Kant at the Supreme Court? Maple Leaf, the Rights-Based Approach to Economic Loss, and the Toronto School of Tort Theory

Michael Law-Smith, 2L, Volume 79 Articles Editor

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The Supreme Court of Canada’s recent decision in 1688782 Ontario Incv Maple Leaf Foods Inc.2020 SCC 35 (CanLII) (Maple Leaf) signals an important shift in its approach to pure economic loss and, more broadly, in its approach to duty of care issues in tort law. Together with the Court’s decision in Deloitte & Touche v Livent Inc. (Receiver of)2017 SCC 63 (CanLII) (Livent), the decision in Maple Leaf reveals a departure from the Court’s more policy-based approach to duty of care to a largely rights-based approach. Although the outcome in Maple Leaf might suggest that the Court is simply returning to a more traditional, conservative approach to tort law, the Court appears on closer analysis to be adopting a principled explanation for why certain economic losses are recoverable and others are not. This approach aligns with the position of the so-called “Toronto School” private law theorists, who argue that a rights-based approach to these issues is the only philosophically justified approach. Indeed, these University of Toronto professors, many of whom argue for a theory of private law and rights inspired by the 18th-century German philosopher Immanuel Kant, have likely influenced this recent development in Canadian tort law.

The Supreme Court’s Decision

In the November 6th, 2020 decision, Brown and Martin JJ, writing for the 5-4 majority, held that the respondent, Maple Leaf, was not liable for the economic losses suffered by the appellant, a Mr. Sub franchisee, that resulted from the 2008 listeria outbreak in a Maple Leaf meat processing plant. The franchisee (representing 424 other Mr. Sub franchisees in a class action) sued Maple Leaf for the lost sales, profits, capital value, and reputation it suffered as a result of the recall and ensuing shortage of sandwich meats (Maple Leaf at para 1). Maple Leaf did not have contracts with the franchisees but were instead linked through a chain of contracts, with Mr. Sub (the corporation) acting as the intermediary (Maple Leaf at para 2). The franchisees were thus limited to seeking recovery through a tort action; in particular, through a claim for pure economic loss.

The case turned on whether Maple Leaf owed the franchisees a duty of care with respect to the economic losses. The majority considered and rejected three bases for such a duty. First, they rejected a claim based on negligent misrepresentation on the ground that Maple Leaf had not made an undertaking to the franchisees with respect to the quality of their meats (Maple Leaf at paras 38-9). Second, they rejected a claim based on negligent supply of a shoddy good or structure. The majority clarified that Winnipeg Condominium Corporation No. 36 v Bird Construction Co.,[1995] 1 SCR 85, 1995 CanLII 146 (Winnipeg Condominium) does not support the franchisees’ claim because the franchisees’ losses did not flow from avoiding bodily or property harm caused by the contaminated meat (Maple Leaf at para 57).

Finally, the Court held that a novel duty of care should not be recognized because the parties’ relationship was insufficiently proximate (Maple Leaf at para 95). The majority explained that the contractual relation (despite no direct contract) between the parties militates against finding a duty of care with respect to the franchisees’ financial interests (Maple Leaf at para 68). The contractual relation offered the parties the opportunity to negotiate the financial risks inherent in their relation. Recognizing an extracontractual duty with respect to those risks would amount to circumventing the contract to afford one party more than it had bargained for (Maple Leaf at para 71). 

 

Towards a Rights-Based Approach in Canadian Tort Law

In a series of cases beginning in the 1990’s, the Supreme Court adopted an increasingly policy-based approach in negligence cases. The policy dominant approach involved applying the Anns framework (later the Anns/Cooper framework) with a low threshold “foreseeability” first step and a more onerous “policy considerations” second step. This second stage involved weighing factors that were “not concerned with the relationship between the parties, but with the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally” (Cooper v Hobart2001 SCC 79 (CanLII) at para 37). While the UK House of Lords (now Supreme Court) abandoned the Anns framework in Murphy v Brentwood District Council[1991] UKHL 2, criticizing it as unclear and unpredictable (p. 15), Canadian courts continued to apply it.

