Product liability claims in Canadian maritime law

Robin Squires

BLG, Toronto

RSquires@blg.com

Alex Kim

BLG, Toronto

AlKim@blg.com​​​​​​​

Introduction

Canadian[1] maritime law operates within a distinct legal sphere developed and shaped by common law, statute and the Canadian Constitution. Unlike other areas of Canadian law, maritime law presents unique challenges to those unfamiliar with its highly specialised nature.[2] Where product liability claims have a maritime aspect or arise from the maritime context, legal professionals need a strong understanding of Canadian maritime law to spot and properly assess all relevant issues. In this article, the authors provide a high-level overview of product liability in Canadian maritime law, and provide practical insights for commencing or defending these proceedings in Canada.

Does Canadian maritime law apply to this claim?

The first question to ask is whether Canadian maritime law applies to the claim. Generally, where a claim can be characterized as being so ‘integrally connected with maritime matters’, Canadian maritime law will apply. The Supreme Court of Canada in ITO-Int’l Terminal Operators v Miida Electronics, developed a three-part test to determine whether a claim falls under federal court jurisdiction over maritime matters:[3]

• the subject matter of the claim, or its ‘pith and substance’, must concern a matter in respect of which there is a statutory grant of jurisdiction by the federal Parliament;
• there must be an existing body of federal law that is essential to the disposition of the claim and which ‘nourishes’ the statutory grant of jurisdiction as defined in s. 2 of the FCA; and
• the law on which the case is based must be ‘a law of Canada’ as expressed under s. 101 of the Constitution Act, 1867. That is to say, the claim must fall under a federal head of power over Shipping and Navigation under s. 91(10) of the Constitution Act.[4]

Bow Valley Husky (Bermuda) Ltd v St. John Shipbuilding Ltd [Bow Valley] exemplifies this inquiry.[5] Bow Valley was a product liability claim in negligence related to a faulty heat-tracing system installed on an oil rig that caught fire. The companies that contracted for the oil rig’s use commenced action in both contract and tort against the heat-tracing system’s manufacturer and the constructor of the rig. Among the various issues was whether the plaintiff’s claim was barred on the basis of contributory negligence. If maritime law applied, any contributory negligence on the plaintiff’s part would bar recovery. However, if provincial law applied, the plaintiff could claim for damages despite being found contributorily negligent.

Applying the ‘integrally connected’ test, the Supreme Court determined that since the claims involved a ‘navigable vessel … capable of self propulsion’, which was ‘vulnerable to the perils of the sea’ and the oil rig was designed for activity in navigable waters, the product liability claims were ‘clearly dominated by marine considerations’ and therefore, subject to Canadian maritime law.[6]

Unlike in Bow Valley where an ‘integral connection’ to shipping and navigation was sufficient to establish maritime jurisdiction, the Supreme Court of Canada in Desgagnes Transport Inc v Wartsila Canada Inc [Wartsila], held that more was required when provincial laws also validly applied to a claim.[7] In Wartsila, a shipping company purchased a reconditioned crankshaft from a supplier to replace its original crankshaft, which was damaged in an accident. The parties entered into a contract containing a warranty clause and a provision stating the Civil Code of Quebec (the ‘Civil Code’) would apply to any disputes arising from the contract. After the warranty expired, the ship’s main engine failed and the shipping company sued the supplier for the defective parts.

After determining both Canadian maritime law and provincial law applied to the claim, the Supreme Court applied a constitutional analysis. It held the maritime aspects of the claim – sale of marine engine parts – were not at ‘the core’ of navigation and shipping, and noted that maritime law was non-statutory in nature. In contrast, the Civil Code was a validly enacted statue.[8] As a result, the Supreme Court held that the applicable aspects of maritime law could not supplant or be paramount to valid provincial laws governing the claim.[9]

Substantive Canadian maritime law on product liability claims

Generally, once maritime jurisdiction is established, substantive Canadian maritime law will govern the claim. However, unlike other legal systems where a formal framework for assessing product liability claims in the maritime context exists, Canadian maritime law on product liability is constructed piecemeal.[10]

On the rare occasions where product liability claims are integrally connected to maritime matters and do not engage a province’s jurisdiction over property and civil rights (like in Wartsila), the body of Canadian maritime law on product liability develops incrementally. This does not mean this area of law is under-developed and contains ‘gaps’, but rather Canadian maritime law draws from multiple sources of law to sufficiently ‘nourish’ and determine the issues.[11] There are three main decisions that provide guidance on product liability claims.

