Hughes v. Sunbeam Corp. (Canada) Ltd., 2002 CanLII 45051 (ON CA)

Hughes v. Sunbeam Corporation (Canada) Limited et al. [Indexed as: Hughes v. Sunbeam Corp. (Canada) Ltd.]

61 O.R. (3d) 433

[2002] O.J. No. 3457

Docket No. C35521

Court of Appeal for Ontario,

Catzman, Doherty and Laskin JJ.A.

September 11, 2002

• Application for leave to appeal to the Supreme Court of Canada dismissed with costs May 22, 2003 (Gonthier, Major and Arbour JJ.). S.C.C. File No. 29440. S.C.C. Bulletin, 2003, p. 843.

Civil procedure -- Class proceedings -- For every defendant named in class action there must be representative plaintiff who has valid cause of action against defendant -- Plaintiff could not maintain action against defendants against whom he did not have reasonable cause of action on basis that other class members would have claims against those defendants if action certified as class action.

Torts -- Negligence -- Duty of care -- Plaintiff claimed to have purchased defective ionization smoke alarm -- Plaintiff brought action in negligence against independent tester and endorser of smoke alarm -- Plaintiff sought to recover only economic loss in form of refund and cost of removing defective alarm and installing new one -- Negligence claim properly struck on motion by tester under rule 21.01(1)(b) -- Parties did not have sufficiently close and direct relationship to justify imposing duty of care on tester to compensate plaintiff for his economic loss -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(1)(b). [page434]

Torts -- Negligence -- Economic loss -- Plaintiff purchased allegedly defective ionization smoke alarm from defendant -- Plaintiff sought to recover only economic loss in form of refund and cost of removing defective alarm and installing new one -- Motions judge erred in striking claim on motion under rule 21.01(1)(b) as disclosing no reasonable cause of action -- Smoke detector defective but not dangerous as that word has been used in case law so plaintiff's negligence claim would likely fail under current state of law -- Causes of action should not be barred on rule 21.01(1)(b) motion because they are novel -- Smoke detector that does not detect fires on time is not dangerous in itself but reliance on it is -- Threatened harm to persons or property is no less than that from dangerous defect -- Claim should be permitted to go forward -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(1)(b).

The plaintiff purchased an ionization smoke alarm from the defendant F Inc. which he claimed was defective and unreliable. He began a proposed class action on behalf of all persons in Canada who bought ionization smoke alarms manufactured by the defendants S Ltd., F Inc., BRK Inc. and P Corp. (collectively the "S defendants") and certified and approved by the defendant ULC. He alleged that the S defendants designed, manufactured, tested and promoted the ionization detectors and then placed them into the stream of commerce, knowing that they were defective. He sued for negligent design and construction, breach of duty to warn, breach of contract and fraudulent or negligent misrepresentation in the advertising, packaging and labelling of the smoke alarms. ULC was not a supplier of smoke alarms. It was an independent tester and endorser of these and other products. The plaintiff alleged that ULC was negligent by setting inadequate safety standards, by approving and certifying a product it knew or ought to have known was unsafe and unreliable and by failing to warn of the ineligibility of ionization smoke alarms, and that it negligently misrepresented that its testing standards were reasonable and that each ionization smoke alarm was a safe and reliable stand-alone safety device. The plaintiff sought damages equivalent to a refund of the purchase price of his smoke alarm and the cost of removing it and installing a replacement. On motions by the defendants under rule 21.01(1)(b) of the Rules of Civil Procedure to strike the statement of claim as disclosing no reasonable cause of action, the motions judge struck the claim in its entirety but gave the plaintiff leave to amend his claim to properly plead negligent misrepresentation and breach of collateral contract against F Inc. and negligent misrepresentation against ULC. He refused to permit the plaintiff to maintain an action against S Ltd., BRK Inc. and P Corp., and he precluded the plaintiff from suing either F Inc. or ULC in negligence for recovery of economic loss. The plaintiff appealed.

Held, the appeal should be allowed in part.

