BWA: North v. Bayerische Motoren Werke AG

Yael Bienenstock (00:08:36)

Welcome to Breakfast With Appeal, Torys’ quarterly series on the cases you want to know about. We offer our thoughts on the appellate law that's shaping Canadian conversations. Let's dive in.

Andrew Bernstein (00:23:29)

Good morning and welcome to Breakfast With Appeal: the Breakfast Club edition. I'm Vice Principal Richard Vernon.

[Laughter]

Jeremy Opolsky (00:31:02)

You know that like, no one born after 1979 gets that joke, right?

Andrew Bernstein (00:34:33)

You're born after 1979, and you knew it was a joke.

Jeremy Opolsky (00:38:45)

Well [laughter], only because you told me.

[Laughter]

Andrew Bernstein (00:39:35)

Okay. Fair enough. I'm Andrew Bernstein, and with me is the Breakfast With Appeal panel. I'm going to introduce them, and they will have the option of telling you what their favourite John Hughes movie is. But if they don't, one will be selected for them. And sure, it might be Pretty in Pink, but it might be, like, Mr. Mom or one of the duds.

[Laughter]

So, at the far end is my colleague, David Outerbridge.

David Outerbridge (01:01:28)

And in order to avoid Andrew picking one for me, I'm going to pick Uncle Buck.

Andrew Bernstein (01:05:32)

Nice! And then next to him is Yael Bienenstock.

Yael Bienenstock (01:09:15)

And I, I struggled, I will say, but I think I’m settling on Home Alone.

Andrew Bernstein (01:12:55)

Nice.

Yael Bienenstock (01:13:39)

With runner ups is Some Kind of Wonderful—

David Outerbridge (01:15:20)

Safe choice.

Yael Bienenstock (01:15:58)

—and Sixteen Candles.

Andrew Bernstein (01:17:12)

Nice. And Jeremy Opolsky.

Jeremy Opolsky (01:19:16)

Oh, it has to be Baby's Day Out.

Andrew Bernstein (01:20:56)

Okay. All right.

[Laughter]

I'll tell you mine at the end, because there'll be a moment where I need to stall for time. Because at the very end of the usual hour, these fine folks are going to slot out. And slotting in will be our new colleague, Arif Virani, former Attorney General of Canada. So before then, we have a private law-heavy session today as a kind of a tribute to one of our audience members who wrote on the feedback form that they wanted—and this was the feedback form from the Live From Toronto edition—they wanted “more cowbell,” and by “cowbell” they meant private law cases. So, the moral of the story is that our audience has a better sense of humor than we do [laughter] and, and thank you, we loved it.

And also, the other moral of the story is we actually read the feedback form, so please fill it out. So with that in mind, let's start with a case on a topic everyone loves. The case—the topic is economic loss. The case is North v. BMW. Jeremy, this is a rare private law case that you suggested, but astonishingly, it doesn't involve insolvency or the corporate attribution doctrine. So set this up for us. What happened?

Jeremy Opolsky (02:25:03)

Well, Andrew, we can't always be blessed with a new corporate attribution case every quarter. So sometimes we have to spread our wings a little bit.

[Laughter]

Andrew Bernstein (02:30:48)

Okay. Fair enough.

Jeremy Opolsky (02:32:43)

Expand. Let David have his negligent fun—I mean, negligence fun—and, and go from there. So, this case is a Planes, Trains and Automobiles. Except it's not about planes or trains. And it, it could—

[Laughter]

David Outerbridge (2:46:06)

Good one.

Yael Bienenstock (02:46:13)

There might be many more, we just can’t hear them.

[Laughter]

Jeremy Opolsky (02:49:23)

Listen, I literally didn't know a single John Hughes movie and I had to look up the list. But having done that, I—v

Andrew Bernstein (02:53:45)

Now you know a lot of John Hughes movies.

Jeremy Opolsky (02:56:00)

Inspired to, to make the puns work.

[Laughter]

Andrew Bernstein (02:57:54)

For sure, you saw Home Alone as a kid.

