Introduction
Faced with claims from unhappy customers alleging that a product failed or malfunctioned in Quebec, sellers often believe they are protected by contractual warranty exclusions and limitations of liability. However, as explained in our bulletin entitled “What Lawyers, Manufacturers and Sellers Need to Know about Product Liability Laws in the Province of Quebec”, sellers are seldom able to avoid the effects of the implied statutory warranties provided for under the Civil Code of Quebec[1] (CCQ), the Consumer Protection Act[2] (CPA) and the Regulation respecting the application of the Consumer Protection Act[3] (Regulation). Indeed, while manufacturers and distributors are generally well aware of the contractual warranties offered to their customers, they are often surprised by the scope of the statutory warranties that are necessarily implied in such contracts in Quebec. As a result, manufacturers often end up engaged in projects or signing contracts involving far greater risk than they had anticipated.
Understanding the scope of these statutory warranties of quality in the specific context at issue is thus key to properly and fully assessing the risks associated with a claim from a customer who used a product for a particular purpose. Ignorance of the relevant principles of Quebec law can be costly, particularly because of the applicable presumptions of liability where a product deteriorates or malfunctions prematurely.
This bulletin aims to help manufacturers and sellers understand the nature and extent of their obligations relating to goods quality and fitness and for the particular uses contemplated by the buyer. It also addresses the seller’s duty to advise and inform and provides some practical tips for lawyers, manufacturers and sellers to limit the risk of litigation.
Statutory Warranties of Quality and the Three Types of Defects
Under article 1726 CCQ, a seller is bound to warrant the buyer that the property and its accessories are, at the time of the sale, free of latent defects which render it unfit for the use for which it was intended or which so diminish its usefulness that the buyer would not have bought it or paid so high a price if he/she had been aware of them. For consumer goods[4], the CPA provides a warranty against latent defects[5], a warranty of use[6] and a warranty of durability having regard to price, the terms of the contract and the normal conditions of use[7]. The scope of these warranties is generally assessed by courts in a similar manner to that of the warranty provided for under the CCQ.
According to the principles established by the Supreme Court of Canada in ABB v. Domtar[8], there are three main types of defects:
- A material defect: when the delivered good deteriorates prematurely or is broken.
- A functional defect: when the good is totally or partially incapable of serving its normal purpose, based on an objective test, whatever the cause: poor design, negligent manufacturing or some other anomaly that arose as a result and which impacts the use of the good.
- A conventional defect: when the good is incapable of serving the specific purpose that the parties intended at the time of sale. This use may be defined in the contract or in the seller’s contractual warranty, or it may be disclosed by the buyer to the seller during negotiations or when the contract is signed.
In all cases, the defect must be serious, latent, and unknown to the buyer and must have existed at the time of sale to trigger the seller’s liability. A defect is serious when it renders the good unfit for the use “for which it was intended”. Material and functional defects are assessed in light of the normal use that buyers make of the good, whereas a conventional defect is assessed in light of the particular use that the buyer has indicated to the seller[9].
A deficiency that is without consequence or whose impact is minor or insignificant is not a “defect” for the purposes of the legal regime governing warranties of quality[10]. On the contrary, the deficiency must have a certain degree of seriousness. It does not have to prevent any use of the good; it merely has to significantly reduce its usefulness.
The assessment of a material defect is straightforward inasmuch as it relates to a particular good and concerns the physical condition of the good at the time of sale or delivery. For example, a boat with a large crack in its hull at the time of sale has a material defect that seriously affects its use. Functional and conventional defects, on the other hand, usually do not become apparent until the product is put into use, and they are the types of defects that most often give rise to disputes about the nature of the parties’ respective obligations and the scope of the statutory warranties of quality. Our comments will therefore focus on these two types of defects and on the concepts of normal use, particular use, both parties’ duty to inform regarding the intended use and, in certain cases, the seller’s duty to advise.
A. What Is Normal Use?
As previously noted, a functional defect occurs when the buyer is unable to use the good in a normal manner because of a design problem. The “normal” use of the good is assessed in light of the buyer’s reasonable expectations, which corresponds to the objective standard of the average buyer, having regard to the nature of the product and its intended use.