As the plaintiff bought his ionization smoke alarm from the defendant F Inc., he could not maintain his action against the rest of the S defendants, despite the fact that, if the action was certified as a class action, other class members would have claims against those defendants. Section 35 of the Class Proceedings Act, 1992, S.O. 1992, c. 6 provides that "the rules of court apply to class proceedings." Thus, even before certification, a defendant may bring a motion under rule 21.01(1)(b) to strike a representative plaintiff's claim on the ground that it discloses no reasonable cause of action. If the representative plaintiff does not have a cause of action against the named defendant, the claim against that defendant will be struck out. For each defendant who is named in a class action there must be a representative plaintiff who has a valid cause of action against that defendant. The [page435] plaintiff could not claim to have a reasonable cause of action against the S defendants who did not manufacture the smoke alarm he purchased. The plaintiff could not maintain his action against the S defendants other than F Inc.

The plaintiff's claim against F Inc. sought to recover only economic losses. He did not allege that his alarm failed to detect a fire which then caused him physical harm or damage to property. Canadian courts have limited recovery for pure economic loss. Five categories of cases have been recognized as permitting recovery in tort for economic losses: (1) the independent liability of statutory public authorities; (2) negligent misrepresentation; (3) negligent performance of a service; (4) negligent supply of shoddy goods or structures; and (5) relational economic loss. The plaintiff's claim against F Inc. fell into the fourth category, the negligent supply of shoddy or defective goods. But within this category not all claims for economic loss have been held to be compensable. The distinction is drawn between products that were not merely defective but dangerous, and products that, though defective, were not dangerous. Recovery has been restricted to the former category. The motions judge fastened on the distinction between dangerous and non-dangerous defects in dismissing the negligence claim against F Inc. Defective smoke alarms are not dangerous, as that word has been used in the case law. Under the current state of the law, the plaintiff's negligence claim against F Inc. would likely fail. However, on a motion under rule 21.01(1)(b), causes of action should not be barred simply because they are novel. Compelling reasons existed to allow the negligence claim against F Inc. to get over the rule 21.01(1) (b) hurdle. The underlying rationale for permitting recovery for pure economic loss is safety: the prevention of threatened harm. By compensating the owner of a dangerously defective product for the cost of repair, the law can encourage the owner to make the product safe before it causes injury to persons or property. By contrast, compensation to repair a defective but not dangerous product will improve the product's quality, but not its safety. This case fell on the border. A smoke detector that does not detect fires in time for occupants to escape injury is not itself dangerous, but relying on it is. The occupants are lulled into a false sense of security. The threatened harm to persons or property is no less than that from a dangerous product. The safety considerations are similar. This claim showed that in the negligent supply of defective goods cases, the safety rationale for compensation does not always support a clear distinction between dangerous and non-dangerous defects. It was not clear that the plaintiff's negligence claim against F Inc. disclosed no reasonable cause of action. As a supplier of allegedly defective safety devices on which reliance was dangerous, F Inc. might well owe a duty of care to a purchaser that was not defeated by the relevant policy considerations. This claim should not fail on a rule 21.01(1)(b) motion.

The plaintiff's claim against ULC in negligence for pure economic loss did not disclose a reasonable cause of action. The broad question here was whether an independent tester and endorser of a product owes a duty of care to the purchaser of that product if the product turns out to be dangerously defective or if reliance on the defective product proves dangerous. Canadian courts have not yet recognized that an independent tester and endorser -- in setting safety standards and testing products -- owes a duty of care to the ultimate consumer of a product it has tested and approved. Lack of previous recognition does not bar a claim from going forward, especially on a rule 21.01(1)(b) motion. The court could recognize a new category. However, the parties here did not have the necessary close and direct relationship that would justify imposing a duty of care on ULC to compensate the plaintiff for his economic loss. Even if a prima facie duty of care did exist, residual policy considerations would negate the duty. The plaintiff's claim raised the spectre of indeterminate liability in an indeterminate amount, a limiting [page436] principle in all economic loss claims. A second and related consideration was that imposing a duty of care on ULC would effectively create an insurance scheme for dissatisfied purchasers, a scheme for which the purchasers had paid nothing. Finally, manufacturers are better positioned to ensure the supply of safe products and provide a more efficient target for redress if their products prove to be unsafe. The law should not expand duties of care at the price of encouraging needless and expensive litigation.