Jeremy Opolsky (03:00:22)

Of course. So, it was alleged that certain BMWs had engines with a defect in their timing chain assembly system. I'm reading that because I don't know what that actually is, but the claim was that the defect caused a sudden loss of power with a potential for catastrophic engine failure. And without knowing what that is, that sounds bad.

So the problem was that the repair costs for this failure was not economical for the value of the case. And that led some owners to sell the car as-is. Plaintiffs offered to certify the case on the basis of negligent design, negligent manufacture and breach of a duty to warn. But the problem is there were some important limitations to the claim itself. It was not claimed that the engine defect had caused any physical harm or property damage outside the vehicle: so no one had died, fortunately, and no one had been in accidents, as alleged.

Below, Justice Morgan limited the class action significantly. He did certify the class action, but he did it on a much narrower grounds than requested. He refused to certify on duty to warn because there were no claims of any personal property damage that would have been avoided in BMW had BMW been warned—sorry, would have been avoided if people purchasing it had BMW been warned about the energy defects.

They were claiming they would not have bought or paid less. But that isn't a cause of action, right? It's not a cause of action to say, “We just wouldn't have bought this car” under duty to warn. So, what Justice Morgan did is he certified that—certified a class action on negligent design and manufacture, but on a very narrow basis. There was a cost of repairing the damage incurred to an engine—so an engine broke, there was a cost, and there's a cost of repairing an engine to avert an imminent damage to that engine, where the engine hadn't broke yet, but there was imminent damage that was about to come.

And that's, and that’s the case.

Andrew Bernstein (05:02:20)

Okay, so Yael, what did the Court of Appeal have to say about this?

Yael Bienenstock (05:07:31)

So, I just want to say first that I never thought a decision about car repairs could be so esoteric [laughter], but the upshot is that Justice Morgan's decision was overturned, at least in part, and the important part was that it was overturned and the class action claim was not certified. But how did the Court of Appeal get there? And the short answer is: by navigating a thicket of appeals and cross appeals, which I'm going to do my best to explain.

So, the Court starts its analysis by explaining what types of economic losses are recoverable in a negligence action. And in particular, the Court gets into—and I think actually does a pretty good job explaining—the distinction between economic loss and a traditional negligence claim. Now, a traditional negligence claim is going to protect rights and bodily integrity, mental health and property. There's no right in tort that protects you from negligent or intentional infliction of pure economic loss. And so, recovery in that circumstances is the exception. And why is that?

It goes back to the distinction, I think, between tort law and contract law. Under tort law, you have a right to be free of harm to your person or your property. And if someone negligently interferes with that, then they're on the hook for damages. But courts believe that when it comes to economic loss, that's the kind of thing where parties should be allocating risk as between themselves through contract rather than relying on tort law. And I think David can tell me later that I'm wrong or oversimplifying, but the way I think about it is tort law is there to protect you and your stuff, but not necessarily your money. And so, [laughter] we'll hear what, more or less, so courts—

Andrew Bernstein (06:50:58)

I mean, Yael, I think you've just taken all of Dave’s life work and reduced it to like, you know, overly simplistic—

Yael Bienenstock (06:56:59)

A hashtag?

[Laughter]

Andrew Bernstein (06:57:55)

“You, your stuff and not your money.”

[Laughter]

David Outerbridge (06:59:27)

I no longer need it.

[Laughter]

Andrew Bernstein (07:00:19)

Yeah, exactly.

Yael Bienenstock (07:02:23)

Well, it's a good, it's a good shorthand. And then David can get into all the nuances later.

And so, courts have held that if you're spending money to protect yourself or your stuff from damage, then that falls within the realm of tort law, because it's connected to the interest that the court—tort law is there to protect. And this goes back to the Winnipeg Condominium case, where the Supreme Court held that a builder can be held liable in tort for pure economic losses if their negligent construction creates a real and substantial danger. And in that case, their duty extends to the cost of repairs to eliminate or avert the danger. And in Maple Leaf Foods, the Supreme Court of Canada affirmed all of that, and it confirmed that allowing recovery beyond that goes beyond safeguarding a person's, you know—yourself or your stuff, to use my shorthand—and therefore is not recoverable under tort law.

