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REPORT

PRODUCTS LIABILITY

ONTARIO LAW REFORM COMMISSION

Ontario

Ministry of the 1979

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

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

(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

(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]

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

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

Part IV

Chapter 6 Economic and Insurance Aspects of Strict Liability . 69

1. The Economic Basis of Strict Liability 69

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

(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

(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

Page

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

and Liability Act, 1978 117

(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.

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

3A 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.

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

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

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

4 Ibid., at p. 599.

[7]

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

5Ibid., 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."

6The 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.

7See 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 retailers13 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).

nPack 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.

15Repair: 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.

lbOstash 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.

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 loquitur1* 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.

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.).
2lThere is now an English book by Miller and Lovell entitled Product Liability (1977), and

the phrase, products liability, is now in common English use.
nStennett 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.).
24Footnote 3, supra, at p. 599.

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.).

26For 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.).

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.
i4Dutton 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).

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

36For 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.

39A 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.

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 Act4i 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

40Risk 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.

42Footnote 12, supra.

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

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

44The 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).

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.).

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."

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 States61 — he is very likely
to succeed.

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

55/6/ d, at p. 101.

56In 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.).

57Footnote 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.

6lProsser, "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."

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

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

63See 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. . . .")

MSupra, at pp. 8-9.

65See Prosser, footnote 61, supra.

66Voluntary 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. . . ."

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. Fletcher6*
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.

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.).
12Shiffman 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.
7Wale v. Jennings Bros., [1938] 1 All E.R. 579 (C.A.).

14MacDonald 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.).
76See 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.

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:

7901der 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.

*2Heilbut, 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.

84A 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.

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 ACT87

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

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

87For 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.

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.).

90The 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.).

9lFollowing 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.

93Atiyah, 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.

94Atiyah 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.

96Atiyah, 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.).

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."

98A 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.

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

10lSee 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.).

102Footnote 90, supra, at p. 84.

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.

The famous case of Hadley v. Baxendale103 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. Perry101 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

l03Footnote 80, supra.

™Ibid.

105Section 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.
l06Footnote 92, supra.
l07Footnote 101, supra.

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

mSigurdson 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.).

iWHart 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.).

ll0See 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."

ulBradshaw 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.).

U2A.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.).

113The 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.).

ll4There 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.

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 Actul 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.

II7R.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.).

l20See 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.).

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.).

n2Rohson 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.).

i23Sodd 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.).

niIbid., at p. 818.

^kIbid., at p. 820.

[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.

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.).

4On 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]

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.

6See 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.).

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.

i0Supra, 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.

l2Law 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).

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

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.

]4Kasler 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.
2Ontario Law Reform Commission, Report on Consumer Warranties and Guarantees

in the Sale of Goods (1972).
3Footnote 1, supra, s. 11.
4Ibid, 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]

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

{0Supra, at pp. 33-36.

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

"Ibid., s. 2 (/).

l3American Law Institute, Restatement (Second) of Torts (1965), Appendix 1966. See
infra, at pp. 54-55.

l4Footnote 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.

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

l5Under 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.

17See 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.

l8New Brunswick Dept. of Justice, Law Reform Division, Third Report of the Consumer
Protection Project (1976), Vol. 1, at pp. 4-7.

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.

(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

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

(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

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.

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

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

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.

263rd 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.).

29Barnett 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.).
i20' 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.).

"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 Act34 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.

34Assemblee 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.

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/;40the National

i5The 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.
36Alta.: 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.
i7The Unfair Trade Practices Act, S.A. 1975, c. 33, s. 4(c) and (d).
3XS.C. 1970-71-72, c. 41.
39R.S.C. 1970, c. H-3.
40R.S.C. 1970, c. 26 (1st Supp.).

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

4IR.S.C. 1970, c. N-16.

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

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

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

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

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

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

48See 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.
49For a discussion of these cases, see Ballway, "Products Liability Based Upon Violation

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

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).
551975, No. 47.
561977, 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.

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

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

[51]

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.