APPEAL from an order of Cumming J. (2000), 2000 22685 (ON SC), 2 C.P.C. (5th) 335, 11 B.L.R. (3d) 236 (S.C.J.) striking a statement of claim.

Anns v. Merton London B.C., [1978] A.C. 728, [1977] 2 W.L.R. 1024, 121 Sol. Jo. 377, 75 L.G.R. 555 (H.L.), apld Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 105 (SCC), [1992] 1 S.C.R. 1021, 91 D.L.R. (4th) 289, 137 N.R. 241, 11 C.C.L.T. (2d) 1 (sub nom. The Tug "Jervis Crown"); Cooper v. Hobart, 2001 SCC 79, 96 B.C.L.R. (3d) 36, 206 D.L.R. (4th) 193, 277 N.R. 113, [2001] 11 W.W.R. 221, 8 C.C.L.T. (3d) 26 (sub nom. Cooper v. Registrar of Mortgage Brokers (B.C.)); Rivtow Marine Ltd. v. Washington Iron Works, 1973 6 (SCC), [1974] S.C.R. 1189, 40 D.L.R. (3d) 530, [1973] 6 W.W.R. 692; Winnipeg Condominium Corp. No. 36 v. Bird Construction Co., 1995 146 (SCC), [1995] 1 S.C.R. 85, 100 Man. R. (2d) 241, 121 D.L.R. (4th) 193, 176 N.R. 321, 91 W.A.C. 241, [1995] 3 W.W.R. 85, 23 C.C.L.T. (2d) 1, 43 R.P.R. (2d) 1, consd Other cases referred to Boulanger v. Johnson & Johnson, [2002] O.J. No. 1075 (Quicklaw) (S.C.J.); Campbell v. Flexwatt Corp. (1997), 1997 4111 (BC CA), 44 B.C.L.R. (3d) 343, [1998] 6 W.W.R. 275, 15 C.P.C. (4th) 1 (C.A.) [Leave to appeal refused (1998), 228 N.R. 197n], revg in part (1996), 1996 3539 (BC SC), 25 B.C.L.R. (3d) 329, 50 C.P.C. (3d) 290 (S.C.), supp. reasons (1996), 3 C.P.C. (4th) 208 (B.C.S.C.); Furlan v. Shell Oil Co. (2000), 2000 BCCA 404, 77 B.C.L.R. (3d) 35, [2000] 7 W.W.R. 433 (C.A.), affg 1999 2644 (BC SC), [1999] 11 W.W.R. 261, 36 C.P.C. (4th) 372 (B.C.S.C.); Harrington v. Dow Corning Corp. (2000), 82 B.C.L.R. (3d) 1, 2000 BCCA 605, 193 D.L.R. (4th) 67, [2000] 11 W.W.R. 201, 2 C.C.L.T. (3d) 158 (C.A.), affg (1996), 1996 3118 (BC SC), 22 B.C.L.R. (3d) 97, [1996] 8 W.W.R. 485, 31 C.C.L.T. (2d) 48, 48 C.P.C. (3d) 28 (S.C.); Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, 115 Man. R. (2d) 241, 146 D.L.R. (4th) 577, 211 N.R. 352, 139 W.A.C. 241, [1997] 8 W.W.R. 80, 31 B.L.R. (2d) 147, 35 C.C.L.T. (2d) 115; Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 49 B.C.L.R. (2d) 273, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105 (sub nom. Hunt v. T & N plc); M'Alister (or Donoghue) v. Stevenson, 1932 536 (FOREP), [1932] A.C. 562, 101 L.J.P.C. 119, 48 T.L.R. 494, 37 Com. Cas. 350, 147 L.T. 281, 76 Sol. Jo. 396, [1932] All E.R. Rep. 1, 1932 S.L.T. 317 (H.L.) (sub nom McAlister (or Donoghue) v. Stevenson); Martel Building Ltd. v. Canada (2000), 2000 SCC 60, [2000] 2 S.C.R. 860, 193 D.L.R. (4th) 1, 262 N.R. 285, 36 R.P.R. (3d) 175, 186 F.T.R. 231n, 3 C.C.L.T. (3d) 1; Ragoonanan v. Imperial Tobacco Canada Ltd. (2000), 2000 22719 (ON SC), 51 O.R. (3d) 603, 4 C.C.L.T. (3d) 132 (S.C.J.); Stone v. Wellington (County) Board of Education (1999), 1999 1886 (ON CA), 29 C.P.C. (4th) 320 (Ont. C.A.) Statutes referred to Class Proceedings Act, 1992, S.O. 1992, c. 6, ss. 31(1), 35 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(1) (b) Authorities referred to Feldthusen, D., "Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow" (1991) 17 Can. Bus. L.J. 356 [page437]