And so, in this case, much of the decision is trying to figure out whether the losses at issue, the economic losses, are the kind of economic losses that are recoverable or not.

Now, there's one other thing I have to explain, just to explain the decision. The Court talks about something called the complex structure theory. And no, this is not a mechanical engineering class, we're still talking about torts. And the theory says that if you have what's called a complex item, then damage to one part of the structure caused by a defect in another part is damage to other party—property, and is recoverable under traditional negligence. It's not economic loss.

Andrew Bernstein (08:32:14)

So it's like the NATO theory of, of negligence law. An attack on one is an attack on all.

[Laughter]

Yael Bienenstock (08:38:12)

Exactly. Good shorthand and good hashtag on that one.

[Laughter]

Andrew Bernstein (08:39:52)

Thank you. Yeah.

Yael Bienenstock (08:40:54)

Okay. So how does all of this relate back to BMW and their engines? So, this was a certification motion. And so, the case focuses on the first and second parts of the test for certification of a class action. The pleadings have to disclose the cause of action. And you need a representative plaintiff. You need at least both of those plus a bunch of other things I won't get into, like common issues.

So, turning first to the potential causes of action, it was pretty much common ground that this was a claim for pure economic loss. The certification judge had rejected the “other property” theory and that rejection was upheld by the Court of Appeal. So I won't really say anything else about it. But the upshot of that is that we're in the world of economic loss as opposed to a traditional negligence came—claim, and so the question becomes, are any of these economic losses recoverable? And BMW argued not for two reasons.

So first, they said the only loss pleaded was the cost of replacement vehicles. And that's not to avert danger. And they said the certification judge had erred in including in the pleaded costs the costs of repair. But here the Court of Appeal upheld the certification judge's decision, they said he didn't err in reading the claims generously, and especially because at the outset of the motion, it was clear that the plaintiffs had raised this and BMW didn't object, and they didn't seek to adjourn. So, so that round of cross appeal was not accepted.

BMW also argued that repair costs—so now we're in the world of repair costs—and that these are not recoverable because they occurred after the failure, not before. And so inherently, they're not there to prevent danger. And so, they don't fall within the narrow class of economic losses that are recoverable.

And on this point, the Court of Appeal agreed. And they said the plaintiffs themselves had acknowledged in their pleading that if the engine has been destroyed, there is no further risk to life or limb and there is no danger to avert. And since we're not in the world of averting danger or averting disasters, these costs were not recoverable.

Finally, BMW had argued that there was no suitable represented plaintiff, and based on the decisions that the court made on the causes of action, the Court of Appeal agreed. So, there had been two representative plaintiffs, Ms. North and Mr. Rigo. And the certification judge had held that Ms. North had no valid claim because she didn't plead actual property damage or personal injury. She hadn't pleaded repair or disposal costs to avert real and substantial danger, and there was no valid duty to warn claim. And the plaintiffs appealed on all of that, but lost. So, she was left with no cause of action.

The certification judge had held that Mr. Rigo did have a cause of action, because he was charged a service fee of $186 for inspection and diagnosis of the engine’s problem. And according to the certification judge, this was a reasonably foreseeable cost in discarding the product, and so this type of cost, because it's a ostensibly to avert danger, could be recoverable. But they said the service charge here doesn't fall into that category. What happened here, as I said before, is that the engine was catastrophically damaged and the danger was already averted because the car wasn't drivable, and so the service fee didn't count as the kind of economic loss that is recoverable, and therefore there was no cause of action for Mr. Rigo. And he could not be a representative plaintiff. And that was fatal to the certification.

Andrew Bernstein (12:11:57)

Okay.

Yael Bienenstock (12:12:35)

That, that is the answer to your question, “what did the Court of Appeal do here?”

Andrew Bernstein (12:16:59)

Well, it's a complic—I mean, this is the thing people when you ask for private law cases [laughter] you know, they tend to be complex in a certain way. And the fact patterns tend to be complex.

Now let's, let's talk turkey for a minute. Long-time fans of the show, of which we have dozens, know that David Outerbridge knows more about negligence law than any lawyer, alive or dead, except for possibly Lord Denning.

