaves 
his hands. In Rivtow Marine Ltd. v. Washington Iron Works and Walkem 
Machinery & Equipment Ltd., 42 the Supreme Court of Canada held 
both the manufacturer and the distributor of a defective crane liable 
to its user, where the crane had left their hands and where the manufacturer 
and the distributor had failed to warn the user of a subsequently discovered 
defect as soon as it came to their attention. In this context, it may be 
noted that it is common for manufacturers of motor vehicles to issue 
warnings of defects discovered after distribution of the product. Indeed, 
the Motor Vehicle Safety Act 4i requires a manufacturer to do so. While 
the scope of the Rivtow case remains in doubt, it appears to impose 
some duty on the manufacturer after the distribution of the product, 
at least where the product is initially defective. In the case of a drug 
such as thalidomide, for example, it may well be that the manufacturer and 
distributor, on learning of the danger, would have a duty to attempt to 
minimize the harm caused by the product, by recalling it from retail 
distributors and by advertising to warn users who had already purchased 
the drug. Thus, the manufacturer, and also the distributor, of an initially 
defective product could be held liable if they failed to give appropriate 



40 Risk of injury is inherent in many normal and useful household products. See Prosser, 
"The Fall of the Citadel (Strict Liability to the Consumer)" (1965-66), 50 Minn. L. Rev. 
791, at p. 807. 

41 Recent legislation in some American states has reaffirmed this principle by enacting 
that a product is not defective if it complies with the "state of the art" at the time of 
initial supply. See also U.S. Dept. of Commerce, Draft Uniform Product Liability 
Law, s. 106, 44 Fed. Reg. 2998 (1979), which is annexed to this Report as Appendix 2. 

42 Footnote 12, supra. 

43 R.S.C. 1970, c. 26 (1st Supp.), s. 8. 



15 

warnings, even though they might be found not to have been negligent 
on the basis of their conduct at the date that the product left their hands. 

Where the product is not initially defective, the case is not so clear. 
It seems doubtful, for example, whether a manufacturer of drugs distributed 
ten years ago, according to the then common practice in a screw-top 
bottle, would have a duty today to advertise the availability of child- 
proof containers. Similarly, it seems doubtful that a manufacturer of a 
1950 car without seat belts would have an obligation to warn users 
that there were no seat belts or to offer to install seat belts at his 
own expense. 

There is almost no product that cannot be made dangerous by perverse 
misuse. Plainly, the manufacturer cannot be liable in every such case, 
although he will have a duty to warn against foreseeable kinds of misuse. 
In some cases, moreover, there may be a duty to design the product so as 
to make it safe in cases of common misuse. 44 

A requirement frequently imposed on manufacturers, and a common 
source of liability is the obligation to warn against unsafe use. In Lambert 
and Lambert v. Lastoplex Chemicals Co. Ltd. and Barwood Sales (Ontario) 
Ltd., 45 the Supreme Court of Canada held that the manufacturer of a 
highly inflammable floor sealer was bound to warn the user, in forceful 
and specific terms, against the danger of explosion caused by nearby 
pilot lights. The container in fact bore three separate warnings to the 
effect that it was inflammable: each of the warnings instructed the user 
to keep the product away from "open flames". The Supreme Court of 
Canada held, however, that these warnings were inadequate in view of 
the failure to draw the user's attention specifically to the danger of pilot 
lights, including even a pilot light in an adjacent room, as was the situation 
in the Lastoplex case. The manufacturer might, perhaps, feel aggrieved 
at this decision, and assert that the reasonable user ought surely to realize 
the danger of pilot lights near an inflammable product. Indeed, the 
manufacturer may feel that, after an accident, no warning will appear to a 
court to have been sufficient. An American case on very similar facts even 
suggests that a specific mention of pilot lights might be insufficient: 
the Court held that a warning against using the product "near" pilot 
lights was not sufficient to bring home the danger of a pilot light in 
an adjacent room behind a closed door. 46 However, from the user's point 
of view, these decisions do not seem unreasonably favourable. The 



44 The adoption of child-proof containers for drugs and cleaning products is an example 
of a precaution taken against foreseeable misuse: Spruill v. Boyle- Midway, Inc., 308 F. 2d 
79 (1962). Similarly, a chair must be safe to stand on: Phillips v. Ogle Aluminum 
Furniture, Inc., 106 Cal. App. 2d 650, 235 P. 2d 857 (1951); and, a table must be safe 
to move: Dippel v. Sciano, 37 Wis. 2d 443, 155 N.W. 2d 55 (1967). See also (1967-68), 
53 Iowa L. Rev. 764, at p. 769. When the use is unintended, it has been held that 
the proper test to determine the manufacturer's scope of duty is whether the unintended 
use was foreseeable: Lovejoy v. Minneapolis- Moline Power Implement Co., 248 Minn. 
319, at p. 326, 79 N.W. 2d 688, at p. 693 (1956) (tractor driven at higher speed 
than recommended by manufacturer); Hardman v. Helene Curtis Industries, Inc., 
48 111. App. 2d 42, 198 N.E. 2d 681 (1964) (hairspray used near candle); Canifaxv. Hercules 
Powder Co., 46 Cal. Rptr. 552 (1965) (dynamite exploding while being handled). 

45 [1972] S.C.R. 569. 

^Murray et al. v. Wilson Oak Flooring Co., Inc., 475 F. 2d 129 (1973). 



16 

manufacturer knows what he means when he writes on the can "Highly 
Inflammable". The consumer, even the intelligent and careful consumer, 
may read the words but may fail to appreciate that this particular 
product is not merely as highly inflammable as all the other dozens of 
products that bear that description; this product is so highly inflammable 
that a pilot light in an adjacent room must be extinguished. When the 
added fact is considered that floor sealers are commonly used in basements, 
and that it is in basements that gas appliances with pilot lights are 
commonly found, the level of liability imposed upon the manufacturer 
may seem not at all unreasonable. Moreover, other recent Canadian cases 
have shown that a manufacturer can give adequate warnings. In Schmitz 
et ai v. Stoveld et ai; MacNaughton Brook Ltd., Third Party, 41 a 
warning on a can of floor sealer that specifically mentioned pilot lights 
"in or near working area" was held to be adequate. In Lem v. Barotto 
Sports Ltd., 4 * the manufacturer of a shot-loading machine was held not 
to be liable for injuries caused by the double-charging of a shot. The 
manufacturer's instructions were held by the Court to have been adequate 
in the circumstances. 

Warnings are not always addressed directly to the person likely to 
be injured. In the case of products that may foreseeably injure children, 
the warning is commonly addressed to the parent or other adult user. 
In the case of drugs, it may be to the prescribing physician that the 
warning must be directed. There are other types of product designed 
to be used only by experts. In Murphy v. St. Catharines General Hospital 
et al., 49 it was said: 

[T]his instrument was never intended or expected to be handled 
by a member of the public but only by doctors or under their 
close supervision or instruction. . . . 

. . . [H]ere there was a warning to the hospital whose responsibility 
it was to use the device only through properly trained and supervised 
personnel. 

(g) INTERMEDIATE EXAMINATION 

Lord Atkin referred to the duty of a manufacturer who sells products 
"in such a form as to show that he intends them to reach the ultimate 
consumer in the form in which they left him with no reasonable possibility 
of intermediate examination". In Donoghue v. Stevenson, the ginger 
beer was in an opaque bottle. Liability, however, has also been imposed 
in cases where the product alleged to be defective was contained in a 
clear bottle. 50 The question is not whether examination of any sort is 
"possible", but whether such an examination as would in fact reveal the 
presence of the defect is likely. 

If it is admitted that the product was initially defective, the manufacturer 



47 (1974), 11 O.R. (2d) 17, 64 D.L.R. (3d) 615 (Co. Ct.). Leave to appeal to the Court 

of Appeal refused, 11 O.R. (2d) 17n, 64 D.L.R. 615n (C.A.). 
48 (1976), 1 A.R. 556, 69 D.L.R. (3d) 276 (S.C., App. Div.). 
49 [1964] 1 O.R. 239, at p. 254, (1963), 41 D.L.R. (2d) 697 (H.C.J.), at p. 712. 
50 Mathews v. Coca-Cola Co. of Canada Ltd., [1944] O.R. 207, [1944] 2 D.L.R. 355 

(C.A.); Zeppa v. Coca-Cola Ltd., [1955] O.R. 855, [1955] 5 D.L.R. 187 (C.A.). 



17 

will rarely escape by saying that he expected someone else to discover 
and guard against the defect. However, the possibility of intermediate 
examination may in some cases be relevant. First, if the product was 
open to intermediate examination, it may also have been open to 
intermediate damage or contamination after it left the manufacturer's 
hands. In such a case, if the defect is proved to have been caused by 
such subsequent tampering with the product, the manufacturer will not 
be liable for it, unless he is in some way responsible for the conduct 
of those who did cause the defect. Secondly, in some cases the manufacturer 
may be able to argue successfully that he expected, and reasonably 
expected, that after the product left his hands it would be dealt with 
in such a way as to make it safe. The producer of bulk chemicals, for 
example, expects them subsequently to be labelled properly. The producer 
of pork will reasonably expect it to be cooked before being eaten. 51 
These are cases in which a subsequent dealing with the product to make 
it safe can be reasonably expected by the manufacturer. The third instance 
in which intermediate examination may possibly be relevant is the case 
where the plaintiff actually knows of the defect in the goods but uses 
them nevertheless. In cases such as these, the manufacturer may possibly 
have a defence based on assumption of risk, contributory negligence, or 
intervening cause. 

(h) BASIS OF LIABILITY 

The theoretical basis of liability under the principle of Donoghue v. 
Stevenson is, of course, the manufacturer's negligence. However, in 
practice, the plaintiff who proves that the product was defective when 
it left the manufacturer's hands, and that he has been injured by the 
defect, very rarely fails on the ground that negligence cannot be established. 
The one case that is commonly cited where a manufacturer escaped on 
such a ground is generally admitted to be anomalous, 52 and has been 
disapproved in a recent English decision. 53 This practical departure from 



^Yachetti et al. v. John Duff & Sons Ltd. and Paolini, [1942] O.R. 682, [1943] 1 D.L.R. 
194(H.C.J.). 

"In Daniels and Daniels v. R. White & Sons, Ltd. and Tarhard, [1938] 4 All E.R. 258 
(K.B.), Mr. and Mrs. Daniels were both made ill by drinking lemonade manufactured by 
R. White & Sons, Ltd. and supplied by them to Mrs. Tarbard, the licensee of a public 
house. In an action against the manufacturer for negligence, the plaintiffs failed because 
the system for checking the bottles at the factory was found to be "fool-proof". 
Today negligence would almost certainly be found under these circumstances, and the 
English and Scottish Law Commissions have so noted: "We do not attach too much 
importance to the actual decision in Daniels v. White. If the case were heard today, 
nearly 40 years later, the court would probably be more easily satisfied that R. White 
& Sons, Ltd. had been negligent." See Law Com. No. 82 (Scot. Law Com. No. 45), 
Liability for Defective Products (1977), para. 28, at p. 8. This view of the Law Commissions 
is supported by the Ontario Court of Appeal decision in Heimler v. Calvert Caterers Ltd. 
(1975), 8 O.R. (2d) 1, 56 D.L.R. (3d) 643, affirming (1975), 4 O.R. (2d) 667, 49 D.L.R. 
(3d) 36 (Co. Ct.). 

"Hill v. James Crowe (Cases) Ltd., [1978] 1 All E.R. 812 (Q.B.), at p. 816, where 
MacKenna, J., noting that Daniels v. White had been "justly criticized", refused to follow 
it. He stated as follows: "With respect, I do not think that this was a sufficient reason 
for dismissing the claim. The manufacturer's liability in negligence did not depend on 
proof that he had either a bad system of work or that his supervision was inadequate. 
He might also be vicariously liable for the negligence of his workmen in the course 
of their employment. If the plaintiffs injuries were a reasonably foreseeable consequence 
of such negligence, the manufacturer's liability would be established under Donoghue v. 
Stevenson." 



18 

the fault principle is the result of an inference, or perhaps a presumption, 
of negligence, which arises against the manufacturer when it is shown 
that he has made and distributed a dangerously defective product. In 
Grant v. Australian Knitting Mills Ltd., 54 Lord Wright said: 55 

If excess sulphites were left in the garment, that could only be 
because someone was at fault. The appellant is not required to lay 
his finger on the exact person in all the chain who was responsible, 
or to specify what he did wrong. Negligence is found as a matter of 
inference from the existence of the defects taken in conjunction with 
all the known circumstances .... 

There has been some dispute concerning the applicability to products 
liability cases of the doctrine of res ipsa loquitur. 56 Whether this doctrine 
is appropriate or not, the practical effect of the case law, as was said 
by Pickup, C.J.O., in Zeppa v. Coca-Cola Ltd., 51 is to place upon the 
manufacturer the burden of disproving negligence, a burden that is 
virtually impossible to discharge. 58 In another recent Ontario case, 
McMorran v. Dominion Stores Ltd., 59 Lerner, J., said: 60 

Where the defect arises in the manufacturing process controlled 
by the defendant, the inference of negligence is practically 
irresistible: .... Either the manufacturer's system was at fault or, 
if the system was sound, then an individual employee must have 
been negligent. 

It seems plain, therefore, that the courts, in order to allocate losses 
in ways that seem to them appropriate, and in order to compensate the 
victims of accidents, have adopted some of the characteristics of strict 
liability. Where the injured plaintiff proves defect and causation — and 
it should be noted that these are also requirements of recovery in the 
strict liability jurisdictions in the United States 61 — he is very likely 
to succeed. 



5*[1936] A.C. 85(P.C). 

55/6/ d, at p. 101. 

56 In Donoghue v. Stevenson itself, footnote 3, supra, at p. 622, Lord Macmillan said 
it did not apply, but that "[n]egligence must be both averred and proved". Some cases, 
however, have used the phrase: see Mathews v. Coca-Cola Co. of Canada Ltd., 
[1944] O.R. 207, [1944] 2 D.L.R. 355 (C.A.); Interlake Tissue Mills Co. Ltd. v. Salmon 
and Beckett, [1948] O.R. 950, [1949] 1 D.L.R. 207 (C.A.); Castle v. Davenport- 
Campbell Co. Ltd. et al., [1952] O.R. 565, [1952] 3 D.L.R. 540 (C.A.); Varga v. 
John Labatt Ltd. et al, [1956] O.R. 1007, (1956), 6 D.L.R. (2d) 336 (H.C.J.); Philco 
Radio & Television Corpn. of Great Britain Ltd. v. /. Spurting, Ltd. et al., [1949] 
2 All E.R. 882 (C.A.). 

57 Footnote 7, supra, [1955] O.R., at pp. 864-65. 

58 ///7/ v. James Crowe (Cases) Ltd., footnote 53, supra. 

59 (1977), 14 O.R. (2d) 559, 74 D.L.R. (3d) 186 (H.C.J.). 

™Ibid., 14 O.R. (2d), at p. 565. 

6l Prosser, "The Fall of The Citadel (Strict Liability to the Consumer)" (1965-66), 50 Minn. 
L. Rev. 791, at p. 840: "Strict liability eliminates both privity and negligence; but it still 
does not prove the plaintiffs case. He still has the burden of establishing that the particular 
defendant has sold a product which he should not have sold, and that it has caused his 
injury. This means that he must prove, first of all, not only that he has been injured, 
but that he has been injured . . . because the product was defective, or otherwise 
unsafe for his use." 



19 

Notwithstanding this departure from a regime of pure fault, a person 
injured by a defective product still suffers certain legal and tactical 
disadvantages under the present law. The first of these is practical in 
nature. Even though the plaintiff at present may have the benefit of an 
inference of negligence, the formal requirement that he prove negligence 
extends the litigation process and involves delay and expense, thereby 
increasing the pressure on the plaintiff to settle. 62 Secondly, the manufacturer 
of a product that now proves to have been defective may possibly 
escape liability under the present law. Even if the plaintiff has the benefit 
of an inference of negligence, the manufacturer may be able to show that 
he took all reasonable precautions at the time the product was distributed. 
Thalidomide is a case in point. The manufacturer of thalidomide settled 
the actions brought against it in England for several million pounds. 
However, it was never quite clear that the manufacturer might not have 
had a defence, had the case come to court, on the grounds that it had 
no means of knowing of the dangers and that it had taken reasonable 
precautions to discover any such dangers. It is unlikely that this defence 
would have been successful. At any rate, and for whatever reason, the 
defendant and its advisors decided to conclude the English actions by 
way of settlement rather than by litigation. Nevertheless, there is a doubt. 
Thirdly, there is the case of a product incorporating defective materials, 
or a defective part, manufactured by a third person for whom the defendant 
manufacturer of the completed product is not responsible in law. In 
such a case, the manufacturer of the completed product is not liable 
under existing Anglo-Canadian law, although the sub-manufacturer may 
be liable. 63 Fourthly, it should be pointed out that wholesalers, retailers, 
and importers, under the negligence rule, will rarely be found liable. 64 

(i) DEFENCES 

Certain defences common to other torts are available to the defendant 
in a products liability case. The plaintiff must show that the defective 
product has caused his injury. 65 If the plaintiff actually knows of the 
defect and continues to use the product, he may be held to have assumed 
the risk of injury. 66 Where the plaintiff carelessly contributes to his injury 



62 See Prosser, "The Assault Upon the Citadel (Strict Liability to the Consumer)" (1959-60), 
69 Yale L.J. 1099, at pp. 1 1 14-20. 

63 See Evans v. Triplex Safety Glass Co., footnote 9, supra; Clark v. Bendix Corporation, 
footnote 9, supra (liability for sub-manufacturer). No liability for ultimate manufacturer: 
see Taylor v. Rover Co. Ltd. et al., [1966] 1 W.L.R. 1491, [1966] 2 All E.R. 181; 
see also Fleming, footnote 17, supra, at p. 511; (But in Murphy v. St. Catharines 
General Hospital, [1964] 1 O.R. 239, at p. 249, Gale, J., stated: "Deseret [the manufacturer] 
is responsible for any defect introduced by the producers of the component parts of 
the instrument. . . .") 

M Supra, at pp. 8-9. 

65 See Prosser, footnote 61, supra. 

66 Voluntary assumption of risk, if successful, operates as a complete defence, and it may 
be suggested that for this reason the court will be reluctant, except in the case of the clearest 
evidence, to find that the plaintiff did actually assume the risk of injury. See Linden, 
Canadian Negligence Law (1972), at p. 373: "The operation of volenti has thus been 
limited to those situations in which there is an express or implied agreement by the plaintiff 
to exempt the defendant." See also Lehnert v. Stein, [1963] S.C.R. 38, at p. 43, (1962), 
36 D.L.R. (2d) 159, at p. 164, per Cartwright, J.: ". . . the burden lies upon the 
defendant of proving that the plaintiff, expressly or by necessary implication, agreed to 
exempt the defendant from liability. . . ." 



20 

by not observing defects that he ought reasonably to have observed, by 
underestimating the significance of what he does observe, by failing to 
read instructions, or by misusing the product, liability may be apportioned 
under statutory powers. 67 General principles of remoteness will also be 
applicable in the case of unforeseeable or unexpected injuries. In general, 
however, it would seem to be a fair statement that these defences are 
not commonly successful. The court appears to sympathize with a 
plaintiff who is injured by a product that is admitted to have been 
defective when it left the manufacturer's hands. The availability of these 
defences, therefore, in practice, does not detract markedly from the 
level of liability now imposed on the manufacturer. 

2. Torts of Strict Liability 

A negligence regime is to be contrasted with a principle of strict 
liability. Under the latter principle, the plaintiff is entitled to succeed 
without proof of negligence or lack of due care on the part of the defendant. 
Although no principle of strict liability for damage caused by defective 
products has been openly adopted in Anglo-Canadian jurisdictions, the 
concept of strict liability is by no means unknown to our law. This is 
apparent from a brief reference to the rule in Rylands v. Fletcher 6 * 
and to the law of nuisance. 

In the well-known case of Rylands v. Fletcher, a landowner was 
held liable for flooding a mine on neighbouring land in the course 
of constructing a reservoir. Liability was imposed, even though the landowner 
was found to have acted without fault. Blackburn, J., in a passage 
quoted with approval in the House of Lords, stated as follows: 69 

. . . the person who, for his own purposes, brings on his lands and 
collects and keeps there anything likely to do mischief if it escapes, 
must keep it at his peril; and if he does not do so, is prima facie 
answerable for all the damage which is the natural consequence 
of its escape. 

Blackburn, J., drew analogies to the law of cattle trespass, nuisance, 
and the escape of filth from a privy. 70 

These analogies might possibly have been extended to cover the case 
of liability for dangerously defective products; though it should be noted, 
of course, that it is the landowner, or, in the case of a product, the user, 
and not the manufacturer who is held liable under the rule in Rylands 
v. Fletcher. Many of the arguments that have been used by modern 
scholars to justify the rule in Rylands v. Fletcher, such as risk-spreading 



67 The Negligence Act, R.S.O. 1970, c. 296, s. 2(1) as amended by S.O. 1977, c. 59, s. 
1(1): "Where damages have been caused or contributed to by the fault or neglect of two 
or more persons, the court shall determine the degree in which each of such persons 
is at fault or negligent, and, where two or more persons are found at fault or negligent, 
they are jointly and severally liable to the person suffering loss . . . but as between 
themselves . . . each is liable to make contribution and indemnify each other in the 
degree in which they are respectively found to be at fault or negligent." 

ft *( 1 868). L.R. 3 H.L. 330. 

*Vbid., at pp. 339-40. 

™Ibid., at p. 340. 



21 

and enterprise liability, have also been used to justify strict products 
liability. Indeed, there have been several cases involving defective or 
dangerous products that have been decided on the principle of Rylands 
v. Fletcher. The cases include escape of fluids from pipes, 71 the collapse 
of a flagpole in a public park, 72 a defective amusement device, 73 and 
the use of explosives 74 and herbicides. 75 

In some ways, cases decided under the principle of Rylands v. Fletcher 
go further than a principle of strict liability for defective products. If, 
for example, liability is imposed for damage caused by explosives under 
the principle of Rylands v. Fletcher, such liability may ensue from the 
causing of damage by the explosives, even though there is nothing wrong 
with the explosives themselves; in other words, even though there is 
no defect in the product. 

There are also some cases decided in nuisance where defendants 
have been held liable for injuries caused by products. 76 Again, liability 
is strict, in the sense that use of due care is not necessarily an answer. 77 

The significance of these instances of strict liability for damage 
caused by products should not be overstated. The cases are not large 
in number, and no general principle of strict liability for defective products 
has been announced by any court. Nevertheless, the cases show that 
strict liability is not a concept that is alien to our system of tort law 
and, further, that strict liability has been used on occasion in order to 
impose liability for defective products. 

3. Warranties 

(a) express warranties 

Up to this stage in our Report, we have considered those rules 
that ground liability for defective products in the law of torts. Liability 
may also be based on contractual principles. We now turn to discuss 
liability for defective products in contract. 

Since early times, the law of warranties has provided a remedy for 
a false statement inducing sale. 78 The law of warranties was originally 



1] Mid wood & Co. Ltd. v. Mayor, Aldermen and Citizens of Manchester, [1905] 2 K.B. 597 

(C.A.); Charing Cross Electricity Supply Co. v. Hydraulic Power Co., [1914] 3 K.B. 

442 (C.A.). 
12 Shiffman v. The Grand Priory in the British Realm of the Venerable Order of the 

Hospital of St. John of Jerusalem, [1936] 1 All E.R. 557 (K.B.), at pp. 561-62, 

per Atkinson, J. 
7 Wale v. Jennings Bros., [1938] 1 All E.R. 579 (C.A.). 

14 MacDonald v. Desourdy Const. Ltee. (1972), 27 D.L.R. (3d) 144 (N.S.S.C, T.D.). 
"Mihalchuk v. Ratke (1966), 55 W.W.R. 555, 57 D.L.R. (2d) 269 (Sask. Q.B.). 
76 See Tarry v. Ashton (1876), 1 Q.B.D. 314; Wringe v. Cohen, [1940] 1 K.B. 229 (C.A.), 

at p. 248, per Atkinson, J.: "If premises become dangerous as the result of something 

done by an occupier and they cause damage, the occupier is liable although he did 

not know of the danger and was not negligent in not knowing." 
fiRead v. /. Lyons & Co., [1947] A.C. 156 (H.L.), at p. 183, per Lord Simonds: 

"For if a man commits a legal nuisance it is no answer to his injured neighbour that 

he took the utmost care not to commit it. There the liability is strict. . . ." 
™See Ames, "The History of Assumpsit" (1888-89), 2 Harv. L. Rev. 1, at p. 8; Williston, 

"What Constitutes an Express Warranty in the Law of Sales" (1907-08), 21 Harv. 

L. Rev. 555. 



22 

viewed as a species of deceit, a tortious action, but one giving rise 
to damages only to the extent of the loss caused by entering into the 
disadvantageous sale. 79 The promissory associations of warranty, as 
developed in the nineteenth century, had both an enlarging and a restricting 
effect. In the context of products liability, liability was enlarged by the 
application of the rule in Hadley v. Baxendale, m making the seller liable 
for all natural consequences of the breach of warranty. These consequences 
were held to include not only loss caused by the sale, but also loss 
caused by the use of the goods. 81 On the other hand, the association of 
warranty with promise had a restricting effect, in that some cases held 
that a warranty required promissory intention. 82 This requirement, however, 
has not proved to be unduly restrictive in practice, and a number of 
recent cases have imposed liability for breach of warranty without very 
convincing proof of contractual intent. 83 

The significance of the device of warranty has been much increased 
in one respect. In recent years, the courts have, on occasion, applied 
the concept of collateral contract. 84 In this way, liability can be imposed, 
for example, on a manufacturer-advertiser for the accuracy of his statements, 
even though the plaintiff may purchase the goods from a third party 
for whom the advertiser is not responsible. 85 The reasoning is as follows: 



79 01der cases held that the "tortious" measure of damages applied, protecting the buyer's 
"reliance interest" but not, apparently, his "expectation interest". See Lomi v. Tucker 
(1829), 4 Car. & P. 15, 172 E.R. 586 (K.B.); De Sewhanberg v. Buchanan (1832), 5 Car. & 
P. 343, 172 E.R. 1004 (C.P.); Watson v. Denton (1835), 7 Car. & P. 85, 173 E.R. 38 
(C.P.); Mooers v. Gooderham and Worts Ltd. (1887), 14 O.R. 451 (Ch. D.). 

80 (1854), 9 Exch. 341, 156 E.R. 145. 

™ Brown v. Edgington (1841), 2 Man. & G. 279, 133 E.R. 751 (C.P.); Randall v. Raper 
(1858), E.B. & E. 84, 120E.R.438(K.B.);Sm/7/iv. Green(M5), 1 C.P.D.92,45 L.J.Q.B. 28; 
Randall v. Newson (1877), 2 Q.B.D. 102 (C.A.); for a contrary suggestion see the dicta 
of Erie, C.J., and Willes, J., in Mullen v. Mason (1866), L.R. 1 C.P. 559, at pp. 563-64. 
See also Wren v. Holt, [1903] 1 K.B. 610 (C.A.); Preist v. Last, [1903] 2 K.B. 
148 (C.A.); Grant v. Australian Knitting Mills Ltd., footnote 54, supra. 

* 2 Heilbut, Svmons & Co. v. Buckleton, [1913] A.C. 30 (H.L.). 

™ Adelaide Motors Ltd. v. Alexander (1962), 48 M.P.R. 258 (Nfld. S.C.); Dick Bentlev 
Productions Ltd. v. Harold Smith (Motors), Ltd., [1965] 1 W.L.R. 623, [1965] 
2 All E.R. 65 (C.A.); Andrews v. Hopkinson, footnote 13, supra; Esso Petroleum Co. Ltd. v. 
Mardon, [1976] Q.B. 801 (C.A.). And in a refreshing example of judicial frankness Lord 
Denning said (extra-judicially), "In English law an innocent misrepresentation may give rise 
to a right of rescission where that is possible, but not to a right of damages. That has never 
given us any difficulty in practice. Whenever a judge thinks that damages ought to be given, 
he finds that there was a collateral contract rather than an innocent misrepresentation. In 
practice when I get a representation prior to a contract which is broken and the man ought to 
pay damages I treat it as a collateral contract. I have never known any of my colleagues 
to do otherwise.": Allan, "The Scope of the Contract: Affirmations or Promises made 
in the Course of Contract Negotiations" (1967), 41 Aust. L.J. 274, at p. 293. 

84 A collateral contract may be said to exist when a promise is given by A to C, prior to 
the making of the main contract between B and C, but for which that contract would not 
have been made. It may also exist in a two-party situation. See Waddams, The Law of 
Contracts (1977), at pp. 259-60; Fridman, The Law of Contract in Canada (1976), at 
pp. 240-41; and, Furmston (ed.), Cheshire & Eifoot's Law of Contract (9th ed., 1976), 
at pp. 58-61. 

™ Murray v. Sperrv Rand Corp. et al. (1979), 5 B.L.R. 284 (Ont. H.C.J.); Shanklin Pier 
Ltd. v. Detel Products Ltd., [1951] 2 K.B. 854, [1951] 2 All E.R. 471; see also 
Brown v. Sheen and Richmond Car Sales Ltd., [1950] 1 All E.R. 1102, [1950] W.N. 
316 (K.B.); Andrews v. Hopkinson, footnote 13, supra; Yeoman Credit Ltd. v. Odgers, 
[1962] 1 W.L.R. 215, [1962] 1 All E.R. 789 (C.A.); and, Wells (Merstham) Ltd. v. 
Buck land Sand and Silica Ltd., [1965] 2 Q.B. 170. 



23 

the advertiser warrants the truth of his statements and, in return, the 
plaintiff enters into a contract of sale with the third party, an act 
that indirectly benefits the advertiser. This would amount to an imposition 
of strict liability on the advertiser for the accuracy of his advertisement. 
This analysis seems to be firmly embedded in the cases, although it 
should be noted that they are few in number. 86 

(b) IMPLIED CONDITIONS OF FITNESS FOR PURPOSE AND MERCHANTABLE 
QUALITY: SECTION 15 OF THE ONTARIO SALE OF GOODS ACT 87 

Section 15 of 77?^ Sale of Goods Act** codifies the two implied 
warranties that form the basis of the seller's liability to the buyer in 
respect of the quality of the goods. Section 15 provides as follows: 

15. Subject to this Act and any statute in that behalf, there is no 
implied warranty or condition as to the quality or fitness for any 
particular purpose of goods supplied under a contract of sale, except 
as follows: 

1 . Where the buyer, expressly or by implication, makes known 
to the seller the particular purpose for which the goods are 
required so as to show that the buyer relies on the seller's 
skill or judgment, and the goods are of a description that it is 
in the course of the seller's business to supply (whether he is 
the manufacturer or not), there is an implied condition that 
the goods will be reasonably fit for such purpose, but in the 
case of a contract for the sale of a specified article under its 
patent or other trade name there is no implied condition as 
to its fitness for any particular purpose. 

2. Where goods are bought by description from a seller who 
deals in goods of that description (whether he is the 
manufacturer or not), there is an implied condition that the 
goods will be of merchantable quality, but if the buyer has 
examined the goods, there is no implied condition as regards 
defects that such examination ought to have revealed. 

3. An implied warranty or condition as to quality or fitness for 
a particular purpose may be annexed by the usage of trade. 

4. An express warranty or condition does not negative a 
warranty or condition implied by this Act unless incon- 
sistent therewith. 

Paragraphs 1 and 2 of this section have been so interpreted as to impose what 
is, in effect, strict liability on a business seller for the supply of defective goods. 

The condition of reasonable fitness for the buyer's purpose applies to 



86 Liability for a negligent statement will be examined infra, at pp. 28-30. 

87 For a discussion of these implied conditions and recommendations for their reform, see 

Ontario Law Reform Commission, Report on Sale of Goods (1979), ch. 9, at pp. 

206-22. 
*»R.S.O. 1970, c. 421. 



24 

most sales made in the course of a business. The "particular purpose" has been 
held to include an ordinary purpose, so that even though the buyer has no 
special use for the goods, except the ordinary use that all buyers can be 
expected to make of them, he will be protected by section 15. 1. 89 The 
requirement that the buyer make known his purpose to the seller has also been 
interpreted favourably to the buyer; 90 in practice, the courts protect the buyer, 
unless he does not in fact rely, or it is unreasonable for him to rely, on the 
seller's skill or judgment. 91 The goods may be of a description that it is "in the 
course of the seller's business" to supply, even though the seller has never 
before supplied such goods. 92 The patent or other trade name exception in 
section 15 has not been interpreted to give a defence to the seller, unless the 
buyer shows, by asking for the goods by a trade name, that he does not rely on 
the seller's skill or judgment at all. 93 

The condition of merchantable quality has also been interpreted in the 
buyer's favour. It has been held that virtually any sale can be a sale "by 
description", 94 and that any seller who sells in the course of business may be a 
dealer in goods of that description. 95 The reference to examination of the 
goods by the buyer has not been interpreted so as to impose a duty on the 
buyer to make an examination. 96 Although many attempts have been made to 



89 Grant v. Australian Knitting Mills Ltd., footnote 54, supra. Compare, Preist v. Last, 
footnote 81, supra: Griffiths v. Peter Conway, Ltd., [1939] 1 All E.R. 685 (C.A.); 
see also Gorman v. Ear Hearing Services Ltd. (1969), 8 D.L.R. (3d) 765 (P.E.I. S.C.). 

90 The courts are willing in many cases to presume reliance of the buyer from the very 
fact of the purchase, especially in a consumer purchase. See Grant v. Australian 
Knitting Mills Ltd., footnote 54, supra, at p. 99; Henry Kendall & Sons v. William 
Lillico & Sons Ltd., [1969] 2 A.C. 31 (H.L.), at p. 84, per Lord Reid; Ashington 
Piggeries Ltd. v. Christopher Hill, Ltd., [1972] A.C. 441, [1971] 1 All E.R. 847 (H.L.). 

9l Following the recommendation of the English and Scottish Law Commissions, the 
corresponding section of the U.K. Act has now been amended to this effect: Law Com. No. 
24 (Scot. Law Com. No. 12), Exemption Clauses in Contracts, First Report: Amendments 
to the Sale of Goods Act, 1893 (1969), at pp. 13-14, 48; Supply of Goods (Implied 
Terms) Act, 1973, c. 13 (U.K.), s. 3(3). 

"Buckley v. Lever Bros. Ltd., [1953] O.R. 704, [1953] 4 D.L.R. 16 (H.C.J.); Ashington 
Piggeries Ltd. v. Christopher Hill, Ltd., footnote 90, supra. 

93 Atiyah, The Sale of Goods (5th ed., 1975), at p. 97, notes that this exception has been 
virtually interpreted out of existence by the case of Baldry v. Marshall, [1925] 1 K.B. 260 
(C.A.). In that case, it was held that, where, on the seller's recommendation, the buyer 
ordered a "Bugatti" car as suitable for touring purposes, the warranty applied. The 
patent name exception is thus not full protection for the seller, but merely one way in 
which reliance can be disproved. The U.K. Sale of Goods Act has now -deleted the 
exception on the recommendation of the Law Commissions: footnote 91, supra, at pp. 
12 and 48. Even where the exception is held to apply, the buyer may have an equivalent 
remedy under section 15.2 for breach of the warranty of merchantability. 

94 Atiyah has suggested that the only sale that will not be a sale by description is one 
where there is, in effect, an agreed exclusion of liability. Atiyah, footnote 93, supra, 
at pp. 74-76. 

95 Henry Kendall & Sons v. William Lillico & Sons Ltd., footnote 90, supra. The 
requirement that the seller be a dealer in goods of the description has been deleted from 
the U.K. Act as proposed by the Law Commissions so that the condition applies to 
all sales in the course of business: Supply of Goods (Implied Terms) Act, 1973, c. 13 
(U.K.), s. 3(2). See also Law Com. No. 24 (Scot. Law Com. No. 12), footnote 91, supra, 
at p. 11. 

96 Atiyah, footnote 93, supra, at p. 83. Compare, Thornett & Fehr v. Beers & Son, 
[1919] 1 K.B. 486. See also Niagara Grain & Feed Co. v. Reno (1916), 38 O.L.R. 159, 
32 D.L.R. 576 (C. A.). 



25 

define the phrase "merchantable quality", 97 all the definitions embrace the 
case of a product that is dangerously defective. 98 

In most products liability cases, therefore, both paragraphs 1 and 2 of 
section 15 will apply. As Lord Wright said in Grant v. Australian Knitting 
Mills Ltd.: 99 

[s.15.2] in a case like this in truth overlaps in its application 
[s.15.1]; whatever else merchantable may mean, it does mean that 
the article sold, if only meant for one particular use in ordinary 
course, is fit for that use. 

Therefore, in the ordinary case of a consumer buying goods from a retailer, 
one or both of these paragraphs is almost certain to apply. It should be noted 
that the implied conditions contained in section 15 of The Sale of Goods Act 
cannot, by reason of section 44a of The Consumer Protection Act, be 
negatived or varied in the case of goods sold by a consumer sale. 100 These 
conditions, however, may be negatived or varied in any other contract for the 
sale of goods. 

Liability for breach of the implied conditions is strict. It is irrelevant that 
the seller has taken all reasonable care to avoid or to detect the presence of the 
defect. Even though the defect is undiscoverable, the seller is liable. 101 As Lord 
Reid said in Henry Kendall & Sons v. William Lillico & Sons Ltd.: 102 

If the law were always logical one would suppose that a buyer, who 
has obtained a right to rely on the seller's skill and judgment, would 
only obtain thereby an assurance that proper skill and judgment had 
been exercised, and would only be entitled to a remedy if a defect in 
the goods was due to failure to exercise such skill and judgment. But 
the law has always gone farther than that. By getting the seller to 
undertake to use his skill and judgment the buyer gets under s. 14(1) 
[that is, s.15.1 of the Ontario Act] an assurance that the goods 



91 Bristol Tramways & Carriage Co. Ltd. v. Fiat Motors, Ltd., [1910] 2 K.B. 831 (C.A.), 
at p. 841, per Farwell, L.J.: "The phrase in s. [15.2] is, in my opinion, used as 
meaning that the article is of such quality and in such condition that a reasonable man 
acting reasonably would after a full examination accept it under the circumstances of the 
case in performance of his offer to buy that article. . . ." In Australian Knitting Mills 
Ltd. v. Grant (1933), 50 C.L.R. 387 (H.C.A.), at p. 418, Dixon, J., added an explicit 
reference to price: "The condition that goods are of merchantable quality requires 
that they should be in such an actual state that a buyer fully acquainted with the 
facts and, therefore, knowing what hidden defects exist and not being limited to their 
apparent condition would buy them without abatement of the price obtainable for such 
goods if in reasonably sound order and condition and without special terms." In B. S. 
Brown & Son Ltd. v. Craiks Ltd., [1970] 1 All E.R. 823 (H.L.), the conclusion was 
that price, while sometimes a relevant factor, is not determinative. Lord Reid said, 
at p. 825: "I do not think that it is possible to frame, except in the vaguest terms, 
a definition of 'merchantable quality' which can apply to every kind of case." 

98 A defective product that injures someone is certain to be held unmerchantable. See Supply of 
Goods (Implied Terms) Act, 1973, c. 13 (U.K.), s. 7(2). The reference to the price "(if 
relevant)" appears to recognize that in many cases of consequential damage the price of 
the goods is not relevant. In Buckley v. Lever Bros. Ltd., footnote 92, supra, for example, 
the goods may well have been worth their price. 

"Footnote 54, supra, at pp. 99-100. 

100 R.S.O. 1970, c. 82 as amended by S.O. 1971 (Vol. 2), c. 24, s. 2(1). 

10l See Buckley v. Lever Bros. Ltd., footnote 92, supra; Frost v. The Aylesbury Dairy Co. 
Ltd., [1905] 1 K.B. 608 (C.A.); Godlev v. Perry, [1960] 1 W.L.R. 9, [I960] 1 All E.R. 
36(Q.B.). 

102 Footnote 90, supra, at p. 84. 



26 

will be reasonably fit for his purpose and that covers not only 
defects which the seller ought to have detected but also defects 
which are latent in the sense that even the utmost skill and judgment 
on the part of the seller would not have detected them. 

In order to succeed, the buyer must prove a defect, that is, that the goods were 
not "reasonably fit" or not "merchantable". But when he has proved either of 
these things, he will succeed without proof that the seller was negligent. It is 
true to say, therefore, that the seller of goods in the course of a business is, 
generally speaking, strictly liable to the buyer for damage caused by defects in 
the goods. 

(C) MEASURE OF DAMAGES FOR BREACH OF WARRANTY 

The famous case of Hadley v. Baxendale 103 was designed to limit the 
liability of a defendant for breach of contract. This case achieved that 
limitation by holding that a person in breach of contract was only to be 
responsible for damages that he ought reasonably to have contemplated as 
liable to happen as the direct and natural consequence of the breach of 
contract. 104 Curiously enough, in the context of products liability, Hadley v. 
Baxendale had an enlarging, rather than a restricting, effect on the liability of 
a person in breach. The reason is that this rule, codified by section 5 1 (2) of The 
Sale of Goods Act, 105 was early held to make the seller liable not only for 
economic loss caused by defects in the goods, but also for property damage 
and personal injuries. Even though the seller was not negligent in creating the 
defect, or in failing to detect it, the rule in Hadley v. Baxendale made him 
liable for such damages. This rule has been applied so as to ask whether a 
reasonable person, knowing of the defect in the goods, would foresee injury as 
a direct and natural result. When a plaintiff is before the court complaining of 
that very injury, it is always difficult to say that it could not have been foreseen 
as a natural result. 

The effect, therefore, of measuring liability under section 1 5 by the rule in 
Hadley v. Baxendale is that it may enable an injured plaintiff to recover 
damages far beyond the value of the goods sold or the price paid. A striking 
example is the Ontario case of Buckley v. Lever Bros. Ltd., 106 where the 
plaintiff purchased an apron and some plastic clothespins from the defendant 
for a price of fifty cents. One of the clothespins shattered in use and the 
plaintiff lost the sight of one eye. The defendant was held liable for breach of 
section 15 of The Sale of Goods Act and the plaintiff recovered substantial 
compensation for the personal injuries suffered. Another example is the 
English case of Godley v. Perry 101 where a similar injury occurred to a small 
boy on the shattering of a plastic sling-shot that he had bought from the 
defendant for the price of six pence. 

(d) PRIVITY OF CONTRACT 

There is a striking limitation on the scope of strict liability under section 
15. The section applies only where there is a contract between the plaintiff and 



l03 Footnote 80, supra. 

™Ibid. 

105 Section 51(2) of The Sale of Goods Act, R.S.O. 1970, c. 421 provides as follows: 

5 1 .(2) The measure of damages for breach of warranty is the estimated loss directly 
and naturally resulting in the ordinary course of events from the breach of warranty. 
l06 Footnote 92, supra. 
l07 Footnote 101, supra. 



27 

the defendant for the sale of goods. This limitation has two dimensions: only a 
seller can be liable and only to a buyer. Thus, although the plaintiff in the 
Lever Bros. Ltd. case recovered for her injuries, her husband or a neighbour 
similarly injured would not have recovered for breach of implied condition. 
Similarly, if A and B are injured in a motor vehicle accident caused by a 
defective part, A, the buyer of the car, would have a claim under the section, 
but B, his passenger, would not. 108 Further, if two persons, A and B, are 
injured by exploding bottles in a supermarket, the right of each to recover 
against the supermarket may well turn on the question whether they had paid 
for the goods at the cash desk when the injury occurred. 109 If A had paid for 
the goods, but B had not, only A could seek redress under section 15; B would 
be relegated to a claim under the principles of Donoghue v. Stevenson, earlier 
discussed. The contractual principles, therefore, that have led to the evolution 
of strict liability in this context, necessarily impose on that liability severe 
restrictions. 

(e) NON-SALE TRANSACTIONS 

Although section 15 of The Sale of Goods Act applies only to sale 
transactions, it has been held in a number of cases that the implied warranties 
apply to non-sale transactions of various sorts. Transactions involving "free 
samples" 110 and other goods, not themselves the subject of a contract of sale 
but supplied along with articles sold," ' have been brought within the words of 
section 15. Analogous warranties have been held to apply to contracts for 
services, 112 contracts of bailment, 113 and certain real estate transactions. 114 It 



m Sigurdson et al. v. H Merest Service Ltd. and Ack lands Ltd. (Third Party), [1977] 1 
W.W.R. 740, (1976), 73 D.L.R. (3d) 132 (Sask. Q.B.). 

iW Hart v. Dominion Stores Ltd. et al., [1968] 1 O.R. 775, (1968), 67 D.L.R. (2d) 675 
(H.C.J.). Compare, McMorran v. Dominion Stores Ltd. et al. (1977), 14 O.R. (2d) 
559, 74 D.L.R. (3d) 186 (H.C.J.). 

ll0 See Fillmore's Valley Nurseries Ltd. v. North American Cyanamid Ltd. (1958), 14 D.L.R. 
(2d) 297 (N.S.S.C, T. D.), at p. 304, per Ilsley, C.J.: "1 find that in substance the arrangement 
was that the defendant would supply 33 lbs. for the price of 25. It seems to me that if 
a clothing dealer advertises a suit of clothes at say $100 with an extra pair of trousers 
as a free gift, the whole transaction constitutes a sale, and the implied conditions in the 
Sale of Goods Act . . . apply to both pairs of trousers, just as they would if he advertised 
the suit with two pairs of trousers for $100." 

ul Bradshaw v. Boot he's Marine Ltd., footnote 7, supra; Marleau v. The People's Gas 
Supply Co. Ltd., [1940] S.C.R. 708, [1940] 4 D.L.R. 433; Geddling v. Marsh, [1920] 

1 K.B. 668; Wilson and another v. Rickett Cocker ell and Co. Ltd., [1954] 1 Q.B. 598 
(C.A.). 

U2 A.G. Can. and Laminated Structures Holdings Ltd. v. Eastern Woodworkers Ltd., 
[1962] S.C.R. 160, (1962), 46 M.P.R. 219, 32 D.L.R. (2d) 1; G. H. Myers and Co. v. 
Brent Cross Service Co., [1934] 1 K.B. 46; Watson v. Buckley, Osborne, Garrett & 
Co., Ltd., and Wyrovoys Products, Ltd., footnote 11, supra; Dodd and Dodd v. Wilson 
and Mc William, [1946] 2 All E.R. 691 (K.B.); Stewart v. Reavell's Garage, [1952] 

2 Q.B. 545; Young & Marten Ltd. v. McManus Childs Ltd., [1969] 1 A.C. 454, [1968] 
2 All E.R. 1169 (H.L.). 

113 The English courts were prepared to find warranties in bailment cases almost as early 
as in sales cases, and liability was imposed on that basis in early cases for injuries: 
Fowler v. Lock (1872), L.R. 7 C.P. 272 (unsuitable horse); Hyman v. Nye & Sons (1881), 
6 Q.B.D. 685 (carriage with a defective bolt); Mowbray v. Merryweather, [1895] 1 Q.B. 
857 (C.A.) (defective chain supplied to unload a ship). Also Reed v. Dean, [1949] 1 K.B. 
188. And in the following hire-purchase agreements: Feist on Tile Co. Ltd. v. Winget, Ltd., 
[1936] 3 All E.R. 473 (C.A.); Yeoman Credit Ltd. v. Apps, [1962] 2 Q.B. 508, [1961] 
2 All E.R. 281 (C.A.); Astley Industrial Trust, Ltd. v. Grimley, [1963] 2 All E.R. 33 (C.A.). 

ll4 There is an implied warranty in the sale of an unfinished house that it will be properly 
built: Interject Riar et al. v. Bowgray Investments Ltd. (1977), 1 R.P.R. 46 (Ont. C.A.); 
Miller v. Cannon Hill Estates, Ltd., [1931] 2 K.B. 113. 