In recent years, however, the Supreme Court has subtly changed its approach. In Livent, the majority (also co-written by Justice Brown) wrote that a more nuanced approach to the first stage of the Anns/Cooper framework could provide a “principled basis for imposing liability” (para 22). This principled approach assessed negligent misrepresentation in terms of the parties underlying rights and duties. The Court explained that the determinative question is whether the defendant had made an undertaking to the plaintiff that rendered the defendant “obligated to take reasonable care” and that conferred the “plaintiff with a right to rely on the defendant’s undertaking” (Livent at para 30). Thus understood, liability for negligent misrepresentation is similar to contractual liability: it is based on the voluntary undertaking of a legal duty.

In Maple Leaf, the majority affirmed the Livent approach to negligent misrepresentation (paras 29-40) and extended a rights-based explanation to liability for negligent supply of shoddy goods or structures per Winnipeg Condominium. With respect to the latter, the majority explained that one can recover pure economic losses resulting from dangerous goods or structures when those losses are incurred in order to avoid an injury to the plaintiff’s person or property (Maple Leaf at paras 45-46).

The Court also applied a rights-based analysis to the franchisees’ claim. The majority wrote that “the fundamental starting point” of a negligence analysis begins by identifying “what rights are at stake and whether a reciprocal duty of care exists” (Maple Leaf at para 21). Indeed, if we take this statement at face value, the reason the franchisees’ claim failed is simple: they did not “implicate a right protected under tort law” (Maple Leaf at para 47). While the majority framed their analysis using the familiar—though often slippery—concepts of Canadian negligence jurisprudence (like proximity), underlying this complicated terminology appears to be the basic point that the plaintiff was unable to establish that their losses were “a result of interference with their rights” (Maple Leaf at para 57). Significantly, the majority does not refer to a single policy consideration in reaching its conclusion.

 

Corrective Justice, Rights, and the Toronto School

The Court’s trajectory appears to be drawing closer to a rights-based philosophical understanding of tort law that is associated in particular with a group of University of Toronto law professors sometimes referred to as the “Toronto School” of private law theory (see e.g. George Fletcher’s article Remembering Gary – and Tort Theory at p. 281). The best way to understand the Toronto School’s approach is by considering the work of three of its most prominent proponents: Professor Ernest Weinrib, Professor Arthur Ripstein, and Professor Peter Benson.

The Toronto School’s approach to private law is illustrated perhaps most paradigmatically in the work of Professor Weinrib. In The Idea of Private Law [1], Weinrib argues that private law has an internal organizing principle: corrective justice (p. 19). The significance of this claim is revealed by Weinrib’s adoption of Aristotle’s distinction between corrective justice and distributive justice. Corrective justice is about maintaining justice in the interactions between two private persons. It follows that, for Weinrib, courts resolving tort disputes should ignore concerns that fall within the sphere of distributive justice; that is, concerns about the allocation of benefits and burdens to the parties in relation to other members of society.

Weinrib argues that tort law can realize corrective justice by upholding a Kantian conception of private rights; in other words, by ensuring that interactions between any two persons are governed by a relationship of “correlative” legal rights and duties (p. 123). According to this view, to commit a private wrong is to breach one’s duty towards another person and thus to violate that person’s corresponding right. Private law can restore the relationship of justice between the parties by ensuring that the wrongdoer corrects the injustice by providing a remedy. 

Professor Ripstein’s work helps explain the content of the correlative rights and duties referred to above. In Ripstein’s book Private Wrongs [2], he argues that private law’s system of rights follows from the basic Kantian principle that no private person is in charge of any other person (p. 30). Tort law realizes this principle by protecting what each person already has—their body and their property. This Kantian idea, according to Ripstein, explains why tort rights are relational and negative: these rights can only be understood as relative to the duties others have not to interfere with one’s choices about how to use one’s body and property (p. 34-6). It follows that private law does not impose duties upon us to promote each other’s economic interests because “however serious these losses might seem… they are not cases of one person depriving another of means to which the latter has a prior right” (p. 59).