And that's how David got his nickname—

David Outerbridge (12:42:00)

And, and now Yael.

[Laughter]

Yael Bienenstock (12:44:17)

Well, we'll find out.

Andrew Bernstein (12:45:49)

I'm not convinced, David.

[Laughter]

Yael Bienenstock (12:47:29)

Yeah. No, I don't think so.

Andrew Bernstein (12:48:58)

Although we, we may have a question for you about an oil well later. Anyway, this is how David got his nickname, “Mister Negligence”. And so, David, in your capacity as Mister Negligence, I—here's my question to you. This has always seemed, since law school, since Denis Ray had taught this to me in law school, this is, always seemed like an overly fine distinction. And by overly fine, I mean, like, I understand why you can't get lost profits for negligence, but why can't you get compensation for damage to your car if the engine is negligently designed or manufactured?

David Outerbridge (13:24:10)

So I think the short answer is that the courts in Canada have concluded that's not the purpose of negligence law, that defective goods are properly regulated under the law of contract unless they actually cause a risk to human safety or they could cause a risk to other property. Not, not the entity itself.

So, I mean, if you think about it, it's in the nature of every physical thing on Earth to degrade over time, so it's inevitable that things are going to degrade: they're going to break, they're going to dissolve, what have you. If you want protection against a physical item that you're acquiring not degrading, you buy a warranty and you pay for a warranty.

It's also the case that you get what you pay for. You know, if you want a good quality product made with good materials, it's going to last a long time, you do your due diligence, you find the product, you usually pay more, and you get a warranty. And that warranty has a time limit on it, it’s almost—

Andrew Bernstein (14:18:31)

But if you want something crappy like a BMW, you're taking your chances?

[Laughter]

David Outerbridge (14:21:56)

Well, I’m, I'm getting there.

[Laughter]

So, you know, once your warranty expires, which is what we’re dealing with in this case, you don't have a right to that quality product anymore because you only bought it, the right, for a period of time, you know, usually five or seven or eight years in the case of a car. So, what the plaintiffs were arguing here is that even though they had struck a bargain to buy a warranty, to have a good product for whatever the warranty was on these cars, they still wanted the law to protect them after the warranty was over, as though the warranty went on forever and they—even though they hadn't paid for a warranty, that went on forever. And so, they're saying they want the law of negligence to step in and take over from the law of contract once they—what they bargained for is no longer there to protect them.

And so, the Ontario Court of Appeal said, “No, this is not a function of negligence law.” They—they didn't frame it quite that way, but when you look at the Supreme Court, particularly some of the decisions of Justice La Forest in his day, he was a staunch guardian of the dividing line between the different branches of private law, particularly between contract law and negligence law.

And so, the way, you know, in negligence, you have to prove fault, loss—you know, one way of looking at why there's no recovery in negligence for pure economic loss because your product has failed is because there's no fault. You know, the duty of the car manufacturer was to produce a car that met what was bargained for and not, not more as long as it doesn't create risk to human safety.

You know, another way to look at it is there's no loss: that you, you bought a five-year warranty, you didn't buy an indefinite warranty and so you haven't lost something that you had paid for. You know, negligence law doesn't necessarily characterize it that way. The courts just say, “You can't get pure economic loss because your product is deficient.” And they justify it primarily on the basis of the dividing line between contract law and negligence law.

But if you think about it, you know, if negligence the law protected in, as a supplement to contract law, contract law would cease to play its role. You wouldn't know what you bargained for, or you wouldn't need to bargain for things because negligence law would give you the protection that you need anyways. And so, you know, if you want contract law to be predictable and clear and crisp, you can't have negligence law coming in to fill in gaps that people didn't actually bargain for and that, you know, reasonable people wouldn't be assumed to have bargained for at the time that they entered into their contract.

So that's the, the long-winded way of, of saying, you, you, you can't get money, you can just get stuff and your personal safety.

Yael Bienenstock (16:47:19)

It just protects stuff.

David Outerbridge (16:48:29)

Yeah.

Jeremy Opolsky (16:49:53)

One might say that’s nuance, David, but what, what’s nuance in property law?