28 

has also been held that, in certain circumstances, an occupier of premises 
warrants that the premises are as fit as reasonable skill and care can make 
them. This is a standard of liability stricter than that of reasonable 
care, in that the occupier may be held liable for the negligence of another 
person for whom he would not ordinarily be responsible. 115 Although not all 
these examples relate to liability for defective products, they are all instances 
of cases in which the courts have, in effect, used warranty theory to impose 
what amounts to strict liability, or, at any rate, stricter liability than would be 
achieved by the application of negligence principles. 

4. Breach of Statute 

In modern times many products that are defective may be manufactured 
or distributed in breach of some statutory rule or regulation. Often, in 
Canada, the statute breached will be a federal statute such as the Hazardous 
Products Act, U6 the Motor Vehicle Safety Act ul or the Food and Drugs 
Act. 118 There have been some suggestions that civil liability may be imposed 
for breach of such statutes, even though the defendant could not otherwise 
be shown to have been negligent. 119 However, Canadian courts have not 
shown themselves particularly eager to adopt this analysis, partly because of 
constitutional difficulties. 120 

5. Misleading Statements 

Earlier, we briefly discussed the development of the law of warranties. In 
this section, we consider the contractual and tortious remedies that a person 
who relies on a false statement may have: namely, fraud, negligence and 
breach of warranty. 

Damage may be caused, not by a defect in the product itself, but by 



"tPajot v. Commonwealth Holiday Inns of Canada Ltd. (1978), 20 O.R. (2d) 76 (H.C.J.); 
Brown and Brown v. B. & F. Theatres Ltd., [1947] S.C.R. 486, [1947] 3 D.L.R. 593; 
Carriss v. Buxton, [1958] S.C.R. 441, (1958), 13 D.L.R. (2d) 689; Finigan v. City of 
Calgary and Heritage Park Society (1967), 62 W.W.R. 1 15, 65 D.L.R. (2d) 626 (Alta. S.C, 
App. Div.); Beaudry v. Fort Cumberland Hotel Ltd. (1971), 3 N.S.R. (2d) 1, 24 D.L.R. 
(3d) 80 (S.C, App. Div.); Carmichael v. Mayo Lumber Co. Ltd. (1978), 85 D.L.R. (3d) 
538 (B.C.S.C): Francis v. Cockrell ( 1870), L.R. 5 Q.B. 501 (Ex. Ch.); Searle v. Laverick 
(1874), L.R. 9 Q.B. 122; Hyman v. Nye & Sons, footnote 1 13, supra; Maclenan v. Segar, 
[1917] 2 K.B. 325; Silverman v. Imperial London Hotels Ltd. (1927), 43 T.L.R. 260 
(K.B.); Cox v. Coulson, [1916] 2 K.B. 177. See also, Fleming, footnote 17, supra, at pp. 
432 ff., especially pp. 438-40. 

,1( >R. S.C. 1970, c. H-3. 

II7 R.S.C. 1970, c. 26 (1st Supp.). 

"XR.S.C. 1970. c. ¥-21. 

119 'Sterling Trusts Corporation v. Post ma and Little, [1965] S.C.R. 324, (1964), 48 D.L.R. 
(2d) 423 is the leading Canadian case on the subject. Various views were canvassed, but 
the majority opinion appears to be that the effect of the breach of statute is to impose 
"prima facie" liability. See Linden, footnote 66, supra, at p. 120: "The formula — prima 
facie liability -- is useful, but the meaning of this phrase is shadowy. It is clear that 
the Supreme Court did not envision an absolute duty, but it is not clear what kind 
of conduct and proof the court will consider an acceptable justification." See also 
Linden, Canadian Tort Law (1977), ch. 7, especially pp. 210-16. Compare, Curll et at. 
v. Robin Hood Multifoods Ltd. et al. (1974), 56 D.L.R. (3d) 129 (N.S.S.C, T.D.). 

l20 See Hogg, Constitutional Law of Canada (1977), at pp. 273-75 and 288-89. For a recent 
case in which the power of the federal government to provide a civil remedy was questioned, 
see MacDonald et al. v. Vapor Canada Ltd. et al. (1976), 66 D.L.R. (3d) 1 (S.C.C.). 



29 

something said about the product. For example, a wire cable perfectly capable 
of lifting a one-half ton weight may become very dangerous if it is 
inaccurately described as capable of supporting two tons. If the cable is 
accompanied by the misleading description, it would be possible to classify the 
cable and its descriptive material, taken as a whole, as a "defective" product. 
The misleading statement and the product may, however, come from separate 
sources. For example, the product may come from a retailer and the 
descriptive material may come from a manufacturer. In this kind of situation, 
it is difficult to describe the product as "defective". The real complaint is that 
the statement is misleading. 

Where the statement is fraudulent and there has been reliance on it, the 
maker will be liable for damages caused by this reliance. Such damages may 
include damages for personal injuries, for property damage and for 
consequential economic loss. 121 Where the statement is negligent, the law is 
not so clear. Several cases have imposed liability for negligent statements 
causing physical damage. 122 Liability has also been imposed in a number 
of cases for negligent statements causing economic loss. 123 

Where there is a contract between the parties, the interrelationship of the 
tortious and contractual remedies cannot be stated with complete certainty. In 
Esso Petroleum Co. Ltd. v. Mar don, 124 an oil company induced a prospective 
tenant to take a lease of a gasoline station by making a misleading statement 
about the volume of business that the proposed filling station could expect to 
secure. The oil company had carelessly omitted to revise the estimate in the 
light of a very important change in the design of the layout of the filling 
station. This change had the effect of preventing direct access to the station 
from the main street. The English Court of Appeal held that the oil company 
was liable to the tenant both in contract, for breach of warranty, and in tort, 
for negligent misrepresentation. On the warranty point, Lord Denning, M.R., 
said: 125 

In the present case it seems to me that there was a warranty that 
the forecast was sound, that is, Esso made it with reasonable care 
and skill. That warranty was broken. Most negligently Esso made a 
'fatal error' in the forecast they stated to Mr. Mardon, and on which 
he took the tenancy. For this they are liable in damages. 

On the negligent misrepresentation point, Lord Denning, M.R., made the 
following statement: 126 



^Langridge v. Levy (1837), 2 M. & W. 519, affd (1838), 4M.&W. 337 (Ex. Ch.) (personal 
injuries); Mullen v. Mason (1866), L.R. 1 C.P. 559 (property damage). See also Graham 
v. Saville, [1945] O.R. 301, [1945] 2 D.L.R. 489 (C.A.); Burrows v. Rhodes and Jameson, 
[1899] 1 Q.B. 816; Doyle v. Olbv (Ironmongers) Ltd. et al., [1969] 2 Q.B. 158 (C.A.); 
Nicholls v. Taylor, [1939] V.L.R. 119 (S.C.). 

n2 Rohson y. Chrysler Corp. of Canada Ltd. (1962), 32 D.L.R. (2d) 49 (Alta. S.C., App. Div.); 
Clayton v. Woodman & Son (Builders) Ltd., [1962] 2 Q.B. 533 (C.A.), leave to appeal 
refused [1962] 1 W.L.R. 920 (H.L.); Clav v. A. J. Crump & Sons Ltd., [1964] 1 Q.B. 533 
(C.A.). 

i23 Sodd Corp. Inc. v. Tessis (1977), 17 O.R. (2d) 158 (C.A.); Dodds and Dodds v. 
Millman (1964), 45 D.L.R. (2d) 472 (B.C.S.C); Bango v. Holt et al. (1971), 21 D.L.R. 
(3d) 66 (B.C.S.C); Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465 
(H.L.); Esso Petroleum Co. Ltd. v. Mardon, [1976] Q.B. 801 (C.A.). 

I24 [1976] Q.B. 801 (C.A.). 

ni Ibid., at p. 818. 

^ k Ibid., at p. 820. 



30 

[I]f a man who has or professes to have special knowledge or skill 
makes a representation by virtue thereof to another — be it advice, 
information or opinion — with the intention of inducing him to 
enter into a contract with him, he is under a duty to use reasonable 
care to see that the representation is correct, and that the advice, 
information or opinion is reliable. If he negligently gives unsound 
advice or misleading information or expresses an erroneous 
opinion, and thereby induces the other side to enter into a contract 
with him, he is liable in damages .... 

. . . Applying this principle, it is plain that Esso professed to have 
— and did in fact have — special knowledge or skill in estimating the 
throughput of a filling station. They made the representation — they 
forecast a throughput of 200,000 gallons — intending to induce 
Mr. Mardon to enter into a tenancy on the faith of it. They made it 
negligently. It was a 'fatal error'. And thereby induced Mr. Mardon 
to enter into a contract of tenancy that was disastrous to him. For 
this misrepresentation they are liable in damages. 

In J. Nunes Diamonds Ltd. v. Dominion Electric Protection Com- 
pany, ni the Supreme Court of Canada suggested that, where the relationship 
between the parties was governed by a contract, no action could be brought 
for negligent misstatement, unless it were an "independent tort". 128 The scope 
of the dictum is unclear. The Court itself said that it did not apply to a 
statement inducing a contract. The case involved a valid exemption clause, 
and it remains to be seen whether the scope of the dictum is to be limited to 
such a situation. 

As the above-quoted statement from Esso Petroleum Co. Ltd. v. Mardon 
makes clear, an action for a misleading statement can often be based on 
warranty. Just as implied warranties provided a means of imposing strict 
liability for defective goods, so express warranties have the similar effect of 
imposing strict liability for misleading statements. If, in the example referred 
to above, the manufacturer of the wire cable is held liable for breach of a 
warranty that the cable will support two tons, he will be so liable whether or 
not he was negligent. Some cases have imposed liability on a warranty basis 
both between directly contracting parties and between parties not in obvious 
privity of contract, in the latter case by construing a "collateral contract". 129 
No general principle of liability has, however, evolved. Accordingly, the law 
of warranties remains in a state of considerable uncertainty. 

6. Summary 

The two most significant branches of products liability law are 
undoubtedly negligence and implied warranties. When these two branches of 



127 [1972] S.C.R. 769. In this case, the plaintiff had contracted with the defendant for 
a burglar alarm system. After its installation, the plaintiff requested that the system be 
examined. The defendant had the system inspected and represented to the plaintiff that 
it was functioning properly. Subsequently, a break-in occurred and a quantity of diamonds 
was stolen from the plaintiffs premises. The plaintiff sued the defendant in both contract 
and tort for the loss resulting from the failure of the burglar alarm system. The plaintiff 
failed to succeed on either basis. 

^Ibid., at pp. 777-78. 

xv > Supra, at pp. 22-23 and see footnote 84, supra. 



31 

law are considered together, it will be seen that strict liability, or something 
very close to it, exists in large measure in present Anglo-Canadian law, 
although with significant gaps. On the negligence side, the manufacturer who 
has put into circulation a defective product that causes injury to the plaintiff 
will, it seems, very rarely escape liability. Although the legal theory is 
negligence, the practical effect appears to be very close to strict liability. Other 
business distributors of goods, such as importers, wholesalers and retailers, 
cannot so easily be held liable for negligence. The retail seller will, however, be 
strictly liable to the buyer for breach of the implied warranties for loss caused 
by defects. While in the case of the retailer, the legal theory is breach of 
promise, no actual promise is required. The effect is, therefore, strict liability. 
Further, where the retail seller is sued, wholesalers, importers and other 
distributors in the chain can be made indirectly liable by a series of warranty 
claims, but the process may be interrupted by insolvency or exemption 
clauses. As strict liability for breach of warranty is subject to the rule of privity 
of contract, each buyer must claim against his immediate seller; that is, strict 
liability in this context only applies when the plaintiff and defendant are in a 
contractual relationship with each other. It can fairly be said, then, looking at 
the two branches of the law together, that every business distributor of 
products is subject, in practice, to a large measure of strict liability. Where an 
express statement has been made, strict liability has been imposed in some 
cases by such devices as collateral contracts. Where the statement can be 
shown to be negligent, liability has been imposed on the basis of negligence. 
But there are significant gaps in the protection afforded to plaintiffs that have 
caused serious anomalies. These anomalies must be addressed if the law of 
products liability is to be placed on a fair and rational footing. 



CHAPTER 3 



DEFICIENCIES IN THE PRESENT 
LAW: THE CASE FOR REFORM 



The case for reform of the law of products liability does not rest on the 
assertion that there is a large number of cases in which persons injured 
by defective products wrongly go uncompensated. As mentioned above, there 
is a large measure of strict liability already in the law. The case for reform 
is, rather, that the present law contains serious anomalies. If anomalies and 
irrationalities in the structure of the law cause injustice in even a 
comparatively small number of cases, there is an argument for reforming the 
law and putting it on a more rational basis. 

The two chief anomalies spring from the contractual principles upon 
which the law of implied warranties is based. First, because of contractual 
theories, only a buyer can sue for breach of implied warranty. The law is in a 
similar position to that which prevailed twenty years ago in the United 
States when, as Prosser said, 1 a woman who buys and eats poisonous food 
cannot recover in contract from the seller, where she buys as her husband's 
agent; but, if she dies, her husband can recover for the loss of her services. 
The anomalies may be illustrated by reference to a number of more recent 
cases. It should be borne in mind that in the following discussion of these 
cases we make no reference to any possible remedy in negligence. 

In Buckley v. Lever Bros. Ltd., 2 the plaintiff recovered for injury 
to her eye caused by the shattering of a plastic clothespin that she had 
bought from the defendant. If, however, her husband, or her child, or a 
neighbour, had been similarly injured by one of the clothespins, they would 
have had no contractual right to recover against Lever Brothers. The case 
of MeMorran v. Dominion Stores Ltd. et al.^ concerned a bottle of soda 
water, the cap of which flew off when it was being opened by the buyer. 
The buyer recovered damages from the grocery store that sold him this bottle 
for injuries so caused to his eye. Again, if a neighbour or a member of 
the buyer's family had been opening the bottle, neither would have been able 
to recover under the implied warranties from the defendant. Moreover, if 
Mr. MeMorran had been injured in the same way in the store, before 
completing his purchase, he would again have been without remedy against 
the defendant retailer. 4 The right to recover in contract for injuries caused 
by an exploding bottle will be determined, therefore, by the side of the cash 



'Prosser, "The Assault Upon the Citadel (Strict Liability to the Consumer)" (1959-60), 
69 Yale L.J. 1099, at p. 1118. 

2 [1953] O.R. 704, [1953] 4 D.L.R. 16 (H.C.J.). 

3 (1977). 14 O.R. (2d) 559, 74 D.L.R. (3d) 186 (H.C.J.). 

4 On somewhat similar facts, the defendant in Hart v. Dominion Stores Ltd. et ai, [1968] 
1 O.R. 775, (1968), 67 D.L.R. (2d) 675 (H.C.J.) was able to defend successfully a claim 
in negligence. See also Pharmaceutical Society of Great Britain v. Boots Cash Chemists 
(Southern) Ltd., [1952] 2 Q.B. 795, affirmed [1953] 1 Q.B. 401 (C.A.). 

[33] 



34 

register upon which the injury occurs. One shopper, injured while lining up 
at the cash register, will have no action in contract. Another, injured 
while carrying the purchase from the cash register toward the door, may 
successfully seek compensation. Distinctions like this are not, in our view, 
rationally tenable. Surely, no rational person who is not a lawyer could be 
persuaded that, in respect of the liability of the store to compensate 
the plaintiff for his injuries, it should be a relevant question to ask on which 
side of the cash desk a shopper was standing. Another recent Canadian 
case provides a further illustration. In Sigurdson et al. v. Hillcrest Service 
Ltd. and Acklands Ltd. (Third Party), 5 the plaintiff had contracted with 
the defendant for the installation of a brake hose in his automobile. The 
brake hose proved, without the defendant's fault, to be defective, and the 
plaintiff and members of his family, who were all injured in the consequent 
collision, sued the defendant. The plaintiff recovered damages because he 
had a contract with the defendant. The other members of his family failed 
to recover. It is difficult to believe that such distinctions can be rationally 
supported. 

It may be argued that in circumstances like those of the unsuccessful 
plaintiffs or hypothetical plaintiffs mentioned in the last paragraph, an 
injured party would have a remedy in negligence against the manufacturer of 
the defective goods. Indeed, this may often be so. Moreover, as we have noted, 
manufacturers, in the narrow sense of the term, are subject, in practice, to a 
large measure of strict liability. There will be, however, no effective remedy 
against the manufacturer where the manufacturer is unknown, insolvent, or 
beyond the jurisdiction. 6 These possibilities arise, if not commonly, at least 
sufficiently often to be significant. As a result, the right to recover against the 
retail seller is an important legal right, and important legal rights should not 
be made to turn on factors that are rationally irrelevant; that is, the existence 
of privity of contract. It is worth repeating that under a negligence rule 
wholesalers, retailers and importers will rarely be found liable. 

The second anomaly that springs from contractual principles is that strict 
liability, based on breach of the implied warranties, is available only against 
the retailer and not the manufacturer. Yet, the retailer is usually an innocent 
distributor of the defective goods, while the manufacturer is generally 
the party who is primarily responsible for the defect. Thus, if the plaintiff 
in the Lever Bros. Ltd. case had brought an action against the manufacturer 
of the clothespins, she, like any other person injured by the goods, would 
have had to show negligence. The burden of this task, as has been shown, 
may be reduced by a presumption or inference of negligence against the 
manufacturer. 7 Nevertheless, there have been occasional cases in which a 
manufacturer has escaped liability on the ground of the plaintiffs failure 



5 [1977] 1 W.W.R. 740, (1976), 73 D.L.R. (3d) 132 (Sask. Q.B.). It should be noted 
that in this case action was only taken against the party responsible for installing the 
defective brake hose. No action was commenced against the manufacturer of the defective 
brake hose, although the defendant did assert a third party claim in contract against 
the intermediate supplier of the defective product. 

6 See supra, ch. I, footnote 3. 

1 Supra, at pp. 17- IS; McMorran v. Dominion Stores Ltd. et al., footnote 3, supra: Hill v. 
James Crowe (Cases) Ltd., [1978] I All E.R. 812 (Q.B.). 



35 

to prove negligence. 8 In addition, the plaintiff who seeks recovery in 
negligence for injuries caused by a defective product faces other problems, 
including tactical disadvantages, and when suit is brought against the 
wholesaler, importer and retailer, the difficult hurdle of showing negligence. 9 
It is also possible that the defect in the product might be the result of a 
defective part incorporated into the product by some other person for whom 
the manufacturer may not be responsible in law. 10 If a legal system is to choose 
one standard of liability for the manufacturer of a defective product, who 
is primarily responsible for the defect, and another standard of liability 
for the innocent retailer, who simply passes on a product with a not 
reasonably discoverable defect, it would seem rational to impose the heavier 
burden on the manufacturer. But our legal system has done precisely 
the opposite. It is the retailer who carries the burden of strict liability. 
Against the manufacturer, negligence must be shown. 

The anomalies mentioned above seem more striking when it is borne in 
mind that the large majority of jurisdictions in the United States have now 
adopted a principle of strict liability. This position has been reached largely 
because of the American courts' refusal to tolerate these anomalies. 11 Thus, 
the American manufacturer who distributes goods in Canada finds himself 
more favourably treated here than at home. In view of the very close 
trading relationship between the United States and Canada, and in view of the 
very large number of consumer goods manufactured in the United States 
and sold in Canada, the disparity in levels of liability seems strange. When 
one adds the fact that the law in many western European countries is also 
moving toward strict liability, and that the English and Scottish Law 
Commissions and the Pearson Commission in the United Kingdom have 
recommended strict liability for personal injuries caused by defective 
products, 12 the case for a similar reform in Canada must appear very strong. 

It might possibly be argued that the anomalies referred to above spring 
from an erroneous extension of the law of implied warranties in the 
nineteenth century. 13 The anomalies, it might be said, could be removed in 
another way than by adoption of strict liability; that is, by abolition of strict 
liability for breach of warranty, and the substitution of a universal regime 
of negligence. On that view, the retail seller would not be liable to the buyer 
or to anyone else unless he were negligent. But the adoption of this view 



*Wiilis v. Coca-Cola Co. of Canada Ltd., [1934] 1 W.W.R. 145, [1934] 2 D.L.R. 173 
(B.C.C.A.). See also Daniels and Daniels v. R. White & Sons, Ltd. and Tarbard, [1938] 
4 All E.R. 258 (K.B.). As noted above, ch. 2, footnote 52, this case has been criticized. 

9 Supra, at p. 19. 

i0 Supra, at p. 19. 

"It is now widely accepted in the U.S. that the explanation of these anomalies is that the 
obligation imposed by the implied warranties is not really a promissory obligation at all, 
and thus promissory principles cannot rationally be applied to limit the scope of liability. 
See Prosser, "The Fall of the Citadel (Strict Liability to the Consumer)" (1965-66), 50 
Minn. L. Rev. 791. There are two lines of attack on the problem. One attempts to protect 
the injured party by giving him an extended contractual right, and the other attacks the 
problem directly as a matter of strict tortious liability. See infra, at pp. 51-56 ff. 

l2 Law Com. No. 82 (Scot. Law Com. No. 45), Liability for Defective Products (1977); 
Royal Commission on Civil Liability and Compensation for Personal Injury (1978) 
(Cmnd. 7054). 

n On the early history of warranties, see Waddams, "Strict Liability, Warranties, and the 
Sale of Goods" (1969), 19 U.T.L.J. 157. 



36 

would amount to a retrenchment from the principles of consumer protection 
developed by the courts since the nineteenth century. Further, it would be a 
move in a direction contrary to that taken by the legal systems most closely 
associated with our own. Moreover, the position of the retailer held liable 
for breach of warranty should not be viewed in isolation. Where the 
manufacturer or other person supplying the retailer is known, solvent 
and within the jurisdiction, the retailer who is held liable to the purchaser, 
in the absence of an agreement to the contrary, will generally be able 
to recover from his supplier, and indirectly from the manufacturer, for 
breach of warranty in the sale to the retailer. 14 The real question is: who 
should take the risk of the manufacturer's not being available as a source 
of compensation? As between the innocent consumer-buyer and the innocent 
business-retailer, the courts have held, in effect, that it is the retailer who 
should take the risk. This view, justifiable in the nineteenth century, seems 
even more persuasive today, when large retailing chains are common, and 
when it may often be the retailer rather than the manufacturer who is 
primarily responsible for the distribution and marketing of the goods. It 
would seem, therefore, to be a retrogressive step to attempt now to cut 
back on those elements of strict liability that have found a place in our 
legal system. The alternative is to extend them, by openly adopting and 
administering on a rational basis a system of strict liability. 



]4 Kasler and Cohen v. Slavouski, [1928] 1 K.B. 78 (involving tour successive indemnities 
of the retailer's liability to a purchaser who had contracted dermatitis); Biggin & Co. Ltd. 
v. Permanite Ltd. et a/., [1951] 2 K.B. 314 (C.A.). 



PART III 

LEGAL DEVELOPMENTS IN ONTARIO AND OTHER 

JURISDICTIONS 



[37] 



CHAPTER 4 



CONSUMER PROTECTION 
DEVELOPMENTS 



Consumer protection legislation of one kind or another has been enacted 
or proposed in various jurisdictions. We now turn to a brief survey of this 
activity. 

1. Saskatchewan Consumer Products Warranties Act, 1977 

In 1977, Saskatchewan enacted The Consumer Products Warranties Act, 
1977. l This Act was based on the 1972 Report of the Ontario Law Reform 
Commission on Consumer Warranties and Guarantees in the Sale of Goods. 2 
The Saskatchewan legislation enacts certain non-excludable statutory 
warranties that apply in all consumer sales. 3 These include warranties of 
acceptable quality, 4 reasonable fitness for the buyer's purpose, 5 and a 
warranty of durability. 6 An action for breach of the warranties may be 
brought not only against the retail seller, but also against the manufacturer. 7 
The term manufacturer is defined to include any person who attaches his 
brand name to consumer products, any person who describes himself or 
holds himself out to the public as the manufacturer, and any person who 
imports products where the manufacturer does not have a regular place of 
business in Canada. 8 Section 5 of this Act provides as follows: 

5. A person who may reasonably be expected to use, consume or 
be affected by a consumer product and who suffers personal injury 
as a result of a breach, by a retail seller or manufacturer, of a 
statutory warranty mentioned in paragraphs 3, 4, 5 and 6 of section 
1 1 shall be entitled to the remedies mentioned in section 27. 9 

Section 27 provides: 

27. A person mentioned in Section 5 shall, as against the retail 
seller or manufacturer, be entitled to recover damages arising from 
personal injuries that he has suffered and that were reasonably 
foreseeable as liable to result from the breach. 



'S.S. 1976-77, c. 15. For a general discussion of this legislation, see Romero, "The Consumer 

Products Warranties Act" (1978-79), 43 (Vol. 2) Sask. L. Rev. 81. 
2 Ontario Law Reform Commission, Report on Consumer Warranties and Guarantees 

in the Sale of Goods (1972). 
3 Footnote 1, supra, s. 11. 
4 Ibid, s. 11.4. 
Hbid., s. 11.5. 
Hbid., s. 11.7. 
7 Ibid., s. 13(3). 
Hbid., s. 2(h). 
Paragraphs 3, 4, 5 and 6 of section 11, referred to in section 5 of the Act, correspond 

to the warranties of description, acceptable quality, reasonable fitness for purpose 

and sample. 

[39] 



40 



These sections are restricted to claims for personal injuries. In relation 
to such claims, however, the effect of these sections is greatly to extend 
the strict liability of distributors of goods, and to resolve the most striking 
anomalies mentioned above. This enactment brings the law of Saskatchewan 
very close to adopting a general rule of strict liability. In many of the 
examples given above, where an injured plaintiff might fail to recover under 
Ontario law because of the absence of a contract or the inability to establish 
negligence, 10 he would succeed under the present law of Saskatchewan. 
Nevertheless, there are a few respects in which the Saskatchewan Act falls 
short of a general rule of strict liability. 

First, the Act only applies to consumer products, defined as goods 
ordinarily used for personal, family, or household purposes, or for 
agricultural or fishing purposes. 11 This restriction sets up a distinction 
that may well be justifiable where the consumer's complaint is of deficient 
value. The distinction does not, however, appear to be acceptable in the 
case of personal injuries. A coin-operated dryer, manufactured for use in a 
coin laundry, for instance, is probably not a "consumer product" within the 
statutory definition. But if a user is injured by a faulty electrical connection 
in such a dryer, should he not be entitled to compensation? Again, the 
statutory warranties only apply where a consumer product "is sold by a 
retail seller". A retail seller is defined as a person who sells consumer 
products to consumers in the ordinary course of his business. 12 The person 
injured by the coin-operated dryer would also be excluded on this ground. 
So too would the pedestrian injured by the failure of defective brakes on a 
truck owned and operated by a business user. Also excluded would be the 
shopper injured in a supermarket before purchase of a defective product. 
In none of these cases is the product "sold by a retail seller". These 
restrictions seem anomalous, for where personal injuries are in question, 
it does not seem relevant to ask either whether the defective product is 
a consumer product or whether it has been sold by a retail seller. The 
rights of the injured plaintiff to recover damages are restricted by reference 
to a transaction that appears irrelevant to the question of compensation 
for such injuries. 

There are some other aspects, though they cannot be described as 
anomalies, in which the Saskatchewan Act falls short of a general rule of 
strict liability such as that applied in most American jurisdictions by the 
judicial adoption of section 402A of the Restatement (Second) of Torts. 13 
Section 402A imposes liability on any business seller of goods. The 
Saskatchewan Act is restricted to certain classes of business distributor, 
and does not include, for example, the wholesaler, except in certain 
circumstances. 14 Nor would, for example, a business lessor always be 



{0 Supra, at pp. 33-36. 

"The Consumer Products Warranties Act, 1977. S.S. 1976-77, c. 15, s. 2(e). 

"Ibid., s. 2 (/). 

l3 American Law Institute, Restatement (Second) of Torts (1965), Appendix 1966. See 
infra, at pp. 54-55. 

l4 Footnote 1 1 , supra, s. 2(h): A wholesaler can be liable under the definition of "manufacturer" 
if he i) attaches a brand name to a product, ii) holds himself out to the public 
as the manufacturer of consumer products, or iii) imports or distributes products 
of foreign manufacture. He may also be liable if he attaches a warranty to the goods. 



41 

included. 15 Again, the extended liability applies only to personal injuries; 
unlike section 402A, the Saskatchewan Act does not apply to property 
damage, nor to purely economic loss. These questions will be considered 
in more detail below. 16 

One further comment can be made on the Saskatchewan legislation. In 
respect of express statements, section 8(1) provides: 

8.(1) Any promise, representation, affirmation of fact or 
expression of opinion or any action that reasonably can be 
interpreted by a consumer as a promise or affirmation relating to a 
sale or to the quality, quantity, condition, performance or efficacy of 
a consumer product or relating to its use or maintenance, made 
verbally or in writing directly to a consumer or through advertising 
by a retail seller or manufacturer, or his agent or employee who 
has actual, ostensible or usual authority to act on his behalf, shall 
be deemed to be an express warranty if it would usually induce 
a reasonable consumer to buy the product, whether or not the 
consumer actually relies on the warranty. 

The majority of the provisions of the Saskatchewan Act were proclaimed 
in force in November, 1977, but these provisions did not include section 
8(1). If proclaimed in its present form, the effect of this provision will be 
to make manufacturers and retailers strictly liable for loss caused by reliance 
on statements made to promote the sale of products. Indeed, it will go 
further by dispensing with proof of actual reliance by the plaintiff, if the 
statement would tend to induce such reliance in consumers generally. 17 

2. New Brunswick Consumer Protection Project Report. 1976, 
and the Consumer Product Warranty and Liability Act. 1978 

The Third Report of the Consumer Protection Project, 1976, of the Law 
Reform Division of the New Brunswick Department of Justice recommended 
as follows: 18 

Privity of Contract 

4. The doctrine of privity of contract should be abolished in 
consumer transactions. In the case of contracts for the sale or supply 
of consumer goods a supplier's guarantee, whether the supplier be 
manufacturer, wholesaler, retailer or other business distributor, and 
whether the guarantee be express or implied, should apply in favour 
of all persons who may reasonably be expected to buy, consume, 
use, or be affected by the goods. Such persons should be able 
to recover from the supplier any loss that is caused by his breach 
of the guarantee, whether the loss be economic or damage to person 



l5 Under s. 2(w), the definition of "sale" includes a contract of lease or hire, but is 
restricted to transfers of property "in a consumer product to a consumer". 

^Infra, at pp. 79-85. 

17 See also Ontario Law Reform Commission, Report on Sale of Goods (1979), at pp. 
135-42, especially at p. 139, and Draft Bill, s. 5.10. 

l8 New Brunswick Dept. of Justice, Law Reform Division, Third Report of the Consumer 
Protection Project (1976), Vol. 1, at pp. 4-7. 



42 

or property, provided that such loss is not suffered in a business 
capacity, and subject to the normal rules as to causation and 
remoteness. For this purpose, a loss should not be treated as 
being suffered in a business capacity if it represents liability 
for a loss that is not suffered in a business capacity. 

Safety-Related Defects 

5. (a) A person who in the course of business supplies any 
consumer goods that are unreasonably dangerous to person or 
property because of a defect in design, materials or workmanship, 
should be liable to any person who may reasonably be expected to 
buy, use, consume or be affected by the goods and who suffers loss 
because of such goods, whether the loss be economic loss or damage 
to person or property, provided that such loss is not suffered in a 
business capacity, and subject to the normal rules as to causation 
and remoteness. For this purpose, a loss should not be treated 
as being suffered in a business capacity if it represents liability 
for a loss that is not suffered in a business capacity. 

(b) No person should be liable under this provision for any loss 
that arises from a defect that was not present in the goods at the time 
he supplied them or, subject to applicable New Brunswick and 
Federal safety standards, for any loss that arises from a defect that 
he has pointed out to the person to whom he supplied the goods 
before the loss was suffered. 

(c) The liability under this provision should not depend on 
contract. 

(d) The liability under this provision should not depend on 
negligence but should be a strict liability. 

(e) No person should be allowed to contract out of the liability 
imposed by this provision. 

Legislation has now been enacted to give effect to these proposals. The 
main part of the Consumer Product Warranty and Liability Act, 1978, 19 
provides non-excludable warranties in sales of consumer products, and 
extends a remedy for breach to any person suffering a non-business 
loss. Section 27 of this Act goes further. It creates a direct strict liability 
for the supply of dangerously defective products. The section is entitled 
"Product Liability" and provides as follows: 

27.(1) A supplier of a consumer product that is unreasonably 
dangerous to person or property because of a defect in design, 
materials or workmanship is liable to any person who suffers a 
consumer loss in the Province because of the defect, if the loss was 
reasonably foreseeable at the time of his supply as liable to result 
from the defect and 



19 S.N.B. 1978, c. C- 18.1. The Act, however, has not yet been proclaimed in force. 



43 

(a) he has supplied the consumer product in the Province; 

(b) he has supplied the consumer product outside the Province 
but has done something in the Province that contributes to the 
consumer loss suffered in the Province; or 

(c) he has supplied the consumer product outside the Province 
but the defect arose in whole or in part because of his failure to 
comply with any mandatory federal standards in relation to 
health or safety, or the defect caused the consumer product to 
fail to comply with any such standards. 

(2) For the purposes of paragraph (\)(b), where a person has 
done anything in the Province to further the supply of any consumer 
product that is similar in kind to the consumer product that caused 
the loss, it shall be presumed that he has done something in the 
Province that contributed to the consumer loss suffered in the 
Province, unless he proves irrefragably that what he did in the 
Province did not in any way contribute to that loss. 

(3) A person is not liable under this section 

(a) for any loss that is caused by a defect that is not present in 
the consumer product at the time he supplies it; or 

(b) for any loss that is caused by a defect that he has reason to 
believe exists and that he discloses to the person to whom he 
supplies the consumer product before the loss is suffered, if the 
defect does not arise in whole or in part because of his failure to 
comply with any mandatory federal or provincial standards in 
relation to health or safety and the defect does not cause the 
consumer product to fail to comply with any such standards. 

(4) The liability of a person under this section does not depend 
on any contract or negligence. 

"Consumer loss" and "consumer product" are defined in section 1(1) of 
the Act as follows: 



consumer loss means 

(a) a loss that a person does not suffer in a business capacity; or 

(b) a loss that a person suffers in a business capacity to the 
extent that it consists of liability that he or another person 
incurs for a loss that is not suffered in a business capacity; 

'consumer product' means any tangible personal property, new or 
used, of a kind that is commonly used for personal, family or 
household purposes. 

Section 27 and the definitions set out above go considerably beyond 
the provisions of the Saskatchewan Act. It will be noted that they apply 
to all business suppliers of products, including wholesalers, and that they 
cover some non-business property damage and economic losses as well as 



44 

personal injury. Further, in the case of safety related defects, no contract 
at all is necessary. However, like the Saskatchewan provisions, these 
provisions seem to be restricted to consumer goods. Thus, to revert to 
our earlier examples, the user injured by a defective coin laundry appliance, 
or a pedestrian injured by a defective truck owned and operated by a 
business user would seem to be without protection. Similarly, a shopper 
injured by a defective plate glass window, or a defective display shelving 
unit (not being of a type ordinarily used by consumers) would be without a 
remedy under these provisions. 

3. The Ontario Law Reform Commission Report on Consumer 
Warranties and Guarantees in The Sale of Goods, 1972 

The source of the Saskatchewan Act, and of much thinking in the 
area in Canada and elsewhere, is the 1972 Report of the Ontario Law 
Reform Commission on Consumer Warranties and Guarantees in the Sale 
of Goods. 20 The Report recommended that there should be certain non- 
excludable warranties in consumer sales, and that for breach of those 
warranties, the "consumer buyer" should have an action against the 
"manufacturer". "Consumer buyer" was defined to include any person 
deriving an interest in the goods from or through the original consumer 
purchaser, 21 and "manufacturer" was defined to include the importer 
or assembler of the goods or anyone holding himself out as the manu- 
facturer. 22 This proposal goes a considerable distance in the direction 
of strict liability. However, it does not entirely remove the anomalies of 
the present law. 

First, under this proposal, liability would only extend in favour of 
those having "an interest" in the goods. Thus, in the Sigurdson case, 
considered above, 23 the car owner would have a remedy against the 
supplier of the brake hose and against the manufacturer, but the other 
occupants of the car would not. They would derive no interest in the 
goods from or through the original consumer purchaser and, therefore, 
would not be consumer buyers. Nor would a bystander, such as a pedestrian, 
have any such right of action. This Commission itself recognized this 
anomaly and stated as follows: 24 

We are conscious of this anomaly. It suggests to us the need for 
an early review of the general tort law governing a manufacturer's 
responsibility for defective goods. 

Secondly, like the Saskatchewan Act, the proposal would only apply 
where the goods had been the subject of a consumer sale. Thus, the 
person injured by an exploding bottle in a supermarket would not be 
entitled to recover since there would not, at the time of his injury, have 
been any consumer sale. Finally, the proposal applies only to particular 
classes of supplier, that is, retail sellers and manufacturers, as defined. 



20 Ontario Law Reform Commission, Report on Consumer Warranties and Guarantees in 

the Sale of Goods (1972). 
^Ibid., at p. 160. 
^-Ihid., at pp. 159-60. 
n Supra, at p. 34. 
24 Footnote 20, supra, at p. 71. 



45 

It does not include other business sellers such as wholesalers, nor does 
it include business suppliers other than sellers. 

In relation to express statements, the Report recommended an extended 
definition of express warranty so as to impose strict liability upon 
manufacturers, as defined, and upon retailers. 25 The effect of these 
recommendations would be that any false statements made in the course of 
distributing a product would, in general, be actionable. 

4. The Ontario Consumer Products Warranties Bill, 1976 

The Consumer Products Warranties Bill (Bill 110) was introduced 
into the Ontario Legislature in 1976, but did not proceed beyond first 
reading. 26 This Bill adopted some of the recommendations contained in 
the 1972 Report on Consumer Warranties and Guarantees in the Sale of 
Goods of the Ontario Law Reform Commission. However, in respect of 
liability for injuries caused by defective products, it fell short of the 
recommendations made by the Commission. Apart from the points 
mentioned above, (that is to say, the restrictions on the classes of person liable 
and the classes of person protected, and on the type of transaction 
involved), the Bill contained two further important restrictions. First, 
it excluded all products sold to the consumer at a price less than $25.00. 
Secondly, it did not apply to food, drink, medicine, cosmetics, or clothing. 
These restrictions may be comprehensible in relation to economic loss claimed 
by consumers, but they seem inappropriate where the complaint is of 
injuries caused by defective products. One has only to think of the 
leading cases on products liability to realize that many of them involve 
items of small value, such as plastic clothespins, 27 sling-shots, 28 items of 
food, 29 drink, 30 medicine, 31 cosmetics, 32 and clothing. 33 The Bill may have 
dealt adequately with the economic expectations of consumers disappointed 
with the quality of goods they received, but it would have done very 
little to resolve the anomalies in the law of products liability. Presumably, 
however, this was not the thrust of the Bill. 

In relation to express statements, the Bill would have considerably 
extended liability. Express warranty was defined in section l(l)(c) to mean 



25 Ibid., at pp. 66 and 151. 

26 3rd Session, 30th Legislature (1976). 

"Buckley v. Lever Bros. Ltd., [1953] O.R. 704, [1953] 4 D.L.R. 16 (H.C.J.). 

™Godley v. Perry, [1960] 1 W.L.R. 9, [1960] 1 All E.R. 36 (Q.B.). 

29 Barnett v. H. & J. Packer & Co., Ltd., [1940] 3 All E.R. 575 (K.B.); Kirby v. Burke 

and Holloway, [1944] I.R. 207 (H.C.J.); Tar ling v. Nobel, [1966] A.L.R. 189 (Aus. 

Cap. Terr. S.C.). 
™Donoghue v. Stevenson, [1932] A.C. 562 (H.L.)(Scot.); see also Shandloff v. City 

Dairy Ltd. and Moscoe, [1936] O.R. 579, [1936] 4 D.L.R. 712 (C.A.); Zeppa v. 

Coca-Cola Ltd., [1955] O.R. 855, [1955] 5 D.L.R. 187 (C.A.); Varga v. John Labatt 

Ltd. et al, [1956] O.R. 1007, (1956), 6 D.L.R. (2d) 336 (H.C.J.). 
"O' Fallon v. Inecto Rapid (Canada) Ltd. et al. (1938), 53 B.C.R. 266, [1939] 1 W.W.R. 264, 

[1939] 1 D.L.R. 805 (S.C.); Abbott-Smith v. Governors of University of Toronto et al. 

(1964), 49 M.P.R. 329, 45 D.L.R. (2d) 672 (N.S.S.C, App. Div.); Distillers Co. (Bio- 
chemicals) Ltd. v. Thompson, [1971] A.C. 458 (P.C.). 
i2 0' Fallon v. Inecto Rapid (Canada) Ltd. et al., footnote 31, supra; Watson v. Buckley, 

Osborne, Garrett & Co., Ltd., and Wyrovoys Products, Ltd., [1940] 1 All E.R. 174(K.B.). 
^Grant v. Australian Knitting Mills Ltd., [1936] A.C. 85 (P.C.). 



46 

"an affirmation of fact or promise relating to the quality, condition, 
quantity, performance or efficacy of a consumer product or relating to 
its use and maintenance where the tendency of such affirmation is to 
induce the buyer to purchase the consumer product". Section 7 provided 
that an express warranty made by a retail seller in connection with the 
sale of a consumer product to a retail buyer, if made in writing or 
published or broadcast, enured to the benefit not only of the buyer but 
of any person subsequently entitled to possess and use the product. 

5. Quebec Consumer Protection Act, 1978 

Quebec's Consumer Protection Act 34 imposes statutory obligations 
on the manufacturer and retail seller of goods, including an obligation 
that the goods must be serviceable for a reasonable length of time. A 
"consumer" is defined in section \(e) as a natural person except a merchant, 
and a "manufacturer" is defined in section 1(g) to include an importer 
and a person who puts his trademark on goods, where the manufacturer 
has no establishment in Canada, and a person who represents himself 
to the public as a manufacturer of goods. 

Section 53 of the Act provides as follows: 

53. Le consommateur qui a contracte avec un commercant a le 
droit d'exercer directement contre le commercant ou contre le 
manufacturier un recours fonde sur un vice cache du bien qui a fait 
l'objet du contrat, sauf si le consommateur pouvait deceler ce 
vice par un examen ordinaire. 

II en est ainsi pour le defaut d'indications necessaires a la 
protection de l'utilisateur contre un risque ou un danger dont il ne 
pouvait lui-meme se rendre compte. 

Ni le commercant, ni le manufacturier ne peuvent alleguer le 
fait qu'ils ignoraient ce vice ou ce defaut. 

Le recours contre le manufacturier peut etre exerce par un 
consommateur acquereur subsequent du bien. 

[53. A consumer who has entered into a contract with a 
merchant is entitled to exercise directly against the merchant or the 
manufacturer a recourse based on a latent defect in the goods 
forming the object of the contract, unless the consumer could have 
discovered the defect by an ordinary examination. 

The same rule applies where there is a lack of instructions 
necessary for the protection of the user against a risk or danger of 
which he would otherwise be unaware. 

The merchant or the manufacturer shall not plead that he was 
unaware of the defect or lack of instructions. 



34 Assemblee Nationale de Quebec, Bill 72, 3rd Session, 31st Legislature (1978). Bill 72 
received third reading on December 21, 1978 and Royal Assent on December 22, 1978. 
The Act, however, has not yet been proclaimed in force. 



47 

The rights of action against the manufacturer may be exercised 
by any consumer who is a subsequent purchaser of the goods.] 

The effect is, therefore, to make the manufacturer liable for any breach 
of the statutory warranty against latent defects. Accordingly, as would be the 
case both under the proposals of the Ontario Law Reform Commission in its 
Report on Consumer Warranties and Guarantees in the Sale of Goods and 
under the Saskatchewan Act, a manufacturer, under the terms of the Act, is 
strictly liable for latent defects in goods sold to consumers. Moreover, as in the 
case of the Commission's 1972 proposals, the right of action provided by the 
Quebec Act would be extended to subsequent purchasers. The Act differs, 
however, from the proposals of the Ontario Law Reform Commission in 
that it does not go so far as to protect a person deriving an interest in 
goods otherwise than by purchase, such as a donee or bailee. Nor does 
it go so far as the even more extensive Saskatchewan provisions, which 
provide protection for all who are likely to be affected by the use of a 
product. Nor, of course, as far as the New Brunswick provisions, which 
openly adopt tortious liability. 

6. Agricultural Machinery Legislation 

For many years the prairie provinces, and most recently Prince Edward 
Island, have had legislation making the manufacturer of agricultural 
machinery, as well as the dealer, liable for breach of statutory warranties, 
including provision of spare parts. 35 This legislation was considered to 
be an important precedent by the Ontario Law Reform Commission in 
its 1972 Report. 

7. Trade Practices Legislation 

Three Canadian provinces have adopted trade practices legislation 
that has the effect, broadly speaking, of making actionable any mis- 
representation of the quality of goods sold to a consumer. 36 The Alberta 
Act has a specific reference to misrepresentations concerning defects in 
goods. 37 The scope of these statutes is limited by the concept of unfair 
business practice. In order to succeed, it seems that the plaintiff must show 
a misrepresentation or, at least, that the defendant knew or ought to have 
known of the defect. 

8. Safety Standards Legislation 

A number of federal statutes deal with product standards. These 
include the following: the Consumer Packaging and Labelling Act; 3S 
the Hazardous Products Act' 39 the Motor Vehicle Safety /lc/; 40 the National 



i5 The Farm Implement Act, R.S.A. 1970, c. 136; The Agricultural Implements Act, 1968, 

S.S. 1968, c. 1; The Farm Machinery and Equipment Act, S.M. 1971, c. 83; The Farm 

Implement Act, R.S. P.E.I. 1974, c. F-3. 
36 Alta.: The Unfair Trade Practices Act, S.A. 1975, c. 33, The Unfair Trade Practices 

Amendment Act, 1976, S.A. 1976, c. 54; B.C.: Trade Practices Act, S.B.C. 1974, c. 

96; Ont.: The Business Practices Act, 1974, SO. 1974, c. 131. 
i7 The Unfair Trade Practices Act, S.A. 1975, c. 33, s. 4(c) and (d). 
3X S.C. 1970-71-72, c. 41. 
39 R.S.C. 1970, c. H-3. 
40 R.S.C. 1970, c. 26 (1st Supp.). 



48 

Trade Mark and True Labelling Act; 41 the Precious Metals Marking 
Act; 42 the Textile Labelling Act; 43 the Food and Drugs Act; 44 and, the 
Explosives Act. 45 These Acts impose penal sanctions for violations of 
their provisions, and include administrative and regulatory mechanisms for 
preventing defective products from reaching the consumer. However, it 
appears uncertain whether an action for compensation lies simply for 
breach of some statutory standard, 46 although violation of a statutory 
standard might be prima facie evidence of negligence, or evidence of a 
breach of warranty under The Sale of Goods Act. 41 On occasion, however, 
particularly in the United States and England, 48 breach of statute has, of 
itself, been held to give rise to a cause of action. In some cases, this 
technique has been used by courts to impose strict liability for defects. 49 

On the other hand, civil liability is directly addressed in the 
Saskatchewan Consumer Products Warranties Act, 1977 which provides 
as follows: 

34.(1) In any action arising under this Act, proof that a 
consumer product does not comply with mandatory health or safety 
standards set under an Act of the Parliament of Canada or an 
Act of the Legislature or with quality standards set by regulation 
constitutes prima facie evidence that the consumer product is not 
of acceptable quality or fit for the purpose for which it was bought. 