Ronald Flom and Robert W. Trifts, for appellant. Peter F.C. Howard and Patrick O'Kelly, for respondents Sunbeam Corporation (Canada) Limited, First Alert Inc., BRK Brands Inc. and Pittway Corporation. Paul J. Martin and Paul F. Monahan, for respondent Underwriters' Laboratories of Canada.

The judgment of the court was delivered by

LASKIN J.A.: --

A. Introduction

1This appeal raises questions about the scope of recovery in negligence for pure economic loss. The appellant Trevor Hughes owns a First Alert ionization smoke alarm, which he claims is defective and unreliable. He began a proposed class action on behalf of all persons in Canada who bought ionization smoke alarms manufactured by the respondents Sunbeam Corporation (Canada) Limited, First Alert Inc., BRK Brands Inc. and Pittway Corporation (collectively the "Sunbeam defendants"), and certified and approved by the respondent Underwriters' Laboratories of Canada ("ULC"). He asserted causes of action in misrepresentation, negligence and breach of contract, and sought damages equivalent to a refund of the purchase price of his smoke alarm and the cost of removing it and installing a replacement.

2On motions by the respondents to strike the statement of claim as disclosing no reasonable cause of action, Cumming J. struck the claim in its entirety because of its "extensive shortcomings". He gave Hughes leave to amend his claim to properly plead negligent misrepresentation and breach of collateral contract against First Alert and negligent misrepresentation against ULC. But he refused to permit Hughes to maintain an action against Sunbeam, BRK Brands and Pittway; and he precluded Hughes from suing either First Alert or ULC in negligence for recovery of economic loss. Hughes appeals. His appeal raises these four issues:

1. May Hughes maintain his action against Sunbeam, BRK Brands and Pittway?

2. Does Hughes' claim against First Alert in negligence for economic loss disclose a reasonable cause of action? [page438]

3. Does Hughes' claim against ULC in negligence for economic loss disclose a reasonable cause of action?

4. Did the motions judge err in ordering Hughes to pay the costs of the motions?

B. Background

3The respondents' motions were brought under rule 21.01(1) (b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. I will therefore assume -- as the motions judge did -- that the allegations in the statement of claim are true. And -- as the motions judge did -- I will apply the test in Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 74 D.L.R. (4th) 321: assuming that the facts pleaded could be proved, is it plain and obvious that the plaintiff's statement of claim discloses no reasonable cause of action? The following is a summary of Hughes' allegations.

4Hughes brought this proposed class action on behalf of ten million Canadians who own allegedly defective ionization smoke detectors. These detectors use a critical component known as 83R. Hughes claimed that the ionization technology, using the 83R component, is inherently unreliable because it is incapable of detecting smoke and smouldering fires soon enough to allow occupants to escape from their homes without injury. He contended that smoke alarms using photoelectric technology or a combination of photoelectric and ionization technologies are better able to detect smoke from slow smouldering fires.