[Laughter]

Andrew Bernstein (16:54:41)

Optional at best, and I, but I mean sometimes in the judicial decision.

So Jeremy, last word to you on this one. This case is all in the context of a class action certification fight. And I've observed from time to time that private law has decided at the end of a trial, and private law in the context of class action certification fights, aren't always treated exactly the same way.

Do you have any sense that this—the outcome here was in any way guided by the fact that we were still at the certification stage? Or, you know.

Jeremy Opolsky (17:27:59)

So—and I, I'm going to try to be brief on this, but I think, no. I think I'll my, my bottom line is I don't think so, at least mostly not. I think most of this analysis, as I read it, is on the pleadings and whether there's an appropriate cause of action, pleaded and negligence. And there isn't, because, as Yael very briefly, and David at great length, has explained, there's no—

Andrew Bernstein (17:49:53)

Medium length! Medium length.

[Laughter]

Jeremy Opolsky (17:50:40)

There's no negligence in the err and there's a consideration of the bounds of economic loss on what is claimed and what isn't claimed here. And of course, there's some analysis here, whether there's an, a basis in fact, and what the expert has said, and that in and of itself wouldn't have been available on a motion to strike in Ontario under Rule 21, but it would be available in summary judgement.

But more, but ultimately, at its heart, this is a legal analysis, and there's a trend that we're seeing from the Supreme Court and now spreading to appellate courts, for Maple Leaf Foods and Babstock onwards, that we benefit when issues of law are decided by our appellate courts with finality and with some measure—I don't want to go crazy here, but some measure of black letter law.

And they're saying we don't need to delve into all the facts. We don't need to have, you know, 1,400 pages of, of affidavits. What we need is understand what the law is and where the law draws those, those boundaries. So, I really quite applaud the OCA for giving us this guidance, with—agree with it or not, I think it's really helpful to have guidance, as it helps people carry out lawsuits with, with knowledge of what will and won't pass the guiding line.

And with the extra time that I've saved myself, I’m going to remind everyone, of course, that we welcome your questions and we might even send you a mug if, if you share them with us. So. Back to you, Andrew.

Andrew Bernstein (19:13:27)

Okay. Thanks, Jeremy.

David Outerbridge (19:14:04)

Okay, I’m going to go off script. Look out. I'm off script. The one, the one niggling thing about this case that I found distracting is that it seems intuitive, that if you're driving your car and the timing belt goes and your engine is “grenaded,” you know, as my son would say, and you're on highway 407 or some speedy motorway, and your car suddenly stops moving forward, that could create a danger to human safety or property damage to other people's vehicles.

The court said that that danger was speculative, that it was ever a possible danger, not a proven danger, where there is some evidence that, you know, some basis in fact to support it. It's odd to me that it would fail based on that evidentiary gap, when it seems logical to assume that that would be the case. But—

Jeremy Opolsky (19:58:15)

But, David, what—I mean, I what I find interesting about this case is they said because it would be in some cases, cheaper to abandon the car than it would be to repair the car, that that solves that crisis because it would expect people—

David Outerbridge (20:10:57)

If you're not in the 407 when it happens.

Jeremy Opolsky (20:12:36)

Yeah.

[Laughter]

Yael Bienenstock (20:12:52)

That presumes you abandoned it before the danger materialized.

Jeremy Opolsky (20:15:09)

I, I guess the reality here is they're saying that if, if your car does “grenade” or whatever, your timing belt fails and you get into an accident on the 407 or something, you can sue. But absent that actual—absent it happening, then you can't. And I guess that's just a problem for the—

Yael Bienenstock (20:29:34)

We could all talk about, you know, the incentives here about having to have an accident before you can sue [laughter] as opposed to avert it.

[Laughter]

David Outerbridge (20:36:49)

Yeah.

Andrew Bernstein (20:41:41)

That about wraps up our conversation. Before we go, I want to remind our listeners that they can find the webinar version of this edition of Breakfast With Appeal, along with previous episodes on torys.com, and that our BWA program is eligible for one substantive hour of continuing professional development. Thanks again for joining us and take care.