(2) No proof that a consumer product complies with the 
standards mentioned in subsection (1) shall constitute prima facie 
evidence that the consumer product is of acceptable quality or fit for 
the purpose for which it was bought. 

This section makes a breach of statute prima facie evidence of a defect. 
It adopts a similar, but more limited, approach to that contained in the 
Third Report of the Consumer Protection Project of New Brunswick 
referred to above. This Report recommended: 50 

7. A person who in the course of business breaches any Federal 
consumer protection legislation or regulations should be liable to 
any person who suffers loss because of that breach, whether the loss 
be economic loss or damage to person or property, provided that 
such loss is not suffered in a business capacity, and subject to the 
normal rules as to causation and remoteness. For this purpose a loss 
should not be treated as being suffered in a business capacity if it 



4I R.S.C. 1970, c. N-16. 

42 R.S.C. 1970, c. P-19. 

43 R.S.C. 1970, c. 46 (1st Supp.). 

44 R.S.C. 1970, c. F-27. 

45 R.S.C. 1970, c. E-15. 

46 See supra, ch. 2, footnote 1 19, at p. 28. 

47 R.S.O. 1970, c. 421. 

48 See Fleming, The Law of Torts (5th ed., 1977), at pp. 122-33 and Armitage and Dias 

(eds.), Clerk and LindseU on Torts (14th ed., 1975), at pp. 908-21. 
49 For a discussion of these cases, see Ballway, "Products Liability Based Upon Violation 

of Statutory Standards" (1965-66), 64 Mich. L. Rev. 1388. 
50 Footnote 18, supra, at p. 10. 



49 

represents liability for a loss that is not suffered in a business 
capacity. 

The Report pointed out that the effect of such a provision on extra- 
provincial Canadian suppliers could be to impose liability even though 
any tort created by this Report might be committed in another province 
and might not be actionable by the law of that province. Under the 
conflict of laws rules generally accepted in Canada, conduct is actionable 
in a jurisdiction if actionable by the lex fori and not justifiable by the 
lex loci delicti. 51 "Not justifiable" has been held to include conduct 
that is criminally punishable, although not civilly actionable. 52 The New 
Brunswick Consumer Warranty and Liability Act, 1978 provides in section 
21{\)(c) that a manufacturer who supplies a product outside the Province 
is liable for defects caused by noncompliance with federal statutory 
standards. 

The relationship between breach of statute and civil liability has never 
been satisfactorily resolved. Statutory standards for products have been 
increasing in rigour and complexity in recent years. It seems clear that 
statutory standards are necessary to keep unsafe products off the market: 
prevention of injury is certainly preferable to compensation after its 
occurrence. But, however thorough and detailed statutory regulation of 
products may become, there will always be a certain number of defective 
products that will continue to cause accidents. A fair and rational system 
of compensation is, therefore, essential. 

9. Australian Statutes 

The 1972 Report of the Ontario Law Reform Commission appears to 
have had considerable influence in Australia. The New South Wales 
Commercial Transactions (Miscellaneous Provisions) Act, 1974, 53 the New 
South Wales Motor Dealers Act, 1 974, 54 the South Australia Manufacturers 
Warranties Act, 1974, 55 and the Australian Capital Territories Law Reform 
(Manufacturers Warranties) Ordinance, 1977, 56 all show the influence of 
our 1972 Report. The last two statutes have the effect of making the 
manufacturer directly liable for breach of statutory warranties, including 
warranties of merchantable quality, fitness for purpose, and availability 
of spare parts and service facilities. 



"Phillips v. Eyre (1869), L.R. 4 Q.B. 225, affirmed (1870), L.R. 6 Q.B. 1 (Ex. Ch.). 

^Machado v. Forties, [1897] 2 Q.B. 231 (C.A.). See infra, at pp. 1 13-14. 

"1974, No. 105. 

54 1974, No. 52. See also New South Wales Law Reform Commission, Working Paper 

on the Sale of Goods (1975). 
55 1975, No. 47. 
56 1977, No. 12. 



CHAPTER 5 



GENERAL DEVELOPMENTS IN 
PRODUCTS LIABILITY 



I. American Developments 

(a) STRICT LIABILITY FOR DEFECTIVE PRODUCTS 

Forty years ago, the law in American jurisdictions was much the 
same as the present law in Ontario. On the basis of theories of negligence and 
implied warranties, a large measure of strict liability had, in practice, 
been introduced, but this introduction carried with it the restrictions 
referred to above that stemmed from the contractual basis of the implied 
warranties. 1 The American experience reveals that there have been two lines 
of development in the law of products liability. One has been to increase 
the protection given to the injured party by a theory of extended 
contractual rights under the original contract of sale. The other, and 
more direct approach, has been to recognize that compensation of injured 
persons belongs to the province of the law of torts rather than to that 
of the law of contracts and, consequentially, to create direct tortious 
liability. The latter approach has prevailed since 1965. 2 

The extended contractual right is embodied in section 2-318 of the 
American Uniform Commercial Code. 3 This section provides as follows: 

§2-318. Third Party Beneficiaries of Warranties Express or Implied 

Alternative A 

A seller's warranty whether express or implied extends to any 
natural person who is in the family or household of his buyer or who 
is a guest in his home if it is reasonable to expect that such person 
may use, consume or be affected by the goods and who is injured in 
person by breach of the warranty. A seller may not exclude or limit 
the operation of this section. 

Alternative B 

A seller's warranty whether express or implied extends to any 
natural person who may reasonably be expected to use, consume or 
be affected by the goods and who is injured in person by breach of 
the warranty. A seller may not exclude or limit the operation of this 
section. 

Alternative C 

A seller's warranty whether express or implied extends to any 
person who may reasonably be expected to use, consume or be 



1 Supra, at pp. 33-36. 

2 American Law Institute, Restatement (Second) of Torts (1965), Appendix 1966, s. 402A. 

3 American Law Institute, Uniform Commercial Code, 1972 Official Text with Comments. 

[51] 



52 

affected by the goods and who is injured by breach of the warranty. 
A seller may not exclude or limit the operation of this section with 
respect to injury to the person of an individual to whom the warranty 
extends. As amended 1966. 4 

The provision now designated Alternative A was originally the only 
official version of section 2-318. It proved highly unsatisfactory in practice, 
mainly because it set up distinctions as anomalous as those it had 
attempted to abolish. 5 For example, a member of a buyer's family was 
protected, but a stranger was not. Consequently, should a neighbour be 
injured by a defective product loaned to him, he would not be able to 
claim the protection of the section; but if the product were lent to the 
buyer's aunt, even though she did not live with the buyer, the section 
might apply. 6 Again, a guest in the buyer's home would be protected, 
but a guest in the buyer's automobile would not. 



4 The Official Comment to this section provides as follows: 

Purposes: 

1. The last sentence of this section does not mean that a seller is precluded from 
excluding or disclaiming a warranty which might otherwise arise in connection 
with the sale provided such exclusion or modification is permitted by Section 
2-316. Nor does that sentence preclude the seller from limiting the remedies 
of his own buyer and of any beneficiaries, in any manner provided in Sections 2-718 
or 2-719. To the extent that the contract of sale contains provisions under which 
warranties are excluded or modified, or remedies for breach are limited, such 
provisions are equally operative against beneficiaries of warranties under this section. 
What this last sentence forbids is exclusion of liability by the seller to the persons to 
whom the warranties which he has made to his buyer would extend under this section. 

2. The purpose of this section is to give certain beneficiaries the benefit of the 
same warranty which the buyer received in the contract of sale, thereby freeing any 
such beneficiaries from any technical rules as to "privity." It seeks to accomplish 
this purpose without any derogation of any right or remedy resting on negligence. It 
rests primarily upon the merchant-seller's warranty under this Article that the 
goods sold are merchantable and fit for the ordinary purposes for which such goods 
are used rather than the warranty of fitness for a particular purpose. Implicit in the 
section is that any beneficiary of a warranty may bring a direct action for breach of 
warranty against the seller whose warranty extends to him [As amended in 1966]. 

3. The first alternative expressly includes as beneficiaries within its provisions 
the family, household and guests of the purchaser. Beyond this, the section in this 
form is neutral and is not intended to enlarge or restrict the developing case law on 
whether the seller's warranties, given to his buyer who resells, extend to other persons 
in the distributive chain. The second alternative is designed for states where the case 
law has already developed further and for those that desire to expand the class 
of beneficiaries. The third alternative goes further, following the trend of modern 
decisions as indicated by Restatement of Torts 2d §402A (Tentative Draft No. 10, 
1965) in extending the rule beyond injuries to the person [As amended in 1966]. 

5 The difficulties of attempting to apply the section are vividly illustrated by a series of 
Pennsylvania decisions which led to the eventual adoption of the principle of strict liability in 
tort: Hochgertel v. Canada Dry Corporation, 409 Pa. 610, 187 A. 2d 575 (1963); Miller v. 
Preitz, All Pa. 383, 221 A. 2d 320 (1966); Webb v. Zern, All Pa. 424, 220 A. 2d 853 (1966); 
Kassab v. Central Soya, 432 Pa. 217, 246 A. 2d 848 (1968). 

6 The conclusion that the restrictive terms of Alternative A are untenable is borne out by the 
cases that have attempted to apply the section. In Hochgertel v. Canada Dry Corporation, 
footnote 5, supra, a bartender injured by the explosion of a bottle was denied recovery 
because he was an employee of the buyer, not a member of his family or a guest in his home. 
In Miller v. Preitz, footnote 5, supra, a child injured by boiling water from a vaporizer was 
permitted to recover, but only because the vaporizer had been bought by the child's aunt, 
who happened to live next door. 



53 

Alternative A, the original official version, has another limitation. By 
implication, it seems to be restricted to retail sellers and inapplicable 
to manufacturers or other distributors of goods, for it is only the buyer 
from the retail seller whose family or guest would ordinarily come into 
contact with the goods. Accordingly, that version does nothing to solve the 
anomaly referred to earlier, whereby the retail seller is subjected to a 
strict liability from which the manufacturer is exempt. 7 Twenty states 
varied or omitted the section, 8 and in most others it has now been 
rendered obsolete by the judicial adoption of the principles of strict 
liability in tort contained in the Restatement (Second) of Torts. 9 Alternative 
A, therefore, never actually represented the law in any American jurisdiction 
for any substantial period of time. Variation or omission of sections, of 
course, was at odds with the basic purpose of uniformity under the 
Uniform Commercial Code, and, in a belated attempt to salvage some 
uniformity, Alternatives B and C were promulgated in 1966. 

It should be noted that there are two respects in which the contractual 
right contained in all the versions of section 2-318 falls short of a direct 
tortious duty. All the versions of the section extend only to sellers. 10 
Thus, the business distribution of goods by lease, or by distribution of 
free samples, would not seem to be covered. Nor, in respect of the retailer's 
liability, would the section protect a supermarket shopper injured by an 
exploding bottle before his sale is consummated. Secondly, the injured 
person only has the benefit of such warranty as may have been given to 
the buyer. It should be noted that the prohibition in section 2-318 against 
exclusion or limitation of the operation of the section does not prevent 
exclusion or modification of the warranty itself, which might otherwise 
arise in connection with the sale. 11 As a result, the remedies of the person 
injured by a defective product may turn on an agreement between the 
defendant and his immediate buyer, an agreement to which the injured 
person was not a party, and of which he may know nothing. An exclusion of 
warranties in respect of economic loss in a carefully negotiated agreement 
between a sophisticated business seller and a sophisticated business buyer 
may well be enforceable, and rightly so, between the parties to the 



1 Supra, at pp. 34-35. 

8 See CCH Products Liability Reports, para. 1230. The following states have omitted the 
section: California (Cal. Laws 1963, Ch. 819); Utah (Utah Code Ann. 70A-2-318 1965). 
Other states have varied the section: States which have enacted that the seller's warranty shall 
extend to any person who may reasonably be expected to use, consume or be affected by the 
goods: Alabama (Ala. Code Title 7As. 2-3 1 8); Colorado (Colo. R.S. s. 1 55-2-3 1 8); Delaware 
(D.C.A., Title 5As. 2-318); Hawaii (R.S. s. 490:2-318); Maryland (Maryland Anno. Code 49 
s. 2-318); Minnesota (Stats. Sec. 336. 2-318); N. Dakota (Cen. Codes. 41-02-35); S. Carolina 
(Code 1976 s. 36. 2-318); S. Dakota (Comp. Laws 1967, s. 57-4-41); Vermont (9A V.S.A. s. 
2-318); Wyoming (Stats. 1957, s. 34-2-318). States that provide that lack of privity is no 
defence to an action against seller or manufacturer: Arkansas (Ark. Stats. Anno. s. 85-2- 
318.1); Georgia (Ga. Codes. 105-106); Maine (11 M.R. S.A. s. 2-318); Massachusetts (Laws 
1973, Ch. 750, Am. Ch. 106 s. 2-318); Virginia (Code of 1950, s. 8.2-3 18). Official comment 
expressing neutrality: Connecticut (42a-2-318 1961). Expressly leaving whole question to 
courts: Texas (Bus. and Com. Code s. 2-318). Specially as to food and drink — warranty 
should extend from manufacturer or seller or packer to persons described in s. 2-3 1 8: Rhode 
Island (G.L. 1956, s. 6A-2-318). 

9 Footnote 2, supra. 

,0 Footnote 4, supra. See Official Comment, Purposes: No. 3. 

u Ibid. Official Comment, Purposes: No. 1. 



54 

agreement. 12 It is another thing altogether to say that such an exclusion 
of warranties in a business transaction should be able to remove the rights of a 
third person suffering personal injury caused by defects in the goods. 13 

Largely because of these difficulties, the majority of American 
jurisdictions 14 have now turned toward a direct strict liability in tort. 
In this context, the watershed was provided by a decision of the New 
Jersey Supreme Court in I960. 15 The theory of warranty liability developed 
in this case was, in effect, equivalent to a strict liability in tort. The step 
to open acceptance of strict liability was a comparatively short one, 
and, largely due to the influence of the late Dean Prosser, 16 that step 
was taken by the American Law Institute in 1965 by its adoption of 
section 402A of the Restatement (Second) of Torts. 

This section provides: 

§402A. Special Liability of Seller of Product for Physical Harm to 
User or Consumer 

(1) One who sells any product in a defective condition unreasonably 
dangerous to the user or consumer or to his property is subject to 
liability for physical harm thereby caused to the ultimate user or 
consumer, or to his property, if 

(a) the seller is engaged in the business of selling such a product, 
and 

(b) it is expected to and does reach the user or consumer without 
substantial change in the condition in which it is sold. 

(2) The rule stated in Subsection (1) applies although 

(a) the seller has exercised all possible care in the preparation 
and sale of his product, and 

(b) the user or consumer has not bought the product from or 
entered into any contractual relation with the seller. 

Although the section has not been enacted in any American jurisdiction, 



12 In its recent Report on Sale of Goods { 1979), the Commission recommended that, in the non- 
consumer context, it should be possible to exclude the implied warranties, subject to the 
doctrine of unconscionability. An exclusion or limitation of damages for breach of warranty 
for injury to the person is, however, deemed to be prima facie unconscionable: Report on 
Sale of Goods (1979), ch. 9, at pp. 227 ff., and see Draft Bill, s. 5.16. 

I3 lna proposal put forth by the Commission for the purpose of discussion in its 1979 Report on 
Sale of Goods, a buyer would have a right of action not only against a retail seller, but also 
against a manufacturer or other person in the distributive chain. This right of action, based 
on contract, would be derivative in that the buyer would be bound by the terms of any 
agreement between, for example, the manufacturer and retailer, including any agreement 
excluding the implied warranties, subject to the doctrine of unconscionability. As noted in 
footnote 12, supra, an exclusion of liability for injury to the person is , however, deemed to be 
prima facie unconscionable: Report on Sale of Goods (1979), ch. 10, and see Draft Bill, s. 
5.18. 

I4 CCH Products Liability Reports, para. 4070. 

^Henningsen v. Bloomfield Motors Inc., 32 N.J. 358, 161 A. 2d 69 (1960). 

l6 Prosser, "The Fall of the Citadel (Strict Liability to the Consumer)" (1965-66), 50 Minn. L. 
Rev. 791. 



55 

its principle has been judicially adopted in most jurisdictions. Section 
402A, however, may be unduly restrictive in two respects. 

First, the language of this section would appear to be restricted to a 
"seller", a restriction that is difficult to justify. In fact, however, the 
cases have extended the principle to include business bailors, 17 distributors 
of free samples, 18 vendors of real property, 19 and suppliers of goods on 
a free trial basis. 20 In effect, therefore, the word "seller" has been interpreted 
to mean "supplier" or "distributor" in the widest sense. 

Secondly, the section applies only to a "user or consumer". Thus, the 
driver of a defective car would be protected. According to a comment 
to the section, 21 the section would cover the passenger in the car, who 
could be considered to be a user in an extended sense. However, a pedestrian 
injured by a car, because of brake failure, would not be protected under 
the terms of section 402A. Prosser attempted to justify the distinction 
between users and consumers, on the one hand, and bystanders on the 
other. 22 His argument was not, however, as convincing as most of his 
writings in this area and this distinction was quickly abandoned in several 
jurisdictions. 23 There seems to be much to be said for the view of the 
Supreme Court of California that the "public policy which protects the 
driver and passenger of the car should also protect the bystander". 24 
The principle has, therefore, been extended to cover not only users and 
consumers, but any person within the principles of proximity and causation 
injured by the defective product. 

It may be noted that section 402A extends only to physical harm, 
that is, damage to person and property, including consequential economic 
loss, but excluding pure economic loss. The American cases remain 
divided on this point. Whether recovery should extend to pure economic 
loss is an important and controversial issue, and one to which we will 
return later in this Report. 25 

(b) RECENT STATUTORY RESTRICTIONS 

In recent years, a number of states have passed legislation which 



"Cintrone v. Hertz Truck Leasing & Rental Service, 45 N.J. 434, 212 A. 2d 769 (1965). 

^McKisson v. Sales Affiliates, Inc., 416 S.W. 2d 787 (1967). 

"Schipper v. Levitt & Sons, Inc., 44 N.J. 70, 207 A. 2d 314 (1965). 

20 Delaney v. Towmotor Corporation, 339 F. 2d 4 (1964); Barth et al. v. B. F. Goodrich Tire 
Co., 265 C.A. 2d 228, 71 Cal. Rptr. 306 (1968). 

21 Footnote 2, supra, at p. 354, Comment 1: User or Consumer. 

-Footnote 16, supra, at p. 819. 

23 Michigan: Piercefield \. Remington Arms Company, Inc., 375 Mich. 85, 133 N.W. 2d 129 
(1965); Ohio: Lonzrickw. Republic Steel Corporation, 6 O.S. 2d 227, 218 N.E. 2d 185(1966); 
Indiana: Sillis v. Massey- Ferguson, Inc., 296 F. Supp. 776(1969); Connecticut: Mitchell v. 
Miller, 26 C.S. 142, 214 A. 2d 694 (1965); New York: Forgione v. New York, CCH Products 
Liability Reports, para. 5194 (N.Y. Ct. Claims, 1963) (But a New York Court in Berzon v. 
Don Allen Motors, Inc., 23 App. Div. 2d 530, 256 N.Y.S. 2d 643 (1965) held that the 
extension of liability, in an accident caused by a defective car, to include bystanders was too 
radical a step). Texas: Darryl v. Ford Motor Co., 440 S.W. 2d 630 (1969); California: 
Elmore v. American Motors Corporation, 70 Cal. 2d 578, 75 Cal. Rptr. 652, 451 P. 
2d 84 (1969). 

24 Elmore v. American Motors Corporation, footnote 23, supra, 451 P. 2d, at p. 89. 

*Infra, at pp. 83-85 ff. 



56 

has the effect of restricting in some way the principle of strict liability. 
Reduced limitation periods and cut-off periods for products liability 
claims, for example, have been introduced in a great many states. As a 
result of this legislative activity at the state level, confusion and uncertainty 
on the part of consumers, users and suppliers about their respective 
legal rights and obligations has been engendered. In order to inject 
uniformity and, therefore, greater certainty into the law of products 
liability, the United States Department of Commerce in the past year 
has put forth for discussion purposes a Draft Uniform Product Liability 
Act. 26 As the preamble to the Act states: 27 

This Act sets forth uniform standards for state product liability 
tort law. It does not cover all issues that may be litigated in 
product liability cases; rather, it focuses on those where the need for 
uniform rules is the greatest. 

Among the matters addressed in the proposed Act are the "state of the 
art" defence, compliance with legislative and administrative standards, 
limitation and cut-off periods, and contributory negligence. 

(C) EXPRESS STATEMENTS 

In the case of express statements, as in the case of simple distribution 
of defective products discussed above, the Restatement (Second) of Torts 
adopted, in section 402B, a principle designed to bring together the 
tort and the warranties sides of the law within a single principle of 
strict liability in tort. 

This section provides: 

§402B. Misrepresentation by Seller of Chattels to Consumer 

One engaged in the business of selling chattels who, by 
advertising, labels, or otherwise, makes to the public a mis- 
representation of a material fact concerning the character or 
quality of a chattel sold by him is subject to liability for 
physical harm to a consumer of the chattel caused by 
justifiable reliance upon the misrepresentation, even though 

(a) it is not made fraudulently or negligently, and 

(b) the consumer has not bought the chattel from or entered 
into any contractual relation with the seller. 

This provision avoids most of the problems inherent in a contractual 
analysis. Thus, for example, the plaintiff himself need not rely on the 
statement. 28 There are, however, a number of difficulties with the section, 
some of which may be briefly mentioned. There seems no sound reason to 
distinguish between those who are engaged in the "business of selling" 
products and those who distribute them in other ways in the course of a 
business; for example, business lessors or business bailors. 29 Further, the 



26 See U.S. Dept. of Commerce, Draft Uniform Product Liability Law, 44 Fed. Reg. 2996 

(1979). See Appendix 2. 
11 Ibid., at p. 2997. See ch. 6, footnote 44, infra, at p. 77. 
2x Footnote 2, supra, at p. 362, Comment j: Justifiable Reliance. 
w Supra, at p. 55. 



57 

restriction of liability to "chattels", in the strict sense, does not seem to be 
justified, 30 and the limitation of the remedy to a "consumer" may give 
rise to difficulties. 31 In addition, there seems no reason why the principle 
should be confined to statements made to the public. 32 Indeed, reliance 
may be more intense when a misleading statement is made directly to an 
individual. We return to this subject later in the Report. 33 

2. European and Quebec Developments 

A study of civil law jurisdictions reveals a close similarity between 
these various jurisdictions, not only in relation to their approaches to 
problems in the law of products liability, but also in relation to the solutions 
that they have adopted. Just as the common law approach has two strands, 
torts and warranties, so also most civil law systems have a corresponding 
division between the law of delict and the law of sales. 34 In French law, as in 
Anglo-Canadian law, fictions have been used to impose what is, in effect, 
strict liability. Again, as in our system of law, the fictions appear both on 
the delict side and on the sales side. 

Our research indicates that there has been a remarkable convergence 
of different civil law systems toward strict liability. In Quebec, amendments 
have been proposed to the sections of the Civil Code on obligations which, 
if adopted, will have the effect of imposing strict liability on manufacturers 
and on certain distributors. 35 A proposed new section imposes liability on a 
manufacturer, and on any other person, who distributes a product under 
his name or as his own, "for the damage caused by a defect in the 
design, manufacture, preservation or presentation of the thing, unless 
the defect was apparent". The proposed section continues: "The same 
applies when the user is given no indication necessary to his protection 
concerning risks and dangers that he could not himself detect." 36 The 
Official Comment sums up the effect of the provision by saying "a 



30 In general, the distinction between chattels and certain kinds of real property, for example, 
cannot be supported. See, for example, Dutton v. Bognor Regis Urban District Council, 
[1972] 1 Q.B. 373 (C.A.), at p. 402, per Sachs, L.J.: "I can find nothing in principle which 
absolves from liability a builder who creates a hidden defect because he happens to be or to 
become the owner of the premises built. On the contrary, as Lord MacDermott himself said 
in Gallagher's case, [1961] N.I. 26, 41: \ . . the doctrine of Donoghue v. Stevenson can apply 
to defective houses as well as defective chattels, . . .': and in my judgment there is no exception 
behind which landowners as such can shelter." See supra, at p. 12. 

^Supra, at pp. 33-34, 55. 

32 Statements were made to the individual plaintiffs in Shanklin Pier Ltd. v. Detel Products 
Ltd., [1951] 2 K.B. 854, [1951] 2 All E.R. 471 and Traders Finance Corporation v. Haley 
(1966), 57 D.L.R. (2d) 15 (Alta. S.C., App. Div.), affirmed (sub nom. Ford Motor Co. of 
Canada Ltd. v. Haley) [1967] S.C.R. 437, (1967), 60 W.W.R. 497, 62 D.L.R. (2d) 329. 

^Infra, at pp. 64-65. 

34 The law of delict is the civilian equivalent to the law of torts; the law of sales is comparable to 
the law in respect of warranties in the common law. 

35 Quebec Civil Code Revision Office, Report on the Quebec Civil Code (1977). 

i6 Ibid., Volume I, Draft Civil Code, Book Five: Obligations, s. 102: 

Le fabricant de la totalite ou d'une partie d'une chose mobiliere, ainsi que 
toute autre personne qui en fait la distribution sous son nom ou comme etant 
sienne, repond du dommage cause par un vice de conception, de fabrication, de 
conservation ou de presentation de celle-ci, sauf si le vice etait apparent. 

II en va de meme pour le defaut dedications necessaires a la protection 
de l'utilisateur contre des risques et dangers dont il ne pouvait lui-meme se rendre 
compte. 



58 

manufacturer . . . has an obligation of warranty". 37 The provisions 
of the Quebec Consumer Protection Act have been discussed above. 38 
Further comment on this Act seems unnecessary, save to add that it 
introduces strict liability. 

The law of West Germany, France and several European countries 
has also been moving toward strict liability. 39 Furthermore, there are now two 
international documents, both proposing strict liability, albeit with certain 
restrictions. These are the Strasbourg Convention and the draft Directive 
of the European Economic Community (E.E.C.). We have attached these 
documents to our Report as Appendices 3 and 4 respectively. Each of these 
documents was studied in detail during the course of the Project, and the 
points of substance that constitute restrictions on a general principle of strict 
liability are discussed below. 40 For present purposes, it is sufficient to 
note that both documents propose a basic test of strict liability in preference 
to one based on negligence or fault. The English and Scottish Law 
Commissions in their 1977 Report on Liability for Defective Products, 41 
discussed below, reviewed these documents and accepted this view in 
respect of personal injuries, as did the U.K. Royal Commission on Civil 
Liability and Compensation for Personal Injuries. 42 

The overall conclusion that we have derived from our study of civil 
law systems is, therefore, that in almost all industrialized jurisdictions 
having a close relationship with Ontario, there is movement toward the 
replacement of the principle of fault by a principle of strict liability 
for damage caused by defective products. 

3. The English and Scottish Law Commissions' Report On Liability 
For Defective Products, 1977 

There has been collaboration between the English and Scottish Law 
Commissions in relation to the law of products liability. These Law 
Commissions jointly have been considering the question of products liability 
since 1968. In that year, they published a Working Paper entitled Provisional 
Proposals Relating to Amendments to Sections 12 - 75 of the Sale of 
Goods Act, 1893 and Contracting Out of the Conditions and Warranties 
Implied by those Sections. 43 A substantial part of the paper was devoted 
to a consideration of the position of persons injured by defective goods 
who had no contractual relationship with the seller. The Law Commissions 
were very conscious of the anomalies, discussed above, which spring from 
the imposition of strict liability upon a retail seller in favour of his 
immediate buyer, and the failure to extend the same principle to defendants 
other than the retail seller and to plaintiffs other than the retail buyer. 44 The 



i7 Ibid., Volume II, Commentaries, at p. 623. 

n Supra, at pp. 46-47. 

39 The literature includes Product Liability in Europe (1975), a collection of reports prepared 

under the auspices of the Association Europeenne D'Etudes Juridiques et Fiscales. 
* Q Infra, at pp. 79 ff. 

41 Law Com. No. 82 (Scot. Law Com. No. 45)(1977). 
42 (1978)(Cmnd. 7054). 
43 Law Com. W.P. No. 18 (Joint Working Paper — Scottish Law Commission Memorandum 

No. 7) (1968). 
44 Ibid. See the examples given in para. 33, at p. 12. 



59 

Working Paper proposed that, in consumer sales, the benefit of the 
seller's warranty obligation should be extended to any person who might 
reasonably be expected to use, consume, or be affected by the goods, 45 a 
proposal based on Alternative C of section 2-318 of the American Uniform 
Commercial Code. This proposal was deferred by the Law Commissions 
in their 1969 final Report on this topic. The reason given was that further 
study was required, in particular, to consider the tortious as well as the 
contractual side of the law of products liability. 46 In 1975, the Law 
Commissions published another Working Paper entitled Liability for 
Defective Products.* 1 In this Working Paper, they canvassed the various 
possibilities and problems of reform of the law of products liability, 
inviting comments but suggesting no firm conclusions. In 1977, the Law 
Commissions published their Report on Liability for Defective Products** 

In the 1977 Report, the Law Commissions considered the adequacy of 
existing rights and remedies in respect of injuries caused by defective 
products, from both the negligence and the warranties sides. They found 
these rights and remedies to be inadequate, largely because of the anomalies 
referred to above in our discussion of the existing law in Ontario. 49 
The Law Commissions considered amending the law either by giving 
additional contractual rights and remedies or by reversing the onus of 
proof of negligence. They concluded, however, that the only satisfactory 
solution was an imposition of strict liability in tort. The Law Commissions' 
main recommendation, therefore, was that a principle of strict liability in 
tort be adopted for personal injuries caused by defective products. 50 

Liability under the English and Scottish Law Commissions' recom- 
mendations would fall on "producers" who put their products into circulation 
in the course of a business. It should be noted that retailers, generally 
speaking, would not be covered by the definition of the term "producer". 
"Producer" would include a manufacturer, a person who puts his name 
or trademark on a product, and a person who in the course of a business 
supplies a defective product that does not identify the manufacturer. This 
term would also include the first distributor of the defective product 
within the jurisdiction into which it had been imported. 51 In this respect, 
however, the Law Commissions' proposal does not go so far as section 402A 
of the American Restatement; it does not extend liability to business 
suppliers such as wholesalers and business lessors, let alone retailers. 
Moreover, the Law Commissions' recommendations apply only to personal 
injury and death; they do not apply to property damage or to pure economic 
loss. 52 The Law Commissions reviewed the Strasbourg Convention and the 



45 Ibid., para. 37, at p. 14. 

46 Law Com. No. 24 (Scot. Law Com. No. 12), Exemption Clauses in Contracts First Report: 

Amendments to the Sale of Goods Act 1893. Report by the Law Commission and the 

Scottish Law Commission (1969), paras. 60-63, at pp. 22-23. 
47 Law Com. W.P. No. 64 (Joint Working Paper — Scottish Law Commission Memorandum 

No. 20) (1975). 
48 Footnote 41, supra. 
49 Supra, at pp. 33-36. 
50 Law Com. No. 82 (Scot Law Com. No. 45), Liability for Defective Products (1977), para. 

125, at pp. 37-39. 
"Ibid., paras. 99-102, at pp. 29-30. 
i2 Ibid., para. 121, at pp. 35-36. 



60 

draft Directive of the E.E.C. on products liability and recommended the 
adoption of a rule of strict liability along the general lines of the 
Strasbourg Convention. The Law Commissions also considered the advisa- 
bility of accession to these documents, but on this, and on certain other 
matters, there was a difference of opinion between the two Commissions. 53 
In the result, the Law Commissions' main proposal was for a principle 
of strict liability in tort, to be imposed upon the business producer 
of products for personal injuries caused by defects in the products. 
Two aspects of this proposal merit further comment. 

First, the English and Scottish Law Commissions recommended that 
existing rights and remedies should remain unaffected. 54 The effect of 
implementing the Commissions' proposals would be to superimpose on the 
existing structure of legal remedies a new statutory liability. A claim against 
a retailer or wholesaler, or a claim for property damage or economic 
loss, would still have to be determined under existing law. Secondly, 
the adoption of the Commissions' proposals would not provide a complete 
solution. In our earlier discussion of the present law of Ontario, two 
anomalies were identified. One was that an injured person who is not a 
buyer cannot sue the retail seller for breach of warranty. This is the 
problem sometimes conveniently referred to as "horizontal privity". 55 
The other anomaly is that an injured person can, if he has a contract, assert 
strict liability against the retail seller, but not against the manufacturer 
who is generally the party primarily responsible. This problem is sometimes 
called that of "vertical privity". 56 The proposals of the English and 
Scottish Law Commissions would solve the second problem of "vertical 
privity" by imposing strict liability upon the manufacturer; that is, at 
least in respect of personal injuries. Because the Law Commissions' proposals 
focused on the liability of "producers", defined so as not to include 
retailers, their proposals do nothing to solve the first problem, that of 
"horizontal privity". The rule would remain that only the buyer has 
a right of action against the retailer. 57 The problem would become acute 
if the manufacturer were not amenable to suit, because he was unknown, 
insolvent, or beyond the jurisdiction. The Law Commissions have attempted, 
by their extended definition of "producer", 58 to alleviate the difficulties 
that may arise where the manufacturer is unknown or beyond the jurisdiction. 
But the problem of insolvency would remain. Moreover, even where 
there is a "producer" available to be sued and solvent, the injured person 
might still prefer to sue the retailer for breach of warranty. The anomaly 
would remain that the immediate buyer would have this election, but 



"These differences will be discussed later in the Report. 

54 Footnote 50, supra, para. 44, at pp. 15-16. 

55 The "privity image" is of a diagram in which a manufacturer is indicated vertically above the 
retail seller; the retail buyer and any others who may be injured by the goods are indicated in 
a position horizontally opposite the retail seller. Thus any such injured person who is not the 
buyer has a problem of "horizontal privity" as against the retail seller. 

56 Ibid. In the same diagram, the injured plaintiff wishing to sue the manufacturer faces a 
problem of "vertical" or possibly "diagonal" privity. See Ezer, "The Impact of the Uniform 
Commercial Code on the California Law of Sales Warranties" ( 1960-61), 8 U.C.L.A. L. Rev. 
281, at pp. 322 ff.; Pelster, "The Contractual Aspect of Consumer Protection: Recent 
Developments in the Law of Sales Warranties" ( 1966), 64 Mich. L. Rev. 1430, at pp. 1442-44. 

"Infra, at p. 92. 

5x Footnote 51, supra. 



61 

that other persons injured would not. Despite these difficulties, however, 
there is no doubt that the Law Commissions' proposed rule is very close, 
in practical effect, to a general principle of strict liability for personal 
injuries, and is very close to the rule prevailing in most of the American 
jurisdictions. 

4. Pearson Commission Report 

In March, 1978, the long-awaited Report of the Royal Commission on 
Civil Liability and Compensation for Personal Injuries, generally known 
as the Pearson Commission Report, 59 was published in the United Kingdom. 
It had been widely thought that the Commission might recommend complete 
abolition of tort law in cases of accidental personal injuries, and the 
substitution of a state-run compensation scheme similar to that now 
existing in New Zealand. 60 In the event, however, the Commission recom- 
mended the retention of the tort system, but with a shift toward social 
security. Thus, the Report recommended a motor vehicle compensation 
scheme along the lines of the English industrial injuries legislation, 
a compensation scheme that would operate concurrently with tort liability. 61 
Further, a supplementary benefit was proposed for severely handicapped 
children. 62 

The Pearson Commission gave special attention to products liability. 
It rejected the introduction of a "no-fault" compensation scheme for 
injuries caused by defective products. The Commission, instead, recom- 
mended the adoption of a rule of strict liability similar to the Strasbourg 
Convention and consistent with the recommendation of the Law Com- 
missions. 63 Strict liability would be imposed on producers, including 
importers, of finished products, and on manufacturers of components. 
The Pearson Commission recommended no exceptions for any particular 
type of product, no special defences for development risks, and no 
financial limits on liability. 64 The Report thus adds one more influential 
voice to the recommendations calling for strict liability, at least in respect 
of personal injuries. 

5. Possible Directions for Reform 

(a) accident compensation schemes 

One possible solution to the problem of personal injuries caused by 
defective products is the introduction of a comprehensive scheme of 
accident compensation. In the field of workmen's compensation, a statutory 
scheme now largely replaces the litigation system in Ontario as a means of 
compensating victims of work-related accidents. Some jurisdictions have 
enacted limited schemes for the compensation of victims of motor vehicle 



59 Royal Commission on Civil Liability and Compensation for Personal Injury (1978) (Cmnd. 

7054). 
60 See discussion, infra, at p. 62. 

61 Footnote 59, supra, paras. 1004, 1068, at pp. 213, 226. 
b2 Ibid, para. 1531, at p. 319. 
bi Ibid., para. 1236, at p. 263. 
M Ibid., Recommendations 133-53, at pp. 383-84. 



62 



accidents. 65 Indeed, this Commission in its Report on Motor Vehicle 
Accident Compensation^ recommended the introduction of such a compen- 
sation scheme in Ontario. A comprehensive accident compensation scheme 
has been enacted in New Zealand. 

The New Zealand Accident Compensation Act 1972 61 abolishes 
entirely litigation for injuries caused by accident. The law of products 
liability in New Zealand, therefore, has been superseded in respect of 
personal injuries. 68 A strong case can be made for such reform. 69 This 
case rests chiefly on the view that there are more efficient, rational 
and just methods of compensating those injured by accident than the 
present system of tort litigation. Once the main purpose of the system 
is seen as accident compensation, it is difficult to understand why # 
distinction should be drawn between the innocent victim of an accident 
who is fortunate enough to find somebody who can be made legally 
liable, and the accident victim who, similarly injured, cannot find anyone, 
or any solvent person, to be made liable. Subsidiary arguments in support of 
this case are that the present system is time-consuming and expensive; 
it uses up the time of courts, lawyers and expert witnesses, all to an 
end that could much more easily and directly be achieved by simply 
paying compensation. The variations in awards of damages lead to further 
anomalies, and to the unequal treatment of those in equal need. 

A number of arguments have been advanced against the introduction 
of accident compensation schemes. 70 It sometimes is argued, for example, 
that compensation schemes are deficient, in that they generally place 
strict limits on the amounts recoverable for pain and suffering and the 
loss of amenities of life; that is, they eliminate the possibility that 
exists under the present common law system of large damage awards in 
cases of serious injuries. The advocates of a statutory compensation 
scheme argue, however, that depriving some persons of the possibility of 
large awards is a small price to pay for the assurance of a reasonable 
level of compensation to all who suffer injuries. Further, in light of 
the recent decisions of the Supreme Court of Canada 71 suggesting that, 
save in exceptional circumstances, damages for non-pecuniary loss ought 
not to exceed $100,000, the possibility of very large awards at common 



65 For discussion of some of the limited provincial schemes, see Linden, Canadian Negligence 

Law (1972), at pp. 455 ff. Quebec has recently enacted a comprehensive scheme for the 

compensation of victims of motor vehicle accidents: Automobile Insurance Act, S.Q. 1977, 

c. 68. 
66 Ontario Law Reform Commission (1973). 
bl Accident Compensation Act 1972, No. 43, as amended by the Accident Compensation 

Amendment Act (No. 2) 1973, No. 1 13. 
6X The scope of the Act was extended in 1973 to cover all persons suffering personal injury by 

accident. (The 1972 Act only applied to those injured in motor vehicle accidents, and 

"earners".) 
69 See, for example, Ison. The Forensic Lottery (1967) and Atiyah, Accidents, Compensation 

and the Law (2nd ed., 1975). See also Ison, "The Politics of Reform in Personal Injury 

Compensation" (1977), 27 U.T.L.J. 385. 
70 See, for example, Linden, "Faulty No-fault: A Critique of the Ontario Law Reform 

Commission Report on Motor Vehicle Accident Compensation" (1975), 13 O. H.L.J. 449; 

Linden, "Tort Law as Ombudsman" (1973), 51 Can. Bar Rev. 155. 
71 Andrews et al. v. Grand & Toy Alberta Ltd. and Anderson, [1978] 2 S.C.R. 229; Thornton 

et al. v. School District No. 57 (Prince George) et al., [1978] 2 S.C.R. 267; Arnold 

and Arnold v. Teno et al., [1978] 2 S.C.R. 287. 



63 

law has, for the most part, been eliminated. 72 To this extent, therefore, 
the argument against a statutory compensation scheme loses much of its 
force. Moreover, a considerable portion of an award in a case of serious 
injury is composed of medical expenses, which are already absorbed 
throughout Canada by provincial insurance schemes. 

The consideration of a universal scheme of compensation for personal 
injuries is beyond the scope of this Report and, accordingly, we express 
no views on the matter. It should, however, be noted that nothing in 
this Report is intended to be inconsistent with the possible ultimate 
adoption of such a scheme. 73 

(b) EXTENDED CONTRACTUAL RIGHTS 

On several occasions, we have made reference to the anomalies 
presented by the restriction of strict liability for breach of warranty 
to the immediate buyer of the defective goods. A common reaction of 
commentators and, more generally, of legal systems themselves to these 
anomalies has been to consider the extension of the buyer's contractual 
rights against his retailer in favour of third parties. This is, as we have noted, 74 
the technique adopted in section 2-318 of the American Uniform Commercial 
Code and in the revised Sale of Goods Act proposed by this Commission in its 
Report on Sale of Goods. 15 So too, it was the method by which the 
American courts extended the liability of the supplier, be he a retailer 
or manufacturer, a method that took them eventually to strict liability 
in tort. 76 This was also the technique originally proposed by the English 
and Scottish Law Commissions, 77 although abandoned in their final Report 
in favour of a tortious principle. 78 Similarly, this was the technique 
used in the Ontario Consumer Products Warranties Bill, 1976, 79 and now 
employed in the Saskatchewan Consumer Products Warranties Act, 1977. m 

There are two aspects to the matter that merit comment, and they 
correspond to the two anomalies that we have mentioned earlier in 
our discussion of the existing law of Ontario. 81 The first is the extension 



72 In the recent case of Linda! v. Lindal, [1978] 4 W. W.R. 592 (B.C.S.C), the British Columbia 
Supreme Court awarded $135,000 as damages for pain and suffering. It should be noted, 
however, that the Court in this case stated that it was adhering to the principles enunciated by 
the Supreme Court of Canada. 

73 It may be added that a compensation scheme is not inconsistent with enterprise liability. 
Costs of compensation caused by particular activities can, under a compensation scheme, be 
allocated to those activities. This can be either by way of an administrative levy on various 
classes of potential accident causers, for example, motorists, employers in certain industries, 
and manufacturers of certain products, or by way of subrogation. In a study of a 
compensation scheme, careful attention would have to be given to the comparative costs and 
benefits of such allocations. 

14 Supra, at pp. 51-54. 

75 The revised Sale of Goods Act proposes a derivative right for extended warranties. See 
Ontario Law Reform Commission, Report on Sale of Goods (1979), ch. 10, and see Draft 
Bill, s. 5.18. 

1( >Ibid. 

"Footnote 43, supra. 

78 Law Com. No. 82 (Scot. Law Com. No. 45), Liability for Defective Products (1977). 

79 Bill 110, 3rd Sess., 30th Legislature. 

*°S.S. 1976-77, c. 15. 

Xl Supra, at pp. 33-36. 



64 

of the liability of the retail seller of the goods to persons other than the 
buyer, the problem known as "horizontal privity". The second aspect is 
the extension of liability from the retail seller to the manufacturer and 
other suppliers, the problem known as "vertical privity". 82 As we pointed 
out above, the original official version of section 2-318 of the Uniform 
Commercial Code dealt only with horizontal privity. 83 The alternative 
versions of section 2-318, and consumer warranty legislation in Canada, 84 
extend liability to manufacturers and to certain other suppliers, but not 
to all business suppliers. 

As we have mentioned, some consumer warranty statutes require 
the presence of a consumer sale before the statutory protection applies. 85 
Further, any version of the theory of extended contractual rights requires, 
by definition, the existence of a contract of some sort, usually a contract 
of sale. Thus, the shopper injured in the supermarket by an exploding 
bottle would not, under any of these theories, have an action against 
the retailer in contract, though he might have an action against the 
manufacturer in negligence. The prospective buyer of an automobile, 
injured as a result of brake failure on a test drive, would be similarly 
situated. The principal difficulty with the theory of the extended contractual 
right is that it extends to the injured person only the benefit of such 
warranty as the defendant may have given to his immediate buyer. As 
was mentioned above, it does not seem satisfactory that, in the case of 
injury, the rights of the injured person should turn upon the provisions 
of a contract to which he was not a party, and of which, in all probability, 
he had no knowledge or means of knowledge. 86 

(C) STRICT LIABILITY IN TORT 

Our study of the law of products liability, and our review of possible 
solutions to the problem of liability, has led us to a clear conclusion. 
We are of the firm view that the most rational basis for dealing with the 
rights of a person injured by a defective product is to create a direct 
right of action, not dependent on contract, against the supplier of the 
defective product. This is the conclusion that has been reached by most 
of the American jurisdictions, the English and Scottish Law Commissions, 
the Pearson Commission, the Strasbourg Convention and the E.E.C. draft 
Directive, 87 and by the Quebec Draft Code and the New Brunswick 
Act. Accordingly, we recommend that Ontario should enact a principle of 
strict liability to the effect that a person who supplies a defective product 
that causes injury should be strictly liable in tort for damages. Our 
Draft Bill so provides. 88 

As we have earlier indicated, damage may be caused not only by a 
defect in a product but also by a false statement concerning a product. 



K2 See footnotes 55 and 56, supra. 
* } Supra, at pp. 52-53. 

84 For a general discussion of the Canadian legislation, see supra, at pp. 39-49. 
K5 See, for example, The Consumer Products Warranties Act, 1977, S.S. 1976-77, c. 15, s. 4. 
Compare, Consumer Product Warranty and Liability Act, 1978, S.N.B. 1978, c. C-18.1. 
M Supra, at pp. 53-54. 
x7 See Appendices 3 and 4. 
88 See Draft Bill, s. 3. 



65 

In some such cases, for example, inadequate labelling, it is reasonable 
to view the product and the statement, taken as a whole, as a defective 
product. However, this analysis will not be available where the making 
of the statement and the distribution of the product are separate. At the 
present time, a person injured as a result of his own or someone else's 
reliance upon a false statement concerning a product must rely on the 
vagaries of the existing contractual and tortious remedies. 89 In our view, 
a person so injured should be on the same legal footing as a person 
injured by a product that is itself defective. Accordingly, we recommend 
that a person who supplies a product and who makes a false statement 90 
concerning the product, reliance upon which causes injury, should also be 
strictly liable in tort for the damages so caused, whether or not the 
reliance is that of the person injured. 91 

We do not, at this stage, discuss what we consider should be the 
limitations of the proposed principle of strict liability, nor the problems 
that we contemplate may arise in its formulation. We will return to a 
discussion of these very important matters later in this Report. 

We wish, however, to emphasize that we do not recommend here 
the introduction in Ontario of an accident compensation scheme. Such 
schemes are commonly called "no-fault" schemes. 92 This term is apt to 
be confused with the principle of strict liability, but the two concepts are 
quite dissimilar. A "no-fault" accident compensation scheme typically 
requires proof only that an injury has occurred within the scope of the 
scheme, with payment according to a schedule to be made from an insurance 
fund. Strict liability, on the other hand, is a comparatively minor modification 
of the existing system. Although the plaintiff would be relieved from 
proving fault, he would still be required to prove the existence of a defect 
when the product left the supplier's hands, and that the defect has caused 
his injury. Individual responsibility would be retained for payment of 
damages according to the present system. 