For example, the Court of Appeal held that the manufacturer and the supplier of interior wall panels that were advertised as non-combustible and that caused a fire to spread to the slaughterhouse where they were installed were not fit for their intended purpose of preventing the spread of fire[11].
To determine the normal use of a good, reference to regulatory, statutory or industry standards, while not definitive, can serve as a starting point[12]. However, the merchant’s or manufacturer’s compliance with standards will not necessarily relieve the seller of all liability if the product sold is found to be unfit for the purpose for which it was purchased and sold[13]. In addition, evidence of the effectiveness of the same type of good in similar conditions may be a valid comparable and may help determine whether the buyer was able to make normal use of the good[14].
The demonstration of the improper use or maintenance of the good by the buyer can defeat the presumption of the existence of the defect at the time of sale, even though this is very difficult to prove[15]. For example, in Industries Pro-Pals Ltée v. Industries Maibec Inc.[16], the Court held that the buyer must be held partly liable for the discolouration of the print on the plastic bags it had purchased for storing wood waste since it had decided to store a product designed for indoor use outdoors. If the bags sold could not be used for their intended purpose, it was not because they were poorly designed but because they had been improperly stored.
B. Under What Circumstances Can a Seller Be Required To Warrant That the Good Be Fit for a Particular Purpose?
A conventional defect occurs when a good is unfit for the specific purpose the parties had in mind at the time of the sale. This use may be specified in the contract or disclosed by the buyer to the seller during negotiations[17].
If the buyer has taken care to communicate to the seller the particular use he/she intends to make of the good, the scope of the warranty of quality will be extended to cover conventional defects. In such circumstances, the seller will be deemed liable if the good is unfit for the particular purpose intended by the buyer or does not perform to the specifications communicated to the seller[18].
For example, the Superior Court granted an application to cancel the sale of a recreational vehicle because the seller had falsely represented that it was habitable year-round when in fact it was a trailer designed for seasonal use[19]. In this case, although the trailer met the regulatory standards for this type of vehicle and was therefore fit for “normal use,” the issue was whether the vehicle was an “all-season” trailer and therefore fit for the particular purpose represented by the seller. Since the trailer could not be used in the winter, the Court ruled that the good sold was affected by a conventional defect justifying the cancellation of the sale.
The particular conditions of use contemplated by the buyer do not need to be explicitly stated in the contract for the good to be deemed to have been intended for particular conditions. In Aireau Qualité contrôle inc. v. Recyc RPM inc.[20], the Court ruled that the device manufactured and sold by Aireau, an industrial dust collector, was not suited to the buyer’s needs, which was using a wet-washing process for plastic materials. Even though this use was not expressly provided for in the contract, the manufacturer should have analyzed the materials to be collected or verified the type of dust, which would have made it possible to avoid the problems encountered by the plaintiff.
However, it is up to the buyer to prove that it informed the seller of its particular expectations[21]. For example, in Lasido inc. v. Multibond inc.[22], the Court held that the product sold was affected by a conventional defect since the glue sold did not meet the specific requirements stated by the buyer before the sale. It was demonstrated that the manufacturer knew, before concluding the sale, that the desired product had to be humidity-resistant.
Conversely, in Alumico Architectural inc. v. 9139-0757 Québec inc.[23], the Court ruled that the door frames sold for a construction project were not affected by a latent defect since they had been sold in keeping with the buyer’s specifications. The buyer alleged that the frames were defective in that they were not equipped with a brace that could be used as a doorstop. The evidence showed that the buyer had never sent the manufacturer any plans or shop drawings concerning the products ordered.
C. The Duty To Inform and To Inquire
The seller has a duty to inform the buyer of facts that may influence the buyer’s decision-making process[24]. In particular, a specialized professional seller who knows or should know that his/her product is not suitable for the buyer’s intended use or involves significant risks must notify the buyer accordingly.
A buyer who, after being informed of the limitations of the good or product, makes the purchase anyway may have to bear part of the liability on the basis of the concept of assumption of risk[25]. However, the sale of a product which may not be suitable for the customer’s intended purpose remains a risky proposition, particularly since the buyer’s assumption of risk will not fully protect the seller[26] and may be difficult to prove. In Capmatic Ltd. v. American Brands[27], the Court of Appeal noted that it may be preferable for a manufacturer not to proceed with a project if it is concerned that it will not be able to deliver a functional system on the basis of tests conducted in its own plant.