Professor Benson applies this principled rights-based account (though from Hegelian rather than Kantian roots) to economic loss in his article "The Problem with Pure Economic Loss" (Problem). Benson argues that the rationale for the non-recovery of pure economic losses is “juridical or rights-based, not policy-driven” (p. 838). In other words, the reason that recovery for pure economic loss is usually denied is not because of policy concerns such as who is the least-cost insurer of this type of loss, but because liability in such cases would entail providing compensation to a plaintiff whose rights were not violated (p. 846).

Can these ideas help us understand Maple Leaf? I think so. While the majority may not have stamped their decision with a Kantian emblem, something of Kant’s way of thinking about private law appears to be at work here. As mentioned, the most straightforward explanation for the decision is that the plaintiff failed to show that their “alleged loss represents an injury to a right that can the subject of recovery in tort law” (Maple Leaf at para 23). And the majority is clear that the relevant right and duty are to be considered relationally: what matters is not whether the defendant’s conduct violated somebody’s right, but whether it violated the plaintiff’s right (Maple Leaf at para 38). 

Not only does the majority opinion align with the Kantian view, but it also appears that the Toronto school was directly influential. The majority judgment in both Livent and Maple Leaf cited Weinrib’s article "The Disintegration of Duty," which critiques the Court’s policy-based approach to establishing duty of care. Moreover, in Maple Leaf, the majority cites Weinrib and Ripstein for the proposition that losses that fall outside the plaintiff’s rights to “bodily integrity, mental health, and property” are “outside of the scope a plaintiff’s legal rights” (paras 18-19). They also invoke Weinrib-esque terminology in referring to tort liability as based on a “correlative right and duty” (Maple Leaf at para 41, emphasis added).

One might think that there is an even simpler explanation for Maple Leaf’s conclusion. Did the majority not just apply the traditional exclusionary rule—i.e. that pure economic losses are not recoverable? At first glance, it might seem so. But the majority does not endorse this general rule (Maple Leaf at para 19). Nor do they suggest that the instances of liability for pure economic losses are exceptions to a general rule. Rather, the majority offers a principled explanation for why certain types of economic loss are recoverable and others are not. The Court appears to accept Benson’s explanation that (from a rights-based view) recovery for financial losses does not depend on physical infringement of the plaintiff’s body or property, but rather depends on infringement of the plaintiff’s rights to their body or property (Problem at p. 847). As the Court acknowledges, the plaintiff’s rights can be infringed without physical injury, such as when physical injury is so likely that the plaintiff reasonably incurs costs to protect themselves (Maple Leaf at para 45).

There is one final point worth discussing: it follows from the rights-based reading of Maple Leaf that the majority’s emphasis on the contractual connection between the parties was not essential to the case’s outcome. While the majority’s point that the franchisees had the opportunity to contract against this type of loss is not an element of the rights-based approach to economic loss, it is not inconsistent with it. Perhaps the majority included this argument to justify the decision to those who do not accept the rights-based view. But the majority also may have focused on the contract because, as Benson explains, if the franchisees’ rights to their person or property were not infringed, and there was no undertaking, then the only place a right could be found for the plaintiff to stand on is within the contract (Problem at p. 844).

Looking forward, it is worth keeping in mind that Maple Leaf was a close decision. The four judge dissent would have recognized a novel duty of care on the basis of the franchisees’ vulnerable bargaining power relative to Maple Leaf and the effective exclusivity clause in their contractual arrangement (Maple Leaf at para 152). The dissent did not frame Maple Leaf’s liability in terms of an infringement to the franchisees’ rights. But they did discuss a number of policy considerations (Maple Leaf at paras 157-165). Given the Court’s narrow split between diverging approaches, it is too early to tell whether the rights-based approach will continue to grow in future negligent cases. But we can be sure that at least a few faculty members around here are hoping so.

[1] Weinrib, Ernest. The Idea of Private Law (Oxford University Press, 2012).

[2] Ripstein, Arthur. Private Wrongs (Harvard University Press, 2016).