89 See supra, at pp. 28-30. 

90 "False statement" is defined in our Draft Bill to include "any misstatement of fact, whether 
made by words, pictures, conduct or otherwise": see Draft Bill, s. 1(1) (b). 

91 See Draft Bill, s. 4. 

92 Earlier in this Report we indicated that consideration of a comprehensive no-fault accident 
compensation scheme was beyond the scope of this Report: .supra, at p. 63. In our opinion, a 
no-fault scheme limited to compensation for injuries caused by defective products would not 
seem practical. If the concept of defect were abandoned, as would be the case under a no-fault 
scheme, there would not seem to be any rational basis for stopping short of a comprehensive 
compensation scheme as exists in New Zealand. 



PART IV 



[67] 



CHAPTER 6 



ECONOMIC AND INSURANCE 
ASPECTS OF STRICT 
LIABILITY 



In considering reform of the law of products liability, we have been 
concerned to investigate and to consider the economic and insurance implica- 
tions of any change from a negligence regime to a regime of strict liability. We 
now turn to a discussion of these and related matters. 

1 . The Economic Basis of Strict Liability 

Many of the arguments put forward in favour of strict liability have an 
economic foundation. We wish briefly to state these arguments. 

It is often said that strict liability is an effective means of spreading losses 
caused by accidents. The effect of holding the manufacturer liable is to take 
the loss from the shoulders of the person injured and to distribute it among the 
consumers of the product. Loss sustained by injuries that are caused by 
defective products can be fairly said to be part of the cost of production. 1 It 
makes sense, therefore, to allocate that loss to the enterprise responsible for its 
occurrence: namely, the manufacturer of the product. 2 If the manufacturer 
passes on the cost of injuries to the ultimate consumers of the product, each 
consumer is paying the full cost of the product he is buying: 3 that is, the cost of 
the product plus a proportionate share of the cost of the injuries. If, however, 
the cost of injuries is not included in the price of the product, the injured 
person is, in effect, subsidizing all other users. The effect of strict liability may 
be to make production of some products unprofitable; for example, where the 
increased cost to the manufacturer cannot be passed on to his consumers. In 
such circumstances, it may be right that the manufacturer should cease 
business. A product that can only be produced at the expense of innocent 
persons injured by its defects perhaps ought not to remain on the market. 
Should there be a public interest in the availability of such a product, then 
possibly public funds should compensate innocent persons who are injured 
thereby. 

In our view, the primary purpose of tort law in the area of products 
liability is to attain a rational, fair and workable system of accident 
compensation. The arguments summarized in the last paragraph address 



'Fleming, The Law of Torts (5th ed., 1977), at p. 501: "Strict liability compels the 

manufacturer to insure consumers against defective products, the cost being ordinarily 

added to the price of the article." 
2 Law Com. No. 82 (Scot. Law Com. No. 45), Liability for Defective Products (1977), 

para. 23, at pp. 6-7. 
3 Fleming suggests that the effect of such payment of full production costs by the very 

public likely to be injured is a form of compulsory insurance. See Fleming, footnote 1, 

supra. 

[69] 



70 

themselves to this objective. There is also another purpose often ascribed to 
tort law: namely, to control conduct. However, tort law is a haphazard and 
inefficient means of deterrence, and other means generally are relied upon to 
deter undesirable conduct. It is doubtful whether strict liability is a great deal 
more effective than negligence as a deterrent. 4 It should be pointed out that the 
element of deterrence was very little relied upon by the American courts and 
commentators in the development of strict liability. But there is one situation 
in which strict liability may affect a defendant's conduct. By "internalizing" 
the cost of accidents, strict liability encourages the manufacturer to develop 
cost-justified methods of reducing defects in his products. 5 As soon as it 
becomes less expensive to develop means of reducing defects than to pay the 
costs of accidents, a manufacturer will have a greater incentive to develop 
those means. Under a negligence regime, provided that a manufacturer 
follows common practice in the industry, and provided that the means of 
reducing defects are not a reasonably obvious precaution, he may possibly be 
able to continue his practice without liability. 6 

A consideration of these arguments has persuaded us that, on an 
economic basis, strict liability for damage caused by defective products is 
preferable to a principle of liability based on negligence in terms of both 
compensation and deterrence. One last point should, however, be made. This 
analysis supports the imposition of strict liability upon the manufacturer of a 
defective product; it does not deal directly with the problem of other business 
distributors, such as importers, wholesalers, distributors and retailers. The 
justification for imposing strict liability upon the retailer rests on a different 
basis. It is not that the retailer should take the ultimate risk of the defect; he 
can and should be provided with a claim for indemnity against the 
manufacturer. Rather the reasoning is that, as between the innocent business 
supplier and the innocent buyer, the supplier should take the risk of finding 
that the manufacturer is not amenable to suit, because he is insolvent, 
unidentified, or beyond the jurisdiction. The retailer has borne this risk under 
the developments in the law of implied warranties since 1875. Since this date, 
few have seriously suggested that this position should be reversed. Indeed, in 
recent times, the case for imposing strict liability upon the retailer is, if 
anything, stronger than before. It is often the retailer who is the moving force 
behind the marketing and distribution of goods. Moreover, at a time when 
many kinds of consumer goods are imported from foreign countries, there 
would be a serious gap in protection if an injured person were required to 
assert his rights against a manufacturer in some distant place. 7 A similar 
analysis supports the imposition of strict liability on other business suppliers 
such as wholesalers, importers and distributors. 



4 See Prosser, "The Assault upon the Citadel (Strict Liability to the Consumer)" (1959-60), 

69 Yale L.J. 1099, at p. 1119. 
5 See Posner, "A Theory of Negligence" (1972), 1 J. Leg. Studies 29, at p. 33; Coase, 

"The Problem of Social Cost" (1960), 3 J. Law and Ec. 3; and, Posner, "Strict 

Liability: A Comment" (1973), 2 J. Leg. Studies 205, at p. 209. 
6 The manufacturer may still be liable if, for example, the common practice is itself 

negligent: see infra, at p. 95. 
Tleming, footnote 1, supra, at pp. 499-500. 



71 

2. Practical Effects of Strict Liability: Empirical Evidence 

We have attempted to estimate the practical effects of the change in 
liability that we recommend. We fully appreciate the so-called "products 
liability insurance crisis" in the United States, and realize that it is important 
that the Commission should not recommend a change in Ontario law that 
would bring to Ontario the apparent defects of the American system. We have 
received submissions from manufacturers that express widespread concern 
that the problems experienced in the United States should not be imported 
into Ontario. 8 This, of course, is a perfectly legitimate concern. There is a 
natural assumption that adoption of the American doctrine of strict liability 
will lead to American problems, in particular, excessive insurance costs. It is, 
therefore, important to examine the evidence in order to determine the present 
practice in Ontario, and the causes of the American insurance problems. 

In an attempt to discover as much information as possible about the 
present situation in Ontario, the Commission sent out two questionnaires. 
One questionnaire was sent, with the co-operation of the Canadian 
Manufacturers' Association, to all its Ontario members. The other was sent, 
with the co-operation of the Insurance Bureau of Canada, to all members of 
the Bureau. The response rates were 14% for the Canadian Manufacturers' 
Association questionnaire, and 12% for the Insurance Bureau of Canada 
questionnaire. These figures seem at first sight to be low; but they are within 
the range of what is generally expected in surveys of this type. It must be 
noted, however, that the sample is not, statistically speaking, a random 
sample. Those who chose not to respond may have done so for reasons that 
are not statistically neutral. One can speculate, for example, that many 
Ontario members of the Canadian Manufacturers' Association manufacture 
products that never give rise to products liability claims. Many of them may 
simply have ignored the questionnaire as inapplicable. On the other hand, 
some of the manufacturers of potentially hazardous products may have 
declined, as a matter of policy, to reveal information about liability claims, 
even in an anonymous questionnaire. It is a matter of speculation which way, 
if at all, the figures may be biased. The answers must, therefore, be taken 
simply for what they are: the response of a certain number of Ontario 
manufacturers and insurers. 

Within these limits, there are some interesting conclusions to be drawn 
from the responses to the questionnaires. The first is that consumer 
complaints from individuals, as opposed to complaints from commercial 
buyers, constitute only a comparatively small number of the total complaints 
received by manufacturers. Complaints in respect of personal injuries, as 
might be expected, constitute an even smaller proportion of all complaints; 
that is, less than 1%. Further, the dollar amounts paid out to meet claims for 
personal injury compensation are so small as to be almost insignificant. Only 
four respondents (less than 1%), in the course of 1976, had made payments 
totalling, in each case, more than $10,000. In 1975, the figure was marginally 



8 The submissions were received as a result of a Background Paper on Products Liability 
sent out to the Canadian Manufacturers' Association, the Insurance Bureau of Canada, 
and the Consumers' Association of Canada, and in response to advertisements placed 
in numerous Ontario newspapers, the Ontario Reports, the Canadian Business Law 
Journal, The Financial Times and The Financial Post. 



72 

higher, five respondents making payments totalling, in each case, more than 
$10,000. Both questionnaires suggest that insurance is reasonably readily 
available to cover products liability risks, though, as would be expected, 
specialized risks seem to be handled by specialist insurers. There has been an 
increase in premiums in the last ten years, particularly for manufacturers 
selling their products in the United States. This situation, again, was to be 
expected. Most insurance premiums have risen recently. As a percentage of 
the full amount realized from sales, however, products liability premium costs 
seem to have decreased slightly: the figures show that the mean percentages, 
extrapolated from the information contained in the questionnaire, were 
0.51% for 1976, 0.50% for 1977, and 0.31% for 1978. 9 These figures suggest 
that products liability premiums have not risen markedly faster than other 
costs that are ultimately reflected in the price of the manufacturer's product. 10 

As was shown earlier in this Report, the doctrine of strict liability would, 
in nearly all cases against manufacturers, produce much the same result as the 
present law of negligence. ' ' The answer to one question on the questionnaire 
sent to the Ontario members of the Canadian Manufacturers' Association 
shows that about 70% of the respondents always admit liability on proof of a 
defect. That is, they appear to be already operating under a system of strict 
liability. Accordingly, it seems that in practice the difference between 
negligence and strict liability is small. Assuming that the level of claims 
remains constant, the added cost to manufacturers of the adoption of a regime 
of strict liability can be expected to be correspondingly slight. 

Some briefs that we have received have expressed concern that adoption 
of a doctrine of strict liability may affect the level of claims by inducing a 
higher claims consciousness in the public. 12 There seems no reason, however, 
why adoption of strict liability should have such an effect. The plaintiff will 
still be required to prove the existence of a defect at the time when the product 
left the manufacturer's hands, and that the defect has caused his injury. He will 
still be responsible for the fees of his own lawyer and those of the defendant's 
lawyer if he is unsuccessful. Damages will still be restricted to what are, by 
American standards, very modest levels. We now turn our attention to the 
experience in the United States. 

3. Insurance: The United States' Experience 

There has been much discussion in recent years of a "products liability 
insurance crisis" in the United States. It was widely reported that products 
liability insurance was unobtainable for small manufacturers, and that many 
manufacturers had been driven out of business by their inability to obtain 
insurance coverage, or to obtain it at a reasonable price. 

Public concern in the United States led to the establishment of the 
Interagency Task Force on Product Liability, which published a number of 



9 There were, however, only sixteen responses for 1978. 

'"This conclusion is based on our analysis of the responses to the questionnaires that 

were sent to the Ontario members of the Canadian Manufacturers' Association and 

the Insurance Bureau of Canada. 
11 Supra, at pp. 30-31. 
l2 Footnote 8, supra. 



73 

studies, and issued its final Report in 1978. 13 The Task Force concluded that 
this concern was unfounded. It discovered no evidence of "unobtainability" of 
insurance, although it conceded that some manufacturers, especially small 
manufacturers, had experienced an "affordability" problem. 14 The Task 
Force acknowledged that at some point unaffordable insurance becomes 
practically unobtainable insurance; however, it thought that the incidence of 
such cases was not widespread. 15 It found no evidence of any manufacturer 
being driven out of business by the unavailability of products liability 
insurance, though the Task Force did acknowledge that such evidence would 
be difficult to obtain. 16 The final Report of the Task Force studiously avoided 
the word "crisis". It recognized, however, a "problem", particularly for the 
small manufacturer, in that some insurers had engaged in "panic pricing" 
during a period of legal uncertainty. 17 But in very few cases, even after the 
recent increases in premiums, did the Task Force find that the insurance 
premium amounted to more than one percent of the full amount realized by a 
manufacturer from sales. A telephone survey of 337 firms was carried out by 
the Task Force in December, 1976. From this survey, it appeared that the 
average products liability insurance cost for 1976 amounted to 0.281% of 
sales. In the case of small firms, with less than $2.5 million sales, this cost was 
0.532% of sales. 18 

The Interagency Task Force on Product Liability considered various 
mechanisms for increasing the availability of insurance, including the 
following: namely, government subsidization of insurance; assigned risk 
plans; pooling mechanisms; federal government insurance and reinsurance; 
and, income tax concessions for self-insurers. All these mechanisms were 
found to have substantial difficulties, and although the Task Force thought 
that some were worthy of further study, it did not consider the situation 
sufficiently serious to recommend the adoption of any of these mechanisms. 19 
Direct government intervention in the insurance market, in the view of the 
Task Force, was neither necessary nor justifiable, except in the case where a 
strong public interest required that a particular product, such as swine flu 
vaccine, should be made available. 20 

Devices of the sort mentioned here might be borne in mind, at some 
future date, as possible solutions for insurance problems in Ontario. There is, 
however, no evidence that there is at present, or is likely to be in the 
foreseeable future, any need for such extraordinary measures. Indeed, as we 
point out below, the general limitation suggested recently by the Supreme 
Court of Canada in respect of damages for non-pecuniary loss 21 suggests that 



13 United States Dept. of Commerce, Interagency Task Force on Product Liability, Final 
Report (1978). 

"Ibid., at pp. VI-2 ff., and at p. V-17. 

^Ibid., at pp. VI- 12 ff. 

lf >Ibid., at pp. VI-32 - VI-34. 

"Ibid, at pp. 1-27 - 1-28. 

^Ibid., Table III-6, at p. 111-55; and see also at p. VI-18. 

"Ibid., at pp. VI 1-115 ff. 

20 Ibid., at p. VI 1-253. 

2X Andrews et al. v. Grand & Toy Alberta Ltd. and Anderson, [1978] 2 S.C.R. 229; 
Thornton et al. v. School District No. 57 (Prince George) et al., [1978] 2 S.C.R. 267; 
Arnold and Arnold v. Teno et al., [1978] 2 S.C.R. 287. Compare, Lindal v. Lindal, 
[1978] 4 W.W.R. 592 (B.C.S.C), where $135,000 was awarded as damages for pain 
and suffering, although the Court indicated its adherence to the principles pronounced 
by the Supreme Court of Canada. 



74 

damage awards in Ontario are most unlikely to match the very large awards 
made in American jurisdictions. If at any time in the future there should be 
seen to be a need for a drastic intervention in the insurance marketplace, that 
will be the appropriate time to consider this question. 22 

In considering changes in Ontario law, we have attempted to determine 
the causes of the rise in premiums in the United States over the last few years. 
This rise in premiums would seem to be due far more to large and unpre- 
dictable jury awards than to the legal basis of liability. 23 In this context it 
should be noted that there is in the United States a constitutional right to trial 
by jury. The existence of this right has resulted in great judicial restraint in 
American jurisdictions in controlling jury awards. American courts will 
reduce a jury award only when it is so excessive as to be "unconscionable" or 
"shocking". 24 Our research indicates that there does not appear to be any 
reason to suppose that adoption of a principle of strict liability in Ontario 
would lead to an excessive increase in insurance premiums. This conclusion 
seems to be supported by the findings of the Insurance Services Office 25 closed 
claims survey: namely, that 50% of the bodily injury payments and 45% of the 
property damage payments were the product of fewer than 1% of the claims 
paid. 26 In testimony before a congressional committee, the Vice-President of 
the Insurance Services Office said that it "certainly seems to indicate that the 
problem seems to be a problem of exceedingly high claims, rather than a great 
number of claims". 27 

It may be useful, at this stage, to advert briefly to the American 
experience in a different, though perhaps related, area of liability. It 
is well known that in the United States there has been an insurance 
crisis in the field of medical malpractice, but plainly this crisis has nothing 
to do with strict liability. In all American states, the plaintiff in a medical 
malpractice case must show negligence. The reason for high premiums for 
medical malpractice insurance is the incidence of high damage awards. As 
we have mentioned above, awards of this nature would seem to have been 
responsible for the recent rise in products liability premiums in the 
United States. It is possible to suggest, therefore, that the reason that 
an insurer may be cautious in the field of products liability is the result 
of enormous damage awards that American juries have been apt to make; 
the comparatively small increase, in practice, in the incidence of liability 
effected by openly adopting a principle of strict liability would not 
seem to be, in itself, of great significance. 



22 It may be added that, in such circumstances, careful consideration ought perhaps to be 
given to replacing civil litigation as a means of accident compensation with a statutory 
compensation scheme, as has been done in New Zealand for all accidents and in Quebec in 
respect of motor vehicle accidents. 

23 Footnote 13, supra, at pp. 1-26, 11-47. 

24 Footnote 13, supra, at p. VI 1-64. 

25 The Insurance Services Office is a statistical insurance industry group organized by 
the insurance industry in the United States to help establish rates of insurance. 

26 Insurance Services Office, Products Liability Closed Claim Survey: A Technical Analysis of 
Survey Results (1977), Tables 13-3 and 13-4, at pp. 88-89, and see Hearings before 
the Subcommittee on Capital, Investment and Business Opportunities of the Committee 
on Small Business, House of Representatives, 95th Congress, 1st Session, 1977, at p. 1313. 

27 Hearings before the Subcommittee on Capital, Investment and Business Opportunities 
of the Committee on Small Business, footnote 26, supra, at p. 1333. 



75 

The largest part of damage awards by juries in United States cases 
is for pain and suffering; that is, for unquantifiable losses. The final 
Report of the Interagency Task Force referred to a study establishing 
that for every dollar awarded for out-of-pocket losses, $1.50 is awarded 
for pain and suffering. 28 The possibility of an enormous sum being awarded 
by a sympathetic jury is naturally apt to make an insurer cautious. On 
the other hand, as previously mentioned, the Supreme Court of Canada 
recently has suggested that, save in exceptional circumstances, damages 
for non-pecuniary loss are to be limited to a conventional maximum of 
$ 100,000. 29 Since this maximum was announced in a case where the 
plaintiff had been rendered a quadriplegic, it is hard to imagine many cases 
in which damages would greatly exceed that sum. 30 Another difference 
in practice between Canadian and American cases is that, in the United 
States, a plaintiffs counsel is permitted to ask the jury for a specific 
sum of money. For example, he can suggest that nothing less than $100 
million will adequately compensate or sufficiently punish the defendant; 
the so-called "ad damnum" clause. In Ontario, plaintiffs counsel is 
not allowed to demand specific sums. 31 

The readiness of American courts to award punitive damages is another 
reason for very high awards in the United States. Recently, a judgment 
of $3.5 million was awarded against an automobile manufacturer for a 
defect in the designed location of a fuel tank in a motor vehicle. 32 Though 
Canadian courts have reserved the power to award punitive damages, 
the cases in which this power has been exercised are generally cases of 
deliberate infliction of damage. 33 It seems unlikely that punitive damages 
would be awarded in a products liability case. Moreover, the basis of an 
award of punitive damages does not depend upon strict liability. The 
basis of liability in the case of the improperly designed fuel tank was 
that the defendant had deliberately courted the risk of injury to persons 
in the plaintiffs position. The result, in relation to punitive damages, 
would not appear to have been dependent upon any rule of strict liability. 
Canadian courts are just as likely, or just as unlikely, to make punitive 
awards under a principle of strict liability as under the present negligence 
regime. 

There are many other differences between Ontario and American 
procedures. The contingent fee undoubtedly makes it easier for the 
American plaintiff to litigate. While legal aid presumably has made it 
easier for certain persons in Ontario to litigate, we are not aware of 
any statistics that show that legal aid has had any impact on products 



28 Footnote 13, supra, at p. VII-64. 

29 Andrews et al. v. Grand & Toy Alberta Ltd. and Anderson, footnote 21, supra; 

Thornton et al. v. School District No. 57 (Prince George) et al., footnote 21, supra; 

Arnold and Arnold v. Teno et al., footnote 21, supra. 
30 See, however, Lindal v. Lindal, footnote 21, supra. 
31 See Gray v. Alanco Developments Ltd. et al., [1967] 1 O.R. 597, (1967), 61 D.L.R. 

(2d) 652 (C.A.) and Allan v. Bushnell T. V. Co. Ltd.; Broadcast News Ltd., Third Party, 

[1969] 2 O.R. 6, (1969), 4 D.L.R. (3d) 212 (C.A.). 
"See Grimshaw v. Ford Motor Co. (1978), 21 ATLA L. Rep. 136 (Cal. Sup. Ct.). The 

trial judge reduced the punitive damage award of the jury from $125 million to $3.5 

million. This decision is at present under appeal. 
33 For a brief discussion of this point, see Linden, Canadian Tort Law (1977), at pp. 49-51. 



76 

liability litigation in this Province. Even more significant is the American 
rule that an unsuccessful plaintiff need not pay the defendant's costs. 
An American plaintiff, therefore, is in a position to litigate at little 
or no risk; if he loses, he will pay neither his own lawyer's fee 34 nor any 
of the defendant's costs. On the other hand, the present Ontario rules, 
particularly the principle requiring payment of the defendant's costs by an 
unsuccessful plaintiff, require a plaintiff to consider more carefully his 
decision to initiate litigation. 

Another important factor affecting readiness to litigate is the higher 
level of social welfare benefits in Ontario as opposed to the United States. 
In most cases in Ontario, medical expenses will be paid out of public 
funds. Workmen's compensation and unemployment insurance benefits 
are higher in Ontario than in the United States. 35 It is true that the Ontario 
Health Insurance Plan is subrogated to any right of an insured person 
to recover the cost incurred for past insured services and the cost that will 
probably be incurred for future insured services. 36 However, only in 
extreme situations, we are informed, will the Plan initiate litigation where 
the claimant does not do so. 37 

A special point arises in the case of workmen's compensation. In 
Ontario, unlike the case in most American jurisdictions, an injured 
worker must elect between his compensation benefits and an action against 



34 However, he might be responsible for disbursements made by his own lawyer. 

35 A major study published in 1961 showed that in 36 states in the United States 
workmen's compensation laws replaced less than 20% of losses attributable to a workman's 
death and that in a major state, such as California, compensation for the seriously 
injured replaced, on average, about one-third of wage loss: see Cheit, Injury and Recovery 
in the Course of Employment (1961), at pp. 108-09, 182. Another study published in 
1970 showed that in 31 states maximum case benefits for workmen's compensation 
fell below the state's poverty level. In Ontario, on the other hand, benefits may be as 
high as 75% of a workman's average weekly earnings: see The Workmen's Compensation 
Act, R.S.O. 1970, c. 505. 

3b The Health Insurance Act, SO. 1972, c. 91, s. 35. Section 36(1) of The Health 
Insurance Act imposes an obligation on "[a]ny person who commences an action to 
recover for loss or damages arising out of the negligence or other wrongful act of a third 
party, to which the injury or disability in respect of which insured services have been 
provided is related shall . . . include a claim on behalf of the Plan for the cost of the 
insured services". 

37 This information was obtained in the course of our communications with the Ontario 
Health Insurance Plan. It should be pointed out that one of the major hurdles that 
OHIP must overcome in those cases where the claimant does not initiate litigation is 
that of learning about possible subrogated claims. Where it does learn of such claims, 
OHIP will assess the chances, if any, of success of a subrogated claim and will act 
accordingly. It should be noted that, as a result of agreement between the Ontario 
Health Insurance Plan and a large number of insurance companies, it is no longer 
necessary for most claimants to include a claim on behalf of OHIP where the services 
have been rendered in respect of personal injuries resulting from the negligent use or 
operation of a motor vehicle where: 

1. the accident occurred on or after December 1, 1978; 

2. at the time of the accident, the owner of the said motor vehicle was insured 
under a motor vehicle liability policy issued by an insured who is a party to the 
aforesaid agreement; and 

3. at the time of the accident, the said motor vehicle bore Ontario number plates. 



77 

a third party outside the purview of the Act. 38 If he elects to take the 
benefits, as a large percentage do, 39 he has no action against the third 
party. In such cases, the rights of the injured employee are subrogated 
to the Workmen's Compensation Board, and it would seem that the Board 
exercises this right quite frequently. 40 However, the amounts recovered 
would not appear to be substantial. 41 In the United States, on the other 
hand, a high proportion of products liability claims, and an even higher 
proportion of damages recovered, arise out of injuries at the plaintiffs 
place of work. 42 

In briefs put forward by members of the public at the 1976 hearings 
of the Select Committee on Small Business of the United States Senate, 
concerned with products liability, and in the suggestions made to the 
Interagency Task Force on Product Liability, only rarely was restoration of 
the negligence regime suggested as a possible solution to the insurance 
problem. The suggestions commonly made are as follows: namely, to reduce 
the size of jury awards; to limit the right to jury trial; or, to establish strict 
limitation and cut-off time periods. 43 Legislation has been enacted in several 
states 44 restricting the rights of plaintiffs in products liability cases. These 
restrictions, however, generally take the form of imposing limitation and cut- 
off periods, allowing a defendant to raise a rebuttable defence on evidence of 
compliance with applicable standards, and preventing plaintiffs counsel from 
demanding specific sums of money. In a recent issue, the publication, Product 
Liability Trends, 45 lists in chart form the matters on which legislation 
might be anticipated. These are as follows: ad damnum clauses, that is, the 



3%The Workmen's Compensation Act, R.S.O. 1970, c. 505, s. 8(1). 

39 From the following figures, it would appear that approximately fifty percent of all 

employees entitled to benefits under The Workmen's Compensation Act, R.S.O. 1970, c. 

505, when required to elect, will elect to take the statutory benefits. 

Year Required to Elect No. Electing Benefits under the Act 

1977 3036 1454 

1978 3249 1679 

40 We are informed that, in 1977, the Workmen's Compensation Board disposed of 209 
cases by either litigation or settlement. In 1978, the number of cases disposed of by 
the Board increased to 263. In those two years respectively, 377 and 343 new files 
were opened. 

4l We are informed that, in the years 1977 and 1978, the Workmen's Compensation Board 
recovered $1,178,543.34 and $1,214,066.58 respectively. 

42 0'Connell, "An Immediate Solution to Some Products Liability Problems: Workers' 
Compensation as a Sole Remedy for Employees, with an Employers' Remedy against 
Third Parties" (1976), Insurance L.J. 683. 

43 Footnote 13, supra, at pp. xliv - xlviii, VII-64 - VII-69, VII-75 - VII-80, and VII-18 - VII-28. 

44 See Birnbaum, "Legislative Reform or Retreat? A Response to the Product Liability 
Crisis" (1978), 14 Forum 251. An effort has been made recently to introduce uniformity 
in respect of the statutory restrictions on the principle of strict liability: see U.S. Dept. 
of Commerce, Draft Uniform Product Liability Law, 44 Fed. Reg. 2996 (1979). Perhaps 
the most important provision of this draft legislation is section 109, dealing with cut-off 
and limitation periods. The former is based on a concept of "useful safe life", which is 
presumed to be 10 years after delivery of the completed product to its first purchaser 
or lessee who was not engaged in the business of selling products of that type; the latter 
is stated to be 3 years from the time the claimant discovered, or in the exercise 
of due diligence should have discovered, the facts giving rise to the claim. 

45 "Pending Product Liability Legislation in Selected States" (1977), 1 Product Liability 
Trends 29. 



78 



power of plaintiffs counsel to demand a specific sum for damages; contingent 
fees; imposition of limits on awards for pain and suffering; indemnity 
and contribution; judicial review of damage awards; "useful life"; limitation 
on liability; workmen's compensation changes; statute of limitations; the 
"state of the art" defence; compliance with safety standards defence; the 
alteration or misuse defence; the definition of defect; admissibility of 
evidence of collateral benefits; punitive damages; insurance data collection; 
admissibility of evidence of subsequent changes; the duty to warn; and, 
damages by way of periodic payments. Some of these matters are discussed 
in more detail in this Report. At this stage all that we wish to point 
out is that it seems that the major concern in the United States is 
with large awards rather than with the substantive basis of liability. 

A considerable number of the features proposed or enacted in the 
United States have always been a part of Ontario law or practice. From 
our review of the American experience, it would seem to follow that 
the American products liability insurance problem has very little relevance 
to the advisability of an open recognition of the principle of strict 
liability in Ontario. 

4. Conclusion 

The empirical evidence discussed in the preceding section supports 
the conclusion that adoption of a principle of strict liability is unlikely 
to cause any marked increase in the cost of insurance premiums in Ontario. 
Some increases may occur initially, as insurers adjust to the new rules. 
In the light of experience, premiums would be expected to level off at a 
rate, in 1979 dollars, very little higher than the present rate. American 
experience shows that there was at first no marked difference in insurance 
premiums in strict liability states and states where negligence still had to 
be proved. 46 A study of the American situation strongly suggests that the 
subsequent increases in the cost of insurance premiums have had very 
little to do with the substantive law of products liability, but are closely 
related to the high damage awards caused by aspects of the American 
civil litigation system almost entirely absent from Ontario. So long as 
this state of affairs continues, there would seem to be no danger of importing 
into Ontario the American products liability insurance crisis. 



46 See Note, "Products Liability and the Choice of Law" (1965), 78 Harv. L. Rev. 1452, 
at p. 1456, where the writer says: "Indeed current insurance practices permit a manufacturer 
to insure his products at roughly the same cost whether he makes them in a negligence 
state or a strict [liability] state." See also O'Connell, Ending Insult to Injury (1975), at 
pp. 56-57, where O'Connell notes the irony that what Prosser had triumphantly called 
the most spectacular overthrow of an established rule of law in the history of the law 
of torts apparently created not even a ripple in the rate structure of insurance premiums. 



CHAPTER 7 



THE SCOPE OF STRICT 
LIABILITY 



Earlier in this Report we recommended the adoption of a principle of 
strict liability in tort for damage caused by defective products and for damage 
caused by reliance upon a false statement made by a supplier concerning a 
product. This general recommendation leaves a number of questions 
unanswered. We now turn to a discussion of these questions. 

1. Type of Damage 

One of the most difficult questions that the Commission has had to 
answer is as follows: should the rule of strict liability which we recommend 
apply only to personal injuries, to personal injuries and property damage, 
or to all categories of damage occasioned by defective goods including 
economic loss? Two different approaches have been adopted or proposed in 
other jurisdictions to resolve this question. One approach has been to 
define narrowly the term "defect" so as to restrict liability to safety 
related aspects of a product; for example, legislation may require that a 
product be "unreasonably dangerous" before strict liability will be imposed. 
The other, and more direct, approach has been to restrict the categories of 
damage recoverable. 

In the United States, each approach has been employed. A good example 
of the combined application of both approaches is section 402A of the 
Restatment (Second) of Torts. ' This section only applies where a product 
is unreasonably dangerous to a consumer or user, or to his property, and 
it also restricts recovery to "physical harm", that is, personal injuries 
and property damage as well as consequential economic loss. Recovery for 
pure economic loss — that is, loss not directly consequent upon either 
physical injury or property damage — is not included. Under section 2-318 
of the American Uniform Commercial Code, 1 Alternatives A and B apply 
only in cases of personal injury; Alternative C, on the other hand, applies to 
property damage and pure economic loss, as well as to personal injury. 

Each of these approaches has also been utilized in Canada. The New 
Brunswick Consumer Product Warranty and Liability Act, 197 8^ for 
instance, would seem to extend to all losses, including pure economic loss, 
except those suffered in a business capacity. However, under this legislation, 
goods that give rise to a cause of action for these losses must have been 
supplied by way of contract to some person, although not necessarily the 
plaintiff. In the absence of a contract, the provisions in the New Brunswick 



•American Law Institute, Restatement (Second) of Torts (1965), discussed supra, at 

pp. 54-55. 
2 American Law Institute, Uniform Commercial Code, 1972 Official Text with Comments, 

discussed supra, at pp. 51-54. 
3 S.N.B. 1978, c. C-18.1, discussed supra, at pp. 41-44. 

[79] 



80 

Act extend only to safety related defects. The proposed amendments to the 
Quebec Civil Code 4 and the recent Quebec Consumer Protection Act 5 
would seem to apply to all losses. The extended right of recovery under section 
5 of the Saskatchewan Consumer Products Warranties Act, 1977, 6 on the 
other hand, is restricted to damages arising from personal injuries. 

Finally, the principle of strict liability proposed by the English and 
Scottish Law Commissions, 7 as well as that proposed by the Pearson 
Commission, 8 would cover only personal injuries suffered as a result of 
a defective product. In the case of the Pearson Commission, its terms of 
reference were restricted to a consideration of the extent to which, the 
circumstances in which, and the means by which compensation should be 
payable in respect of death or personal injury suffered by any person. 
The Law Commissions, however, considered and expressly rejected extension 
of the regime of strict liability to property damage and to other kinds of 
loss as well, such as pure economic loss. It should be noted that, under 
the Law Commissions' proposals, existing law in respect of compensation 
for property damage and other kinds of loss, such as pure econimic loss, 
would remain intact; in other words, actions for such losses, whenever 
recoverable, would continue to be founded in negligence or in contract. 

As we have noted above, formulations of the principle of strict 
liability in some jurisdictions have included a requirement that a product 
not only be defective but also that it be "unreasonably dangerous". 
The Commission has considered and rejected this approach as an appropriate 
means of controlling the ambit of strict liability for defective products. 
In our view, the requirement of "unreasonable danger" is too limiting. 
A plaintiff who is able to establish the existence of a defect in a product 
that has caused him injury, in our opinion, should be entitled to compensation 
for certain of his damages, regardless of whether the product is "unreasonably 
dangerous" or, indeed, simply "dangerous". We, however, accept the 
underlying notion of reasonableness and would note that our Draft 
Bill defines a "defective product" to include this requirement; that is, 
a product will only be considered to be a defective product if it falls 
short of the standard that may reasonably be expected of it in all the 
circumstances. 9 

Having canvassed this technique, we must now consider the second 
approach: namely, the categories of damage to which our principle of 
strict liability should apply. The difficulty in arriving at a suitable solution 
to this issue stems from the different policy objectives that a law of 
products liability seeks to achieve. First, it may be contended that the 
basic purpose of a law of products liability is accident compensation. 



4 Quebec Civil Code Revision Office, Report on the Quebec Civil Code (1977), discussed 

supra, at pp. 57-58. 
5 Bill 72, 3rd Session, 31st Legislature (1978), discussed supra, at pp. 46-47. The Act has 

not yet been proclaimed in force. 
6 S.S. 1976-77, c. 15, discussed supra, at pp. 39-41. 
7 Law Com. No. 82 (Scot. Law Com. No. 45), Liability for Defective Products (1977), 

para. 121, at pp. 35-36. 
* Royal Commission on Civil Liability and Compensation for Personal Injury (1978) 

(Cmnd. 7054). 
9 See Draft Bill, s. 1(1 )(a). 



81 

On this basis, compensation for personal injuries would seem to be a 
sufficient response: the phrase "accident compensation" suggests a scheme of 
compensation for personal injuries. The second policy that may be asserted 
is that suppliers of products, as a cost of doing business, should bear 
the risk of losses caused by their products. Under this rationale, there 
would not appear to be any reason to restrict the categories of damage 
to which the principle of strict liability should apply. Thirdly, the policy 
underlying a law of products liability may be perceived as one of consumer 
protection. Under such a policy, since consumers may suffer property 
damage and economic loss as well as personal injuries by reason of a 
defective product, again there would not seem to be any reason to exclude 
automatically compensation for the former categories of damage. 

To overcome the anomalies of the existing law of products liability, we 
recommend that the proposed principle of strict liability should cover 
personal injury and, subject to the qualification mentioned below, damage 
to property suffered as a consequence of a defective product. 10 Such 
losses are recoverable under the existing law of negligence and, in our 
view, this recommendation would significantly rationalize existing law. It 
would provide an express statement of what is now, in some respects, 
the law of products liability in practice. 

The primary reason for the recommendation of the English and 
Scottish Law Commissions that strict liability for defective products 
should provide compensation for personal injury and death, but not for 
property damage or other kinds of damage, such as pure economic loss, 
was the probable existence of first party insurance covering such losses. 
The Law Commissions commented as follows: 11 

As we indicated at the outset, general considerations of 
policy require that first party insurance should be encouraged 
where it is usual and appropriate. Damage to commercial premises 
and property is usually covered by the owner's taking out first 
party insurance and this seems appropriate. In the non-commercial 
sector first party insurance is much more common in regard to 
damage to property than it is in regard to personal injury. 
Most householders insure their own homes, and where the premises 
are rented the premises are usually insured either by the tenants 
or by the landlords. A large number of people insure the contents 
of their homes and their cars against damage or destruction, 
and 'all-risks' policies for damage to property outside the home 
are frequently taken out. The information obtained on consultation 
does not allow us to go too deeply into the statistics of property 
insurance in the United Kingdom, but we are advised that first 
party insurance in respect of damage to property is usual and is 
generally regarded as prudent and appropriate. 

The Law Commissions were of the view that strict liability would be of no 
immediate benefit to the claimant with first party insurance, but would 
result in extra costs to the producer who insures against third party 



'"See Draft Bill, s. 3(1). 

"Footnote 7, supra, para. 120, at p. 35 (footnote omitted). 



82 



claims for damage to property. These extra costs would be passed on to 
the general public in the price of the product. Consequently, the Law 
Commissions stated as follows: 12 

Overall, those members of the public who took out first party 
insurance would be worse off than they are under the existing law, 
as they would be paying the same for their own insurance but 
would have to pay more for the products. 

We are not persuaded by these arguments of the Law Commissions. Assume, 
for example, that as a result of a defective can of lighter fluid, a person 
at a barbecue suffers personal injuries, damage to his clothing and to 
his house. Under the principle of strict liability proposed by the Law 
Commissions, he could recover compensation for his personal injuries; 
however, he would not be able to recover compensation for the damage 
to his personal property or to his house, unless he could establish negligence 
on the part of the supplier. 13 In our view, such a result would seem 
to be anomalous and to lack merit. Moreover, it seems to us important to 
note that some persons will not have adequate insurance. Further, even 
if the existence of first party insurance were prevalent, we would not 
share the view of the Law Commissions that, should a principle of strict 
liability be introduced, those who are so insured would pay not only 
insurance premiums but also more for the products. If the claimant's insurer 
had recourse against the supplier of the defective product responsible for the 
claimant's property damage, the first party insurance, at least theoretically, 
should be less expensive. Finally, we wish to point out that most American 
jurisdictions have adopted a principle of strict liability that allows recovery for 
damage to property. As we have noted, there is a very close trading relation- 
ship between the United States and Canada 14 and, if recovery under the pro- 
posed principle of strict liability were to be restricted to compensation for 
personal injuries, the American manufacturer who distributes goods in 
Ontario would continue to find himself more favourably treated here than at 
home. 

It is our view that the recommended principle of strict liability 
should be restricted, however, to non-business losses in the case of property 
damage. We are mindful of the fact that certain business losses are 
recoverable under our present law of negligence. An injury to a farmer's 
livestock or damage to his crops, for example, may be the subject of an 
action in negligence, and this kind of loss would continue to be so recover- 
able. 15 However, it is our opinion that the main thrust of reform in the 
law of products liability should be the protection of non-business interests, 
where it is more likely that the full burden of the loss will be borne by 
the plaintiff personally. Accordingly, we recommend that the proposed 
principle of strict liability for defective products should not extend to 
damage to property used in the course of carrying on a business. 16 



n Ibid., para. 121, at p. 35. 

l3 For a discussion of the relationship of the proposed principle of strict liability to the 

existing law, see infra, at pp. 104-05. 
l4 Supra, at p. 35. 
li Infra, at pp. 104-05. 
l6 See Draft Bill, s. 3(2). 



83 

We now turn our attention to the subject of pure economic loss that 
is caused by a defective product. This type of loss presents a more difficult 
problem, if for no other reason than that there are different kinds of 
economic loss. One kind of pure economic loss is that caused by a product's 
failure to meet its expectation value: for example, a purchaser may pay a 
high price for carpeting that turns out to be defective and, consequently, 
useless but not apt to cause personal injury or property damage. Strict 
liability in tort seems to us to be an inappropriate framework for the 
recovery of loss based on deficient value, and most American courts have 
refused to extend the strict liability theory to such losses. 17 This general 
issue has been extensively canvassed by the Ontario Law Reform Commission 
in its 1972 Report on Consumer Warranties and Guarantees in the Sale 
of Goods x% and also in its 1979 Report on Sale of Goods. 19 There would 
seem, therefore, to be no need to repeat this discussion in these pages. 

A second kind of pure economic loss is financial loss suffered as a 
result of a defective product which is not consequent upon accident- 
caused physical damage to the plaintiffs own person or property. Examples 
of this type of economic loss include business losses such as loss of 
profits, wasted time and materials, and loss of business reputation. Non- 
business economic loss of this kind may also be caused by a defective product. 
The cost of repainting a house treated with defective paint, and the cost of 
indemnifying another injured by a defective product, are but two examples of 
this kind of economic loss. Such losses are regularly recovered in cases 
of breach of warranty under existing contract law. 20 If one of the purposes 
of adopting a principle of strict liability is the elimination of the anomalies 
that can occur as a result of differences in existing tort law and contract 
law, perhaps recovery of this kind of economic loss should be available 
under the principle of strict liability that we have recommended. Remote 
losses could be excluded by the application of general principles of 
causation and remoteness of damages. Various arguments, however, can be 
marshalled against this view. 

In respect of economic losses suffered in the course of a business, 
it can be argued first that the plaintiff will often be as good an insurer 
against the loss as the supplier of the product, although in some instances 
losses may be indeterminable in advance and insurance may be unduly 
expensive or simply unavailable. Secondly, it may be contended that such 
losses should be absorbed as part of the cost of doing business. Thirdly, 
the extent of loss that might result from a defective product in the business 
context is usually best predicted by the business that might suffer the 
loss: the loss may vary greatly from enterprise to enterprise; it may vary 
over time within one enterprise. Finally, liability for pure economic 



ll Seely v. White Motor Co., 45 Cal. Rptr. 17, 403 P. 2d 145 (1965); Morrow v. New 
Moon Homes Inc., CCH Products Liability Reports, para. 7675 (1976). The New 
Jersey Supreme Court took the contrary view in Santor v. A. & M. Karagheusian 
Inc., 44 N.J. 52, 207 A. 2d 305 (1965). 

lx Ontario Law Reform Commission, Report on Consumer Warranties and Guarantees 
in the Sale of Goods (1972). 

'^Ontario Law Reform Commission, Report on Sale of Goods (1979), ch. 10, and see 
Draft Bill, s. 5.18. 

20 Supra, at p. 26. 



84 

loss could expose the supplier of a defective product to too great a burden. 
The loss of profits that could ensue from the failure of an electric transformer, 
for instance, could impose an extraordinary financial burden on the 
supplier. Accordingly, if recovery for pure economic loss were included 
within our principle of strict liability, provisions in respect of disclaimer 
or exclusionary clauses would be necessary. If such clauses were permitted, 
the right to recover pure economic loss in practice would be impaired 
as disclaimer clauses would be the rule rather than the exception. 

Economic loss may be suffered in a non-business context; for example, 
a person's home may be rendered uninhabitable by a defective product, 
causing that person the expense of suitable, alternative accommodation. 
All of the arguments set out above are directed to economic loss suffered 
in the course of business. Some of these arguments have no application 
where economic loss is not suffered in the course of business, and the 
others appear much less persuasive. The question is a difficult one and 
continues to give rise to conflicting decisions in the United States. 21 
However, the exclusion of pure economic loss from the proposed principle of 
strict liability will not always leave a person without a remedy. The 
developing law of negligence, and the provisions of the proposed revised 
Sale of Goods Act 22 and consumer product warranty legislation such as 
that proposed in the Commission's 1972 Report on Consumer Warranties 
and Guarantees in the Sale of Goods will cover many cases of pure 
economic loss caused by products. Restriction of recovery under the 
Draft Bill to personal injury and property damage will sometimes permit 
recovery for damage to the defective product itself, a kind of damage 
that is often difficult to distinguish from pure economic loss. 

It is our view that the paramount need for reform lies in the area 
of personal injuries and damage to property other than that used in 
the course of carrying on a business. Accordingly, we have concluded 23 



2 'See, for example, Seely v. White Motor Co., footnote 17, supra; Santor v. A. & M. 

Karagheusian Inc., footnote 17, supra; and, Morrow v. New Moon Homes Inc., footnote 

17, supra. 
22 See Ontario Law Reform Commission, Report on Sale of Goods (1979), Draft Bill, 

ss. 5.18, 9.16. 
23 The Chairman of the Commission, Dr. Derek Mendes da Costa, dissents from this 

recommendation for the following reasons: 

I agree, for the reasons stated in the Report, that the principle of strict liahility 
should not extend to pure economic loss suffered in the course of a business. 
However, I am of the opinion that there should be recovery for pure economic loss 
suffered in a non-business context. In the examples given in the Report, I know of no 
reason why a person whose house is painted with a defective paint, or whose home is 
rendered uninhabitable by a defective product, should not be able to recover, 
respectively, the cost of repainting or the expense of suitable alternative accom- 
modation. As these examples indicate, it is unlikely that liability of this nature 
would expose a supplier to any extraordinary financial burden. Moreover, it would 
seem that the supplier of the defective product would, in many cases, be better able 
than the user to foresee and predict the occurrence and extent of potential loss. Remote 
losses could be excluded by the application of the general principles of causation and 
foreseeability. Nor does it seem to me appropriate to leave these matters to be resolved 
by existing law, or by prospective reform of the law. It is apparent to me that some 
persons may be left without a remedy and, in my view, a person should not go 
uncompensated in this important area of the law. In addition, it is worth noting that 



85 

that the proposed principle of strict liability should not extend to pure 
economic loss, and we so recommend. 24 

We wish to make it clear that economic loss that is directly consequent 
either upon personal injury, or upon damage to property that is not used 
in the course of carrying on a business, should be recoverable under our 
proposal. This type of economic loss is, in effect, triggered by personal 
injury or property damage and, in our view, cannot realistically be 
separated from such injury or damage. Economic losses of this sort, 
such as lost wages and out-of-pocket expenses, are recoverable under the 
present law of negligence. Accordingly, we recommend that economic 
loss directly consequent upon personal injury, and upon damage to property 
other than that used in the course of carrying on a business, should be 
recoverable under the principle of strict liability for defective products 
that we have earlier recommended. 25 

Finally, we turn to consider the scope of liability in a case where a 
false statement about a product has been made and occasions injury. For 
example, a manufacturer's handbook may show that a wire cable has a 
certain tensile strength whereas, in fact, the wire's tensile strength is 
not as great as stated in the handbook. Where reliance upon a false 
statement made by a supplier concerning a product causes personal injury 
or damage to property, the maker of the statement should be strictly 
liable for the loss caused by such reliance, whether or not the reliance 
is that of the person suffering the injury or damage, and we so recommend. 26 
However, in accordance with our previous recommendations, we recommend 
that liability in the case of false statements should be restricted to liability 
for personal injury, and for damage to property other than that used in the 
course of carrying on a business, and for economic loss directly consequent 
upon such injury or damage. 27 In other words, the proposed principle 
of strict liability, in such a case, should not extend either to damage to 
property used in the course of carrying on a business or to pure economic 
loss. 