The buyer, on the other hand, has a duty to inquire and make allowances for the normal commercial representations which may be made by the person seeking to sell his/her product. The buyer cannot disregard the characteristics or defects of a product[28], especially since the statutory warranties do not apply to defects which are known to the buyer or could have been detected by a prudent buyer.
In Drolet Machinerie inc. v. Multiver ltée[29], the Court held that the digitally controlled production unit sold met the buyer’s expectations as to the number of hours of use, but that it was unrealistic to expect that the costs of using the machine and its wear and tear would be the same whether the machine was used for one shift or three shifts per day. The Court therefore ruled that in the context of 24-hour-a-day use of the machine, the buyer’s expectations regarding the costs of using it were unreasonable.
Lastly, a reasonable, prudent and diligent buyer must follow the manufacturer’s recommendations regarding the use of the good sold. As the Court pointed out in Aviva, compagnie d’assurances du Canada v. Pyradia inc., while the manufacturer must provide users with adequate instructions, the buyer has an obligation to read and follow the instructions. If the buyer has questions, it must ask them in a timely manner[30].
D. The Parties’ Level of Expertise and the Duty To Advise
The manufacturer’s duty to inform and its corollary, the buyer’s duty to inquire, must be considered in light of the level of expertise each possesses.
When the buyer is an experienced person, his/her duty to inquire is greater and may even nullify the seller’s correlative duty to inform. The Raymond Martin ltée v. SGPP (Québec)[31] case is a good illustration of this principle. The Court held that the plaintiff, which had been operating a fleet of trucks for some 20 years and had a mechanic on staff, could not have been unaware that if it operated its trucks with “seasonal” diesel fuel without additives in winter, it was running the risk that its fuel would crystallize during periods of extreme cold.
For the sale of a custom-made product which requires complex assembly by the buyer or is not sold to the general public, the seller may be bound by a greater duty to inform, i.e., a duty to advise. That duty applies only to a professional seller dealing with a non-professional or less professional buyer[32].
This duty implies taking into account the particulars of the buyer’s situation, the constraints of achieving the intended objective, and the search for the best method of reconciling the various requirements and constraints[33]. In some cases, the duty to advise could go so far as to require bringing in professionals (engineers, architects, etc.) to assess the feasibility of the customer’s requests before the sale is concluded. For example, in the case of 3072312 Canada inc. c. Aliments Riberie inc.[34], the Superior Court ruled that a vacuum packing film was defective since it caused a significant quantity of packages of cooked ribs to be damaged because of sauce leaks due to perforation of the film by bones. The Court held that the plaintiff was justified in relying on the defendant’s advice and expertise in choosing the appropriate film for its needs.
In short, the extent of the seller’s duty to inform and advise the buyer will depend on the entire set of circumstances, including the parties’ level of expertise, the complexity of the product sold and the information known to the seller regarding the specific use being contemplated and the conditions of use. As indicated by the precedents cited above, courts will be stricter with manufacturers of specialized products consulted by a customer in connection with a specific use and who are advised of the conditions under which their product will be used. Conversely, they will be much less strict with sellers who receive an order for a standard product from a specialized buyer who remains silent about its specific needs.
Practical Tips
Manufacturers and specialized professional sellers doing business in Quebec can minimize the risk of litigation by ensuring that they have a good understanding of the principles set out in the CCQ and the CPA regarding the scope of the statutory warranties against latent defects and their duty to inform. In contrast to other jurisdictions, in Quebec the statutory warranties are necessarily implied in all contracts and warranty exclusions and limitations of liability agreed to by the parties are often unenforceable.
For more complex or riskier projects, it may be advisable to reach an agreement with the buyer on specific conditions and limitations concerning the performance of the good sold. In some cases, it may be useful to document information provided by the buyer as to the intended use or conditions of use and any advice or warnings given to the buyer.
In many cases, a seller considering entering into a contract of significant value or involving risks associated with a customer’s particular needs should seek legal counsel to ensure that the risks related to the quality and performance of the good are appropriately shared between the parties, instead of simply relying on standard terms of sale.
Our Product Liability team is available to assist you with any legal matter, either during the negotiation of a contract or in subsequent litigation, and to answer your questions regarding all of these issues.