Breach of contract, negligence, latent and patent defects and due diligence defence

Wire Rope v BC Marine [Wire Rope] was the first major Canadian decision dealing with a product liability claim in the maritime context.[12] In Wire Rope, a defective socket in a cable used to connect a tugboat to a barge failed, causing the loss of the barge. The owner of the barge and the towing company claimed against the tug owner and the company that re-socketed the cable for breach of contract and negligence, while the tug owner brought a third-party claim for indemnity against the re-socketing company.

In assessing the evidence, the Supreme Court held the loss of the barge was attributable to a defect in the socket itself during its manufacture. Because no action was brought against the defective socket’s manufacturer, the remaining issues turned on whether the tug owner exercised due diligence in furnishing a seaworthy tug pursuant to its contract of towage. Drawing from the Carriage of Goods by Water Act, the Hague Rules and the English Admiralty jurisprudence, the Supreme Court ruled a tug owner could escape liability if the defect was not discoverable on an ordinary examination.[13]

Along with allowing claims based on breach of contract, negligence and indemnity for defective maritime products, Wire Rope incorporated the defence of due diligence into Canadian maritime law.

Duty to warn and learned intermediary defence

Bow Valley was the first Canadian decision that permitted a claim in negligence and breach of contract to be made against a manufacturer of a defective product in the maritime context.

For negligence, the Supreme Court held the duty imposed on manufacturers and suppliers to warn all parties – including non-contractual parties – who could reasonably be affected by potentially dangerous products applied in the Canadian maritime context.[14] Accordingly, even though the heat-tracing system’s manufacturer did not have a direct contract with the plaintiff oilrig owner, since the manufacturer knew the system would be used by the plaintiff, the Supreme Court held the manufacturer had a duty to warn the plaintiff about its inflammability. Nevertheless, the Supreme Court held that this duty could be supplanted where the consumer possessed sufficient information about the product’s risks such that they assumed them when using the product.[15] The Supreme Court also made the learned intermediary defence available to the manufacturer. However, because this case did not involve a highly technical product and there were many opportunities for the manufacturer to warn the plaintiff directly, the Supreme Court did not find the defence was made out.[16]

Negligent misrepresentation

The Federal Court of Appeal’s decision in Pakistan National Shipping Corp v Canada [PNSC], dealt with negligent misrepresentation claims based on defective products. In PNSC, damages arose from a voyage carrying barrels of canola oil that leaked because of heavy weather, affecting the ship’s stability and forcing it to seek refuge in the middle of the voyage. Consequently, the shipping company incurred significant expenses and claimed against the charterer, who subsequently filed a third-party claim against the barrels’ manufacturers alleging the manufacturer misrepresented the suitability of the barrels for sea voyage.[17]

Despite the alleged misrepresentation being made on land, the Court held the matter fell within the ambit of Canadian maritime law. Although the Court did not deal with merits of the claims or comment on how negligent misrepresentation should be analysed in the maritime context, it clearly opened the door for misrepresentation claims against product manufacturers, even if contracts or representations were made on land.

Summary

The existing Canadian maritime product liability jurisprudence incorporates the following legal concepts:

1. Negligence;
2. Contributory negligence;
3. Patent and latent defects;
4. Due diligence defence;
5. Breach of contract;
6. Duty to warn;
7. Learned intermediary defence; and
8. Negligent misrepresentation.