2. Monetary Limits on Recovery 

Some jurisdictions have considered the imposition of a monetary 
limit on the recovery of damages. The monetary limit takes two forms. 

an injured party may not carry insurance against the risk of this kind of loss. Finally, 
I am of the opinion that this same reasoning applies to liability occasioned by reliance 
upon a false statement. In my view, the proposed principle of strict liability, in such a 
case, should cover not only liability for personal injury, and for damages to property 
other than that used in the course of carrying on a business, and for economic loss 
directly consequent upon such injury or damage, but should also extend to include 
liability for pure economic loss suffered in a non-business context. 

One of the Commissioners, the Honourable Richard A. Bell, wishes to add the following: 

Initially at the Commission meeting considering the exclusion of pure economic loss, 
I expressed myself as dubitante. After reading the Chairman's dissent, and giving the 
issue further thought, I concur respectfully in his reasoning. Indeed, I have difficulty 
in rationalizing the exclusion of pure economic loss suffered in the course of a business. 

24 See Draft Bill, s. 3. 

^Ihid. 

26 See Draft Bill, s. 4. 

21 Ibid. 



86 

First, a limit may be set on the amount recoverable by any one plaintiff 
on a given set of facts. The other form involves restricting the total 
sum for which a defendant might be liable in respect of any one product 
or run of products. The former approach is adopted by the E.E.C. draft 
Directive, which provides a monetary limit for each claim. The Strasbourg 
Convention, on the other hand, permits individual states to limit the 
compensation awarded to each person and the compensation awarded 
for the totality of damage caused by identical products having the same 
defect. The English and Scottish Law Commissions considered these 
possibilities but rejected them on the grounds that individual financial 
limits would operate unfairly to individual plaintiffs, and that a general 
limit for a product or run of products likely would raise insuperable adminis- 
trative problems in ascertaining those entitled to claim and in distributing the 
fund. 28 These grounds seem persuasive. If a plaintiff has in fact suffered 
the loss that he claims, and the defendant is liable, there seems no rational 
basis for restricting the plaintiffs right to recover. To the extent that 
the plaintiffs injuries are left uncompensated, in our view, such a 
restriction would enrich the defendant at the expense of the plaintiff. 
On the other hand, if there is a case to be made that plaintiffs are, 
or are likely in the future, to be overcompensated, the solution would appear 
to lie in amendment to the processes of civil litigation to ensure that 
overcompensation does not occur. Such an amendment would, however, 
be a general amendment, and not referable specifically to the law of 
products liability. In view of the recent decisions of the Supreme Court 
of Canada suggesting that, save in exceptional cases, damages for non- 
pecuniary loss should not exceed $100,000, 29 it seems unlikely that a 
strong case can be made that seriously injured persons are or will be 
overcompensated by our civil litigation system. Accordingly, we do not 
recommend that compensation for injury or damage caused by a defective 
product or by reliance upon a false statement made by a supplier concerning 
a product should be subject to a monetary limit, as to either the amount 
recoverable by any one plaintiff on a given set of facts or the total sum 
for which a defendant might be liable in respect of any one product 
or run of products. 

3. Limitation and Cut-Off Periods 

Another technique which has been proposed to restrict recovery under 
a principle of strict liability is the establishment of a special limitation 
period or the introduction of a cut-off period. 

Both the Strasbourg Convention and the E.E.C. draft Directive provide 
for a three year limitation period for the institution of products liability 
actions. This period would run from the day when the injured person 
became aware, or should reasonably have become aware, of the damage, the 
defect and the identity of the producer. The English Law Commission 
and the Scottish Law Commission differed on the question of whether 
to accede to these international agreements. The English Law Commission 



28 Footnote 7, supra, paras. 134-35, at p. 42. See also para. 138, at p. 43. 

29 Andrews et al. v. Grand & Toy Alberta Ltd. and Anderson, [1978] 2 S.C.R. 229; 

Thornton et al. v. School District No. 57 (Prince George) et al., [1978] 2 S.C.R. 

267; Arnold and Arnold v. Teno et al., [1978] 2 S.C.R. 287. Compare, Lindal v. Lindal, 

[1978] 4 W.W.R. 592 (B.C.S.C). 



87 

found the three year limit acceptable. 30 The Scottish Law Commission, 
on the other hand, was of the opinion that the question of the appropriate 
limitation period and the time at which it commences to run should be 
left to domestic law. 31 

Under existing Ontario law, proceedings in respect of damage occasioned 
by a defective product must be commenced within six years after the 
accrual of the cause of action. 32 Recently, in Ontario, the Ministry of the 
Attorney General published a Discussion Paper on Proposed Limitations 
Act 33 based, to some extent, on this Commission's 1969 Report on Limitation 
of Actions. This Discussion Paper contained a draft Limitations Act, which 
proposed that actions for personal injury and property damage should be 
subject to a two year limitation period, 34 but that the running of time should 
be postponed until the plaintiff knew or ought to have known the identity 
of the defendant and the facts upon which his action was founded. 35 
Should this proposal be implemented by legislation, it would mean that 
an action could be brought long after the sale and distribution of a 
product if, for example, an unknown defect caused an injury many years 
subsequent to its actual distribution. Such a possibility, in the opinion 
of the Commission, would not place an unfair burden on the defendant, 
and it is, of course, a burden that he bears under the present law of 
negligence, whereby the plaintiffs action does not accrue until the damage 
caused by the product is suffered. 36 However, the longer the period of 
time that has elapsed since the initial distribution of the product, the 
more difficult it will be for the plaintiff to show that the product was 
in fact defective when it left the defendant's hands. For these reasons, 
we support the approach adopted in the proposed Limitations Act. We 
wish to make it clear that we see no merit in the prescription of a special 
limitation period applicable only in respect of actions for the recovery of 
damages under the proposed principle of strict liability. Accordingly, we 
do not recommend any special limitation period. 

To protect a defendant against actions brought long after the initial 
distribution of a product, what would be required is not a short limitation 
period, but rather a "cut-off period. A "cut-off period would provide 
a supplier of a defective product with immunity after the lapse of a specified 
time from the initial distribution of the product. The Strasbourg Convention 
and the E.E.C. draft Directive provide for a ten year cut-off period 
from the initial distribution of the product, after which proceedings against 
a producer of a defective product may not be instituted. 37 The effect of 



30 Footnote 7, supra, para. 165, at p. 50. 

^Ibid., para. 166, at p. 50. 

n The Limitations Act, R.S.O. 1970, c. 246, s. 45(1)0?). 

"Ministry of the Attorney General, Discussion Paper on Proposed Limitations Act (1977). 

™Ibid., s. 3(l)(a). 

^Ibid., s. 6(4). 

16 See Fleming, The Law of Torts (5th ed., 1977), at p. 177. See also Long et at. v. Western 
Propeller Co. Ltd. et al. (1968), 63 W.W.R. 146, 67 D.L.R. (2d) 345 (Man. C.A.); 
Brook Enterprises Ltd. v. Wilding and Jones et al., [1973] 5 W.W.R. 660, (1973), 
38 D.L.R. (3d) 472 (B.C.S.C); Watson v. Winget Ltd., [1960] S.L.T. 321 (H.L.). 

"Footnote 7, supra, para. 150, at p. 46: 

There is a slight difference in that with the Strasbourg Convention the period 
starts with the date on which the product was put into circulation by the producer 
[Art. 7], whereas the EEC Directive provides for it to start at the end of the year 
in which the product was put into circulation [Art. 9] (footnotes omitted). 



88 

the cut-off rule is to prevent the commencement of proceedings after 
the lapse of the period. Thus, a claimant who is injured just after 
the lapse of the period will have no cause of action at all, however meritorious 
his claim in other respects, and a claimant injured shortly before the 
expiry of the period may find that the cut-off period has expired before 
he can, even acting with all dispatch, institute proceedings. These con- 
sequences are bound to give rise to anomalies. Further anomalies will 
spring from the fact that identical products may be stored for different 
periods of time before or after retail sale. Thus, where two persons buy 
identical products on the same day, and are injured by defects in the 
products, the success of each against the producer of the product may 
vary according to the time during which the products have been stored 
either on the retailer's shelves, or in the wholesaler's warehouse, or by 
the plaintiff, or by an earlier purchaser before use. Generally consumers 
neither know nor are able easily to discover the date at which the 
defective product left the manufacturer's hands. Further, if the action 
is brought against the manufacturers of defective components, different 
cut-off periods will apply in respect of each component. In any event, 
it seems doubtful whether a single time limit of universal application is 
appropriate to the wide range of products that may cause injuries. 

In the case of many products, even without any statutory cut-off 
period, a lapse of ten years from the date of initial distribution may 
well present very real practical problems to the plaintiff, who must 
prove that the product was defective when it left the manufacturer's 
hands. It may be reasonable to suppose that, in the case of many products, 
an initial defect will not be provable after ten years of use. It is possible, 
however, to envisage a product that is stored for ten years in a warehouse. 
In such a case, the problem of proof of initial defect may be less difficult. 
Moreover, there are many products from which more than ten years use can 
be reasonably expected. Components used in ships or aircraft and building 
materials are but a few examples of such products. In the case of other 
products, such as drugs, an injury may occur within the cut-off period often 
years but might only become apparent outside this period. In all cases referred 
to above, it seems anomalous and arbitrary to deprive the plaintiff completely 
of his claim because of the running of a cut-off period. This is a further point 
on which the English and Scottish Law Commissions differed, the Scottish 
Law Commission rejecting the concept of a cut-off period, largely for the 
reasons just given. 38 The English Law Commission, on the other hand, was 
willing to accept the ten year cut-off period. In the Law Commissions' Report 
on Liability for Defective Products, the English Law Commission stated as 
follows: 39 ' 

The Law Commission are impressed by the criticisms of the cut- 
off period made by the Scottish Law Commission, and accept that 
the period is arbitrary and, for this reason, capable of working 
hardship and injustice to persons injured in the later stages of a 
product's life. However the cut-off period of 10 years is not likely to 
be of much relevance to perishable goods and as for durable goods, 



™/bid., paras. 154-60, at pp. 47-49. 
39 //?/V/., paras. 151-52, at pp. 46-47. 



89 

such as motor cars and building materials, the Law Commission 
believe that a cut-off point is needed in fairness to the producers on 
whom the burden of strict liability must otherwise rest indefinitely. 

It is in the producer's interest that he should be able to close his 
books on a product after it has been in circulation for a fixed period. 
It assists him in assessing the risk and it facilitates insurance and 
amortisation, thus keeping the insurance premium down. There is 
thus some saving, albeit marginal, which redounds to the general 
benefit of the public. More important, perhaps, it sets a date after 
which the producer no longer has the burden of proving that a 
product which caused an accident was not defective when he put it 
into circulation. This burden is increasingly difficult for him to 
discharge as the years pass and it seems only fair that there should 
come a point when it is entirely removed. 

These arguments, based as they are on the convenience to the defendant of 
being able to "close his books", do not, in our view, outweigh the criticisms 
voiced by the Scottish Law Commission, which were based on the very real 
possibility of substantial unfairness and arbitrariness. It should be remem- 
bered that, under the existing law of negligence, the manufacturer of a product 
can never "close his books", since a cause of action in negligence accrues when 
the damage is suffered. 40 In practice, of course, the longer the period that has 
elapsed since the distribution of the product, the more difficult it will be for the 
plaintiff to show that it was initially defective. But if he can discharge that 
burden there seems no good reason why recovery should be denied. It should 
be noted, too, that the proposals of the English and Scottish Law Commis- 
sions contemplate a new principle of strict liability that would co-exist with 
the present law of negligence. Consequently, a plaintiff, whose cause of action 
under the proposed principle of strict liability might be extinguished by the 
cut-off period, might still be able to sue for negligence. 

Later in this Report, 41 we recommend that, as with the position of the 
English and Scottish Law Commissions, the proposed principle of strict 
liability should leave undisturbed the present law of negligence. The 
possibility that an injured person might sue for negligence notwithstanding 
the expiry of a cut-off period, in our view, detracts significantly from the only 
argument that supports the position taken by the English Law Commission: 
namely, that a cut-off period will enable the manufacturer to "close his 
books". So long as the existing law of negligence remains, he will not be able to 
"close his books". In any event, for the reasons we have stated, we are 
persuaded that no special cut-off period should be prescribed in respect of 
actions for the recovery of damages under the proposed principle of strict 
liability. We so recommend. 

4. Types of Product 

The question we now consider is whether our recommended principle of 
strict liability should apply to all products, or whether certain products should 
be excluded. In our opinion, this principle should extend to all products, 



40 Supra, at p. 87. 
4] Infra, at p. 105. 



90 

whether or not they are attached to or incorporated into real or personal 
property, 42 unless, in relation to any particular product, there are cogent 
reasons to the contrary. Products that have been singled out for possible 
special treatment include pharmaceuticals, components and natural products. 
While, as will be noted, we do not favour the exemption of any of these 
products from the proposed principle of strict liability, we wish to make the 
following comments. 

(a) PHARMACEUTICALS 

The English and Scottish Law Commissions considered, but rejected, the 
possibility of exempting manufacturers of pharmaceuticals from the 
proposed principle of strict liability. 43 The English Law Commission 
summarized its conclusion as follows: 44 

The Law Commission believe that all the policy considerations 
in favour of imposing strict liability on producers apply with as 
much force to pharmaceuticals as they do to other products. The 
producer of defective pharmaceuticals creates the risk; he is the 
person best able to control the quality of the product; he is the 
person best able to insure against claims; and public expectation that 
drugs on the market will be safe is raised by advertising and by the 
promotional material with which the pharmaceutical industry 
supply the medical profession. Finally the thalidomide case itself, 
the history of which is too well known to need recounting, illustrates 
the procedural and evidentiary problems that face the claimant who 
seeks compensation under the existing law. The conclusion of the 
Law Commission is that strict liability for injuries caused by 
defective pharmaceuticals should be imposed on those who produce 
them. A substantial number of commentators arrived at the same 
conclusion. This is not to say that the Law Commission would 
necessarily oppose the idea of a central compensation fund for 
persons injured by drugs (whether prescribed or not) or other kinds 
of misadventure. But, like the Scottish Law Commission, they 
believe that the Royal Commission [on Civil Liability and Personal 
Injury] are the appropriate body to consider the advantages and 
disadvantages of such a fund. 

We are in agreement with the English Law Commission. We know of no 
conclusive evidence that establishes that the introduction of a principle of 
strict liability will impede research and development in the pharmaceutical 
field. Even if there were such evidence, we are not convinced that research and 
development should be at the expense of individual plaintiffs. 



42 In our discussion of the existing law relating to products liability in Ontario, we noted 
that the manufacturer of a product incorporated into real property would be liable if the 
product were defective: see supra, at p. 12. We see no reason to depart from this 
position. 

43 Footnote 1, supra, paras. 55-65, at pp. 19-22. 

44 Ibid., para. 61, at p. 21. The Scottish Law Commission expressed its concern for the 
need to enact special legislative provisions for producers of certain pharmaceuticals 
such as prescription medicines; however, the Commission had no specific proposals to make 
in this regard: footnote 7, supra, paras. 62-65, at pp. 21-22. 



91 



(b) COMPONENTS 



The English and Scottish Law Commissions disagreed on the question 
whether their proposed principle of strict liability should apply to 
manufacturers of components. 45 The English Law Commission considered 
that strict liability should rest on the producer of a component, whether or not 
it was later incorporated into another product by another producer. The 
Scottish Law Commission, on the other hand, recommended that the liability 
of the producer of a component should cease upon the incorporation of the 
component into the other product. The English Law Commission argued that 
the producer of a component, especially a sophisticated component such as an 
altimeter or a television tube, is primarily responsible for quality control. The 
English Law Commission pointed out that it would be wholly unreasonable to 
expect a cabinet maker, who merely provided the wooden frame in which a 
television set was housed, to exercise any real control over the quality of the 
electronic components. The English Law Commission made the further point 
that the manufacturer should not be relieved from liability merely because the 
finishing touches were put to the product by another person. In a case where a 
component was put to an unforeseen or unexpected use, the component 
manufacturer would have a sufficient defence if he could show that the 
product was free from "defect". The Scottish Law Commission took the view 
that duplication or multiplication of liability would lead to unnecessary 
duplication or multiplication of insurance in relation to the same risk, and 
that the consequence would be unnecessarily increased prices. 

In our opinion, the arguments of the English Law Commission are more 
persuasive in this case. Under the present law, suppliers of component parts 
usually would insure against the risk of suits in negligence. In addition, some 
suppliers may not know for certain that their products may be used as 
component parts and will insure accordingly. Moreover, we would point out 
that, even if the supplier of a defective component were to be exempt from 
direct liability to a person injured, he would still be liable in most cases to 
answer a claim for indemnity by the manufacturer of the completed product. 
Consequently, it seems desirable to enable the injured plaintiff to elect to 
proceed against either the supplier of the defective component, the 
manufacturer of the completed product, or both, and to leave it to the various 
suppliers to make their own arrangements for contribution or indemnity. 

(c) NATURAL PRODUCTS 

The English and Scottish Law Commissions differed also on the 
applicability of their proposed principle of strict liability to natural products. 
The English Law Commission took the view that natural products should be 
included; the Scottish Law Commission, on the other hand, recommended the 
exclusion of primary agricultural and fishery products. It should be recalled 
that, with modern techniques, very few, if any, products are consumed in their 
natural state. 46 The English Law Commission pointed out that foods are 
commonly processed and often treated with artificial chemicals. This 



4i fbid., paras. 66-82, at pp. 22-26. 
46 Ibid., paras. 83-96, at pp. 26-29. 



92 

Commission also pointed out that crops may be grown with artificial 
fertilizers and treated with herbicides, and that animals and poultry 
slaughtered for meat may have been fed with artificial chemicals. In addition, 
the English Law Commission pointed out that producers of so-called natural 
products are not always small businesses. Moreover, even if they were, in the 
view of the English Law Commission, this fact was no justification for 
exemption from liability. In contrast, the Scottish Law Commission took the 
view that strict liability would place an unfair burden on producers of 
agricultural and fishery products. 

Again, in our view, the position of the English Law Commission is the 
more persuasive. It is true that defects in agricultural products may be caused 
by factors that are beyond the producer's control; for example, a farmer may 
treat his crop with a fertilizer that he has not prepared. This, however, is true 
of all products, and no special exemption for agricultural or fishery products 
seems justifiable. 

(d) CONCLUSION 

As we have noted, we recommend that our proposed principle of strict 
liability should apply to all products, that is, any tangible goods whether or 
not they are attached to or incorporated into real or personal property. 47 In 
particular, for reasons that we have mentioned, we do not recommend that 
pharmaceutical products, component parts or natural products should be 
exempted from the application of this principle. 

5. Classes of Defendant 

Under the present law, manufacturers may be held liable in negligence 
and retailers may be held liable for breach of implied warranty. 48 The English 
and Scottish Law Commissions' proposal applies to "producers". 49 The Law 
Commissions defined the term "producers" to include manufacturers and the 
three other classes of business supplier: namely, those who sell products under 
their brand name as if they themselves had produced them; persons who sell 
products which do not carry any indication as to the identity of the producer; 
and, importers of goods. Distributors, wholesalers and retailers were not, 
however, generally included. The Saskatchewan Consumer Products War- 
ranties Act, 1977 50 applies to persons attaching their brand name products, to 
persons describing themselves as manufacturers, to importers of goods 
manufactured abroad, and to retailers, but not to other business suppliers 
such as wholesalers. Section 402A of the American Restatement (Second) of 
Torts, on the other hand, applies to all business suppliers, including 
manufacturers, importers, wholesalers, distributors, and retailers, as well as 
those who supply goods by means other than sale. 51 As we have noted, 
under existing law the wholesaler and other business suppliers in the 
distributive chain can be made liable indirectly for breach of warranty, each 



47 See Draft Bill, s. \(\)(c). 

** Supra, at pp. 30-31. 

49 Footnote 7, supra, paras. 99-102, at pp. 29-30. See also supra, at pp. 59-61. 

50 S.S. 1976-77, c. 15, discussed supra, at pp. 39-41. 

^Supra, at pp. 54-55. 



93 

buyer in the chain claiming against his immediate seller. 52 One of the 
objectives in reforming the law of products liability is to place the liability of 
all business suppliers on a single rational basis. It would seem logical, 
therefore, to follow the Restatement and to extend liability to all business 
suppliers of defective goods. As was suggested above, 53 there is good reason 
to compel a business supplier of goods to take the risk of finding that the 
manufacturer is not amenable to suit because he is insolvent, unknown or 
beyond the jurisdiction. Where the manufacturer is amenable to suit, the 
ultimate incidence of liability can be brought home to him. 

So far in our discussion we have drawn no distinction between a person 
who supplies products in the course of his business and someone who supplies 
a product in a non-business context. The English and Scottish Law 
Commissions briefly considered the possibility of extending their proposed 
principle of strict liability to the non-business "producer"; for example, the 
person who sells home-made jam to a neighbour, or the person who sells 
apples from a tree in his garden. The Law Commissions pointed out that it is 
not reasonable to expect the casual, non-business seller, who is not negligent, 
to assume the risk of injuries or to distribute the loss through insurance or 
otherwise. 54 In the result, the Law Commissions did not favour such an 
extension. We share this conclusion. The existing law of implied warranties 
extends only to those selling in the course of business, and, in our opinion, for 
the reasons mentioned, there is a difference between business and non- 
business suppliers. Accordingly, we recommend that the proposed principle 
of strict liability should apply to a person who supplies 55 a product in the 
course of his business, but it should not apply to a person who supplies 
a product in a non-business context; however, the proposed principle should 
apply only in the case of products of a kind that it is that person's business 
to supply. 56 Not every product supplied by a business person would 
be caught by this test. The engineering firm that makes an occasional 
sale of a second-hand typewriter, for example, would not be in the business of 
supplying typewriters. However, we recommend that a person should be liable 
under the proposed principle of strict liability notwithstanding that he has not 
previously supplied products of the same kind as the product supplied, or that 
he supplied the product for promotional purposes; 57 for example, the soap 
manufacturer who distributes plastic clothespins, or the manufacturer of 
cereals who includes plastic toys in cereal packages. 

6. Classes of Plaintiff 

In the previous section, we discussed the persons who should be liable 
under our proposed principle of strict liability. We now turn to consider 



52 Supra, at pp. 3 1 and 36; see also Kasler and Cohen v. Slavouski, [1928] 1 K.B. 78 and Biggin 
& Co. Ltd. v. Permanite Ltd. el ai, [1951] 2 K.B. 314 (C.A.). In addition to liability 
for breach of warranty, wholesalers and other business suppliers in the distributive 
chain may also be liable in negligence, although, as we earlier pointed out, they are rarely 
held liable in practice. See discussion supra, at pp. 19 and 31. 

5i Supra, at p. 36. 

54 Footnote 7, supra, para. 43, at p. 15. 

55 "To supply" is defined in the Draft Bill as meaning "to make available or accessible 
by sale, gift, bailment or in any other way, and 'supplied', 'supplies' and 'supplier' have 
corresponding meanings, but a person who transports a product is not by that act 
alone a supplier": see Draft Bill, s. 1(1 ){d). 

,6 See Draft Bill, ss. 3(1) and 4(1). 

57 See Draft Bill, s. 5. 



94 

whether this principle should be available to all those who suffer injury by 
reason of a defective product, or whether some restriction should be imposed 
upon the class of potential plaintiffs. 

Section 402A of the Restatement (Second) of Torts by its terms restricts 
recovery to a "user or consumer". In our earlier discussion of section 402 A, we 
criticized this restriction; 58 in practice, it has been abandoned by many 
American courts. 59 There would seem to be no case for restricting the class of 
person entitled to recover under the proposed principle of strict liability in any 
way other than by the general tort limitations of proximity and causation. We 
so recommend. 

Our recommendation will necessitate some change in existing law. The 
recently amended provisions concerning dependants' claims for damages, 
found in Part V of The Family Law Reform Act, 1978, are restricted 
to situations where a person is injured or killed by the "fault or neglect 
of another". 60 The proposed principle of strict liability for defective 
products is not, however, contingent upon fault or neglect. Consequently, 
while the person injured by a defective product, for example, could take 
advantage of the proposed principle of strict liability, his dependants would 
still be required to show negligence. This does not seem to us to be 
correct. In our view, the principle of Part V should be broadened so 
as to enable dependants' claims to be founded upon a showing of strict 
liability. Therefore, we recommend that, where a person is injured or 
killed under circumstances where the person is entitled under the proposed 
principle of strict liability to recover damages, or would have been so 
entitled if not killed, the spouse as defined by Part II of The Family 
Law Reform Act, 1978, children, grandchildren, parents, grandparents, 
brothers and sisters of the person should be entitled to recover their 
pecuniary loss resulting from the injury or death from the person from whom 
the person injured or killed is entitled to recover or would have been entitled if 
not killed, and to maintain an action for the purpose in a court of competent 
jurisdiction, and Part V, except subsection 1 of section 60, of The Family Law 
Reform Act, 1978 should apply mutatis mutandis to any such action. 61 

7. Defences 

The principle of strict liability that we have earlier recommended is one of 
strict, not absolute, liability. In other words, liability need not necessarily 
follow even though the plaintiff proves that a product has caused him harm: 
the supplier may, nevertheless, be able to establish a defence to the plaintiffs 
claim. We now turn to consider the defences that should be so available. 



5 *Supra, at p. 55. 

™lbid. 

b0 The Family Law Reform Act, 1978, S.O. 1978, c. 2, ss. 60-64. We wish to point out 
that section 60 of The Family Law Reform Act, 1978 refers to injury or death caused 
by the "fault or neglect of another", whereas The Fatal Accidents Act, R.S.O. 1970, c. 164 
spoke of death caused by a "wrongful act, neglect or default". Therefore, it may well be that 
section 60 of The Family Law Reform Act, 1978, perhaps inadvertently, has narrowed 
the scope of recovery by dependants. 

6l See Draft Bill, s. 16. 



95 



(a) "STATE OF THE ART' 



Recently there has been discussion, mostly in the United States, of a 
"state of the art" defence. 62 By this means, a manufacturer who proves that he 
has complied with statutory or generally prevailing standards as of the time 
the products left his hands would have a defence. 63 It should be noted that, 
under the present law of negligence in Ontario, compliance with such 
standards, while usually dispelling an allegation of negligence, may not 
necessarily have this result. 64 Be that as it may, this proposed "state of the art" 
defence raises two discrete questions: one relates to the point of time at which 
the standard is to be determined; the other deals with compliance and non- 
compliance with statutory or generally prevailing standards. 

First, as to the temporal element, as was suggested above, it would seem 
that the appropriate time forjudging the standard of a product in a negligence 
action under present Ontario law is the time at which the product left the 
manufacturer's hands. 65 There seems to us no reason why the adoption of a 
principle of strict liability should change the law in this respect. Under the 
recommended principle of strict liability, the plaintiff would have to show a 
"defect". Accordingly, the manufacturer who can show that the product was 
not defective when it left his hands would have an answer to an action under 
this principle. In our opinion, subsequent improvements in production 
methods should not increase the manufacturer's liability. 

Insofar as the second question is concerned, compliance with statutory or 
generally prevailing standards in force at the time of distribution may indicate 
the absence of a defect. It may be noted that the English and Scottish Law 
Commissions recommended against any special defence based on the "state of 
the art", 66 and that the Pearson Commission came to the same conclusion. 67 
We agree. In our view, it would be unwise to adopt a rule making compliance 
conclusive, or even prima facie, proof of the absence of a defect. Often 
statutory standards are incomplete, out of date, or are enacted for social 
purposes other than product safety. At the same time, it would seem advisable 
to permit the court to take into account all relevant factors in determining the 
existence or absence of a "defect". 

In the case of non-compliance with statutory standards, some jurisdic- 
tions, as, for example, Saskatchewan, have enacted a. prima facie presumption 



62 See U.S. Dept. of Commerce, Draft Uniform Product Liability Law, 44 Fed. Reg. 2996 
(1979). Section 106(d) provides that evidence that a product conformed to the "state 
of the art" at the time of manufacture raises a presumption that the product was not 
defective. This presumption may, however, be rebutted by "clear and convincing evidence". 

63 U.S. Dept. of Commerce, Interagency Task Force on Product Liability, Final Report 
(1978), at pp. VII-33 - VII-37. As we have already pointed out, one of the difficulties 
in the American jurisdictions, it would seem, has been, or has been perceived to be, 
control of the jury system: one impression that may be acquired from a reading of the 
relevant material is that juries may be awarding damages in products liability cases 
where there was no defect at the time that the product left the manufacturer's 
hands. This would appear to be a problem more of the conduct of civil litigation 
than of the framing of a rule of law. 

64 See Fleming, The Law of Torts (5th ed., 1977), at pp. 1 18-19. 

65 Supra, at p. 14. 

66 Footnote 7, supra, para. 105, at p. 31. 

67 Royal Commission on Civil Liability and Compensation for Personal Injury (1978) (Cmnd. 
7054), paras. 1258-60, at p. 269. 



96 



of defectiveness. After careful consideration, we have reached the conclusion 
that, on balance, such a provision is neither necessary nor desirable. We have 
suggested above that compliance with statutory standards should be neither 
conclusive nor prima facie proof of the absence of a defect; to recommend that 
non-compliance with such standards should be prima facie proof of the 
existence of a defect would seem to result in an imbalance that cannot easily be 
justified. In any event, we are of the opinion that, if evidence of non- 
compliance is admissible under the general rules of evidence, the courts are 
capable of drawing the appropriate conclusions. 

Accordingly, the Commission recommends that, in determining whether or 
not a product is a defective product, any relevant standard established by law 
may be taken into account. For the reasons mentioned above, we do not 
recommend the enactment of a provision making evidence of compliance or 
non-compliance with statutory or generally prevailing standards either 
conclusive or prima facie proof of the absence or existence of a defect. 68 

(b) ASSUMPTION OF RISK 

Another defence that this Commission has considered is the defence of 
assumption of risk. This defence forms part of the general law of negligence, 69 
the principle being that the person who knows the nature and character of the 
risk that he runs cannot succeed in a claim for damages for injuries suffered as 
a result of his assumption of risk. 

The English and Scottish Law Commissions recommended that the 
defence of assumption of risk should continue to be available in strict liability 
cases. They cited the instance of a plaintiff who, knowing the risk of a drug, 
deliberately assumed that risk. 70 There are other cases that come to mind of 
plaintiffs who, knowing that a product is dangerous, continue to use the 
product. 71 In such cases, it would seem that a defence should be available to 
the manufacturer. As we have stated, strict liability is not the same as absolute 
liability, and the manufacturer should not be an insurer of the plaintiffs 
safety. Accordingly, the Commission recommends that the defence of 
assumption of risk should be available under the proposed principle of strict 
liability. 

(C) CONTRIBUTORY NEGLIGENCE 

At common law, in a negligence action, the contributory negligence of 
the plaintiff was a complete defence. Legislation, however, has intervened. 
Under The Negligence Act 12 of Ontario, contributory negligence is no longer a 
complete defence; rather a finding of fault or negligence on the part of the 
plaintiff that contributed to the damages claimed by him enables the court to 
apportion damages in proportion to the degree of fault or negligence found 
against the parties. The English and Scottish Law Commissions recom- 



ft8 See Draft Bill, s. 1(2). 

69 Supra, at p. 19. 

70 Footnote 7, supra, para. 106, at p. 31. 

71 For example, a person who drives his car knowing that something is wrong with the 

brakes of the car. 
72 R.S.O. 1970, c. 296, s. 4. 



97 

mended that the principle of strict liability that they proposed should be 
subject to a partial defence in cases of contributory negligence. 73 This is an 
issue that we also have considered. 

It has been argued that a partial defence of contributory negligence is 
incompatible with strict liability. Since the defendant's liability is not based on 
negligence, it has been said to be anomalous to reduce the plaintiffs recovery 
on account of his own negligence. Moreover, it has been argued that, under a 
regime of strict liability, there is no basis for comparing the negligence of the 
two parties where the defendant's negligence is, by hypothesis, irrelevant. On 
the other hand, it is contended that, if the plaintiff is partly responsible for his 
own injury, there is no reason why the defendant should compensate the 
plaintiff for all his damages. 

The Ontario Negligence Act provides the framework for adjusting 
liability, one that has functioned successfully and that is under consideration 
in some American jurisdictions. 74 In our opinion, withdrawal of the means to 
apportion damages would be a retrograde step. It would require courts to 
make "all or nothing" decisions which might well, in practice, be harmful 
rather than helpful either to the plaintiff or the defendant in the area of 
products liability. Therefore, we recommend that, where injury or damage is 
caused or contributed tQ partly by a supplier of a defective product or by 
reliance upon a false statement made by a supplier concerning a product and 
partly by the fault or neglect of the person suffering the injury or damage, 
damages should be apportioned in accordance with the degree of the 
responsibility of each for the injury or damage. Our Draft Bill so provides. 75 

We further recommend that, where it is not practicable to determine the 
respective degree of responsibility of the supplier and of the person suffering 
the injury or damage, the parties should be deemed to be equally responsible 
for the injury or damage suffered, and damages should be apportioned 
accordingly. 76 This recommendation is similar in effect to section 5 of the 
Ontario Negligence Act. 11 

(d) CONTRACTING OUT 

We now turn to consider the issue whether parties should be at liberty to 
contract out of the proposed principle of strict liability. 

In our opinion, the question of exclusion of liability is closely linked with 
the scope of recoverable losses. Provincial legislation restricting the use of 
exemption clauses in consumer sale transactions is now widespread in 



73 Footnote 7, supra, paras. 107-10, at pp. 31-32. 

74 See, for example. Wade, "Products Liability and Plaintiffs Fault The Uniform 

Comparative Fault Act" (1977-78), 29 Mercer L. Rev. 373. 
75 See Draft Bill, s. 6(1). 
76 See Draft Bill, s. 6(2). 
77 R.S.O. 1970, c. 296. Section 5 provides as follows: 

5. If it is not practicable to determine the respective degree of fault or 
negligence as between any parties to an action, such parties shall be deemed to be equally 
at fault or negligent. 



98 

Canada. 78 Between business persons, however, and in relation to business 
loss, exemption clauses are not always unfair or in any way improper. 79 In 
such cases, exemption clauses are subject to judicial control, now widely 
recognized to rest on a principle of unconscionability. 

It will be recalled that we have recommended that our proposed principle 
of strict liability should apply to personal injuries, and to damage to property 
other than that used in the course of carrying on a business, as well as to any 
economic loss directly consequent thereon; damage to property used in the 
course of carrying on a business and pure economic loss would not be 
recoverable. As a result, it seems appropriate to prohibit exclusion of liability. 
A power to exclude liability by printed notices would, in our view, both largely 
frustrate the progress of the new principle, and would also be out of keeping 
with the consumer protection statutes now in force in Ontario and in most 
other provinces. We find support for our position in the recommendation of 
the English and Scottish Law Commissions that, in the context of their 
proposal, exclusion clauses should be void, 80 although it will be recalled that 
their principle of strict liability was restricted to compensation for personal 
injuries. 

Accordingly, we recommend that any oral or written agreement, notice, 
statement or provision of any kind purporting to exclude or restrict liability 
under the proposed principle of strict liability or to limit any remedy available 
thereunder should be void. 81 

8. Contribution and Indemnity 

Under the principle of strict liability that we have earlier recommended, 
the plaintiff will have an option in most cases to bring proceedings against two 
or more defendants: usually the manufacturer and the retail supplier of the 
defective product. It can be expected that the plaintiff will choose to sue the 
most accessible and solvent defendant. The plaintiffs election, however, 
should not determine the ultimate incidence of liability as among the potential 
defendants. If, for example, the plaintiff pursues his action and recovers 
judgment against the retail supplier who sold him the defective product, the 
retailer in turn should, in our view, have an action against the manufacturer, if 
the latter was responsible for the defect. 

Under existing law, where the retailer is sued, the ultimate burden of 
liability may be shifted to the manufacturer by a series of warranty claims, but 
the process may be interrupted by insolvency or by exemption clauses. 82 



7S Ontario: The Consumer Protection Act, R.S.O. 1970, c. 82, as amended by S.O. 1971 
(Vol. 2), c. 24, s. 2(1); B.C.: Sale of Goods Act, R.S.B.C. 1960, c. 344, as amended 
by S.B.C. 1971, c. 52, s. 1; Saskatchewan: 77?? Consumer Products Warranties Act, 1977 
S.S. 1976-77, c. 15, s. 11. See New Brunswick Dept. of Justice, Law Reform Division, 
Third Report of the Consumer Protection Project (1976), Vol. I, at pp. 5-7 and the 
1978 Quebec Consumer Protection Act, s. 43. 

"Where parties of equal bargaining power are contracting, exclusionary provisions, 
particularly in the case of business buyers and economic losses, may be perfectly 
reasonable: see Fleming, footnote 64, supra, at p. 279. 

80 Footnote 7, supra, paras. 1 1 1-12, at pp. 32-33. 

8l See Draft Bill, s. 10. 

* 2 Supra, at pp. 3 1 and 36; see also Kasler and Cohen v. Slavouski, footnote 52, supra; Biggin 
& Co. Ltd. v. Permanite Ltd. et ai, footnote 52, supra; and see Prosser, "The Assault 
Upon the Citadel (Strict Liability to the Consumer)" (1959-60), 69 Yale L.J. 1099, at 
pp. 1123-24. 



99 

Moreover, where the liability of the retailer is grounded in contract, the 
provisions of The Negligence Act* 3, of Ontario would not be of assistance. 
Section 2(1) of this Act, which contains the remedies of contribution and 
indemnity, cannot, it seems, be utilized by a person found liable for breach of 
contract. 84 

One basic principle behind the right of indemnity is that of unjust 
enrichment; for example, it is unjust that the manufacturer should be excused 
from liability in respect of a defective product that he has distributed simply 
because the plaintiff has elected to sue another potential defendant. Under our 
recommended principle of strict liability, those primarily responsible for 
defective products, in the opinion of the Commission, should bear the burden 
of liability for injuries caused by such products. Where he is in no way 
responsible for the defect, a retailer held liable for damage caused by a 
defective product should be entitled to claim complete indemnity from any 
prior supplier in the chain of distribution. As we have stated, this result may 
sometimes be achieved under existing Ontario law by a chain of successive 
actions for breach of warranty. Reliance, however, could not be placed on 
section 2(1) of the Ontario Negligence Act, which would appear to permit 
contribution and indemnity only where damages have been caused or 
contributed to by the "fault or neglect" of two or more persons. The reason is 
that, under our proposed principle of strict liability, liability will no longer be 
dependent on a showing of fault or neglect. 85 However, granting a right of 
indemnity specifically limited to suppliers held liable under our Draft Bill 
would not be sufficient to effect the objective stated above. For example, 



"R.S.O. 1970, c. 296. 

84 Section 2(1), as amended, now provides as follows: 

2.(1) Where damages have been caused or contributed to by the fault or neglect 
of two or more persons, the court shall determine the degree in which each of 
such persons is at fault or negligent, and, where two or more persons are found 
at fault or negligent, they are jointly and severally liable to the person suffering 
loss or damage for such fault or negligence, but as between themselves in the 
absence of any contract express or implied, each is liable to make contribution 
and indemnify each other in the degree in which they are respectively found to be at 
fault or negligent. 

The section applies only to tort feasors, and, arguably, only to tort feasors liable in 
negligence: Hollebone v. Barnard, [1954] O.R. 236, [1954] 2 D.L.R. 278 (H.C.J.); 
Standard International Corp. et al. v. Morgan et at., [1967] 1 O.R. 328 (S.C. Master). 
It would seem to have no application to liability in contract: Giffels Associates Ltd. v. 
Eastern Const. Co. Ltd. et al. (1978), 84 D.L.R. (3d) 344, at p. 349," 5 C.P.C. 223 (S.C.C.), 
at p. 232. 

It should also be noted that section 3 of The Negligence Act, R.S.O. 1970, c. 296, 
dealing with contribution and indemnity as a result of a settlement, also only applies 
to tort feasors. 
85 See footnote 84, supra. Again, in the case of settlement, it would appear that section 
3 of The Negligence Act applies only to the tort of negligence. Section 3 provides 
as follows: 

3. A tort feasor may recover contribution or indemnity from any other tort 
feasor who is, or would if sued have been, liable in respect of the damage to 
any person suffering damage as a result of a tort by settling with the person suffering 
such damage, and thereafter commencing or continuing action against such other 
tort feasor, in which event the tort feasor settling the damage shall satisfy the 
court that the amount of the settlement was reasonable, and in the event that 
the court finds the amount of the settlement was excessive it may fix the amount 
at which the claim should have been settled. 



100 

under our recommendation relating to the retention of existing rights, 86 
liability could be imposed on a supplier, such as a retailer, for breach of 
warranty as well as under the proposed principle of strict liability. We are of 
the view that the manner in which an action for damages caused by a defective 
product is framed should not determine the extent of a supplier's right to 
indemnity. We, therefore, consider it appropriate to grant a right of indemnity 
whatever the basis of the supplier's liability and, accordingly, we recommend 
that a person who is liable, under our Draft Bill or otherwise, for injury or 
damage caused by a defective product or by reliance upon a false statement 
made by a supplier concerning a product should be entitled to be indemnified 
by any prior supplier of the product who would be liable under the Draft Bill 
for the injury or damage that gave rise to the liability. 87 However, this 
recommendation must be subject to two qualifications: first, any agreement 
express or implied to the contrary; and, secondly, the fault or neglect, if any, of 
the supplier claiming to be entitled to indemnity. 88 

As to the first point, we have recommended earlier that a supplier should 
not be able to restrict his liability or to limit any remedy available under the 
proposed principle of strict liability so far as the person actually suffering 
injury or damage is concerned, whether or not he is also a supplier. 89 However, 
consistent with a recommendation in our recent Report on Sale of Goods, 90 
we are of the view that, except where such clauses would be unconscionable, 
exemption clauses should otherwise be permitted between suppliers. 91 

With respect to the second matter, it should be noted that our discussion 
to this point has been based on the assumption that the supplier claiming 
indemnity is in no way responsible for the defect. However, where a product is 
defective, responsibility for the damage caused by the product may not rest 
entirely upon any one party. Damage may be caused partly by the supply of a 
defective product, and partly by the fault of a third person, who may or may 
not be a supplier of the product. By way of example, reference should be made 
to Smith v. Inglis Ltd. 91 In this case, a manufacturer supplied a defective 
appliance and a third person, who was not a supplier, removed a safety device, 
an electrical grounding prong, that would have prevented the injury of which 
the plaintiff complained. In this kind of situation, we are of the opinion that 
the supplier of the defective product should not bear the entire loss. 
Accordingly, we recommend that, where injury or damage is caused or 



86 See infra, at pp. 104-05 for a discussion of the relationship of the proposed principle of 

strict liability to existing law, and see Draft Bill, s. II. 
« 7 See Draft Bill, s. 8. 
™lbid. 

« 9 Supra, at p. 98. 
90 Ontario Law Reform Commission, Report on Sale of Goods (1979), ch. 9, at. pp. 227 ff., 

and see Draft Bill, ss. 5.16, 5.2. 
""Consider the following example: 

Assume that A, a manufacturer, sells a defective product to B, a retailer, who in 
turn sells the product to C, a consumer, who is injured by the product. In our 
opinion, neither A nor B should be able to exclude or limit their liability to C. 
However, we do believe that A should be permitted to exclude or limit his liability 
to B, for example, in the case of a claim for indemnification, but not in the case 
of a claim for damages for personal injury or damage to property suffered by B. 

92 (I978), 25 N.S.R. (2d) 38, 83 D.L.R. (3d) 215 (S.C., App. Div.). 



101 

contributed to partly by a supplier of a defective product or by reliance upon a 
false statement made by a supplier concerning a product and partly by the 
fault or neglect of another person, whether or not a supplier of the product, for 
which that other person would be liable to the person suffering the injury or 
damage, both the supplier and the other person should be jointly and severally 
liable to the person suffering the injury or damage, but as between themselves, 
subject to any agreement express or implied, each should contribute to the 
amount of the damages in accordance with the degree of the responsibility of 
each for the injury or damage. 93 As in the case of contributory negligence, we 
further recommend that, where it is not practicable to determine the respective 
degree of responsibility of the supplier and of the other person, the supplier 
and the other person should be deemed to be equally responsible for the injury 
or damage suffered, and each should contribute to the amount of damages 
accordingly. 94 

Before concluding this section of the Report, we wish to deal with two 
consequential matters: the right to claim contribution or indemnity in the case 
of settlement, and the limitation period applicable to claims for contribution 
or indemnity. Although both of these matters are covered by The Negligence 
Act, it seems, as was pointed out above, that the Act requires a showing of 
fault or neglect on the part of the defendant. Since the proposed regime of 
strict liability will not be dependent upon a showing of fault or neglect, the 
right to claim contribution or indemnity in cases of settlement and the 
limitation period applicable to claims for contribution or indemnity under 
this regime must be expressly addressed. We now turn to consider these 
two matters. 

Insofar as the first is concerned, that is, the right to claim contribution or 
indemnity in cases of settlement, we believe that such a right follows logically 
from our earlier recommendations concerning contribution and indemnity. 95 
Moreover, it should be noted that The Negligence A ct 96 expressly provides for 
this right in respect of cases within the purview of this Act. We see no reason 
why such a right should not also be available under the proposed principle of 
strict liability. Accordingly, we recommend that a person who settles for a 
reasonable sum a claim under the Draft Bill for injury or damage caused by a 
defective product or by reliance upon a false statement made by a supplier 
concerning a product should be entitled to claim contribution. 97 Similarly, we 
recommend that a person who settles for a reasonable sum a claim under our 
Draft Bill or otherwise for injury or damage caused by a defective product or 
by reliance upon a false statement made by a supplier concerning a product 
should be entitled to be indemnified by any prior supplier of the product who 
would be liable under the Draft Bill for the injury or damage that gave rise to 
the liability. 98 In both cases, if the amount of the settlement is determined to be 
excessive, the contribution or the indemnity, as the case may be, should be 



■"See Draft Bill, s. 7(1). 

94 See Draft Bill, s. 7(2). 

95 Supra, at pp. 98-101. 

96 The Negligence Act, R.S.O. 1970, c. 296, s. 3, which is set out supra, at p. 99, 

footnote 85. 
97 See Draft Bill, s. 7(3). 
9 *See Draft Bill, s. 8. 



102 

calculated in accordance with the amount for which the claim should have 
been settled, and we so recommend." 

The second consequential matter concerns the limitation period in 
respect of claims for contribution and indemnity. Section 9 of The Negligence 
Act, which addresses itself to this problem, provides as follows: 

9. Where an action is commenced against a tort feasor or where 
a tort feasor settles with a person who has suffered damage as a result 
of a tort, within the period of limitation prescribed for the 
commencement of actions by any relevant statute, no proceedings 
for contribution or indemnity against another tort feasor are 
defeated by the operation of any statute limiting the time for the 
commencement of action against such other tort feasor provided, 

(a) such proceedings are commenced within one year of the 
date of the judgment in the action or the settlement, as the 
case may be; and 

{b) there has been compliance with any statute requiring notice 
of claim against such tort feasor. 

This provision has given rise to serious difficulties of interpretation 100 and, 
in order to avoid some of these difficulties, we recommend that proceedings 
for contribution or for indemnity should not be permitted after the expiration 
of any limitation period that would bar an action against the person from 
whom contribution or indemnity is claimed, or after one year after judgment 
or settlement, whichever is later. 101 

We wish to point out that the Commission intends to undertake a review 
of the law of contribution, indemnity and contributory negligence as it applies 
to a number of areas of law, including torts, contracts and trusts. Therefore, 
the recommendations that we have made in this Report concerning 
contribution, indemnity and contributory negligence do not preclude a 
complete review by the Commission of this entire area of the law. 