4The 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].

5The 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).

6The 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.

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.

8See 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).

9Footnote 2, supra.

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

uIbid. Official Comment, Purposes: No. 1.

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
jurisdictions14 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,

12In 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.

I3lna 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.

I4CCH Products Liability Reports, para. 4070.

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

l6Prosser, "The Fall of the Citadel (Strict Liability to the Consumer)" (1965-66), 50 Minn. L.
Rev. 791.

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).

20Delaney 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.

23Michigan: 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).

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

*Infra, at pp. 83-85 ff.

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

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.

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

26See 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.
2xFootnote 2, supra, at p. 362, Comment j: Justifiable Reliance.
wSupra, at p. 55.

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

30In 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.

32Statements 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.

34The 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.

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

i6Ibid., 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.

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

i7Ibid., Volume II, Commentaries, at p. 623.

nSupra, at pp. 46-47.

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

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

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

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

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

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

46Law 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.
47Law Com. W.P. No. 64 (Joint Working Paper — Scottish Law Commission Memorandum

No. 20) (1975).
48Footnote 41, supra.
49Supra, at pp. 33-36.
50Law 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.
i2Ibid., para. 121, at pp. 35-36.

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.

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

55The "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.

56Ibid. 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.

5xFootnote 51, supra.

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

61 Footnote 59, supra, paras. 1004, 1068, at pp. 213, 226.
b2Ibid, para. 1531, at p. 319.
biIbid., para. 1236, at p. 263.
MIbid., Recommendations 133-53, at pp. 383-84.

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 197261 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 Canada71 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

65For 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.
66Ontario 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.
6XThe 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".)
69See, 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.
70See, 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.

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

72In 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.

73It 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.

14Supra, at pp. 51-54.

75The 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.

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

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

*°S.S. 1976-77, c. 15.

Xl Supra, at pp. 33-36.

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

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.

K2See footnotes 55 and 56, supra.
*}Supra, at pp. 52-53.

84For a general discussion of the Canadian legislation, see supra, at pp. 39-49.
K5See, 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.
MSupra, at pp. 53-54.
x7See Appendices 3 and 4.
88See Draft Bill, s. 3.

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 statement90
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).

91See Draft Bill, s. 4.

92Earlier 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."
2Law Com. No. 82 (Scot. Law Com. No. 45), Liability for Defective Products (1977),

para. 23, at pp. 6-7.
3Fleming 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]

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.

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

69 Yale L.J. 1099, at p. 1119.
5See 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.
6The 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.

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

8The 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.

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

9There 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.
l2Footnote 8, supra.

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 loss21 suggests that

13United 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.

20Ibid., 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.

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 Office25 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.

22It 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.

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

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

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

26Insurance 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.

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

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

28Footnote 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.
30See, however, Lindal v. Lindal, footnote 21, supra.
31See 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.
33For a brief discussion of this point, see Linden, Canadian Tort Law (1977), at pp. 49-51.

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 fee34 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

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

35A 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.

3bThe 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".

37This 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.

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
states44 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).

39From 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

40We 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.

4lWe 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.

420'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.

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

44See 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.

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.

46See 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.
3S.N.B. 1978, c. C-18.1, discussed supra, at pp. 41-44.

[79]

Act extend only to safety related defects. The proposed amendments to the
Quebec Civil Code4 and the recent Quebec Consumer Protection Act5
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.

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

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

not yet been proclaimed in force.
6S.S. 1976-77, c. 15, discussed supra, at pp. 39-41.
7Law 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).
9See Draft Bill, s. 1(1 )(a).

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).

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 Canada14 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

nIbid., para. 121, at p. 35.

l3For a discussion of the relationship of the proposed principle of strict liability to the

existing law, see infra, at pp. 104-05.
l4Supra, at p. 35.
liInfra, at pp. 104-05.
l6See Draft Bill, s. 3(2).

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 Goodsx% 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

llSeely 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).

lxOntario 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.

20Supra, at p. 26.

