Food Fight: Restaurants Can’t Recover Lost Profits From Supplier When They Lose Business After a Meat Recall

June 22, 2018
  • The Ontario Court of Appeal decision in 1688782 Ontario Inc. v. Maple Leaf Foods Inc. is among the first rulings to apply the duty of care analysis from the Supreme Court of Canada’s 2017 Livent ruling.
  • The plaintiffs in the class action, franchisees of the “Mr. Sub” fast-food chain, argued that they were entitled to compensation for economic loss that they claimed to have suffered as the result of a 2008 listeria outbreak at a Maple Leaf meat-processing facility.
  • The alleged economic loss was primarily reputational, resulting from the association of Mr. Sub and Maple Leaf in media reports relating to the outbreak and Maple Leaf’s subsequent product recall. That recall was broad and included the Mr. Sub chain even though there was no evidence that they had ever received any of the tainted meat.
  • After the case was certified as a class action, Maple Leaf moved for summary judgment, arguing that it did not owe Mr. Sub franchisees a duty of care. The motion judge, in a ruling issued prior to Livent, disagreed. The Ontario Court of Appeal reversed that ruling, finding on the basis of the Livent analysis that any duty of care owed by Maple Leaf did not include within its “scope” a duty to protect the franchisees’ reputations.
  • The decision highlights the need for a link between the duty of care alleged and the damages suffered.

Motion Judge’s Decision

The motion judge determined that Maple Leaf’s relationship with the franchisees fell within a recognized duty of care “to supply a product fit for human consumption”. She also held that Maple Leaf was “under an obligation to be mindful of the [representative] plaintiff’s legitimate interests in conducting its affairs.”

She further held that Maple Leaf “owed a duty of care with respect to any representations made that the [ready-to-eat] meats were fit for human consumption and posed no risk of harm” and that Maple Leaf “ought reasonably to have foreseen that [the franchisees] would rely on their representations, and [that this] reliance was reasonable in the circumstances.” Finally, she observed that “policy considerations weigh in favour of imposing a duty in these circumstances to heighten accountability.”

Court of Appeal Decision

In a ruling issued on April 30, 2018, the Ontario Court of Appeal overturned the motion judge’s decision, which had accepted the franchisees’ claims based on (i) a breach of Maple Leaf’s duty to supply a product fit for human consumption and (ii) negligent misrepresentation on the part of Maple Leaf.

Did Maple Leaf owe Mr. Sub franchisees a duty to supply untainted meat?

Did the franchisees establish that an existing duty of care existed?

Writing the unanimous judgment, Fairburn J.A. first considered whether Maple Leaf’s relationship with the representative plaintiff fell within a recognized existing duty of care to supply a product fit for human consumption. She noted that in Livent, the Supreme Court had stated that courts should be cautious in finding proximity on the basis of a previously-established or analogous duty of care category. Rather than reasoning on the basis of a previous case that “all As automatically owe a duty of care to all Bs”, courts should look back to the previous cases and determine whether the “particular factors” that characterized the A-B relationship in those cases (and which grounded the duty of care findings by those courts) are present in the current case. As the Livent court concluded:

A finding of proximity based upon a previously established or analogous category must be grounded not merely upon the identity of the parties, but upon examination of the particular relationship at issue in each case.

Adopting the Livent approach, the Court concluded that the relationship between Maple Leaf and the franchisees – in which damages were claimed for reputational harm as a result of a recall and public association with Maple Leaf – did not fit within a previously established or analogous duty of care category.

Does the Anns/Cooper analysis recognize such a duty?

The Court therefore applied the full Anns/Cooper analysis, as a result of which it held that the franchisees’ pure economic loss did not fall within the scope of any duty that Maple Leaf may have had to supply meat fit for human consumption. In the view of Fairburn J.A., that duty was owed to the franchisees’ customers, rather than to the franchisees:

To conclude that Maple Leaf owed a duty of care in tort to the franchisees to protect them against the kinds of damages at issue on this appeal would be to enlarge the duty to safeguard the health and safety of customers by supplying fit meat to include a quite different and added duty to franchisees to protect against reputational harm. In my view, to do so would constitute an unwarranted expansion of a duty owed to one class of plaintiffs and extend it to the fundamentally different claim advanced by the franchisees.

As the Court concluded, the Mr. Sub franchisees “cannot bootstrap their claim for damages for reputational loss to the different duty owed by Maple Leaf to their customers.”

Is the defendant liable in negligent misrepresentation?

In respect of the franchisees’ claim of negligent misrepresentation (i.e. that the meats were fit for human consumption and posed no risk of harm), the Court held that Maple Leaf’s undertaking to supply meat safe for human consumption did not entail an undertaking to protect the franchisees’ reputations. The Court again emphasized the importance of the “scope” of a duty of care, noting that, “the nature or purpose of such an undertaking was to ensure that Mr. Sub customers who ate [Maple Leaf’s products] would not become ill or die as a result of eating the meats. The purpose of the undertaking was not, however, to protect the reputational interests of the franchisees.” In other words, the reputational damage allegedly suffered by the franchisees fell outside the scope of Maple Leaf’s undertaking to supply meat that is safe for human consumption to the franchisees’ customers.

The public interest consideration

As for the motion judge’s view that imposing a duty would heighten accountability, the Court questioned whether imposing a duty would achieve that end because “there is a strong public interest in encouraging manufacturers to act expeditiously in recalling products from the marketplace to avoid potential danger to consumers.” What the Court appears to be saying here is that if a food products company had to worry about being sued for reputational damage by all retailers from whom it recalled its product, it would have an incentive to be less inclusive in the scope of its recalls, which might not be a good thing from a public health perspective.

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