9. Civil Procedure 

Discussion of the rules of civil procedure is, of course, beyond the scope 
of this Report. Nevertheless, we are of the view that two procedural topics 
deserve special mention: namely, the suitability of jury trials and the 
availability of class actions under the proposed principle of strict liability. 

(a) JURY TRIALS 

Most of the criticism of the current state of American law is directed 
toward excessive awards by civil injuries. 102 Every proposed solution to the 
"products liability insurance crisis" in the United States includes an attempt 
to reduce the size of damage awards. As we have already noted, in another 



"See Draft Bill, ss. 7(3), 8. 

l00 See, for example, Cheifetz, "Contribution Claims, Limitation Periods and The Negligence 

Act, R.S.O. 1970, c. 296, s. 9" (1978), 1 Advocates' Quarterly 146. 
101 See Draft Bill, s. 9. 
i02 Supra, at p. 74 and U.S. Dept. of Commerce, Interagency Task Force on Product 

Liability, Final Report (1978), at pp. 1-26 and 11-47. 



103 

area where there is an insurance crisis in American jurisdictions, namely 
medical malpractice, high jury awards seem again to be the main cause. 103 The 
chief reason that no equivalent crisis exists in Canada in either field is, in our 
view, less frequent use of the civil jury and greater judicial control over jury 
awards. 104 

Few American critics have objected to the substantive law governing 
products liability. 105 The objection is rather to juries that, knowing or 
presuming that the defendant is insured against the loss, seem to depart from 
legal rules in order to compensate the plaintiff, and compensate him at an 
extravagant rate. The critics contend that there would be no "products 
liability insurance crisis" if the law were strictly applied in favour of the 
defendant, as well as the plaintiff, and if the successful plaintiff recovered only 
compensation equivalent to his actual loss. 

The Commission, on a former occasion, has recommended the abolition 
of the jury in civil cases, other than those listed in section 59 of The Judicature 
Act. 106 Even without general abolition, a case can be made for excluding jury 
trials in actions under our proposed principle of strict liability. The American 
experience to which we have referred cannot be ignored. 107 One of the main 
purposes of jury trials in civil litigation — some would say the only legitimate 
purpose - - is to enable the ordinary person, chosen at random from the 
community, to set community standards in negligence cases, where the 
reasonableness of a defendant's conduct must be determined. Accordingly, 



m Supra, at p. 74. 

l04 See, for example, the limit suggested by the Supreme Court of Canada in respect of damages 

for non-pecuniary loss discussed supra, at p. 86. 
l05 The submissions from the various insurance, industrial and legal studies to the Interagency 

Task Force on Product Liability, footnote 102, supra, show that few suggest restoring 

negligence as a basis of liability. 
l06 Ontario Law Reform Commission, Report on Administration of Ontario Courts, Part I 

(1973), at p. 350. Section 59 of The Judicature Act, R.S.O. 1970, c. 228, as amended, 

provides as follows: 

59. Actions of libel, slander, malicious arrest, malicious prosecution and false 
imprisonment shall be tried by a jury, unless the parties in person or by their solicitors 
or counsel waive such trial. 

l07 This experience may not be ignored by insurers. We have already pointed out that there 
is no necessary reason for the American experience to be repeated in Ontario: supra, 
at pp. 73-78. Nevertheless, introduction of a principle of strict liability might well produce 
some premium increase among cautious insurers were no changes made to the method 
of trial. But if assurance can be given that the apparent cause of the American insurance 
"crisis" would be removed in Ontario, there would seem to be no rational reason for 
any dramatic increase in insurance rates, as there was no such increase for several 
years in strict liability jurisdictions in the United States. See supra, at p. 78; Note, 
"Products Liability and Choice of Law" ( 1964-65), 78 Harv. L. Rev. 1452; and, O'Connell, 
Ending Insult to Injury (1975). The American Interagency Task Force on Product 
Liability, in general, found that substantial increases in the cost of product liability insurance 
in all the Task Force's target industries have occurred since 1974, nearly 10 years after the 
Restatement (Second) of Torts; footnote 102, supra, at p. xxxvi. 

It is true that the recent decisions of the Supreme Court of Canada suggesting a limit 
of $100,000 for non-pecuniary loss make it most unlikely that seriously injured persons 
will be overcompensated: see Andrews et al. v. Grand & Toy Alberta Ltd. and Anderson, 
footnote 29, supra; Thornton et at. v. School District No. 57 (Prince George) et at., 
footnote 29, supra; and Arnold and Arnold v. Teno et al., footnote 29, supra. Compare, 
Lindal v. Linda/, footnote 29, supra. However, the exclusion of jury trials would add a 
further important assurance against the possibility of excessive awards. 



104 

when negligence is not in issue, as would be the case under the proposed 
principle of strict liability, the case for jury trials seems much weaker. 

Moreover, there is a precedent in Ontario for excluding jury trials in a 
particular area. Significantly enough, it is precisely the area in which another 
American insurance crisis exists; that is, medical malpractice. 108 The basis 
upon which juries are excluded in malpractice cases is, in part, the 
complexities of the issues likely to be involved. 109 It is suggested, however, 
that this exclusion is also due in part to the fear of undue favour to an 
injured plaintiff where the defendant is assumed to be insured against 
liability. 110 The same fear would seem to justify the exclusion of the jury in 
products liability cases. 

We recommend, therefore, that any action under the proposed principle 
of strict liability should be tried before a judge without a jury. 111 We 
recognize that unless the recommendation in our 1973 Report on Administra- 
tion of Ontario Courts is implemented, 112 this recommendation may 
present problems to a plaintiff who seeks to assert several claims in the same 
action, the trial of one or more of which may be heard by judge and jury. 

(b) CLASS ACTIONS 

Class actions are actions whereby numerous persons having the same 
interest may either sue or be sued. In Ontario, class actions are authorized 
by the Rules of Practice. ' 13 The circumstances in which such actions may now 
be brought would seem to be somewhat circumscribed, although recent 
decisions of the Ontario Court of Appeal may have expanded slightly the 
ambit of the existing rules. 114 

The Commission is engaged at present in a Project on Class Actions. This 
Project will deal generally with the subject of class actions. The desirability of 
this procedural vehicle in the area of products liability will be considered 
during the course of this Project and, therefore, we make no recommendation 
with respect to class actions in this Report. 

10. Relationship of Proposed Principle to Existing Law 

We have recommended that, under our proposed principle of strict 
liability, damages should be recoverable for personal injuries, for damage to 



l()K "It is trite to remark that the almost universal practice in medical malpractice suits 
in Ontario has heen to proceed to trial hefore a judge alone and a jury notice has been 
struck out almost automatically upon request.": Law el at. v. Woolfordet at. ( 1976), 2C.P.C. 
197 (Ont. H.C.J.), at p. 197, per Osier, J. See also. Town v. Archer et at. (1902), 4 
O.L.R. 383 (K.B.); Hodgins v. Banting (1906), 12 O.L.R. 117 (H.C.J.); Gerbracht v. 
Bingham (1912), 4 O.W.N. 117 (H.C.J.); and, Mercer et at. v. Gray, [1941] O.R. 127, 
[1941] 3 D.L.R. 564 (C.A.). And in an action against a dentist for malpractice: Sweetman 
v. Law (1923), 23 O.W.N. 502 (H.C.J.). 

l09 See, for example, the recent case of Wenger v. Marten (1977), 78 D.L.R. (3d) 201 
(Alta. S.C., T.D.), and also, York v. Lapp et al. (1967), 65 D.L.R. (2d) 351 (B.C.S.C). 
Compare, Nichols et al. v. Gray (1978), 9 B.C.L.R. 5, 8 C.P.C. 141 (C.A.). 

ll(, See Prosser, Handbook of the Law of Torts (4th ed., 1971), at pp. 549-51. 

"'See Draft Bill, s. 12. 

n2 Supra, at p. 103 and see footnote 106, supra. 

"^Supreme Court of Ontario Rules of Practice, R.R.O. 1970, Reg. 545, Rule 75. 

ll4 See Nakenet al. v. General Motors of Canada Ltd. et al. (1978), 21 O.R. (2d) 780, 7 C.P.C. 
209, (1979), 21 O.R. (2d) 780, at p. 795, 8 C.P.C. 232 (C.A.). The defendant was granted 



105 

property other than that used in the course of carrying on a business, and for 
economic loss directly consequent thereon. Our recommendation raises two 
questions concerning the relationship between our proposed principle of strict 
liability and existing law. The first question is the extent to which the 
proposed principle would result in an overlapping with remedies available 
under existing law. The second deals with whether existing law should 
continue in cases where there is such an overlap. 

We now turn to consider the first question. In relation to losses that are 
recoverable under the proposed principle of strict liability, a buyer in privity 
of contract 115 with his immediate seller, who suffers injury from a defective 
product, would have an option to sue either for breach of warranty or under 
this proposed principle. 116 Where the injured party is not in privity with the 
defendant, he would also have an option. 117 In this situation, however, his 
option would be to proceed either under the proposed principle of strict 
liability or in negligence, if this can be established. In either case, the plaintiff 
would not, of course, be able to recover twice for the same loss, but there is 
nothing new in permitting alternative causes of action. Our proposed 
principle of strict liability is not, however, all-embracing. This principle covers 
neither damage to property used in the course of carrying on a business nor 
pure economic loss. Losses of these kinds would remain recoverable, if at all, 
under existing law. 

Insofar as the second question is concerned, we wish to point out that, 
where loss is caused by a defective product, the law of negligence, in the case 
of personal injuries and damage to property other than that used in the course 
of carrying on a business, would be largely superseded by the principle of strict 
liability. However, we are of the opinion that the plaintiffs right to sue for 
negligence, in cases where recovery is available under this principle, should 
not be abrogated. There are at least two reasons that support this view. First, 
no statutory draftsman can be certain that he has covered every case. If a 
person's right to sue for negligence in a case of damage caused by a 
defective product were abrogated and the statute giving effect to our 
recommendations were not comprehensive, the injured person might very well 
be without a remedy. Secondly, there may be situations where a plaintiff 
would consider it advantageous to sue both under the proposed principle of 
strict liability and, alternatively, in negligence. For example, in some cases it 
may not be clear until discovery whether the injury was caused by a defective 
product or by the defendant's negligent conduct in dealing with a sound 
product. In our view, the plaintiff should have the advantage of pleading both 
causes of action. No prejudice would result to the defendant: if he is liable 
on both counts, he can only be made to pay once. 

The Commission recommends, therefore, that the rights and liabilities 
created by the Draft Bill should be in addition to rights and liabilities 
otherwise provided by law. llx 

leave to appeal to the Supreme Court of Canada on March 30, 1979: see General Motors 
of Canada Ltd. v. Naken et a/. (1979), 27 N.R. 269 (S.C.C.). 

1 l5 The huyer will he in privity with the seller, and thus will have the henefit of the contractual 
warranties. See supra, at pp. 26-27. 

ll6 The liability of the seller, in such circumstances, can be expected to be more or less 
identical under each of the alternative causes of action; that is, strict liability or breach 
of warranty. As it is now, the seller of goods in the course of a business is generally 
strictly liable for damage caused by defects in them. See supra, at pp. 23-26. 

ll7 This problem is discussed in the Commission's 1979 Report on Sale of Goods, ch 10 

""See Draft Bill, s. 11. 



CHAPTER 8 



CONFLICT OF LAWS 



Commonly, and with increasing frequency in a shrinking world, products 
liability disputes involve more than one jurisdiction. Goods manufactured in 
Quebec by a New York-based manufacturer may be distributed in Ontario 
and sold in Manitoba to a Saskatchewan resident, causing injury to him in 
Alberta. From this example, three questions arise: when should Ontario 
courts have jurisdiction over products liability disputes; when should 
Ontario law be applied to such disputes; and, when should foreign judgments 
in products liability cases be enforceable in Ontario? A preliminary issue in 
any discussion of conflict of laws is the characterization of the plaintiffs 
cause of action. Throughout the ensuing discussion, we assume that the 
plaintiffs action under our proposed principle of strict liability will sound 
in tort. 

1. Jurisdiction 

In Ontario, jurisdiction in actions in personam is founded upon service 
of a writ of summons or other originating process upon the defendant. 1 An 
individual who is present within the jurisdiction can be served personally. In 
the case of a corporation, any person who, within Ontario, transacts or carries 
on any of the business of, or any business for, a corporation whose chief place 
of business is out of Ontario, may be served as the corporation's agent. 2 At 
common law, when service could not be effected within Ontario, there was, 
in general, an absence of jurisdiction. 3 However, there has been legislative 
action and in certain circumstances a plaintiff can serve a defendant with 
process notwithstanding that the defendant is out of the jurisdiction. 4 

Until 1975, Rule 25(l)(h) of the Ontario Rules of Practice allowed service 
ex juris, with the leave of the court, "where the action is founded on a tort 
committed within Ontario". 5 This Rule created some difficulty in the 
products liability context; several cases held that, in the case of goods 
manufactured outside Ontario, no tort was committed within Ontario even 



'See Castel, Canadian Conflict of Laws, Vol. 1 (1975), at pp. 213 ff.; Morris (ed.), 
Dicey and Morris on The Conflict of Laws (9th ed., 1973), at pp. 158 ff. 

2 Supreme Court of Ontario Rules of Practice, R.R.O. 1970, Reg. 545, Rule 23(3). This 
provision has, however, been restrictively interpreted: see Murphy v. Phoenix Bridge 
Co. et al. (1899), 18 P.R. 495 (Ont. C.A.); Appel v. Anchor Insurance and Investment 
Corporation Ltd. (1921), 21 O.W.N. 25 (H.C.J.); Wee-Gee Uranium Mines Ltd. v. New- 
York Times Co. et al., [1969] 1 O.R. 741 (H.C.I.); Sarco Can. Ltd. v. Pvrotherm 
Equipment Ltd. et al., [1969] 1 O.R. 426 (S.C. Master). See generally Castel, footnote 1, 
supra, at pp. 216-19; Morris, footnote 1, supra, at pp. 163-67. 

3 A defendant could, of course, submit to the jurisdiction of the Ontario court. See Castel, 
footnote 1, supra, at pp. 223 ff.; Morris, footnote 1, supra, at pp. 167 ff. 

4 Supreme Court of Ontario Rules of Practice, R.R.O. 1970, Reg. 545, Rule 25 as amended. 
See also Castel, footnote 1, supra, at pp. 226 ff. 

5 R.R.O. 1970, Reg. 545. 

[107] 



108 

though injury occurred in the Province. 6 More recent decisions have cast 
doubt on this analysis. 7 In the important case of Moran v. Pyle National 
(Canada) Ltd.* the Supreme Court of Canada held that, where goods 
manufactured in Ontario caused injury in Saskatchewan, the Saskatchewan 
court could, under a rule similar to Rule 25( l)(h), grant leave to serve a writ 
of summons outside the jurisdiction on the basis that a tort had been 
committed in Saskatchewan. Dickson, J., delivering the judgment of the 
Court, said: 9 

Generally speaking, in determining where a tort has been 
committed, it is unnecessary, and unwise, to have resort to any 
arbitrary set of rules. The place of acting and the place of harm 
theories are too arbitrary and inflexible to be recognized in 
contemporary jurisprudence. In the Distillers' case and again in the 
Cordova case a real and substantial connection test was hinted at. 
Cheshire, 8th ed., 1970, p. 281, has suggested a test very similar to 
this; the author says that it would not be inappropriate to regard a 
tort as having occurred in any country substantially affected by the 
defendant's activities or its consequences and the law of which is 
likely to have been in the reasonable contemplation of the parties. 
Applying this test to a case of careless manufacture, the following 
rule can be formulated: where a foreign defendant carelessly 
manufactures a product in a foreign jurisdiction which enters into 
the normal channels of trade and he knows or ought to know both 
that as a result of his carelessness a consumer may well be injured 
and it is reasonably foreseeable that the product would be used or 
consumed where the plaintiff used or consumed it, then the forum in 
which the plaintiff suffered damage is entitled to exercise judicial 
jurisdiction over that foreign defendant. This rule recognizes the 
important interest a state has in injuries suffered by persons within 
its territory. It recognizes that the purpose of negligence as a tort 
is to protect against carelessly inflicted injury and thus that the 
predominating element is damage suffered. By tendering his 



^Anderson v. Nohels Explosive Co. (1906), 12 O.L.R. 644 (D.C.); Paul v. Chandler 
& Fisher Ltd. (1923), 54 O.L.R. 410, [1924] 2 D.L.R. 479 (H.C.J.). See also Beck 
v. The Willard Chocolate Co. Ltd. (1924), 57 N.S.R. 246, [1924] 2 D.L.R. 1140 (S.C., 
App Div.); George Monro, Ltd. v. American Cyanamid and Chemical Corp., [1944] 
K.B. 432 (C.A.); followed in Abbott-Smith v. Governors of University of Toronto et al. 
(1964), 49 M.P.R. 329, 45 D.L.R. (2d) 672 (N.S.S.C, App. Div.). 

7 Cases in which it was held that an essential element of the tort had been committed in 
the jurisdiction: Bata v. Bata. [1948] W.N. 366 (C.A.) (defamatory letters mailed from 
Switzerland to England; held: tort committed in England); Jenner v. Sun Oil Co. Ltd. 
et al., [1952] O.R. 240, [1952] 2 D.L.R. 526 (H.C.J.) (defamatory radio broadcast outside 
Ontario but heard inside Ontario); Chinese Cultural Centre of Vancouver et al. v. Holt 
et al. (1978), 8 C.P.C. 274 (B.C.S.C.) (publication of newspaper article in Ontario and 
republication in B.C.; held: tort committed in B.C.); Original Blouse Co. v. Bruck 
Mills Ltd. (1963), 45 W.W.R. 150,42 D.L.R. (2d) 174(B.C.S.C.)(fraudulent misrepresenta- 
tion by defendant in Quebec by telephone and letter to plaintiff in B.C.; held: tort committed 
in B.C.); and, see also Diamond v. Bank of London and Montreal Ltd., [1979] 2 W.L.R. 
228, [1978] 1 All E.R. 561 (C.A.). Leave was granted to sue outside the jurisdiction on the 
grounds that a tort was committed where damage was suffered (New South Wales) in 
Distillers Co. (Biochemicals) Ltd. v. Thompson, [1971] A.C. 458 (P.C.). 

x [1975] 1 S.C.R. 393. 

9 Ibid., at pp. 408-09. 



109 

products in the market place directly or through normal distributive 
channels, a manufacturer ought to assume the burden of defending 
those products wherever they cause harm as long as the forum into 
which the manufacturer is taken is one that he reasonably ought 
to have had in his contemplation when he so tendered his goods. 
This is particularly true of dangerously defective goods placed in 
the interprovincial flow of commerce. 

In 1975, the Ontario Rules of Practice for service ex juris were amended. An 
order of the court is no longer required for service out of the jurisdiction. 
The present Rule 25(1 )(g) is based upon the former Rule 25(l)(h): it provides 
for service out of the jurisdiction "in respect of a tort committed within 
Ontario". The scope of Rule 25 was, however, extended by a notable 
innovation contained in Rule 25(1 )(h) which provides for service ex juris "in 
respect of damage sustained in Ontario arising from a tort or breach of 
contract committed elsewhere". It is obvious that Rule 25(1 )(h) considerably 
widens the jurisdiction of the Ontario courts. To complete this legislative 
picture, reference should also be made to Rule 25(l)(o) which provides that 
a party may be served out of Ontario where that party is a "necessary 
or proper party to an action or proceeding properly brought against 
another person duly served within Ontario". Accordingly, where a product 
is purchased in Ontario, a purchaser who suffers injury caused by a 
defect in the product and who brings proceedings against the retail seller, 
may, it would seem, join the foreign manufacturer as a necessary or proper 
party. 10 

Notwithstanding the 1975 amendments to Rule 25, one question that has 
caused the Commission concern is whether the existing position is entirely 
satisfactory to deal with present day products liability cases. Consider the 
following example. Assume that an Ontario resident buys or is given an 
electric razor that has been manufactured in Quebec by a Quebec 
manufacturer, who distributes this line of products in Ontario. Assume 
further that the Ontario resident, while travelling in British Columbia, 
is injured by an electric shock caused by a defect in the razor. On the 
one hand, if the product had been purchased from a retailer in Ontario, the 
manufacturer could, it seems, be joined under Rule 25(l)(o) as a necessary or 
proper party to an action against the Ontario seller. On the other hand, if no 
such proceedings can be instituted in Ontario — as, for example, where 
the razor was given to the injured party, where it was purchased in a private 
sale, or where it was purchased from a business seller outside Ontario — Rule 
25(l)(o) would have no application. Accordingly, Rule 25(l)(o) may not 
always be applicable and, in any event, there seems no good reason to support 
this indirect process of taking jurisdiction. Why should an injured person who 
wishes to sue an out-of-province manufacturer be required to proceed against 
an Ontario retailer in order to bring Rule 25(l)(o) into play? As the examples 



'"Supreme Court of Ontario Rules of Practice, R.R.O. 1970, Reg. 545, Rule 25(l)(o) as 
amended. See, for example, Jannock Corp. Ltd. v. R.T. Tamblyn & Partners Ltd. et al. 
(1975), 8 O.R. (2d) 622, 58 D.L.R. (3d) 678 (C.A.). Compare, Klondike Helicopters v. 
Fairchild Republic Co. et al. (1979), 8 Alta. L.R. (2d) 396 (S.C., T.D.). It should also be 
pointed out that the manufacturer, in such a case, could be served out of the jurisdiction by 
the retailer who seeks "contribution, indemnity or other relief over" under Rule 25(1 )(q). 



110 

above show, there may be no retailer in Ontario amenable to suit within the 
Province. 

In neither of the fact situations posited could recourse be had to Rule 
25(l)(h). The reason is that the injury occurred while the Ontario resident 
was in British Columbia, 11 and it has been held that consequential damage 
such as medical expenses, pain and suffering and loss of the amenities of life 
suffered by an Ontario resident in consequence of an injury abroad are not 
"damage sustained in Ontario" within the meaning of Rule 25(l)(h). 12 It is 
possible that subsequent cases may give a wider interpretation to this phrase. 
It seems, however, unlikely that it will be construed to include personal 
injuries occurring outside Ontario, for on such a reading, Rule 25( 1 )(h) would 
be wide enough, subject to the overriding doctrine of forum non 
conveniens, 13 to cover any person wheresoever injured who chooses to 
litigate in Ontario. 

In the case outlined above of the Ontario resident and the defective 
electric razor, there are strong links with Ontario. It does not seem right 
that the Quebec manufacturer who has distributed defective goods in Ontario 
should escape the jurisdiction of the Ontario courts by the chance 
circumstance that the plaintiffs injury occurred outside Ontario or that there 
is no retailer in Ontario amenable to suit, particularly where the product is 
one specifically designed to be used by travellers. 

We have reached the conclusion, therefore, that the present Ontario 
jurisdiction rules are, by themselves, inadequate to deal with modern products 
liability cases. In our opinion, these rules need to be supplemented by a 
provision specifically designed to deal with disputes that arise under our 
proposed principle of strict liability. We now turn to consider two alternative 
jurisdictional connecting factors: namely, the residence or habitual residence 
in Ontario of the plaintiff; and, the carrying on by the defendant of business 
in Ontario. 

As we have stated, the residence, or habitual residence, of the plaintiff 
in Ontario is one possible jurisdictional connecting factor. The advantage 
of such a principle would be that an Ontario resident could always, subject 
to the principle of forum non conveniens, sue in Ontario. Three arguments 
can, however, be marshalled against this view. First, it may be contended that 
there is no strong reason why an Ontario resident who is injured in France by a 
product manufactured in France and distributed only in France should be 
able to sue in Ontario. In other words, the convenience to the plaintiff in such 
a case would be outweighed by the unfairness to the defendant. Moreover, 
insurers, in setting premiums, take into account the jurisdictions in which 
the supplier's product will be distributed. 14 Secondly, it may be argued that 



1 ' Rule 25( 1 )(h) covers only those claims in respect of damage sustained in Ontario arising from 

a tort committed elsewhere. 
•2See Mar et al. v. Block (1976), 13 O.R. (2d) 422, 1 C.P.C. 206 (H.C.J.). 
l3 Castel defines the doctrine of forum conveniens, or non-conveniens, as the court's 

"discretionary power to decline to exercise jurisdiction over a transitory cause of action when 

it believes that the action may be more appropriately and justly tried elsewhere": see Castel, 

footnote 1, supra, at p. 22. 
l4 The responses which the Commission received to the questionnaire distributed to the 

members of the Canadian Manufacturers' Association and to the members of the Insurance 

Bureau of Canada indicate that premiums are higher in respect of products shipped into the 

United States. 



Ill 

jurisdiction ought not to be dependent upon the plaintiffs residence or 
habitual residence. Anomalous distinctions could arise between persons 
similarly injured in the same occurrence because of a difference in their 
residence or habitual residence. It may, in any event, be argued that access 
to Ontario courts should not be denied to any person on the basis of lack of 
provincial "citizenship". Thirdly, we wish to point out that the concept of 
habitual residence is not well developed in our system of conflict of laws. 15 
Presumably, this concept is something less than domicile, but more than 
residence. 16 While we do not deny that the concept of residence or habitual 
residence, in some contexts, may be an appropriate jurisdictional connecting 
factor, for the reasons stated above, we do not recommend the selection 
of either concept in the area of product liability. 

The second jurisdictional connecting factor that we have considered is 
that of the defendant's carrying on business in Ontario. The concept of 
"carrying on business" is, of course, capable of different interpretations. In 
this context, the concept should, in our view, embrace the activity of a 
manufacturer or other supplier who has acted in any way to further the supply 
of his product in Ontario. 

The Saskatchewan Consumer Products Warranties Act, 1977 11 provides 
that manufacturers and other suppliers who carry on business in Saskat- 
chewan are subject to the jurisdiction of the courts of Saskatchewan. Section 
33 of this Act reads as follows: 

33.(1) Subject to any regulations made by the Lieutenant 
Governor in Council pursuant to section 37, consumers, persons 
mentioned in subsection (1) of section 4 and persons mentioned in 
section 5 who buy or use consumer products in Saskatchewan, and 
manufacturers, retail sellers or warrantors who carry on business in 
Saskatchewan, are subject to the provisions of this Act and to the 
jurisdiction of the courts of Saskatchewan. 

(2) For the purpose of this Act, a manufacturer, retail seller 
or warrantor shall be deemed to carry on business in Saskatchewan 
if one or more of the following conditions are met: 

(a) he holds title to land in Saskatchewan or any interest in land 
in Saskatchewan for the purposes of carrying on business in 
Saskatchewan; 

(b) he maintains an office, warehouse or place of business in 
Saskatchewan; 

(<) he is licensed or registered under any statute of Saskat- 
chewan entitling him to do business or to sell securities of his 
own issue; 

(d) his name and telephone number are listed in a current 
telephone directory and the telephone is located at a place in 



l5 See Cavers, " 'Habitual Residence': A Useful Concept?" ( 1971-72), 21 Am. U. L. Rev. 475. 

l6 See Castel, footnote 1, supra, at pp. 138-47. 

i 



7 S.S. 1976-77, c. 15, discussed supra, at pp. 39-41. 



112 

Saskatchewan for the purposes of carrying on business in 
Saskatchewan; 

(e) an agent, salesman, representative or other person conducts 
business in Saskatchewan on his behalf; 

if) he directly or indirectly markets consumer products in 
Saskatchewan; or 

(g) he otherwise carries on business in Saskatchewan. 

We appreciate that views on this matter may differ, but in the opinion of the 
Commission the activity of a manufacturer or other supplier, who carries 
on business in the sense that we have described, provides a solid and rational 
jurisdictional nexus. It would not seem unreasonable to make such a 
manufacturer or other supplier amenable to the jurisdiction of the Ontario 
courts. Abuses of the Ontario process by persons who have no substantial 
connection with Ontario, but who wish simply to institute actions in Ontario, 
can be controlled by the doctrine of forum non conveniens. 

Another aspect of this matter remains to be considered. Assume that a 
manufacturer does carry on business in Ontario and that his products, 
"type X" electric razors, are manufactured in Manitoba and distributed in 
Ontario. Consider two illustrations. First, A might purchase in Winnipeg 
a "type X" electric razor. On arrival in Ontario, A might give this razor to 
the plaintiff. Secondly, a "type X" electric razor might be purchased 
by the plaintiff, en route to British Columbia from Ontario, at the Winnipeg 
airport. As these examples illustrate, the place of purchase or acquisition 
may be fortuitous and, in our view, should not, by itself, determine 
the issue of jurisdiction. 

The fundamental question seems to us to be one of distribution. In our 
opinion, the plaintiff should not be required to prove that the very product 
that caused him injury was purchased or otherwise acquired in Ontario. It 
should be sufficient to show that identical products of the same manufacturer 
or supplier were distributed in Ontario as a result of the defendant's activity 
in carrying on business in Ontario, as we have defined this concept. From the 
defendant's point of view, the key question would seem to be whether he could 
foresee that identical products would be distributed in Ontario; if so, he 
should be aware of the possibility of proceedings being brought in the Ontario 
courts. It would seem to us that no unfairness would be occasioned to the 
defendant in so conferring jurisdiction upon the Ontario courts. On the other 
hand, it may be very inconvenient for the plaintiff to seek relief in some place 
other than Ontario. Again, we wish to repeat that this jurisdiction would be 
subject to the doctrine oi forum non conveniens. 

The Commission accordingly recommends that an action should be 
maintainable under the Draft Bill where apart from the Draft Bill the court 
would have jurisdiction 18 or where the supplier at the time of the supply of 
the product carried on business in Ontario, whether or not the product was 



^Supra, at pp. 107-10. 



113 

purchased or otherwise acquired in Ontario. 19 We further recommend that 
a supplier of a defective product or a supplier of a product who makes a 
false statement concerning that product should be deemed to have carried on 
business in Ontario where the product or identical products supplied by him 
were available or accessible in Ontario through commercial channels with his 
consent, express or implied, or where the supplier has acted in any way to 
further the supply of the product or identical products in Ontario. 20 To 
remove any doubts about service ex juris, we also recommend that any party 
to an action brought under our proposed principle of strict liability should be 
capable of being served out of Ontario in the manner prescribed by the rules 
of court. 21 

2. Choice of Law 

The question of which law should be applied in products liability cases 
is even more difficult to resolve satisfactorily than the question of jurisdiction. 
Choice of law problems assume variations in the internal laws of different 
jurisdictions: that is, given a completely neutral forum, there would be no 
need for choice of law rules if the internal laws of all jurisdictions were 
identical. In the absence of this identity of laws at the domestic level, the ideal 
solution would be for all jurisdictions to adopt a uniform set of choice of law 
rules. If this were to happen, there would be universal agreement on the 
law that should be applied to any particular dispute, and there would be no 
premium in forum shopping. It seems doubtful, however, that this desirable 
state of affairs will be achieved in the reasonably near future. The question to 
which we must, therefore, turn our attention is as follows: in what cases should 
Ontario courts apply our proposed principle of strict liability? 

(a) THE PRESENT RULE 

In Ontario, the present choice of law rule in torts is based on the case of 
Phillips v. Eyre, 22 which was decided in 1869. The rule provides that, in the 
case of a tort committed outside Ontario, before Ontario law will be applied, 
the tort must be both actionable by Ontario law and not justifiable by the 
law of the place where the tort was committed. The first branch and the 
primary requirement of the rule is that of actionability by Ontario law. If this 
requirement is not satisfied, no action will lie in Ontario, even though the 
conduct of the defendant may give rise to liability elsewhere. 

The second branch of the rule in Phillips v. Eyre requires that the 
conduct of the defendant be not justifiable by the law of the place of the 
tort. In Machado v. Pontes, 22 the English Court of Appeal established the 
proposition that "not justifiable" meant not justifiable either by the criminal 
or civil law, a proposition that has been accepted by the Supreme Court of 
Canada. 24 On this basis, the requirement will be satisfied where the 
defendant's conduct gives rise to criminal liability in the place where the tort is 



l9 See Draft Bill, s. 13. 

20 See Draft Bill, s. 15. 

21 See Draft Bill, s. 13. 

22 (1869), L.R. 4 Q.B. 225, affirmed (1870), L.R. 6 Q.B. I (Ex. Ch.). 

^[1897] 2 Q.B. 231 (C.A.). 

24 McLean v. Pettigrew, [1945] S.C.R. 62, [1945] 2 D.L.R. 65. 



114 

committed, even though there is no civil liability by the law of that place. This 
branch of the rule in Phillips v. Eyre could have important consequences in 
the area of products liability; for example, a Quebec manufacturer, though 
not civilly liable by Quebec law for producing defective goods, might be in 
breach of federal safety standards legislation. 25 Indeed, the New Brunswick 
Consumer Product Warranty and Liability Act, 1978 26 specifically refers to 
federal safety standards. Section 27(1) provides as follows: 

27.(1) A supplier of a consumer product that is unreasonably 
dangerous to person or property because of a defect in design, 
materials or workmanship is liable to any person who suffers a 
consumer loss in the Province because of the defect, if the loss was 
reasonably foreseeable at the time of his supply as liable to result 
from the defect and 

(a) he has supplied the consumer product in the Province; 

(b) he has supplied the consumer product outside the Province 
but has done something in the Province that contributes to the 
consumer loss suffered in the Province; or 

(c) he has supplied the consumer product outside the Province 
but the defect arose in whole or in part because of his failure to 
comply with any mandatory federal standards in relation to 
health or safety, or the defect caused the consumer product to 
fail to comply with any such standards. 

Doubt has been cast, however, on the second branch of the rule in Phillips 
v. Eyre by the decision of the House of Lords in Chaplin v. Boys. 21 In this 
case, three of the five members of the House of Lords 28 expressed the view 
that Machado v. Fontes was wrongly decided, and that a tort should not be 
civilly actionable in England unless it is also actionable by the civil law of the 
place of commission. The effect of this decision would be to require the 
plaintiff to overcome two hurdles: he would have to show that the defendant's 
conduct was actionable by the civil law of Ontario and by the lex loci delicti. 
However, it should be noted that the three members of the House of Lords 
who shared this view differed among themselves very radically as to the 
principle that should replace the rule in Phillips v. Eyre. In any event, the 
proposition in Machado v. Fontes has been accepted by the Supreme Court of 
Canada. 29 

Application of any interpretation of the rule in Phillips v. Eyre requires 



1S Supra, at pp. 28, 47-49. See Ballway, "Products Liability Based Upon Violation of Statutory 
Standards" (1965-66), 64 Mich. L. Rev. 1388. Part of the difficulty in using federal statutes to 
found a civil cause of action is the doubt about whether the Parliament of Canada has the 
power to create a civil cause of action where the legislation depends on the exercise of the 
criminal law power. See Alexander, "Legislation and the Standard of Care in Negligence" 
(1964), 42 Can. Bar Rev. 243, at p. 259, where he cites the following: Finkleman, Note (1935), 
13 Can. Bar Rev. 517; Note (1941), 19 Can. Bar Rev. 51; Laskin, Canadian Constitutional 
Law (2nd ed., 1960), at pp. 862-65. 

26 S.N.B. 1978, c. C-18.1. 

27 [1971] A.C. 356, [1969] 3 W.L.R. 322, [1969] 2 All E.R. 1085 (H.L.); (sub nom. Boys v. 
Chaplin, [1968] 2 Q.B. 11, [1968] 2 W.L.R. 328, [1968] 1 All E.R. 283 (C. A.); [1968] 2 Q.B. 
1, [1967] 3 W.L.R. 266, [1967] 2 All E.R. 665). 

28 See the speeches of Lord Hodson, Lord Wilberforce and Lord Guest. 

29 Footnote 24, supra. 



115 

the court, as a primary step, to determine the situs of the tort, that is, the place 
where the tort was committed; only if the tort is committed in another 
jurisdiction will foreign law be relevant. While it may be a straightforward 
matter to determine the situs of some torts, products liability cases produce 
situations in which it may be exceedingly difficult to do so. In Moran v. Pyle 
National (Canada) Ltd., 20 a products liability case to which we earlier 
made reference, Dickson, J., held that a tort could be regarded as being 
committed in any jurisdiction that the defendant had reason to foresee might 
be substantially affected by his conduct. This opinion of Dickson, J., was 
made in a jurisdictional context, and there is authority for the view that this 
decision has no application to choice of law questions. 31 

The comments of Dickson, J., contained in the portion of the judgment 
extracted above, that a manufacturer who distributes his products in a 
jurisdiction ought to assume the burden of defending those products there 
could, however, be applied equally to the question of choice of law. A 
manufacturer who distributes his product in Ontario ought to assume the 
burden not only of defending actions brought against him in Ontario, but also 
should be prepared to have his liability fixed by Ontario law. 32 

In summary, it seems that the present law is uncertain as to the test to be 
used to determine the place of the commission of a tort in circumstances 
where goods manufactured outside the Province cause injury in Ontario. 
Further, if the situs of the tort is determined to be in another jurisdiction, 
the law is uncertain whether, and in what circumstances, the defendant will 
be entitled in Ontario to require the plaintiff to establish actionability not 
only by the law of Ontario but also by the law of the place of the tort. 

(b) DEVELOPMENTS IN OTHER JURISDICTIONS 

Having discussed the present law in Ontario, it might be useful to review 



30 Footnote 8, supra, and see supra, at pp. 108-09. 

3 'In In terprovincial Co-operatives Ltd. and Dry den Chemicals Ltd. v. Her Majesty The Queen 
in right of the Province of Manitoba, [1976] 1 S.C.R. 477, Pigeon, J., at p. 515, said that the 
Moran decision had no application to choice of law questions. It should be noted, however, 
that the passage from Cheshire's Private International Law, referred to by Dickson, J., in 
Moran and on which he based his view in respect of jurisdiction, was itself concerned with 
choice of law rules. Cheshire had written: 

Regarded from the standpoint of principle, the determination of the place of the tort for 
the purposes of the rule in Phillips v. Eyre is not perhaps difficult. We have already seen 
that the reason for reference to the lex loci delicti commissi is partly because it is the law 
of the country which is most directly affected by the defendant's allegedly tortious 
activity and partly in order to give effect to the reasonable expectations of the parties. It 
would not, therefore, be inappropriate to regard a tort as having occurred in any 
country which is substantially affected by the defendant's activity or its consequences 
and the law of which is likely to have been in reasonable contemplation of the parties. If 
a man shoots across a frontier, the alleged tort could thus be regarded as having 
occurred in both countries. 

See Cheshire, Private International Law (8th ed., 1970), at p. 281. 
32 It has been contended that, for the purpose of choice of law it is "essential to identify a single 
place of tort", and that "a tort cannot be considered to have occurred in more than one 
jurisdiction": Castel, Canadian Conflict of Laws, Vol. 2 (1977), at pp. 635-36. However, it is 
difficult to see why the plaintiff should not have an option, in certain circumstances, to 
choose the law more favourable to him and this could be accomplished by holding that, in 
products liability cases, a tort can be committed in more than one jurisdiction. 



116 

briefly developments in other jurisdictions. In this context we refer to the 
Hague Convention, the American experience and the legislative activity in 
Saskatchewan and New Brunswick. 

(i) The Hague Convention 

The 1972 Hague Convention on the Law Applicable to Products 
Liability proposed a uniform set of choice of law rules. A copy of this 
Convention is attached to this Report as an Appendix. 33 The Convention 
deals with four connecting factors, namely, the habitual residence of the 
plaintiff, the principle place of business of the defendant, the place where the 
product was acquired by the plaintiff, and the place of the injury. Its 
provisions are fairly complex. Their net effect is that, if certain pairs of 
connecting factors coincide, they determine the jurisdiction whose internal 
law is applicable. The following pairs of connecting factors are conclusive: 

1. Plaintiffs habitual residence plus defendant's principal place of 
business. 

2. Plaintiffs habitual residence plus place of product acquisition. 

If neither of these groupings is present, then the following are determinative: 

3. Place of injury plus plaintiffs habitual residence. 

4. Place of injury plus defendant's principal place of business. 

5. Place of injury plus place of acquisition. 

If none of these five coincidences is found, then the plaintiff may elect 
between the law of the place of injury and the law of the defendant's principal 
place of business. However, there is an overriding exemption from the 
application of the law of the plaintiffs habitual residence or the law of the 
place of injury if the defendant shows that he could not reasonably foresee 
that the product, or his own products of the same type, would be made 
available in that jurisdiction through commercial channels. In determining 
liability, the court may also consider the rules of conduct and safety of the 
jurisdiction where the product is introduced into the market. There is another 
overriding exemption which would allow the court to depart from the 
Convention in case of its incompatability with public policy, presumably of 
the forum. 

From the above, it is evident that the Convention gives great weight to the 
law of the place of the plaintiffs habitual residence and considerable weight 
to the law of the defendant's principal place of business. As we mentioned 
during our discussion of jurisdiction, 34 the concept of habitual residence 
is not well developed in our system of conflict of laws: habitual residence is 
something less than domicile, but more than residence. The concept of the 
defendant's principal place of business seems to be of doubtful utility. Assume 
that a manufacturer, whose principal place of business is in Quebec, 
manufactures, distributes and sells a product in Ontario injuring the plaintiff 
in Ontario. Assume further that the plaintiff is a university student whose 



33 See Appendix 5. 
i4 Supra, at p. 111. 



117 

family lives in Montreal. It seems anomalous to deprive a plaintiff of the 
benefits of Ontario law on the grounds that he may not be an "habitual 
resident" of Ontario, and that the defendant's principal place of business 
happens to be in Quebec, the same jurisdiction as the plaintiffs habitual 
residence, even though the product was not manufactured in Quebec. An 
Ontario resident similarly injured by the same product in the same occurrence 
would be treated differently. This sort of anomaly is inevitable if a test of 
habitual residence is adopted. For these reasons, we do not favour the 
approach adopted by the Convention. 35 

(ii) The American Theories 

The American jurisdictions, in recent years, have evolved a bewildering 
number of choice of law theories. The traditional American view is that 
the applicable law in torts is the lex loci delicti, that is, the law of the 
place of the tort. Because of the difficulty of determining the place of 
the tort, this rule has given rise to arbitrary decisions, and, as a result, 
various other theories have evolved. One such theory is that the law to 
be applied is that of the jurisdiction where the "centre of gravity" of the 
occurrence lies. 36 A second theory requires that the interests of the 
various states involved be weighed and effect given to the most important 
interest. 37 A third theory involves an attempt to identify the system of 
law that has the most significant relationship to the dispute. 38 A fourth 
view is the adoption of "principles of preference" for choosing the applicable 
law. 39 Another view calls for the court to choose the "better law", usually, 
in practice, its own. 40 

(iii) The Saskatchewan Consumer Products Warranties Act, 1977 
and the New Brunswick Consumer Product Warranty and 
Liability Act, 1978 

Another approach to the subject of choice of law in the products 
liability context can be found in the Saskatchewan Consumer Products 
Warranties Act, 1977 41 and the New Brunswick Consumer Product 



35 The main purpose of the Convention is uniformity, yet there would seem to be little 
prospect of its adoption in other Canadian provinces. Moreover, doubt has been expressed 
as to whether the Convention will be ratified even by those member states whose delegates 
voted for its approval. See Cavers, "The Proper Law of Producer's Liability" (1977) 
26 l.C.L.Q. 703, at p. 726. 

,h This doctrine, developed in the field of contracts in Auten v. Auten, 308 N.Y. 155, 124 N.E. 
2d 99 (1954), was influential in the rejection of the lex loci delicti rule in Babcock v. Jackson, 
12 N.Y. 2d 473, 191 N.E. 2d 279 (1963). See also Castel, footnote 32, supra, at pp. 603-04. 

37 Castel, footnote 32, supra, at pp. 605-06. 

"American Law Institute, Restatement (Second) of Conflict of Laws (1971), s. 145(1). See also 
Castel, footnote 32, supra, at p. 605. 

39 For a discussion of the "principles of preference" applied to the law of torts, see Cavers, The 
Choice of Law Process (1965), at pp. 139-80. 

40 Castel, footnote 32, supra, at pp. 608-09. The position taken by the American delegation to 
the Hague Convention was that the law to be applied should be the law most favourable to 
the plaintiff. It has also been proposed that the plaintiff should have an option to choose 
among the laws of three jurisdictions having certain contacts with the dispute, subject to the 
defendant's ability to foresee that his product would be present in thejurisdiction chosen: see 
Cavers, "The Proper Law of Producer's Liability" (1977), 26 l.C.L.Q. 703. See also Kiihne, 
"Choice of Law in Products Liability" (1972), 60 Cal. L. Rev. 1. 

4I S.S. 1976-77, c. 15. 



118 

Warranty and Liability Act, 1978. 42 We have already noted that, under 
the Saskatchewan Act, manufacturers and suppliers who carry on business in 
Saskatchewan are subject to the jurisdiction of the courts in Saskatchewan. 43 
An identical test is provided for choice of law: that is, manufacturers 
and other suppliers who carry on business in Saskatchewan are subject 
to the substantive provisions of the Saskatchewan Act. We think it useful 
to set out again the provisions of section 33: 

33.(1) Subject to any regulations made by the Lieutenant 
Governor in Council pursuant to section 37, consumers, persons 
mentioned in subsection (1) of section 4 and persons mentioned 
in section 5 who buy or use consumer products in Saskatchewan, 
and manufacturers, retail sellers or warrantors who carry on 
business in Saskatchewan, are subject to the provisions of this 
Act and to the jurisdiction of the courts of Saskatchewan. 

(2) For the purposes of this Act, a manufacturer, retail seller 
or warrantor shall be deemed to carry on business in Saskatchewan 
if one or more of the following conditions are met: 

(a) he holds title to land in Saskatchewan or any interest 
in land in Saskatchewan for the purposes of carrying on 
business in Saskatchewan; 

(b) he maintains an office, warehouse or place of business in 
Saskatchewan; 

(c) he is licensed or registered under any statute of Saskat- 
chewan entitling him to do business or to sell securities of 
his own issue; 

(d) his name and telephone number are listed in a current 
telephone directory and the telephone is located at a place in 
Saskatchewan for the purposes of carrying on business in 
Saskatchewan; 

(e) an agent, salesman, representative or other person conducts 
business in Saskatchewan on his behalf; 

(/) he directly or indirectly markets consumer products in 
Saskatchewan; or 

(g) he otherwise carries on business in Saskatchewan. 

The New Brunswick Consumer Product Warranty and Liability Act, 1978 
contains a similar rule based on acts furthering the supply of a product. 
It should be noted, however, that the New Brunswick Act requires, in 
addition, the occurrence of a consumer loss within the Province. Section 
27(1) and (2) of this Act provides: 

27.(1) A supplier of a consumer product that is unreasonably 
dangerous to person or property because of a defect in design, 
materials or workmanship is liable to any person who suffers a 



42 S.N.B. 1978, c. C- 18.1. The Act has not yet been proclaimed in force. 
4i Supra, at p. 111. 



119 

consumer loss in the Province because of the defect, if the loss 
was reasonably foreseeable at the time of his supply as liable to 
result from the defect and 

(a) he has supplied the consumer product in the Province; 

(b) he has supplied the consumer product outside the Province 
but has done something in the Province that contributes to the 
consumer loss suffered in the Province; or 

(c) he has supplied the consumer product outside the Province 
but the defect arose in whole or in part because of his 
failure to comply with any mandatory federal standards in 
relation to health or safety, or the defect caused the consumer 
product to fail to comply with any such standards. 