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 Act22 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 concluded23

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

ss. 5.18, 9.16.
23The 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

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.

24See Draft Bill, s. 3.

^Ihid.

26See Draft Bill, s. 4.

21Ibid.

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).

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
Act33 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.

nThe 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).

16See 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).

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.

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,

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

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.

42In 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.

43Footnote 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.

(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.

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

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

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, 197750 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

47See Draft Bill, s. (c).

** Supra, at pp. 30-31.

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

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

^Supra, at pp. 54-55.

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 supplies55 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

52Supra, 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.

5iSupra, at p. 36.

54Footnote 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).

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

57See Draft Bill, s. 5.

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.

b0The 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.

6lSee Draft Bill, s. 16.

(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

62See 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".

63U.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.

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

65 Supra, at p. 14.

66Footnote 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.

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.

At common law, in a negligence action, the contributory negligence of
the plaintiff was a complete defence. Legislation, however, has intervened.
Under The Negligence Act12 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-

ft8See Draft Bill, s. 1(2).

69 Supra, at p. 19.

70Footnote 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.
72R.S.O. 1970, c. 296, s. 4.

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

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

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

Comparative Fault Act" (1977-78), 29 Mercer L. Rev. 373.
75See Draft Bill, s. 6(1).
76See Draft Bill, s. 6(2).
77R.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.

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

7SOntario: 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.

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

8lSee Draft Bill, s. 10.

*2Supra, 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.

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.

84Section 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.
85See 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

86See 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.
«7See Draft Bill, s. 8.
™lbid.

«9Supra, at p. 98.
90Ontario 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 ct96 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).

94See 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.
97See 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 interpretation100 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.

l00See, 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.
i02Supra, 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,

mSupra, at p. 74.

l04See, for example, the limit suggested by the Supreme Court of Canada in respect of damages

for non-pecuniary loss discussed supra, at p. 86.
l05The 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.
l06Ontario 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.

l07This 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.).

l09See, 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.

n2Supra, at p. 103 and see footnote 106, supra.

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

ll4See 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 contract115 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 l5The huyer will he in privity with the seller, and thus will have the henefit of the contractual
warranties. See supra, at pp. 26-27.

ll6The 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.

ll7This 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.

2Supreme 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.

3A 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.

4Supreme 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.

5R.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.).

7Cases 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.

9Ibid., 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.).
l3Castel 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.
l4The 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, 197711 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

l5See Cavers, " 'Habitual Residence': A Useful Concept?" ( 1971-72), 21 Am. U. L. Rev. 475.

l6See Castel, footnote 1, supra, at pp. 138-47.

7S.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 jurisdiction18 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

l9See Draft Bill, s. 13.

20See Draft Bill, s. 15.

21See 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, 197826 specifically refers to
federal safety standards. Section 27(1) provides as follows:

(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

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 Lords28 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.

26S.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).

28See the speeches of Lord Hodson, Lord Wilberforce and Lord Guest.

29Footnote 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

30Footnote 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.
32It 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

33See Appendix 5.
i4Supra, 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, 197741 and the New Brunswick Consumer Product

35The 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.

,hThis 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.

37Castel, 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.

39For 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.

40Castel, 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.

4IS.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

42S.N.B. 1978, c. C- 18.1. The Act has not yet been proclaimed in force.
4iSupra, 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.

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, 186744 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

4430 & 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
ActA% 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

46In 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.

47May 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

49Laskin, 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

5lAuthority 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.

53See Draft Bill, s. 14.

54Supra, at p. 113.

55See 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 law57 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.

ibSupra, at pp. 117-19.

57Castel, footnote 1, supra, at pp. 403 ff.

58R.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.
3See Draft Bill, s. 2.
4Footnote 1, supra, at p. 565.
5See 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 bvlaw
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 ]iability

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 bE2'son 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 ^Smioi01"

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 ^Sks8 °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.

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;

(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.

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.

(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).

(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.

(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.

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

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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 19751 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,

2Article 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.

[165]

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.

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