5Hughes alleged that the Sunbeam defendants designed, manufactured, tested and promoted these ionization detectors and then placed them into the stream of commerce, all the while knowing that they were defective. He sued for negligent design and construction, breach of duty to warn, breach of contract and fraudulent or negligent misrepresentation in the advertising, packaging and labelling of these smoke alarms.

6Hughes also alleged that ULC was negligent by setting inadequate safety standards, by approving and certifying a product it knew or ought to have known was unsafe and unreliable and by failing to warn of the ineligibility of ionization smoke alarms, and that it negligently misrepresented that its testing standards were reasonable and that each ionization smoke alarm was a safe and reliable stand-alone safety device.

7Hughes has claimed a refund of the purchase price of his defective smoke alarm -- estimated at $20 -- and the cost of both removing it and installing a replacement.

8I turn now to the issues in the appeal. [page439]

C. Analysis

9Before dealing with the four issues I have outlined, I will deal briefly with Hughes' contention that the motions judge should have permitted his entire pleading to stand and should not have required him to amend to maintain his action. I see no merit in this contention. The motions judge characterized the statement of claim as rambling and lacking in clarity. His characterization was correct. So, too, was his conclusion that even the causes of action that Hughes could maintain had not been pleaded properly.

First issue -- May Hughes maintain his action against Sunbeam, BRK Brands and Pittway?

10In his statement of claim, Hughes asserted that he is the owner of an ionization smoke alarm tested, manufactured, distributed, advertised, promoted and placed into the stream of commerce by the Sunbeam defendants. These defendants demanded particulars of the ionization smoke alarm owned by Hughes. He responded that he bought a First Alert model SA88A ionization smoke alarm sometime between March 1996 and March 1999. Hughes did not remember how much he paid for the smoke alarm or where he bought it, though he thought that he bought it from a hardware store in Milton, Ontario. He did not claim to have purchased any other smoke alarms.

11Because of Hughes' response to the demand for particulars, the motions judge dismissed the action without leave to amend against the defendants Sunbeam, BRK Brands and Pittway. He dealt at length with the question whether the Sunbeam defendants could be liable as a single corporate enterprise and held that they could not. In this court, Hughes did not press a group enterprise theory of liability and I will therefore not deal with it further. The motions judge concluded that, because Hughes had purchased only a First Alert smoke alarm, First Alert was the only defendant manufacturer that could be sued.

12Hughes submits that the motions judge erred in his conclusion for two reasons: he wrongly inferred that Hughes' smoke detector was placed in the stream of commerce only by First Alert; and, as a representative plaintiff in a proposed class proceeding under the Class Proceedings Act, 1992, S.O. 1992, c. 6, Hughes need not have a direct cause of action against each defendant sued because potential class members may have claims against these other defendants. I do not agree with these submissions.

13From the response to the demand for particulars, the motions judge could reasonably conclude that Sunbeam, BRK [page440] Brands and Pittway played no role in the design, manufacture or distribution of Hughes' First Alert smoke alarm.

14Hughes is then left with a direct cause of action only against First Alert. Nonetheless, he argues that he should be permitted to maintain his claim against the other Sunbeam defendants because, if the action is certified as a class action, other class members will have claims against these defendants. This argument must fail.

15Section 35 of the Class Proceedings Act provides that "[t]he rules of court apply to class proceedings." Thus, even before certification, a defendant may bring a motion under rule 21.01(1)(b) to strike a representative plaintiff's claim on the ground that it discloses no reasonable cause of action. See Stone v. Wellington (County) Board of Education (1999), 1999 1886 (ON CA), 29 C.P.C. (4th) 320 (Ont. C.A.). And, if the representative plaintiff does not have a cause of action against a named defendant, the claim against that defendant will be struck out. Put differently, as Nordheimer J. said in Boulanger v. Johnson & Johnson, [2002] O.J. No. 1075 (Quicklaw) (S.C.J.): "for each defendant who is named in a class action there must be a representative plaintiff who has a valid cause of action against that defendant."