(2) For the purposes of paragraph (\)(b), where a person has 
done anything in the Province to further the supply of any 
consumer product that is similar in kind to the consumer product 
that caused the loss, it shall be presumed that he has done something 
in the Province that contributed to the consumer loss suffered in 
the Province, unless he proves irrefragably that what he did in the 
Province did not in any way contribute to that loss. 

As we state later in our Report, we support the general approach adopted 
by these two Acts. 

(c) CONCLUSION 

Before making our recommendation concerning the choice of law 
rule that should be adopted for products liability cases under our proposed 
principle of strict liability, we must first turn our attention to constitutional 
considerations. 

(i) Constitutional Law 

Section 92.13 of The British North America Act, 1867 44 confers upon 
the provinces exclusive legislative authority in relation to "Property and 
civil rights in the Province". There is no doubt that the Ontario Legislature 
has constitutional authority to enact the proposed principle of strict 
liability for defective products. What is not clear is the extent to which 
this regime may embrace extra-provincial manufacturers or suppliers. 

In Interprovincial Co-operatives Ltd. and Dryden Chemicals Ltd. v. 
Her Majesty The Queen in right of the Province of Manitoba,^ Manitoba 
legislation purported to impose liability on polluters of certain rivers 
flowing into Manitoba from Saskatchewan and Ontario, even though the 
polluters' acts were lawful, and indeed specifically licensed in the Provinces 
where they occurred. Four members of the Supreme Court of Canada held 
that the Manitoba legislation was invalid. Pigeon, J., delivering the 
judgment of Pigeon, Martland and Beetz, JJ., took the view that control 



44 30 & 31 Vict., c. 3 (Imp.) and R.S.C. 1970, Appendix II, No. 5. 
45 [1976] 1 S.C.R. 477. 



120 

of pollution of inter-provincial watercourses was a subject matter reserved 
for federal legislation, and seemed to hold that damage in Manitoba 
could not by itself found constitutional power where the polluting acts 
were done elsewhere. Ritchie, J., the fourth member of the majority, 
apparently was of the opinion that the rule in Phillips v. Eyre could 
not be altered by provincial legislation, and that the legislation in question 
was invalid because it purported to make actionable in Manitoba that 
which the defendants had a right to do by Ontario and Saskatchewan 
law. The dissenting judgment of Laskin, C.J., Judson and Spence, JJ., 
delivered by Laskin, C.J., held that the damage suffered in Manitoba was 
by itself sufficient to found Manitoba's legislative authority. 

An analogy might be drawn between the Inter provincial case and 
products liability. It might be argued, for example, that just as the Manitoba 
legislation could not make unlawful conduct that was lawful where under- 
taken, so the Ontario Legislature could not legislate to impose liability, for 
example, on a Quebec manufacturer if liability would not also be imposed by 
Quebec law. The two situations can, however, be distinguished. In the 
Interprovincial case, the defendants were specifically licensed to do what 
they did, that is, to emit certain amounts of chemical pollution. It is 
most unlikely that a manufacturer would be specifically licensed to 
produce products that could be held to be defective. Again, the defendants 
in Interprovincial could not do at all what they were authorized to do 
without contravening Manitoba law. In other words, if they emitted the 
pollutants into the rivers, they inevitably flowed into Manitoba. But 
a manufacturer need not send his goods into Ontario. He, unlike the river 
polluter, can still carry on his business and exercise the rights allowed 
to him by his home jurisdiction by directing his products elsewhere than 
into Ontario. Some of the language used by the majority in the Interprovincial 
case suggests that their main concern was the possibility of Manitoba 
legislation sterilizing, or putting out of business, a manufacturer whose 
conduct was perfectly lawful, and, indeed, specifically licensed in his 
own province. 46 

Moreover, it can be argued that a manufacturer of products, who 
expressly or impliedly consents to his products being distributed in Ontario, 
can be said, unlike the river polluter, to be acting within Ontario. We 
are encouraged in this view by the recent decision of the Supreme Court 
of Canada in The Queen v. Thomas Equipment Ltd. 41 The Court in 
this case, by a majority of 6 to 3, held that the Alberta Farm Implement 
Act A% applied to an out-of-province supplier of farm implements and, 
reversing the decision of the Appellate Division of the Supreme Court of 
Alberta, restored the conviction of the accused for a breach of this Act. The 
accused, a New Brunswick manufacturer, contrary to section 22(3) of 
The Farm Implement Act, had refused to purchase "all the unused farm 
implements and attachments thereto, and all unused parts" that had been 
obtained from it by its Alberta dealer. The agreement for the supply of 



46 In particular, one can speculate that Ritchie, J., might have changed his vote, therehy 
converting the dissenting view into a majority, had the level of pollution not been expressly 
permitted by the provinces in which the discharge occurred. 

47 May 1, 1979 (unreported). 

4 «R.S.A. 1970, c. 136. 



121 

farm equipment between Thomas Equipment Ltd. and its Alberta dealer 
provided, inter alia, that the dealer was to be given an exclusive territory 
for the sale of Thomas' equipment and that Thomas would advertise 
its products and provide the dealer with suitable advertising literature. 

Martland, J., with whom Pigeon, Dickson, Beetz, Estey and Pratte, JJ., 
concurred, 49 was of the opinion that Thomas' liability arose out of its 
conduct in Alberta, and stated as follows: 

It had, in Alberta, rendered itself subject to the regulatory 
provisions of The Farm Implement Act. It had failed to comply 
with those regulations and the penalty imposed upon it was because 
of that failure. Thomas is not being penalized under the Act for 
its conduct in New Brunswick, but because of what it failed to do 
in Alberta. . . . The Alberta statute imposes an obligation upon a 
vendor who sells farm implements to a dealer in Alberta for resale 
in Alberta to repurchase those implements which are located in 
Alberta. 

In other words, it would seem that it was Thomas' conscious decision 
to participate in the Alberta market that formed the basis of its liability. 

Support for this view may be derived from the dissenting judgment of 
Sinclair, J. A., in the Court below, where he made the following statement: 

If a manufacturer wants to have his farm implements sold here 
he must comply with the rules of the game, as it were, established by 
the legislature of Alberta. 

These remarks of Sinclair, J. A., were quoted by Martland, J., with 
apparent approval. In our opinion, they are just as applicable to the law 
of products liability. 

One further point may be made. As mentioned above, it may be that at 
common law a tort can be said to be committed within a jurisdiction if the 
manufacturer or supplier can foresee that his product will be distributed 
there. 50 If the tort is committed in Ontario there can be no objection to the 
application of Ontario law. Surely acts within Ontario can be made actionable 
by Ontario legislation unless the subject matter can be categorized as inter- 
provincial in nature and, therefore, within the exclusive jurisdiction of 
Parliament under section 91.2 of The British North America Act, 1867 as 
relating to "The regulation of trade and commerce". In our view, however, the 
existence of federal power over trade and commerce does not preclude 
the application of provincial laws aimed at the protection of purchasers 
against products originating outside the province, although there might 
be concurrent federal legislative power. 

After very careful consideration of this vexed area of the law, the 
Commission is of the opinion that the Ontario Legislature has the con- 
stitutional power to enact a principle of strict liability for defective products 
that is applicable to extra-provincial manufacturers and suppliers, provided 
that there is a constitutionally recognized connection with the Province 



49 Laskin, C.J., Spence and Ritchie, JJ., were in dissent. 
50 Supra, at p. 115. 



122 

of Ontario. We have considered various possible connecting factors, and 
have rejected tests based on occurrence of damage in Ontario and the 
acquisition of the product in Ontario. We have concluded that constitutional 
legislative competence can be reliably grounded upon some degree of business 
activity in the Province that evinces a deliberate choice by the extra- 
provincial manufacturer or supplier to participate in the Ontario market. 51 
While we acknowledge that complete certainty is unattainable, in our 
opinion, a law that is premised on business activity in the Province would be 
constitutionally effective to bind an extra-provincial manufacturer or 
supplier. We are supported in our view by the Saskatchewan and New 
Brunswick Acts, the relevant provisions of which we earlier extracted. 52 

(ii) Recommendation 

At the beginning of this section of our Report, we mentioned that the 
ideal solution to the choice of law problem would be for all jurisdictions to 
adopt a uniform set of rules, so that there would be universal agreement 
on the law that should be applied to any particular dispute. The difficulties 
in reaching universally acceptable choice of law rules appear, however, 
insurmountable. We have proceeded, therefore, upon a more modest 
venture, that is, to answer the following question: in what circumstances 
should an Ontario court apply our proposed principle of strict liability 
for damage caused by defective products? In our opinion, this principle 
should be applied in all cases where the manufacturer or supplier of 
the defective product carries on business in Ontario. Accordingly, we 
recommend that in an action pursuant to the Draft Bill, the rights 
and liabilities of a supplier should be governed by the internal law of 
Ontario where the internal law of Ontario would now be applicable or 
where the supplier at the time of the supply of the product carried on 
business in Ontario. 53 As in the case of the jurisdiction of the Ontario 
courts, 54 we further recommend that a supplier of a defective product or 
a supplier of a product who makes a false statement concerning that 
product should be deemed to have carried on business in Ontario where 
the product or identical products supplied by him were available or 
accessible in Ontario through commercial channels with his consent, express 
or implied, or where the supplier has acted in any way to further the 
supply of the product or identical products in Ontario. 55 As we have 
discussed, legislative implementation of this recommendation, in our 



5l Authority for this position can be found in the taxation cases, which have authorized 
provincial taxation of out-of-province enterprises where they had a business connection with 
the province. The leading case is Bank of Toronto v. Lambe (1887), 12 App. Cas. 575 ( P. C). 
See also La Forest, The Allocation of Taxing Power under the Canadian Constitution 
(1967), at p. 92; and, In re Income Tax Act, 1932, and Proctor and Gamble Company of 
Canada Ltd., [1937] 3 W.W.R. 680 (Sask. K.B.). One must be cautious in applying decisions 
given under the provincial taxing power to other heads of provincial power. However, the 
reasoning of the taxing decisions on this point seems equally applicable to other kinds of law. 
Indeed, the reasoning is reinforced by the undoubted principle that persons doing things in a 
province must comply with the law of that province. 

"Supra, at pp. 118-19. 

53 See Draft Bill, s. 14. 

54 Supra, at p. 113. 

55 See Draft Bill, s. 15. 



123 

opinion, would be within the constitutional competence of the Ontario 
Legislature. 



This recommendation is similar in substance to the approach adopted 
by the Saskatchewan Consumer Products Warranties Act, 1977 and the 
New Brunswick Consumer Product Warranty and Liability Act, 1978 to 
which we have earlier referred. 56 Compared with other proposals, our 
recommendation has the attraction of simplicity. It would seem to be 
easy to apply and, in our view, would achieve a reasonably fair and 
balanced result. Moreover, we would note that our proposed choice of 
law rule has the merit of coinciding with the jurisdictional rule that 
we recommended earlier. There is, in our opinion, much to be said for 
the proposition that a manufacturer or supplier who profits from the 
Ontario market should be subject to Ontario law. A manufacturer or 
supplier who wishes to avoid Ontario law has his own recourse: he need 
not carry on business in Ontario; for example, by sending his products 
into Ontario. 

3. Enforcement of Foreign Judgments 

The law governing enforcement of foreign judgments is of great 
practical importance. Ontario's jurisdictional and choice of law rules 
may enable an injured plaintiff to secure a judgment in Ontario, but 
if the defendant has no assets in the jurisdiction the judgment may be 
worthless. Ontario cannot enact valid rules for the enforcement of an 
Ontario judgment outside the Province. At present, a foreign judgment 
may be enforced in Ontario either as a matter of common law 57 or under 
The Reciprocal Enforcement of Judgments Act. 5 * We note that the 
Uniform Law Conference of Canada adopted in 1933 a Uniform Foreign 
Judgments Act, which was revised in 1964. 59 To date the Uniform Act has 
been enacted in only New Brunswick and Saskatchewan. 60 The Commission 
has some sympathy for the view that the judgments rendered in sister 
provinces should be enforceable in Ontario, where facts exist that mutatis 
mutandis would have supported the jurisdiction of the Ontario courts. 
The problem of enforcement of foreign judgments is not, however, unique 
to the law of products liability; it cuts across all areas of the law. 
Therefore, we are of the view that it would not be appropriate for us to 
consider what changes, if any, should be made to the law of Ontario 
with respect to enforcement of foreign judgments in the area of products 
liability alone. An examination of the whole of the law of enforcement of 
foreign judgments is, of course, beyond the scope of this Report. 



ib Supra, at pp. 117-19. 

57 Castel, footnote 1, supra, at pp. 403 ff. 

58 R.S.O. 1970, c. 402. 

"Uniform Law Conference of Canada, Proceedings of the Sixtieth Annual Meeting (1978), 

Table I. 
™Ibid., Table III. 



CHAPTER 9 



UNIFORMITY AND 
MISCELLANEOUS ISSUES 



1. Uniformity 



It should be stressed that products are generally distributed on an inter- 
provincial or international basis. In our Report on Sale of Goods, { 
we noted the importance of inter-provincial sales to Ontario's economy. 
It would be unfortunate if our recommended principle of strict liability 
were to create unintended impediments to the free flow of goods between 
provinces. It would, therefore, seem very desirable that each province 
should adopt uniform provisions with respect to the law of products liability. 
We also noted in our Report on Sale of Goods that the Uniform Law 
Conference of Canada has played an active role in sponsoring the drafting 
of uniform acts in other branches of commercial law. Similar to the 
position taken in that Report, we recommend that the Uniform Law 
Conference of Canada should be asked to explore the possibility of a 
Uniform Products Liability Act. 

2. Miscellaneous Issues 

There are two issues that affect the scope or operation of the Products 
Liability Act proposed in this Report: first, the applicability of the 
Act to the Crown; and, secondly, the question of its retrospective or 
prospective operation. 

So far as the first issue is concerned, we recommended in our 1979 
Report on Sale of Goods that the Crown should be bound by the 
proposed revised Sale of Goods Act. We see no reason to depart from this 
view in respect of the law of products liability. Accordingly, and for 
reasons similar to those stated in our Report on Sale of Goods, 2 we 
recommend that the Crown should be bound by the proposed Products 
Liability Act. 3 

The problem of retroactivity was also addressed by this Commission in 
its Report on Sale of Goods. 4, In that Report we pointed out that the 
general rule of construction is that a statute is not retrospective in character. 
Consequently, unless the proposed Products Liability Act provided other- 
wise, it would not apply to causes of action arising prior to the Act coming 
into force. For reasons like those mentioned in the Report on Sale of Goods, 
we are of the opinion that the proposed Act should not be made retroactive 
since to do so could prejudice unfairly rights and obligations accruing 
under the older law: suppliers, for example, may well have arranged 
their affairs on the basis of this law. Accordingly, we recommend that 
the proposed Products Liability Act should apply only to injury or damage 
occurring on or after the day on which the Act comes into force. 5 



'Ontario Law Reform Commission, Report on Sale of Goods (1979). 
2 Ibid., at pp. 561-62. 
3 See Draft Bill, s. 2. 
4 Footnote 1, supra, at p. 565. 
5 See Draft Bill, s. 17. 

[125] 



PART V 

SUMMARY OF RECOMMENDATIONS 

AND 

CONCLUSION 



[127] 



SUMMARY OF RECOMMENDATIONS 



The Commission makes the following recommendations: 

1. Ontario should enact a principle of strict liability in accordance with 
recommendations 2 and 3 below, (p. 64) 

2. A person who supplies a defective product that causes injury should be 
strictly liable in tort for damages, (p. 64) 

3. A person who supplies a product and who makes a false statement 
concerning the product, reliance upon which causes injury, should be 
strictly liable in tort for damages, whether or not the reliance is that of the 
person injured, (p. 65) 

4. Subject to recommendation 5, the principle of strict liability proposed in 
recommendations 2 and 3 should cover personal injury and damage to 
property, together with economic loss directly consequent thereon, 
(pp. 81-85) 

5. The principle of strict liability proposed in recommendations 2 and 3 
should not extend to damage to property used in the course of carrying on 
a business, (pp. 82, 85) 

*6. The principle of strict liability proposed in recommendations 2 and 3 
should not extend to pure economic loss. (pp. 84-85) 

7. Compensation for injury or damage caused by a defective product or by 
reliance upon a false statement made by a supplier concerning a product 
should not be subject to a monetary limit as to either the amount 
recoverable by any one plaintiff on a given set of facts or the total sum for 
which a defendant might be liable in respect of any one product or run of 
products, (p. 86) 

8. No special limitation period or cut-off period should be prescribed in 
respect of actions for the recovery of damages under the proposed 
principle of strict liability, (pp. 87, 89) 

9. The proposed principle of strict liability should apply to all products, that 
is, any tangible goods whether or not they are attached to or incorporated 
into real or personal property, (p. 92) 

10. The proposed principle of strict liability should apply to a person who 
supplies a product in the course of his business but only in the case of 
products of a kind that it is his business to supply; it should not apply to a 
person who supplies a product in a non-business context, (p. 93) 

1 1. A person should be liable under the proposed principle of strict liability 
notwithstanding that he has not previously supplied products of the same 
kind as the product supplied, or that he supplied the product for 
promotional purposes, (p. 93) 



*Dr. Derek Mendes da Costa, the Chairman of the Commission, and the Honourable R.A. Bell 
dissent in part from this recommendation. See supra, ch. 7, footnote 23, at pp. 84-85. 

[129] 



130 

12. The class of person entitled to recover under the proposed principle of 
strict liability should not be restricted in any way other than by the general 
tort limitations of proximity and causation, (p. 94) 

13. In particular, where a person is injured or killed under circumstances 
where the person is entitled under the proposed principle of strict liability 
to recover damages, or would have been so entitled if not killed, the 
spouse as defined by Part II of The Family Law Reform Act, 1978, 
children, grandchildren, parents, grandparents, brothers and sisters of the 
person should be entitled to recover their pecuniary loss resulting from 
the injury or death from the person from whom the person injured or 
killed is entitled to recover or would have been entitled if not killed, and to 
maintain an action for the purpose in a court of competent jurisdiction, 
and Part V, except subsection 1 of section 60, of The Family Law Reform 
Act, 1978 should apply mutatis mutandis to any such action, (p. 94) 

14. In determining whether or not a product is a defective product, any 
relevant standard established by law may be taken into account, (p. 96) 

1 5. The defence of assumption of risk should be available under the proposed 
principle of strict liability, (p. 96) 

16. Where injury or damage is caused or contributed to partly by a supplier of 
a defective product or by reliance upon a false statement made by a 
supplier concerning a product and partly by the fault or neglect of the 
person suffering the injury or damage, damages should be apportioned in 
accordance with the degree of the responsibility of each for the injury or 
damage, (p. 97) 

17. Where it is not practicable to determine the respective degree of 
responsibility of the supplier and of the person suffering the injury or 
damage, the parties should be deemed to be equally responsible for the 
injury or damage suffered, and damages should be apportioned 
accordingly, (p. 97) 

18. An oral or written agreement, notice, statement or provision of any kind 
purporting to exclude or restrict liability under recommendations 2 and 3 
or to limit any remedy available thereunder should be void. (p. 98) 

19. Subject to recommendation 20 and to any agreement express or implied, a 
person who is liable, under the proposed Products Liability Act or 
otherwise, for injury or damage caused by a defective product or by 
reliance upon a false statement made by a supplier concerning a product 
should be entitled to be indemnified by any prior supplier of the product 
who would be liable under the proposed Products Liability Act for the 
injury or damage that gave rise to the liability, (p. 100) 

20. Where injury or damage is caused or contributed to partly by a supplier of 
a defective product or by reliance upon a false statement made by a 
supplier concerning a product and partly by the fault or neglect of another 
person, whether or not a supplier of the product, for which that other 
person would be liable to the person suffering the injury or damage, both 
the supplier and the other person should be jointly and severally liable to 
the person suffering the injury or damage, but as between themselves, 
subject to any agreement express or implied, each should contribute to the 



131 

amount of the damages in accordance with the degree of the responsibility 
of each for the injury or damage, (pp. 100-01) 

21. Where it is not practicable to determine the respective degree of 
responsibility of the supplier and of the other person, the supplier and the 
other person should be deemed to be equally responsible for the injury or 
damage suffered, and each should contribute to the amount of damages 
accordingly, (p. 101) 

22. A person who settles for a reasonable sum a claim under the proposed 
Products Liability Act for injury or damage caused by a defective product 
or by reliance upon a false statement made by a supplier concerning a 
product should be entitled to claim contribution in accordance with 
recommendation 20 and, in the event that the amount of the settlement is 
determined to be excessive, contribution should be calculated in 
accordance with the amount for which the claim should have been settled, 
(pp. 101-02) 

23. A person who settles for a reasonable sum a claim under the proposed 
Products Liability Act or otherwise for injury or damage caused by a 
defective product or by reliance upon a false statement made by a supplier 
concerning a product should be entitled to be indemnified by any prior 
supplier of the product who would be liable under the proposed Products 
Liability Act for the injury or damage that gave rise to the liability and, in 
the event that the amount of the settlement is determined to be excessive, 
the indemnity should be calculated in accordance with the amount for 
which the claim should have been settled, (pp. 101-02) 

24. Proceedings for contribution or for indemnity should not be permitted 
after the expiration of any limitation period that would bar an action 
against the person from whom contribution or indemnity is claimed, or 
after one year after judgment or settlement, whichever is later, (p. 102) 

25. Any action under the proposed principle of strict liability should be tried 
before a judge without a jury. (p. 104) 

26. The rights and liabilities created by the proposed Products Liability Act 
should be in addition to rights and liabilities otherwise provided by law. 
(P- 105) 

27. An action should be maintainable under the proposed Products Liability 
Act where apart from that Act the court would have jurisdiction or where 
the supplier at the time of the supply of the product carried on business in 
Ontario, whether or not the product was purchased or otherwise acquired 
in Ontario, (pp. 112-13) 

28. In an action pursuant to the proposed Products Liability Act, the rights 
and liabilities of a supplier should be governed by the internal law of 
Ontario where the internal law of Ontario would now be applicable or 
where the supplier at the time of the supply of the product carried on 
business in Ontario, (p. 122) 

29. For the purposes of recommendations 27 and 28, a supplier of a defective 
product or a supplier of a product who makes a false statement 
concerning that product should be deemed to have carried on business in 



132 

Ontario where the product or identical products supplied by him were 
available or accessible in Ontario through commercial channels with his 
consent, express or implied, or where the supplier has acted in any way to 
further the supply of the product or identical products in Ontario, 
(pp. 113, 122) 

30. Any party to an action brought under the proposed Products Liability 
Act should be capable of being served out of Ontario in the manner 
prescribed by the rules of court, (p. 1 13) 

31. The Crown should be bound by the proposed Products Liability Act. 
(p. 125) 

32. The proposed Products Liability Act should apply only to injury or 
damage occurring on or after the day on which the Act comes into force, 
(p. 125) 

33. The Uniform Law Conference of Canada should be asked to explore the 
possibility of a Uniform Products Liability Act. (p. 125) 



CONCLUSION 



This Report embodies the Commission's conclusions concerning the 
need for reform in this important area of the law, and the direction 
that this reform should take. In the opinion of the Commission, a rational and 
equitable law of products liability can be fashioned only by the introduction of 
a principle of strict liability. Such a principle would substantially eliminate the 
anomalies and injustices of the existing law of products liability. 

The Report undoubtedly focuses upon the legal basis of liability 
for damages caused by defective products. However, the shift from a 
negligence regime to a principle of strict liability also necessitated 
examination of a host of subsidiary issues, including the types of damage 
compensable under the principle, possible restrictions on this right of recovery 
and applicable defences. The Report also examines the right to compensation 
in the case of injuries caused by reliance upon a false statement made 
by a supplier concerning a product, a subject that the Commission believes 
to be inextricably related to the law of liability for defective products. 

In its review of the law of products liability, the Commission has had 
the benefit of the opinions of the English and Scottish Law Commissions, 
as set out in their 1977 Report on Liability for Defective Products. During 
the course of our study, reference has also been made to both American 
and international developments in the law of products liability. While 
these legal developments have been carefully considered by the Commission, 
at all times we have attempted to ensure that the legislation that we 
propose be suited to the prevailing circumstances in Ontario. 

We note that recently there has been significant legislative activity 
in a number of provinces in the field of products liability. Because of the 
extra-provincial and international ramifications of changes to the law of 
products liability, there is a great need to strive for and to achieve uniformity 
among the various legal jurisdictions within Canada. Therefore, in our view, 
it is desirable that this subject be considered by the Uniform Law Conference 
of Canada. 

We wish to reiterate our very deep gratitude to Professor S. M. 
Waddams, Director of the Commission's Products Liability Project. His 

[133] 



134 



scholarship and his devotion, both in time and energy, to this Report are much 
appreciated. We wish also to record our sincere thanks to Mr. Eric Gertner 
for his scholarship and patient assistance during the preparation of this 
Report. 



All of which is respectfully submitted, 



<Je*JL £ rwfej 



ci<x G=ok 



Derek Mendes da Costa, Chairman 




George A. Gale. Vice Chairman 




Richard A. Bell, Commissioner 



W. Gibson Gray, Commissioner 




William R. Poole, Commissioner 



November 16, 1979 



APPENDIX 1 



Draft Bill 



An Act to impose Liability 
on Business Suppliers 
of Defective Products 



HER MAJESTY, by and with the advice and consent of the 
Legislative Assembly of the Province of Ontario, enacts as 
follows: 

1. (1) In this Act, Interpretation 

(a) "defective product" means a product that falls short of 
the standard that may reasonably be expected of it in all 
the circumstances; 

(b) "false statement" includes any misstatement of fact, 
whether made by words, pictures, conduct or otherwise; 

(c) "product" means any tangible goods whether or not 
they are attached to or incorporated into real or 
personal property; 

(d) "to supply" means to make available or accessible by 
sale, gift, bailment or in any other way, and "supplied", 
"supplies" and "supplier" have corresponding mean- 
ings, but a person who transports a product is not 
by that act alone a supplier. 

(2) In determining whether or not a product is a defective ^jjjj^ 
product, any relevant standard established by law may be taken b v law 
into account. 



2. The Crown is bound by this Act. 



Crown bound 



3. — ( 1 ) Where in the course of his business a person supplies a strict ] iabilit y 

v ' .... for defective 

product of a kind that it is his business to supply and the product products 
is a defective product which causes personal injury or damage to 
property, that person is liable in damages, 

(a) for the injury or damage so caused; and 

(b) for any economic loss directly consequent upon such 
injury or damage. 

(2) A supplier is not liable under clause a or b of subsection 1 b E 2' s on for 
for damage to property used in the course of carrying on a losses 
business. 



[135] 



136 



Strict liability 
for false 

statements about 
products 



Exception for 
business losses 



4. — ( 1 ) Where in the course of his business a person supplies a 
product of a kind that it is his business to supply and makes a 
false statement concerning the product, reliance upon which 
causes personal injury or damage to property, that person is 
liable in damages, 

(a) for the injury or damage so caused; and 

(b) for any economic loss directly consequent upon such 
injury or damage, 

whether or not the reliance is that of the person suffering 
the injury or damage. 

(2) A supplier is not liable under clause a or b of subsection 1 
for damage to property used in the course of carrying on a 
business. 



New business 
and promotions 



Contributory 
negligence 



Where parties 
deemed equally 
responsible 



Joint 

tort feasors 



Where parties 
deemed equally 
responsible 



5. A person may be liable under section 3 or 4 notwithstand- 
ing that he has not previously supplied products of the same kind 
as the product supplied or that he supplied the product for 
promotional purposes. 

6. — (1) Where injury or damage is caused or contributed to 
partly by a supplier of a product under section 3 or by reliance 
upon a false statement made by a supplier concerning a product 
under section 4 and partly by the fault or neglect of the person 
suffering the injury or damage, damages shall be apportioned in 
accordance with the degree of the responsibility of each for the 
injury or damage. 

(2) Where under subsection 1 it is not practicable to determine 
the respective degree of responsibility of the supplier and of the 
person suffering the injury or damage, the parties shall be 
deemed to be equally responsible for the injury or damage 
suffered, and damages shall be apportioned accordingly. 

7. — (1) Where injury or damage is caused or contributed to 
partly by a supplier of a product under section 3 or by reliance 
upon a false statement made by a supplier concerning a product 
under section 4 and partly by the fault or neglect of another 
person, whether or not a supplier of the product, for which that 
other person would be liable to the person suffering the injury or 
damage, both the supplier and the other person are jointly and 
severally liable to the person suffering the injury or damage, but 
as between the supplier and the other person, subject to any 
agreement express or implied, each shall contribute to the 
amount of the damages in accordance with the degree of the 
responsibility of each for the injury or damage. 

(2) Where under subsection 1 it is not practicable to determine 
the respective degree of responsibility of the supplier and of the 
other person, the supplier and the other person shall be deemed 
to be equally responsible for the injury or damage suffered, and 
each shall contribute to the amount of damages accordingly. 



137 



(3) A person who settles for a reasonable sum a claim for Settlement 
injury or damage under section 3 or 4 is entitled to claim 
contribution under subsection 1 and, in the event that the 
amount of the settlement is determined to be excessive, 
contribution shall be calculated in accordance with the amount 
for which the claim should have been settled. 



8. Subject to section 7 and to any agreement express or 
implied, a person who is liable or who settles for a reasonable 
sum a claim under this Act or otherwise for injury or damage 
caused by a product or by reliance upon a false statement made 
by a supplier concerning a product is entitled to be indemnified 
by any prior supplier of the product who would be liable under 
this Act for the injury or damage that gave rise to the liability 
and, in the event that the amount of the settlement is determined 
to be excessive, the indemnity shall be calculated in accordance 
with the amount for which the claim should have been settled. 



Indemnity 
by prior 
suppliers 



9. Proceedings for contribution under section 7 or for ^Smioi 01 " 



indemnity under section 8 shall not be brought after, 

(a) the expiration of any limitation period that would bar 
an action against the person from whom contribution or 
indemnity is claimed; or 

(b) one year after judgment or settlement, 
whichever is later. 



and indemnity 



10. Any oral or written agreement, notice, statement or JJuJJSSy 
provision of any kind purporting to exclude or restrict liability void 
under section 3 or 4 or to limit any remedy thereunder is void. 



11. The rights and liabilities created by this Act are in addition 
to rights and liabilities otherwise provided by law. 



Other rights 
not affected 



12. Any action under section 3 or 4 shall be tried by a judge J^% by 
without a jury. 



13. An action may be brought under this Act where apart 
from this section the court would have jurisdiction or where the 
supplier at the time of the supply of the product carried on 
business in Ontario, and any party to such an action may be 
served out of Ontario in the manner prescribed by the rules of 
court. 



Extended 
jurisdiction 



14. In an action under this Act, the rights and liabilities of a 
supplier are governed by the internal law of Ontario where the 
internal law of Ontario would apart from this section apply or 
where the supplier at the time of the supply of the product carried 
on business in Ontario. 



Choice of law 



15. A supplier of a defective product or a supplier of a product ^Sks 8 ° n 
who makes a false statement concerning that product shall be 



138 



Rights of 
dependants 



1978, c. 2 



Application 
of Act 



Short title 



deemed to have carried on business in Ontario for the purposes 
of sections 13 and 14, 

(a) where the product or identical products supplied by him 
were available or accessible in Ontario through com- 
mercial channels with his consent express or implied; or 

(b) where the supplier has acted in any way to further the 
supply of the product or identical products in Ontario. 

16. Where a person is injured or killed under circumstances 
where the person is entitled under section 3 or 4 to recover 
damages, or would have been so entitled if not killed, the spouse 
as defined in Part II of The Family Law Reform Act, 1978, 
children, grandchildren, parents, grandparents, brothers and 
sisters of the person are entitled to recover their pecuniary loss 
resulting from the injury or death from the person from whom 
the person injured or killed is entitled to recover or would have 
been entitled if not killed, and to maintain an action for the 
purpose in a court of competent jurisdiction, and Part V, except 
subsection 1 of section 60, of 77?^ Family Law Reform Act, 1978 
applies mutatis mutandis to any such action. 

17. This Act applies only to injury or damage occurring on or 
after the day on which this Act comes into force. 

18. The short title of this Act is The Products Liability Act, 
198 . 



APPENDIX 2 



Draft Uniform Product Liability Law 
United States Department of Commerce* 



Uniform Product Liability Act 



PREAMBLE 



This Act sets forth uniform standards 
for state product liability tort law. It 
does not cover all issues that may be 
litigated in product liability cases; rather, 
it focuses on those where the need for 
uniform rules is the greatest. The purpose 
of these uniform rules is to eliminate 
existing confusion and uncertainty on the 
part of both product users and product 
sellers about their respective legal rights 
and obligations. Improving the level of 
certainty as to how state product liability 
law will deal with claims for injuries 
caused by allegedly defective products 
should also, over time, promote greater 
availability and affordability in product 
liability insurance and greater stability in 
rates and premiums. 

SEC. 100. SHORT TITLE 

This Act shall be known and may be 
cited as the "Uniform Product Liability 
Act." 

SEC. 101. FINDINGS 

(a) Sharply rising product liability 
insurance premiums have created serious 
problems in interstate commerce result- 
ing in: 

(1) Increased prices of consumer and 
industrial products; 

(2) Disincentives to develop high-risk 
but potentially beneficial products; 

(3) Businesses going without product 
liability insurance coverage, thus jeop- 
ardizing the availability of compensation 
to injured persons; and 



(4) Panic "reform" efforts that would 
unreasonably curtail the rights of product 
users. 

(b) One cause of these problems is 
that product liability law is frought [sic] 
with uncertainty; the rules vary from 
jurisdiction to jurisdiction and are in a 
constant state of flux, thus militating 
against predictability of litigation out- 
come. 

(c) Insurers have cited uncertainty in 
product liability law and litigation out- 
come as a justification for setting rates 
and premiums that, in fact, may not 
reflect actual product risk. 

(d) Product liability insurance rates 
are set on the basis of a countrywide, 
not an individual state, experience. Thus, 
individual states can do little to solve 
the problem because a product manu- 
factured in one state can readily cause 
injury in any one of the other 49 states 
or the District of Columbia. 

(e) Uncertainty in product liability 
law and litigation outcome is added to 
litigation costs and may put an addi- 
tional strain on the judicial system. 

(f) Recently enacted state product li- 
ability legislation has widened already 
existing disparities in the law. 

SEC. 102. DEFINITIONS 

(1) Product Seller. 

"Product seller" means any person or 
entity, including a manufacturer, whole- 
saler, distributor, or retailer, who is 



*44 Fed. Reg. 2996 (1979). 



[139] 



140 



engaged in the business of selling such 
products, whether the sale is resale, or 
for use or consumption. The term "pro- 
duct seller" also includes lessors or 
bailors of products who are engaged in 
the business of leasing or bailment of 
products. 

(2) Product Liability Claim. 

"Product liability claim" includes all 
claims or actions brought for personal 
injury, death, or property damage caused 
by the manufacture, construction, design, 
formula, preparation, assembly, instal- 
lation, testing, warnings, instructions, 
marketing, packaging, or labeling of any 
product. It includes, but is not limited to, 
all actions based on the following theor- 
ies: strict liability in tort; negligence; 
breach of warranty, express or implied; 
breach or failure to discharge a duty 
to warn or instruct, whether negligent 
or innocent; misrepresentation, conceal- 
ment, or nondisclosure, whether negli- 
gent or innocent; or under any other 
substantive legal theory in tort or con- 
tract. 

(3) Claimant. 

"Claimant" means a person asserting 
a legal cause of action or claim and, if 
the claim is asserted on behalf of an 
estate, claimant includes claimant's dece- 
dent. Claimants include product users, 
consumers, and bystanders who are 
harmed by defective products. 

(4) Harm. 

"Harm" includes damage to property 
and personal physical injuries including 
emotional harm. It includes damage to 
the product itself. Damage caused by 
loss of use of a product is not included, 
but a claim may be allowed if the seller 
expressly warranted this protection and 
this warranty was intended to extend to 
claimant. 



(5) Manufacturer. 

"Manufacturer" includes product sell- 
ers who design, assemble, fabricate, 
construct, process, package, or other- 
wise prepare a product or component 
part of a product prior to its sale to a 
user or consumer. It includes a product 
seller or entity not otherwise a manu- 
facturer that holds itself out as a 
manufacturer. 

(6) Reasonably Anticipated Conduct. 

"Reasonably anticipated conduct" 
means conduct which would be expected 
of an ordinary prudent person who is 
likely to use the product. 

(7) Clear and Convincing Evidence. 

"Clear and convincing evidence" is that 
measure or degree of proof that will 
produce in the mind of the trier of 
fact a firm belief or conviction as to 
the allegations sought to be established. 

SEC. 103. SCOPE OF THIS ACT 

(a) A product liability claim provided 
by this Act shall be in lieu of all 
existing claims against product sellers 
(including actions in negligence, strict 
liability, and warranty) for harms caused 
by a product. 

(b) A claim may be asserted success- 
fully under this Act even though the 
claimant did not buy the product from 
or enter into any contractual relationship 
with the product seller. 

(c) The previously existing applicable 
state law of product liability is modified 
only to the extent set forth in this Act. 



SEC. 104. THE BASIC STANDARDS OF 
RESPONSIBILITY 



A product seller may be subject to 
liability for harm caused to a claimant 
who proves by a preponderance of the 



141 



evidence that one or more of the follow- 
ing conditions apply: the product was 
defective in construction (Subdivision 
104 A); the product was defective in 
design (Subdivision 104B); or the product 
was defective in that adequate warnings 
or instructions were not provided (Sub- 
division 104C). 

104(A) The Product Was Defective in 
Construction. 

The harm was caused because the 
product was not made in accordance 
with the product seller's own design or 
manufacturing standards. In determining 
whether the product was defective, the 
trier of fact may consider the product 
seller's specifications for the product, 
and any differences in the product from 
otherwise identical units of the same 
product line. 



104(B) The Product Was Defective in Design. 

The harm was caused because the 
product was defective in design. In 
determining whether the product was 
defective, the trier of fact shall consid- 
er whether an alternative design should 
have been utilized, in light of: 

(1) The likelihood at the time of 
manufacture that the product would 
cause the harm suffered by the claim- 
ant; 

(2) The seriousness of that harm; 

(3) The technological feasibility of 
manufacturing a product designed so 
as to have prevented claimant's harm; 

(4) The relative costs of producing, 
distributing, and selling such an alter- 
native design; and 

(5) The new or additional harms that 
may result from such an alternative 
design. 

104(C) The Product Was Defective Because 
Adequate Warnings or Instructions 
Were Not Provided. 

The harm was caused because the 



product seller failed to provide adequate 
warnings or instructions about the 
dangers and proper use of the product. 

(1) In determining whether adequate 
instructions or warnings were provided, 
the trier of fact shall consider: 

(a) The likelihood at the time of 
manufacture that the product would 
cause the harm suffered by the claimant; 

(b) The seriousness of that harm; 

(c) The product seller's ability to an- 
ticipate at the time of manufacture 
that the expected product user would 
be aware of the product risk, and the 
nature of the potential harm; and 

(d) The technological feasibility and 
cost of warnings and instructions. 

(2) In claims based on Section 104(C), 
the claimant shall prove that if adequate 
warnings or instructions had been pro- 
vided, a reasonably prudent person 
would not have suffered the harm. 

(3) A product seller may not be con- 
sidered to have provided adequate 
warnings or instructions unless they 
were devised to communicate with the 
person(s) best able to take precautions 
against the potential harm. 



SEC. 105. UNAVOIDABLY UNSAFE ASPECTS 
OF PRODUCTS 

(a) An unavoidably unsafe aspect of 
a product is that aspect incapable of 
being made safe in light of the state 
of scientific and technological knowledge 
at the time of manufacture. 

(b) A product seller may be subject 
to liability for failing to provide an 
adequate warning or instruction about 
an unavoidably unsafe aspect of the 
seller's product, if the factors set forth 
in Section 104, subdivision (C) indicate 
that such warnings or instructions should 
have been given. This obligation to warn 
or instruct may arise after the time 
the product is manufactured. 

(c) If Section 104(C) is not applicable, 
the product seller shall not be subject 
to liability for harm caused by an un- 



142 



avoidably unsafe aspect of a product 
unless the seller has expressly warranted 
by words or actions that the product 
is free of such unsafe aspects. 



SEC. 106. RELEVANCE OF THE "STATE OF 
THE ART" AND INDUSTRY CUSTOM 



(a) For the purposes of this section, 
"state of the art" means the safety, 
technical, mechanical, and scientific 
knowledge in existence and reasonably 
feasible for use at the time of manu- 
facture. 

(b) Evidence of changes in a product 
design, in the "state of the art," or in 
the custom of the product seller's in- 
dustry occurring after the product was 
manufactured is not admissible for the 
purpose of proving that the product 
was defective in design under Section 
104(B), or that a warning or instruc- 
tion should have accompanied the pro- 
duct at the time of manufacture under 
Section 104(C). The evidence may be 
admitted for other purposes if its pro- 
bative value outweighs its prejudicial 
effect. 

(c) Evidence of custom in the product 
seller's industry is generally admissible. 
The product seller's compliance or non- 
compliance with custom may be con- 
sidered by the trier of fact in determining 
whether a product was defective in design 
under Section 104(C), or whether there 
was a failure to warn or instruct ade- 
quately under Section 104(C). 

(d) Evidence that a product conform- 
ed to the "state of the art" at the 
time of manufacture, raises a presump- 
tion that the product was not defective 
within the meaning of Sections 104(B) 
and (C). This presumption may be rebut- 
ted by clear and convincing evidence 
that in light of the factors set forth 
in Section 104(B) and (C), the product 
was defective. 

(e) A product seller may by a motion 
request the court to determine whether 
the injury-causing aspect of the product 
conformed to a non-governmental safety 



standard having the following character- 
istics: 

(1) It was developed through careful, 
thorough product testing and a formal 
product safety evaluation; 

(2) Consumer as well as manufacturer 
interests were considered in formulating 
the standard; 

(3) It was considered more than a 
minimum safety standard at the time 
of its development; and 

(4) The standard was up-to-date in 
light of the technological and scientif- 
ic knowledge reasonably available at 
the time the product was manufactured. 

If the court makes such a determina- 
tion in the affirmative, it shall instruct 
the trier of fact to presume that the 
product was not defective. This pre- 
sumption may be rebutted by clear 
and convincing evidence that in light 
of the factors set forth in Sections 104(B) 
and (C), the product was defective. 



SEC 107. RELEVANCE OF COMPLIANCE 

WITH LEGISLATIVE OR ADMINISTRATIVE 

STANDARDS 



(a) A product seller may by a motion 
request the court to determine whether 
the injury-causing aspect of the product 
conformed to an administrative or legis- 
lative standard having the following 
characteristics: 

(1) It was developed as a result of 
careful, thorough product testing and 
a formal product safety evaluation; 

(2) Consumer as well as manufacturer 
interests were considered in formulating 
the standard; 

(3) The agency responsible for en- 
forcement of the standard considered it 
to be more than a minimum safety 
standard at the time of its promulgation; 
and 

(4) The standard was up-to-date in 
light of the technological and scientific 
knowledge reasonably available at the 
time the product was manufactured. 

(b) If the court makes such a deter- 
mination in the affirmative, it shall 



143 



instruct the trier of fact to presume that 
the product was not defective. This 
presumption may be rebutted by clear 
and convincing evidence that in light 
of the factors set forth in Section 104 
(B) and (C), the product was defective. 



reasonable attorneys' fees from that 
party. Failure to comply with the require- 
ments of this section does not affect the 
validity of any claim or defense under 
this Act. 



SEC. 108. NOTICE OF POSSIBLE CLAIM 
REQUIRED 



(a) An attorney who anticipates filing 
a claim under this Act shall present 
a notice of this claim stating the time, 
place and circumstances of events giving 
rise to the claim along with an estimate 
of compensation or other relief to be 
sought. 

(b) This notice shall be given within 
six months of the date of entering into 
an attorney-client relationship with the 
claimant in regard to the claim. For 
the purposes of this Act, such a relation- 
ship arises when the attorney, or any 
member or associate of the attorney's 
firm, agrees to serve the claimant's inter- 
ests in regard to the anticipated claim. 
Notice shall be given to all persons or 
entities against whom the claim is likely 
to be made. 

(c) Any product seller who receives 
notice pursuant to subsection (a) 
promptly shall furnish claimant's attor- 
ney with the names and addresses of all 
persons the product seller knows to be 
in the chain of manufacture and distri- 
bution, if requested to do so by the 
attorney at the time the notice is given. 
Any product seller who fails to furnish 
such information shall be subject to 
liability as provided for in subsection (e). 

(d) A claimant who delays entering 
into an attorney-client relationship to 
delay unreasonably the notice required 
by subsection (a) shall be subject to 
liability as provided in subsection (e). 

(e) Any person who suffers monetary 
loss because of the failure of a claimant 
or his attorney or of a product seller in the 
chain of manufacture and distribution to 
comply with the requirements of this 
section may recover damages, costs, and 



SEC. 109. LENGTH OF TIME PRODUCT 

SELLERS ARE SUBJECT TO LIABILITY FOR 

HARM CAUSED BY THEIR PRODUCTS 



(A) Useful Safe Life. 

(1) A product seller may be liable to 
a claimant for harm caused by the 
seller's product during the useful safe 
life of that product. "Useful safe life" 
refers to the time during which the 
product reasonably can be expected to 
perform in a safe manner. In determining 
whether a product's useful safe life has 
expired, the trier of fact may consider: 

(a) The effect on the product of wear 
and tear or deterioration from natural 
causes; 

(b) The effect of climatic and other 
local conditions in which the product 
was used; 

(c) The policy of the user and similar 
users as to repairs, renewals and replace- 
ments; 

(d) Representations, instructions and 
warnings made by the product seller 
about the product's useful safe life; 
and 

(e) Any modification or alteration of 
the product by a user or third party. 

(2) A product seller shall not be liable 
for injuries or damage caused by a 
product beyond its useful safe life unless 
the seller has so expressly warranted. 

(B) Statutes of Repose. 
(1) Workplace Injuries. 

(a) A claimant entitled to compensa- 
tion under a state worker compensation 
statute may bring a product liability 
claim under this Act for harm that 
occurs within ten (10) years after de- 
livery of the completed product to its 
first purchaser or lessee who was not 
engaged in the business of selling pro- 
ducts of that type. 



144 



Where this Act precludes a worker 
from bringing a claim because of sub- 
division (l)(a), but the worker can prove, 
by the preponderance of evidence, that 
the product causing the injury was un- 
safe, the worker may bring a claim 
against the workplace employer. If pos- 
sible, the claim should be brought in a 
worker compensation proceeding, and 
shall include all loss of wages that 
otherwise would not be compensated 
under the applicable worker compensa- 
tion statute. 

(c) Where this Act precludes a work- 
er's beneficiaries under an applicable 
wrongful death statute from bringing 
a wrongful death claim because of sub- 
division (l)(a), but they can prove, by 
a preponderance of evidence, that the 
product that caused the worker's death 
was unsafe, they may bring a claim 
against the workplace employer. If pos- 
sible, the claim must be brought in a 
Worker Compensation proceeding, and 
shall include pecuniary losses that would 
not have otherwise been compensated 
under the applicable worker compensa- 
tion statute. 

(d) An employer who is subject to 
liability under either subsection (l)(b) 
or (c) shall have the right to seek con- 
tribution from the product seller in an 
arbitration proceeding under Section 
116 of this Act. Contribution shall be 
limited to the extent that the product 
seller is responsible for the harm in- 
curred under the principles of Section 
104 of this Act. The final judgment in 
that proceeding shall not be subject to 
trial de novo, but shall be treated as a 
final judgment of a trial court. 

(2) Non-Workplace Injuries. 