16Here, as the motions judge said, Hughes cannot claim to have a reasonable cause of action against the defendant manufacturers who did not manufacture the smoke alarm he purchased. He cannot resist a rule 21.01(1)(b) motion by alleging that some as yet unknown members of a proposed class may have a cause of action against these other manufacturers if the class action is certified. See also Ragoonanan Estate v. Imperial Tobacco Canada Ltd. (2000), 2000 22719 (ON SC), 51 O.R. (3d) 603, 4 C.C.L.T. (3d) 132 (S.C.J.) per Cumming J.

17Hughes relies on three decisions of the British Columbia Court of Appeal, in which that court appears to take a different view. In Campbell v. Flexwatt Corp., 1997 4111 (BC CA), [1998] 6 W.W.R. 275, 44 B.C.L.R. (3d) 343 (C.A.), the court held that, in certifying a class action under the British Columbia Class Proceedings Act, "there is no requirement that there be a representative plaintiff with a cause of action against every defendant." See also Harrington v. Dow Corning Corp., 2000 BCCA 605, [2000] 11 W.W.R. 201, 193 D.L.R. (4th) 67 (B.C.C.A.). The same principle emerges from Furlan v. Shell Oil Co., 2000 BCCA 404, [2000] 7 W.W.R. 433, (2000), 77 B.C.L.R. (3d) 35 (C.A.), albeit in the context of a foreign defendant's challenge to service outside the jurisdiction. None of these three cases is strictly analogous to the present one. None of them dealt with a motion to strike a claim on the basis that it disclosed no reasonable cause of action. Nevertheless, these cases signal that the British Columbia courts [page441] may be more willing to let a proposed class action proceed against defendants against whom no representative plaintiff has a claim. To the extent that these British Columbia decisions conflict with the Ontario cases of Boulanger and Ragoonanan, I prefer the reasoning in the Ontario cases.

18In Ontario, a statement of claim must disclose a cause of action against each defendant. Thus, in a proposed class action, there must be a representative plaintiff with a claim against each defendant. Hughes, therefore, may not maintain his action against Sunbeam, BRK Brands and Pittway.

Second issue -- Does Hughes' claim against First Alert in negligence for economic loss disclose a reasonable cause of action?

19The motions judge concluded that Hughes could not sue First Alert "in tort for alleged negligence seeking to recover economic loss". The main basis for his conclusion was that smoke alarms are not dangerous products. Hughes contends that the motions judge erred in striking out his negligence claim against First Alert. He submits that it is not plain and obvious this claim must fail and therefore it should be allowed to proceed. I agree with this submission.

20Hughes' claim against First Alert seeks to recover only economic losses -- a refund of the cost of his existing smoke alarm and the costs of removing it and installing a new one. He does not allege that his First Alert's alarm failed to detect a fire, which then caused him or his family physical harm or damage to their property. Absent accompanying physical or property damage, Canadian courts have limited recovery for economic losses. The policy considerations for doing so have recently been summarized by the Supreme Court of Canada in Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860 at p. 876, 193 D.L.R. (4th) 1:

The circumstances in which such damages have been awarded to date are few. To a large extent, this caution derives from the same policy rationale that supported the traditional approach not to recognize the claim at all. First, economic interests are viewed as less compelling of protection than bodily security or proprietary interests. Second, an unbridled recognition of economic loss raises the spectre of indeterminate liability. Third, economic losses often arise in a commercial context, where they are often an inherent business risk best guarded against by the party on whom they fall through such means as insurance. Finally, allowing the recovery of economic loss through tort has been seen to encourage a multiplicity of inappropriate lawsuits.

21Whether tort recovery for pure economic loss will be permitted must be determined by applying the two-stage test drawn from Lord Wilberforce's judgment in Anns v. Merton London B.C., [1978] A.C. 728, [1977] 2 W.L.R. 1024 (H.L.): [page442]

(i) Is there a sufficiently close relationship between the parties so that, in the reasonable contemplation of the defendant, carelessness on its part might cause damage to the plaintiff?