For product liability claims not in- 
cluded in subdivision (B) that involve 
harms occurring more than ten (10) 
years after delivery of the completed 
product to its first purchaser or lessee 
who was not engaged in the business 
of selling products of that type, the 
presumption is that the product has 
been utilized beyond its useful safe 
life as established by subdivision (A). 



This presumption may be rebutted by 
clear and convincing evidence. 

(3) Limitations on Statutes of Repose. 

(a) Where a product seller expressly 
warrants or promises that the seller's 
product can be utilized safely for a 
period longer than ten (10) years, the 
period of repose shall be extended ac- 
cording to these warranties or promises. 

(b) The ten (10) year period of repose 
established in Section 109(B) does not 
apply if the product seller intentionally 
misrepresents a product, or fraudulently 
conceals information about it, where 
that conduct was a substantial cause 
of the claimant's harm. 

(c) Nothing contained in Section 109 
(B) shall affect the right of any person 
found liable under this Act to seek and 
obtain contribution or indemnity from 
any other person who is responsible for 
harm under this Act. 

(d) The ten (10) year period of repose 
established in Section 109(B) does not 
apply if the harm was caused by pro- 
longed exposure to a defective product, 
or if an injury-causing aspect of the 
product existing at the time it was sold 
did not manifest itself until ten years 
after the time of its first use. 

(C) Statute of Limitations. 

All claims under this Act shall be 
brought within three years of the time 
the claimant discovered, or in the ex- 
ercise of due diligence should have dis- 
covered, the facts giving rise to the claim. 



SEC. 1 10. RELEVANCE OF THIRD-PARTY 
ALTERATION OR MODIFICATION OF A PRODUCT 



(a) A product seller shall not be liable 
for harm that would not have occurred 
but for the fact that his product was 
altered or modified by a third party 
unless: 

(1) The alteration or modification was 
in accordance with the product seller's 
instructions or specifications; 

(2) The alteration or modification was 
made with the express consent of the 
product seller; or 



145 



(3) The alteration or modification was 
the result of conduct that reasonably 
should have been anticipated by the 
product seller. 

(b) For the purposes of this section, 
alteration or modification includes 
changes in the design, formula, function, 
or use of the product from that originally 
designed, tested or intended by the 
product seller. It includes failure to 
observe routine care and maintenance, 
but does not include ordinary wear and 
tear. 



SEC. 111. RELEVANCE OF CONDUCT ON THE PART 
OF PRODUCT LIABILITY CLAIMANTS 



(a) General Rule. 

In any claim under this Act, the 
comparative responsibility of, or attribu- 
ted to, the claimant, shall not bar re- 
covery but shall diminish the award of 
compensatory damages proportionately, 
according to the measure of responsibi- 
lity attributed to the claimant. 

(b) Apportionment of Damages. 

In any claim involving comparative 
responsibility, the court, unless other- 
wise requested by all parties, shall in- 
struct the jury to give answers to special 
interrogatories, or the court shall make 
its own findings if there is no jury, 
indicating — 

(1) The amount of damages each 
claimant would have received if com- 
parative responsibility were disregard- 
ed, and 

(2) The percentage of responsibility 
allocated to each party, including the 
claimant, as compared with the combined 
responsibility of all parties to the action. 
For this purpose, the court may decide 
that it is appropriate to treat two or 
more persons as a single party. 

(3) In determining the percentage of 
responsibility, the trier of fact shall 
consider, on a comparative basis, both 
the nature and quality of the conduct 
of the party. 

(4) The court shall determine the 
award for each claimant according to 
these findings and shall enter judgment 



against parties liable on the basis of the 
common law joint and several liability 
of joint tortfeasors. The judgment shall 
also specify the proportionate amount 
of damages allocated against each party 
liable, according to the percentage of 
responsibility established for that party. 

(5) Upon a motion made not later than 
one year after judgment is entered, the 
court shall determine whether all or part 
of a party's share of the obligation is 
uncollectible from that party, and shall 
reallocate any uncollectible amount 
among the other parties, including a 
claimant at fault, according to their 
respective percentages of fault. A party 
whose liability is reallocated is still to be 
subject to contribution and to any con- 
tinuing liability to the claimant on the 
judgment. 

(c) Conduct Affecting Claimant's Re- 
sponsibility. 

(1) Failure to Discover a Defective 
Condition. 

(i) A claimant is not required to have 
inspected the product for defective con- 
dition. Failure to have done so does 
not render the claimant responsible for 
the harm caused. 

(ii) Where a claimant using a product 
is injured by a defective condition that 
would have been apparent to an ordinary 
prudent person, the claimant's damages 
are subject to reduction according to the 
principles of subsections (a) and (b). 

(2) Using a Product With a Known 
Defective Condition. 

(i) A claimant who knew about a 
product's defective condition, but who 
voluntarily and unreasonably used the 
product, shall be held solely responsible 
for injuries caused by that defective 
condition. 

(ii) In circumstances where a claim- 
ant knew about a product's defective 
condition and voluntarily used the pro- 
duct, but where the reasonableness of 
doing so was uncertain, claimant's dama- 
ges shall be subject to reduction accord- 
ing to the principles of subsections (a) 
and (b). 



46 



(3) Misuse of a Product. 

(i) Where a claimant has misused a 
product by using it in a manner that 
the product seller could not have rea- 
sonably anticipated, the claimant's dama- 
ges shall be reduced according to the 
principles of subsections (a) and (b). 

(ii) Where the injury would not have 
occurred but for the misuse defined in 
subsection (3)(i), the product is not 
defective for purposes of liability under 
this Act. 



SEC. 112. MULTIPLE DEFENDANTS: 
CONTRIBUTION AND IMPLIED INDEMNITY 



(a) Rights of contribution and implied 
indemnity among multiple defendants 
shall be determined by reference to the 
principles of Section 111 (a & b). 

(b) If the proportionate responsibility 
of the parties to a claim for contri- 
bution has been established previously 
by the court, as provided in Section 111, 
a party paying more than its share of the 
obligation, upon motion, may recover 
judgment for contribution. 

(c) If the proportionate responsibility 
of the parties to the claim for contri- 
bution has not been established by the 
court, contribution may be enforced in 
a separate action, whether or not a 
judgment has been rendered against 
either the person seeking contribution 
or the person from whom contribution 
is being sought. 

(d) Contribution is available to a 
person who enters into a settlement 
with a claimant only: (1) if the liabili- 
ty of the person against whom contri- 
bution is sought has been extinguished, 
and (2) to the extent that the amount 
paid in settlement was reasonable. 

(e) If a judgment has been rendered, 
the action for contribution must be 
brought within one (1) year after the 
judgment becomes final. If no judgment 
has been rendered, the person bringing 
the action for contribution either must 
have: (1) discharged by payment the 
common liability within the period of 
the statute of limitations or repose 



applicable to the claimant's right of 
action against him and commenced the 
action for contribution within one year 
after payment, or (2) agreed while action 
was pending to discharge the common 
liability and, within one year after the 
agreement, have paid the liability and 
brought an action for contribution. 



SEC. 113. THE RELATIONSHIP BETWEEN PRODUCT 
LIABILITY AND WORKER COMPENSATION 

In the case of any claim brought 
under this Act by or on behalf of a 
person who has been or will be com- 
pensated for injuries under a state worker 
compensation law, where an employer's 
failure to comply with any statutory 
or common law duty relating to work- 
place safety contributed to the claimant's 
injuries, the employer shall be subject to 
a contribution claim as provided in 
Section 112 of this Act for a sum not 
to exceed the amount of the worker 
compensation lien. 



SEC 114. THE INDIVIDUAL RESPONSIBILITY OF 

PRODUCT SELLERS OTHER THAN 

MANUFACTURERS AS COMPARED TO OTHER 

PRODUCT SELLERS 



(a) Manufacturers shall be responsible 
for defective conditions in their products 
according to the provisions of this Act. 
In the absence of express warrantees to 
the contrary, other product sellers shall 
not be subject to liability in circumstances 
where they do not have a reasonable 
opportunity to inspect the product in a 
manner which would or should, in the 
exercise of reasonable care, reveal the 
existence of the defective condition. 

(b) The duty limitation of subsection 
(a) shall not apply, however, if: 

(1) The manufacturer is not subject 
to service of process in the claimant's 
own state; 

(2) The manufacturer has been judi- 
cially declared insolvent; 

(3) The court determines that the 
claimant would have appreciable dif- 



147 



ficulty enforcing a judgment against the 
product manufacturer. 



SEC 115. SANCTIONS AGAINST THE BRINGING 
OF FRIVOLOUS CLAIMS AND DEFENSES 

(a) After final judgment has been 
entered under this Act, either party, 
by motion, may seek reimbursement for 
reasonable attorneys' fees and other costs 
that would not have been expended but 
for the fact that the opposing party 
pursued a claim or defense that was 
frivolous. 

(b) For the purposes of this Act, a 
claim or defense is considered frivolous 
if the court determines that it was without 
any reasonable legal or factual basis. 

(c) If the court decides in favor of a 
party seeking redress under this section, 
it shall do so on the basis of clear 
and convincing evidence. In all motions 
under this section, the court shall make 
and publish its findings of fact. 

(d) The motion provided for in sub- 
section (a) may be filed and the claim 
assessed against the person who was 
responsible for the frivolous nature of 
the claim or defense. 

(e) In situations where a claimant 
has been represented on a contingent 
fee basis and no legal costs have been 
or will be incurred by that claimant, the 
attorney for claimant may recover rea- 
sonable attorneys' fees based on the 
amount of time expended in opposing 
a frivolous defense. 

(f) Claims for damages under this 
section shall not include expenses of 
persons not parties to the action. 



SEC 116. ARBITRATION 

(a) Applicability. 

In any claim brought under this Act 
where the amount in dispute is less 
than $30,000, exclusive of interest and 
costs, and the court determines in its 
discretion that any non-monetary claims 
are insubstantial, either party may by 



a motion institute a pre-trial arbitration 
proceeding. 

(b) Rules Governing. 

(1) The substantive rules of a Sec- 
tion 116 arbitration proceeding shall 
be those contained in this Act as well 
as those in applicable state law. 

(2) The procedural rules of a Section 
1 16 arbitration proceeding shall be those 
contained in this section. If this section 
does not address a particular issue, 
guidance may be obtained from the 
Uniform Arbitration Act. 

(3) A legislatively designated state 
agency may formulate additional pro- 
cedural rules under this Act. 

(c) Arbitrators. 

(1) Unless the parties agree otherwise, 
the arbitration shall be conducted by 
three persons, one of whom shall be either 
an active member of the state bar or a 
retired judge of a court of record in the 
state, one shall be an individual who 
possesses expertise in the subject matter 
area that is in dispute, and one shall be 
a lay person. 

(2) Arbitrators shall be selected in 
accordance with applicable state law in 
a manner which will assure fairness and 
lack of bias. 

(d) Arbitrators' Powers. 

(1) Arbitrators to whom claims are 
referred pursuant to Section 116 shall 
have the power within the territorial 
jurisdiction of the court, to conduct 
arbitration hearings and make awards 
consistent with the provisions of this 
Act. 

(2) State laws applicable to subpoenas 
for attendance of witnesses and the 
production of documentary evidence 
shall apply in procedures conducted 
under this chapter. Arbitrators shall have 
the power to administer oaths and affir- 
mations. 

(e) Commencement. 

The arbitration hearings shall com- 
mence not later than 30 days after the 
claim is referred to arbitration, unless 
for good cause shown the court shall 
extend the period. Hearings shall be 



148 



concluded promptly. The court may 
order the time and places of the arbi- 
tration. 

(f) Evidence. 

(1) The Federal Rules of Evidence 
[or designated state evidence code] may 
be used as guides to the admissibility 
of evidence in an arbitration hearing. 

(2) Strict adherence to the rules of 
evidence, apart from relevant state rules 
of privileges, is not required. 

(g) Transcript of Proceeding. 

A party may have a recording and 
transcript made of the arbitration hearing 
at its own expense. A party that has had a 
transcript or tape recording made shall 
furnish a copy of the transcript or 
tape recording at cost to any other 
party upon request. 

(h) Arbitration Award and Judgment. 

The arbitration award shall be filed 
with the court promptly after the hearing 
is concluded and shall be entered as 
the judgment of the court after the time 
for requesting a trial de novo has expired, 
unless a party demands a trial de novo 
before the court pursuant to subsection 
(i). The judgment so entered shall be 
subject to the same provisions of law, 
and shall have the same force and 
effect as a judgment of the court in 
a civil action, except that it shall not 
be subject to appeal. 

(i) Trial De Novo. 

(1) Within 20 days after the filing of 
an arbitration award with the court, any 
party may demand a trial de novo in 
that court. 

(2) Upon demand for a trial de novo, 
the action shall be placed on the calendar 
of the court and treated for all purposes 
as if it had not been referred to arbitra- 
tion. Any right of trial by jury that a 
party would otherwise have shall be 
preserved inviolate. 

(3) At the trial de novo, the court 
shall not admit evidence that there had 
been an arbitration proceeding, the 
nature or amount of the award, or any 
matter concerning the conduct of the 
arbitration proceeding, except that the 
testimony given at the arbitration hearing 



may be used for impeachment purposes 
at a trial de novo. 

(4) A party who has demanded a 
trial de novo but fails to obtain a 
judgment in the trial court, exclusive 
of interest and cost, more favorable than 
the arbitration award, shall be assessed 
the cost of the arbitration proceeding, 
including the amount of the arbitration 
fees, and — 

(i) If this party is a claimant and the 
arbitration award is in its favor, the 
party shall pay to the court an amount 
equivalent to interest on the arbitration 
award from the time it was filed; or 

(ii) If this party is a product seller, it 
shall pay interest to the claimant on 
the arbitration award from the time it 
was filed. 

SEC. 117. EXPERT TESTIMONY 

(a) Appointment. 

The court may on its own motion or 
on the motion of any party enter an 
order to show cause why expert wit- 
nesses should not be appointed, and 
may request the parties to submit nomi- 
nations. The court may appoint any 
expert witnesses agreed upon by the 
parties, and may appoint witnesses of its 
own selection. An expert witness shall not 
be appointed by the court unless he or 
she consents to act. An expert witness 
appointed by the court shall be informed 
of his or her duties in writing, a copy 
of which shall be filed with the clerk, 
or at a conference in which the parties 
shall have opportunity to participate. 
An expert witness so appointed shall 
advise the parties of any findings; shall 
be available for deposition by any party; 
and may be called to testify by the court 
or any party. The court appointed expert 
witness shall be subject to cross-examina- 
tion by each party, including a party 
calling that expert as a witness. 

(b) Compensation. 

(1) Expert witnesses appointed by the 
court are entitled to reasonable compen- 
sation in whatever amount the court may 
allow. The court, in its discretion, may 



149 



tax the costs of such expert on one 
party or apportion them between both 
parties in the same manner as other 
costs. 

(2) In exercising this discretion, the 
court may consider: 

(i) Which party won the case; 

(ii) Whether the amount of damages 
recovered in the action bore a reasonable 
relationship to the amount sought by the 
claimant or conceded to be appropriate 
by the product seller. 

(c) Disclosure of Appointment. 

In the exercise of its discretion, the 
court may authorize disclosure to the 
jury of the fact that the court has 
appointed the expert witness. 

(d) Parties' Experts of Own Selection. 
Nothing in this section limits the 

parties in calling expert witnesses of 
their own selection. 

(e) Pre-Trial Evaluation of Experts. 

The court in its discretion may con- 
duct a hearing to determine the quali- 
fication of proposed expert witnesses. 
The court may order a hearing on its 
own motion or on the motion of either 
party. 

(1) Need for Pre-Trial Evaluation. 

In determining whether to grant such 
a motion, the court shall consider: 

(i) The complexity of the issues in 
the case; and 

(ii) Whether the hearing would deter 
the presentation of witnesses who are 
not qualified as experts on the specific 
issues. 

(2) Factors in Evaluation. 

If the court decides to hold such a 
hearing, it shall consider: 

(i) The scope of the proposed witness' 
background and skills; 

(ii) The formal and self-education the 
proposed witness has undertaken rele- 
vant to the instant case or similar cases; 
and 

(iii) The proposed witness' potential 
bias. 

(3) Findings of Fact. 

In making a determination that a 
proposed expert witness is or is not 



qualified, the court shall state its findings 
of fact. 

SEC. 118. NON-PECUNIARY DAMAGES 

(a) Non-pecuniary damages, including 
"pain and suffering," shall be determined 
by the trier of fact. The court shall 
have the power to review such damage 
awards. 

(b) In cases where the claimant has 
not suffered permanent serious disfig- 
urement, permanent impairment of 
bodily function, or permanent mental 
illness as a result of the product-related 
harm, non-pecuniary damages shall be 
limited to $25,000. 



SEC. 119. THE COLLATERAL SOURCE RULE 

In any claim brought under this Act, 
the claimant's recovery shall be dimin- 
ished by any amount he or she has 
received or will receive in compensation 
for the same damages from a public 
source. This provision shall also apply 
to parties who may be subrogated to the 
claimant's rights under this Act. 



SEC 120. PUNITIVE DAMAGES 

(a) Punitive damages may be awarded 
if the claimant shows by clear and 
convincing evidence that the harm suf- 
fered was the result of the product 
seller's reckless disregard for the safety 
of product users, consumers, or by- 
standers who might be injured by the 
product. 

(b) If the trier of fact determines that 
punitive damages should be awarded, the 
court shall determine the amount of those 
damages. In making this determination, 
the court shall consider: 

(1) The likelihood at the time of 
manufacture that a serious harm would 
arise from the product seller's miscon- 
duct; 

(2) The degree of the product seller's 
awareness of that likelihood; 

(3) The profitability of the misconduct 



150 



to the product seller; 

(4) The duration of the misconduct 
and any concealment of it by the product 
seller; 

(5) The attitude and conduct of the 
product seller upon discovery of the 
misconduct; 

(6) The financial condition of the 
product seller; and 

(7) The total effect of other punish- 
ment imposed or likely to be imposed 
upon the product seller as a result of 



the misconduct, including punitive 
damage awards to persons similarly sit- 
uated to claimant and the severity of 
criminal penalties to which the product 
seller has been or may be subjected. 



SEC. 121. EFFECTIVE DATE 

This Act shall be effective with regard 
to all claims accruing on or after Septem- 
ber 1, 1979. 



APPENDIX 3 



Strasbourg Convention on Products Liability In Regard To 
Personal Injury and Death 

Preamble 

The member States of the Council of Europe, signatory hereto; 

Considering that the aim of the Council of Europe is to achieve a greater 
unity between its Members; 

Considering the development of case law in the majority of member 
States extending liability of producers prompted by a desire to protect 
consumers taking into account the new production techniques and marketing 
and sales methods; 

Desiring to ensure better protection of the public and, at the same time, to 
take producers' legitimate interests into account; 

Considering that priority should be given to compensation for personal 
injury and death; 

Aware of the importance of introducing special rules on the liability of 
producers at European level; 

Have agreed as follows: 

Article 1 

1. Each Contracting State shall make its national law conform with the 
provisions of this Convention not later than the date of the entry into 
force of the Convention in respect of that State. 

2. Each Contracting State shall communicate to the Secretary General of 
the Council of Europe, not later than the date of the entry into force 
of the Convention in respect of that State, any text adopted or a statement 
of the contents of the existing law which it relies on to implement the 
Convention. 

Article 2 

For the purpose of this Convention: 

a. the term "product" indicates all movables, natural or industrial, 
whether raw or manufactured, even though incorporated into another 
movable or into an immovable; 

b. the term "producer" indicates the manufacturers of finished products 
or of component parts and the producers of natural products; 

c. a product has a "defect" when it does not provide the safety which 
a person is entitled to expect, having regard to all the circumstances 
including the presentation of the product; 

d. a product has been "put into circulation" when the producer has 
delivered it to another person. 

[151] 



152 



Article 3 



1. The producer shall be liable to pay compensation for death or personal 
injuries caused by a defect in his product. 

2. Any person who has imported a product for putting it into circulation in 
the course of a business and any person who has presented a product as his 
product by causing his name, trademark or other distinguishing feature to 
appear on the product, shall be deemed to be producers for the purpose of this 
Convention and shall be liable as such. 

3. When the product does not indicate the identity of any of the persons liable 
under paragraphs 1 and 2 of this Article, each supplier shall be deemed to be a 
producer for the purpose of this Convention and liable as such, unless he 
discloses, within a reasonable time, at the request of the claimant, the identity 
of the producer or of the person who supplied him with the product. The same 
shall apply, in the case of an imported product, if this product does not 
indicate the identity of the importer referred to in paragraph 2, even if 
the name of the producer is indicated. 

4. In the case of damage caused by a defect in a product incorporated into 
another product, the producer of the incorporated product and the producer 
incorporating that product shall be liable. 

5. Where several persons are liable under this Convention for the same 
damage, each shall be liable in full (in solidum). 



Article 4 

1. If the injured person or the person entitled to claim compensation has by 
his own fault contributed to the damage, the compensation may be reduced or 
disallowed having regard to all the circumstances. 

2. The same shall apply if a person, for whom the injured person or the person 
entitled to claim compensation is responsible under national law, has 
contributed to the damage by his fault. 



Article 5 

1. A producer shall not be liable under this Convention if he proves: 

a. that the product has not been put into circulation by him; or 

b. that, having regard to the circumstances, it is probable that the 
defect which caused the damage did not exist at the time when the 
product was put into circulation by him or that this defect came into 
being afterwards; or 

c. that the product was neither manufactured for sale, hire or any other 
form of distribution for the economic purposes of the producer nor 
manufactured or distributed in the course of his business. 

2. The liability of a producer shall not be reduced when the damage is caused 
both by a defect in the product and by the act or omission of a third party. 



153 



Article 6 



Proceedings for the recovery of the damages shall be subject to a limitation 
period of three years from the day the claimant became aware or should 
reasonably have been aware of the damage, the defect and the identity of the 
producer. 

Article 7 

The right to compensation under this Convention against a producer shall be 
extinguished if an action is not brought within ten years from the date on 
which the producer put into circulation the individual product which caused 
the damage. 

Article 8 

The liability of the producer under this Convention cannot be excluded or 
limited by any exemption or exoneration clause. 

Article 9 

This Convention shall not apply to: 

a. the liability of producers inter se and their rights of recourse against 
third parties; 

b. nuclear damage. 

Article 10 

Contracting States shall not adopt rules derogating from this Convention, 
even if these rules are more favourable to the victim. 

Article 11 

States may replace the liability of the producer, in a principal or subsidiary 
way, wholly or in part, in a general way, or for certain risks only, by the 
liability of a guarantee fund or other form of collective guarantee, provided 
that the victim shall receive protection at least equivalent to the protection he 
would have had under the liability scheme provided for by this Convention. 

Article 12 

This Convention shall not affect any rights which a person suffering damage 
may have according to the ordinary rules of the law of contractual and extra- 
contractual liability including any rules concerning the duties of a seller who 
sells goods in the course of his business. 

Article 13 

1. This Convention shall be open to signature by the member States of the 
Council of Europe. It shall be subject to ratification, acceptance or approval. 
Instruments of ratification, acceptance or approval shall be deposited with the 
Secretary General of the Council of Europe. 



154 

2. This Convention shall enter into force on the first day of the month 
following the expiration of a period of six months after the date of deposit of 
the third instrument of ratification, acceptance or approval. 

3. In respect of a signatory State ratifying, accepting or approving 
subsequently, the Convention shall come into force on the first day of the 
month following the expiration of a period of six months after the date of the 
deposit of its instrument of ratification, acceptance or approval. 

Article 14 

1. After the entry into force of this Convention, the Committee of Ministers 
of the Council of Europe may invite any non-member State to accede thereto. 

2. Such accession shall be effected by depositing with the Secretary General 
of the Council of Europe an instrument of accession which shall take effect on 
the first day of the month following the expiration of a period of six months 
after the date of its deposit. 

Article 15 

1 . Any State may, at the time of signature or when depositing its instrument 
of ratification, acceptance, approval or accession, specify the territory or 
territories to which this Convention shall apply. 

2. Any State may, when depositing its instrument of ratification, acceptance, 
approval or accession or at any later date, by declaration addressed to the 
Secretary General of the Council of Europe, extend this Convention to any 
other territory or territories specified in the declaration and for whose inter- 
national relations it is responsible or on whose behalf it is authorised to give 
undertakings. 

3. Any declaration made in pursuance of the preceding paragraph may, in 
respect of any territory mentioned in such declaration, be withdrawn by 
means of a notification addressed to the Secretary General of the Council of 
Europe. Such withdrawal shall take effect on the first day of the month 
following the expiration of a period of six months after the date of receipt by 
the Secretary General of the Council of Europe of the declaration of 
withdrawal. 

Article 16 

1. Any State may, at the time of signature or when depositing its instrument 
of ratification, acceptance, approval or accession, or at any later date, by 
notification addressed to the Secretary General of the Council of Europe, 
declare that, in pursuance of an international agreement to which it is a Party 
it will not consider imports from one or more specified States also Parties to 
that agreement as imports for the purpose of paragraphs 2 and 3 of Article 3; 
in this case the person importing the product into any of these States from 
another State shall be deemed to be an importer for all the States Parties to 
this agreement. 

2. Any declaration made in pursuance of the preceding paragraph may be 
withdrawn by means of a notification addressed to the Secretary General of 
the Council of Europe. Such withdrawal shall take effect the first day of the 
month following the expiration of a period of one month after the date of 



155 

receipt by the Secretary General of the Council of Europe of the declaration of 
withdrawal. 

Article 17 

1. No reservation shall be made to the provisions of this Convention except 
those mentioned in the Annex to this Convention. 

2. The Contracting State which has made one of the reservations mentioned 
in the Annex to this Convention may withdraw it by means of a declaration 
addressed to the Secretary General of the Council of Europe which shall 
become effective the first day of the month following the expiration of a 
period of one month after the date of its receipt by the Secretary General. 

Article 18 

1. Any Contracting State may, in so far as it is concerned, denounce this 
Convention by means of a notification addressed to the Secretary General of 
the Council of Europe. 

2. Such denunciation shall take effect on the first day of the month following 
the expiration of a period of six months after the date of receipt by the 
Secretary General of such notification. 

Article 19 

The Secretary General of the Council of Europe shall notify the member 
States of the Council and any State which has acceded to this Convention of: 

a. any signature; 

b. any deposit of an instrument of ratification, acceptance, approval 
or accession; 

c. any date of entry into force of this Convention in accordance with 
Article 13 thereof; 

d. any reservation made in pursuance of the provisions of Article 17, 
paragraph 1; 

e. withdrawal of any reservation carried out in pursuance of the 
provisions of Article 17, paragraph 2; 

/ any communication or notification received in pursuance of the 
provisions of Article 1, paragraph 2, Article 15, paragraphs 2 and 3 
and Article 16, paragraphs 1 and 2; 

g. any notification received in pursuance of the provisions of Article 18 
and the date on which denunciation takes effect. 



In witness whereof, the undersigned, being duly authorised thereto, have 
signed this Convention. 

Done at Strasbourg this 27th day of January 1977, in English and in 
French, both texts being equally authoritative, in a single copy which shall 
remain deposited in the archives of the Council of Europe. The Secretary 
General of the Council of Europe shall transmit certified copies of each of the 
signatory and acceding States. 



APPENDIX 4 



European Economic Community Draft Directive 



Proposal for a Council Directive relating to the Approximation 

of the Laws, Regulations and Administrative Provisions of the 

Member States concerning Liability for Defective Products 



(Presented by the Commission to the Council on 9 September 1976) 



The Council of the European Communities, 

Having regard to the Treaty establishing the European Economic 
Community, and in particular Article 100 thereof, 

Having regard to the proposal from the Commission, 

Having regard to the Opinion of the European Parliament, 

Having regard to the Opinion of the Economic and Social Committee, 

Whereas the approximation of the laws of the Member States concerning 
the liability of the producer for damage caused by the defectiveness of his 
products is necessary, because the divergencies may distort competition 
in the common market; whereas the rules on liability which vary in 
severity lead to differing costs for industry in the various Member States 
and in particular for producers in different Member States who are in 
competition with one another; 

Whereas approximation is also necessary because the free movement of 
goods within the common market may be influenced by divergencies in 
laws; whereas decisions as to where goods are sold should be based on 
economic and not legal considerations; 

Whereas, lastly, approximation is necessary because the consumer is 
protected against damage caused to his health and property by a defective 
product either in differing degrees or in most cases not at all, according to 
the conditions which govern the liability of the producer under the 
individual laws of Member States; whereas to this extent therefore a 
common market for consumers does not as yet exist; 

Whereas an equal and adequate protection of the consumer can be 
achieved only through the introduction of liability irrespective of fault on 
the part of the producer of the article which was defective and caused the 
damage; whereas any other type of liability imposes on the injured party 
almost insurmountable difficulties of proof or does not cover the 
important causes of damage; 

Whereas liability on the part of the producer irrespective of fault ensures 
an appropriate solution to this problem in an age of increasing 
technicality, because he can include the expenditure which he incurs to 

[157] 



158 

cover this liability in his production costs when calculating the price and 
therefore divide it among all consumers of products which are of the same 
type but free from defects; 

Whereas liability cannot be excluded for those products which at the time 
when the producer put them into circulation could not have been 
regarded as defective according to the state of science and technology 
("development risks"), since otherwise the consumer would be subjected 
without protection to the risk that the defectiveness of a product is 
discovered only during use; 

Whereas liability should extend only to moveables; whereas in the 
interest of the consumer it nevertheless should cover all types of 
moveables, including therefore agricultural produce and craft products; 
whereas it should also apply to moveables which are used in the 
construction of buildings or are installed in buildings; 

Whereas the protection of the consumer requires that all producers 
involved in the production process should be made liable, in so far as 
their finished product or component part or any raw material supplied by 
them was defective; whereas for the same reason liability should extend 
to persons who market a product bearing their name, trademark or other 
distinguishing feature, to dealers who do not reveal the identity of 
producers known only to them, and to importers of products 
manufactured outside the European Community; 

Whereas where several persons are liable, the protection of the consumer 
requires that the injured person should be able to sue each one for full 
compensation for the damage, but any right of recourse enjoyed in 
certain circumstances against other producers by the person paying such 
compensation shall be governed by the laws of the individual Member 
States; 

Whereas to protect the person and property of the consumer, it is 
necessary, in determining the defectiveness of a product, to concentrate 
not on the fact that it is unfit for use but on the fact that it is unsafe; 
whereas this can only be a question of safety which objectively one is 
entitled to expect; 

Whereas the producer is not liable where the defective product was put 
into circulation against his will or where it became defective only after he 
had put it into circulation and accordingly the defect did not originate in 
the production process; the presumption nevertheless is to the contrary 
unless he furnishes proof as to the exonerating circumstances; 

Whereas in order to protect both the health and the private property of 
the consumer, damage to property is included as damage for which 
compensation is payable in addition to compensation for death and 
personal injury; whereas compensation for damage to property should 
nevertheless be limited to goods which are not used for commercial 
purposes; 

Whereas compensation for damage caused in the business sector remains 
to be governed by the laws of the individual States; 

Whereas the assessment of whether there exists a causal connection 



159 

between the defect and the damage in any particular case is left to the law 
of each Member State; 

Whereas since the liability of the producer is made independent of fault, it 
is necessary to limit the amount of liability; whereas unlimited liability 
means that the risk of damage cannot be calculated and can be insured 
against only at high cost; 

Whereas since the possible extent of damage usually differs according to 
whether it is personal injury or damage to property, different limits 
should be imposed on the amount of liability; whereas in the case of 
personal injury the need for the damage to be calculable is met where an 
overall limit to liability is provided for; whereas the stipulated limit of 25 
million European units of account covers most of the mass claims and 
provides in individual cases, which in practice are the most important, for 
unlimited liability; whereas in the case of the extremely rare mass claims 
which together exceed this sum and may therefore be classed as major 
disasters, there might be under certain circumstances assistance from the 
public; 

Whereas in the much more frequent cases of damage to property, 
however, it is appropriate to provide for a limitation of liability in any 
particular case, since only through such a limitation can the liability of 
the producer be calculated; whereas the maximum amount is based on an 
estimated average of private assets in a typical case; whereas since this 
private property includes moveable and immoveable property, although 
the two are usually by the nature of things of different value, different 
amounts of liability should be provided for; 

Whereas the limitation of compensation for damage to property, to 
damage to or destruction of private assets, avoids the danger that this 
liability becomes limitless; whereas it is therefore not necessary to 
provide for an overall limit in addition to the limits to liability in 
individual cases; 

Whereas by Decision 3289/75/ECSC of 18 December 1975 1 the 
Commission, with the assent of the Council, defined a European unit of 
account which reflects the average variation in value of the currencies of 
the Member States of the Community; 

Whereas the movement recorded in the economic and monetary situation 
in the Community justifies a periodical review of the ceilings fixed by the 
directive; 

Whereas a uniform period of limitation for the bringing of action for 
compensation in respect of the damage caused is in the interest both of 
consumers and of industry; it appeared appropriate to provide for a three 
year period; 

Whereas since products age in the course of time, higher safety standards 
are developed and the state of science and technology progresses, it 



'OJ L 327 of 19.12.1975. Also the Council Decision of 21.4.1975 on the definition and 
conversion of the European unit of account used for expressing the amounts of aid 
mentioned in Article 42 of the ACP-EEC Convention of Lome, OJ L 104 of 24.4.1975. 



160 

would be unreasonable to make the producer liable for an unlimited 
period for the defectiveness of his products; whereas therefore the 
liability should be limited to a reasonable length of time; whereas this 
period of time cannot be restricted or interrupted under laws of the 
Member States, whereas this is without prejudice to claims pending at 
law; 

Whereas to achieve balanced and adequate protection of consumers no 
derogation as regards the liability of the producer should be permitted; 

Whereas under the laws of the Member States an injured party may have 
a claim for damages based on grounds other than those provided for in 
this directive; whereas since these provisions also serve to attain the 
objective of an adequate protection of consumers, they remain 
unaffected; 

Whereas since liability for nuclear damage is already subject in all 
Member States to adequate special rules, it has been possible to exclude 
damage of this type from the scope of the directive, 

Has adopted this Directive: 

Article 1 

The producer of an article shall be liable for damage caused by a defect in the 
article, whether or not he knew or could have known of the defect. 

The producer shall be liable even if the article could not have been regarded as 
defective in the light of the scientific and technological development at the 
time when he put the article into circulation. 

Article 2 

"Producer" means the producer of the finished article, the producer of any 
material or component, and any person who, by putting his name, trademark, 
or other distinguishing feature on the article, represents himself as its 
producer. Where the producer of the article cannot be identified, each supplier 
of the article shall be treated as its producer unless he informs the injured 
person, within a reasonable time, of the identity of the producer or of the 
person who supplied him with the article. 

Any person who imports into the European Community an article for resale 
or similar purpose shall be treated as its producer. 

Article 3 

Where two or more persons are liable in respect of the same damage, they shall 
be liable jointly and severally. 

Article 4 

A product is defective when it does not provide for persons or property the 
safety which a person is entitled to expect. 

Article 5 

The producer shall not be liable if he proves that he did not put the article into 
circulation or that it was not defective when he put it into circulation. 



161 

Article 6 

For the purpose of Article 1 "damage" means: 

(a) death or personal injuries; 

(b) damage to or destruction of any item of property other than the 
defective article itself where the item of property 

(i) is of a type ordinarily acquired for private use or consumption; 
and 

(ii) was not acquired or used by the claimant for the purpose of his 
trade, business or profession. 

Article 7 

The total liability of the producer provided for in this directive for all personal 
injuries caused by identical articles having the same defect shall be limited to 
25 million European units of account (EUA). 

The liability of the producer provided for by this directive in respect of 

damage to property shall be limited per capita 

— in the case of moveable property to 15 000 EUA, and 

— in the case of immoveable property to 50 000 EUA. 

The European unit of account (EUA) is as defined by Commission Decision 
3289/75/ECSC of 18 December 1975. 

The equivalent in national currency shall be determined by applying the 
conversion rate prevailing on the day preceding the date on which the amount 
of compensation is finally fixed. 

The Council shall, on a proposal from the Commission, examine every three 
years and, if necessary, revise the amounts specified in EUA in this Article, 
having regard to economic and monetary movement in the Community. 

Article 8 

A limitation period of three years shall apply to proceedings for the recovery 
of damages as provided for in this directive. The limitation period shall begin 
to run on the day the injured person became aware, or should reasonably have 
become aware of the damage, the defect and the identity of the producer. 

The laws of Member States regulating suspension or interruption of the 
period shall not be affected by this directive. 

Article 9 

The liability of a producer shall be extinguished upon the expiry often years 
from the end of the calendar year in which the defective article was put into 
circulation by the producer, unless the injured person has in the meantime 
instituted proceedings against the producer. 

Article 10 

Liability as provided for in this directive may not be excluded or limited. 



162 



Article 11 



Claims in respect of injury or damage caused by defective articles based on 
grounds other than that provided for in this directive shall not be affected. 

Article 12 

This directive does not apply to injury or damage arising from nuclear 
accidents. 

Article 13 

Member States shall bring into force the provisions necessary to comply with 
this directive within eighteen months and shall forthwith inform the 
Commission thereof. 

Article 14 

Member States shall communicate to the Commission the text of the main 
provisions of internal law which they subsequently adopt in the field covered 
by this directive. 

Article 15 

This directive is addressed to the Member States. 

Explanatory Memorandum 

1. Defective products can lead to extensive personal injuries to, or even the 
death of, anyone using or consuming the product. They may cause damage to 
property and that damage may be seriously detrimental to economic interests. 
The legal position of the injured person varies under the legal systems of the 
Member States. Whereas some laws provide for compensation in respect of 
this damage, in so far as they impose liability on the person who produced the 
defective product, even where fault does not exist or cannot be proved, others 
require the injured person to prove fault on the part of the producer. It is 
extremely difficult or even impossible to provide this proof. Under these laws, 
the injured person then has to bear the damage alone. He is unprotected in 
such a case. 

These divergencies in laws directly affect the establishment or functioning 
of the common market in different ways, and must therefore be removed. 2 

They may distort competition on the common market. Liability rules 
imposed on producers of defective products which vary in strictness lead to 
differences in costs for the economies of the various Member States and in 
particular for producers in various Member States who are in competition 
with each other. 

Where a producer is liable irrespective of fault, the damage suffered by the 
user of the defective article is passed on to him. The compensation paid forms 
part of the general production costs of the product. This increase in costs is 
reflected in the pricing. The damage is thus, from an economic point of view, 



2 Article 100 of the EEC Treaty. 



163 

spread over all the products which are free from defects. Before any claims are 
made, the producer will make allowance for possible compensation payments, 
and form a reserve or attempt to cover himself by effecting insurance. Where, 
however, the producer is liable only where he is guilty of fault to be proved by 
the injured person the same costs do not exist. The difficulty or indeed 
impossibility of supplying proof usually safeguards the producer from claims. 

These differences in costs lead to differing situations with regard to 
competition. The existence of equal conditions of competition for all 
producers in the Community is a precondition for the establishment and 
functioning of a common market. Differences in costs leading to unequal 
conditions of competition must be removed by approximation of the differing 
liability provisions. 

Differences in laws can also affect the free movement of goods within the 
Community. 



APPENDIX 5 



Hague Convention on The Law Applicable to Products Liability 



The States signatory to the present Convention. 

Desiring to establish common provisions on the law applicable, in 
international cases, to products liability, 

Have resolved to conclude a Convention to this effect and have agreed upon 
the following provisions — 

Article 1 

This Convention shall determine the law applicable to the liability of the 
manufacturers and other persons specified in Article 3 for damage caused by a 
product, including damage in consequence of a misdescription of the product 
or of a failure to give adequate notice of its qualities, its characteristics or its 
method of use. 

Where the property in, or the right to use, the product was transferred to the 
person suffering damage by the person claimed to be liable, the Convention 
shall not apply to their liability inter se. 

This Convention shall apply irrespective of the nature of the proceedings. 

Article 2 

For the purposes of this Convention — 

a. the word 'product' shall include natural and industrial products, whether 
raw or manufactured and whether movable or immovable; 

b. the word 'damage' shall mean injury to the person or damage to property 
as well as economic loss; however, damage to the product itself and the 
consequential economic loss shall be excluded unless associated with other 
damage; 

c. the word 'person' shall refer to a legal person as well as to a natural 
person. 

Article 3 

This Convention shall apply to the liability of the following persons — 

1. manufacturers of a finished product or of a component part; 

2. producers of a natural product; 

3. suppliers of a product; 

4. other persons, including repairers and warehousemen, in the com- 
mercial chain of preparation or distribution of a product. 

It shall also apply to the liability of the agents or employees of the persons 
specified above. 

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166 

Article 4 

The applicable law shall be the internal law of the State of the place of 
injury, if that State is also — 

a. the place of the habitual residence of the person directly suffering 
damage, or 

b. the principal place of business of the person claimed to be liable, or 

c. the place where the product was acquired by the person directly suffering 
damage. 

Article 5 

Notwithstanding the provisions of Article 4, the applicable law shall be the 
internal law of the State of the habitual residence of the person directly 
suffering damage, if that State is also — 

a. the principal place of business of the person claimed to be liable, or 

b. the place where the product was acquired by the person directly suffering 
damage. 

Article 6 

Where neither of the laws designated in Articles 4 and 5 applies, the 
applicable law shall be the internal law of the State of the principal place of 
business of the person claimed to be liable, unless the claimant bases his claim 
upon the internal law of the State of the place of injury. 

Article 7 

Neither the law of the State of the place of injury nor the law of the State of 
the habitual residence of the person directly suffering damage shall be 
applicable by virtue of Articles 4, 5 and 6 if the person claimed to be liable 
establishes that he could not reasonably have foreseen that the product or his 
own products of the same type would be made available in that State through 
commercial channels. 

Article 8 

The law applicable under this Convention shall determine, in particular — 

1. the basis and extent of liability; 

2. the grounds for exemption from liability, any limitation of liability and 
any division of liability; 

3. the kinds of damage for which compensation may be due; 

4. the form of compensation and its extent; 

5. the question whether a right to damages may be assigned or inherited; 

6. the persons who may claim damages in their own right; 

7. the liability of a principal for the acts of his agent or of an employer for 
the acts of his employee; 



167 

8. the burden of proof insofar as the rules of the applicable law in respect 
thereof pertain to the law of liability; 

9. rules of prescription and limitation, including rules relating to the 
commencement of a period of prescription or limitation, and the interruption 
and suspension of this period. 

Article 9 

The application of Articles 4, 5 and 6 shall not preclude consideration being 
given to the rules of conduct and safety prevailing in the State where the 
product was introduced into the market. 

Article 10 

The application of a law declared applicable under this Convention may be 
refused only where such application would be manifestly incompatible with 
public policy ('ordre public'). 

Article 11 

The application of the preceding Articles shall be independent of any 
requirement of reciprocity. The Convention shall be applied even if the 
applicable law is not that of a Contracting State. 

Article 12 

Where a State comprises several territorial units each of which has its own 
rules of law in respect of products liability, each territorial unit shall 
be considered as a State for the purposes of selecting the applicable law 
under this Convention. 

Article 13 

A State within which different territorial units have their own rules of 
law in respect of products liability shall not be bound to apply this Convention 
where a State with a unified system of law would not be bound to apply the 
law of another State by virtue of Articles 4 and 5 of this Convention. 

Article 14 

If a Contracting State has two or more territorial units which have their 
own rules of law in respect of products liability, it may, at the time of 
signature, ratification, acceptance, approval or accession, declare that this 
Convention shall extend to all its territorial units or only to one or more of 
them, and may modify its declaration by submitting another declaration at 
any time. 

These declarations shall be notified to the Ministry of Foreign Affairs of 
the Netherlands, and shall state expressly the territorial units to which the 
Convention applies. 

Article 15 

This Convention shall not prevail over other Conventions in special fields 



168 

to which the Contracting States are or may become Parties and which contain 
provisions concerning products liability. 

Article 16 

Any Contracting State may, at the time of signature, ratification, 
acceptance, approval or accession, reserve the right — 

1. not to apply the provisions of Article 8, subparagraph 9; 

2. not to apply this Convention to raw agricultural products. 
No other reservations shall be permitted. 

Any Contracting State may also when notifying an extension of the 
Convention in accordance with Article 19, make one or more of these 
reservations, with its effect limited to all or some of the territories 
mentioned in the extension. 

Any Contracting State may at any time withdraw a reservation it has made; 
the reservation shall cease to have effect on the first day of the third calendar 
month after notification of the withdrawal. 

Article 17 

This Convention shall be open for signature by the States which were 
Members of the Hague Conference on Private International Law at the time 
of its Twelfth Session. 

It shall be ratified, accepted or approved and the instruments of 
ratification, acceptance or approval shall be deposited with the Ministry 
of Foreign Affairs of the Netherlands. 

Article 18 

Any State which has become a Member of the Hague Conference on 
Private International Law after the date of its Twelfth Session, or which is 
a Member of the United Nations or of a specialized agency of that 
Organisation, or a Party to the Statute of the International Court of Justice 
may accede to this Convention after it has entered into force in accordance 
with Article 20. 

The instrument of accession shall be deposited with the Ministry of Foreign 
Affairs of the Netherlands. 



Article 19 

Any State may, at the time of signature, ratification, acceptance, approval 
or accession, declare that this Convention shall extend to all the territories 
for the international relations of which it is responsible, or to one or more of 
them. Such a declaration shall take effect on the date of entry into force 
of the Convention for the State concerned. 

At any time thereafter, such extensions shall be notified to the Ministry of 
Foreign Affairs of the Netherlands. 



169 

Article 20 

This Convention shall enter into force on the first day of the third calendar 
month after the deposit of the third instrument of ratification, acceptance or 
approval referred to in the second paragraph of Article 17. 

Thereafter the Convention shall enter into force 

— for each State ratifying, accepting or approving it subsequently, on the 
first day of the third calendar month after the deposit of its instrument 
of ratification, acceptance or approval; 

— for each acceding State, on the first day of the third calendar month 
after the deposit of its instrument of accession; 

— for a territory to which the Convention has been extended in conformity 
with Article 19, on the first day of the third calendar month after the 
notification referred to in that Article. 

Article 21 

This Convention shall remain in force for five years from the date of its 
entry into force in accordance with the first paragraph of Article 20, even 
for States which have ratified, accepted, approved or acceded to it 
subsequently. 

If there has been no denunciation, it shall be renewed tacitly every five 
years. 

Any denunciation shall be notified to the Ministry of Foreign Affairs of the 
Netherlands, at least six months before the expiry of the five year period. It 
may be limited to certain of the territories to which the Convention applies. 

The denunciation shall have effect only as regards the State which has 
notified it. The Convention shall remain in force for the other Contracting 
States. 

Article 22 

The Ministry of Foreign Affairs of the Netherlands shall notify the States 
Members of the Conference and the States which have acceded in accordance 
with Article 18, of the following — 

1. the signatures and ratifications, acceptances and approvals referred to 
in Article 17; 

2. the date on which this Convention enters into force in accordance with 
Article 20; 

3. the accession referred to in Article 18 and the dates on which they take 
effect; 

4. the extensions referred to in Article 19 and the dates on which they take 
effect; 

5. the reservations, withdrawals of reservations and declarations referred 
to in Articles 14, 16 and 19; 

6. the denunciations referred to in Article 21. 



170 

In witness whereof the undersigned, being duly authorised thereto, have 
signed this Convention. 

Done at The Hague, on the . . . day of ... 19 , in the English and 
French languages, both texts being equally authentic, in a single copy which 
shall be deposited in the archives of the Government of the Netherlands, and 
of which a certified copy shall be sent, through the diplomatic channel, to each 
of the States Members of the Hague Conference on Private International 
Law at the date of its Twelfth Session.