(ii) If so, are there any policy considerations that should negate or limit the scope of the prima facie duty of care, the class of persons to whom it is owed or the damage to which a breach of it might give rise?

22In applying the Anns test, the Supreme Court has recognized five categories of cases that may permit recovery in tort for economic losses. See Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 105 (SCC), [1992] 1 S.C.R. 1021, 91 D.L.R. (4th) 289. These five categories, drawn from Dean Feldthusen's article, "Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow" (1991) 17 Can. Bus. L.J. 356, are:

1. the independent liability of statutory public authorities,

2. negligent misrepresentation,

3. negligent performance of a service,

4. negligent supply of shoddy goods or structures, and

5. relational economic loss.

23Hughes' claim against First Alert falls into the fourth category, the negligent supply of shoddy or defective goods. But within this category not all claims for economic loss have been held to be compensable. In Winnipeg Condominium Corp. No. 36 v. Bird Construction Co., 1995 146 (SCC), [1995] 1 S.C.R. 85, 121 D.L.R. (4th) 193, the court distinguished between construction or products that were not merely defective but dangerous and construction or products that though defective were not dangerous. Dangerous defects are those "defects resulting from . . . negligence which pose a real and substantial danger to the occupants of the building" [p. 102 S.C.R.]. Although La Forest J. was careful not to say that only dangerous defects warrant recovery for economic loss, in Winnipeg Condominium itself, the dangerousness of the defect was the central reason recovery was permitted.

24In the present case, the motions judge fastened on the distinction between dangerous and non-dangerous defects in dismissing the negligence claim against First Alert. Defective smoke detectors differ from defective cladding that threatens to fall off the side of an apartment building (Winnipeg Condominium) or a defective barge crane that is likely to collapse and cause injury [page443] (Rivtow Marine Ltd. v. Washington Iron Works, 1973 6 (SCC), [1974] S.C.R. 1189, 40 D.L.R. (3d) 530). Defective smoke alarms are not dangerous, as that word has been used in the case law.

25I accept that, under the current state of the law, Hughes' negligence claim against First Alert would likely fail. But this appeal is from a rule 21.01(1)(b) motion, where causes of action should not be barred simply because they are novel. In my view, compelling reasons exist to allow the negligence claim against First Alert to get over the rule 21.01(1)(b) hurdle.

26The underlying rationale for permitting recovery for pure economic loss in a case like Winnipeg Condominium is safety, the prevention of threatened harm. By compensating the owner of a dangerously defective product for the cost of repair, the law can encourage the owner to make the product safe before it causes injury to persons or property. By contrast, compensation to repair a defective but not dangerous product will improve the product's quality but not its safety.

27This case falls on the border. A smoke detector that does not detect fires in time for occupants to escape injury is not itself dangerous, but relying on it is. The occupants are lulled into a false sense of security. The threatened harm to persons or property is no less than that from a dangerous defect. In other words, the safety considerations are similar. Safety justified compensating the owner of the apartment building in Winnipeg Condominium to eliminate the dangerously defective cladding. Safety may also justify compensating the owner of a defective smoke alarm to eliminate dangerous reliance on it.

28This claim thus shows that in the negligent supply of defective goods cases, the safety rationale for compensation does not always support a clear distinction between dangerous and non-dangerous defects. During oral argument, my colleague Doherty J.A. illustrated this point by another apt example: a defective air bag in a car. If the defect threatens to cause the air bag to malfunction and injure a child riding in the car, under the current law the owner of the car may recover the cost of repairing the air bag. The defect is dangerous. But if the air bag simply does not work and therefore will not protect the child from harm if a collision occurs, under the current law recovery may be denied. The defect is not dangerous, though reliance on the product is. If safety is the rationale for recovery of economic loss in these kinds of cases, I find it hard to justify recovery in the first scenario but not the second.

29For these reasons, I am not persuaded that Hughes' negligence claim against First Alert discloses no reasonable cause of action. As a supplier of allegedly defective safety devices on [page444] which reliance is dangerous, First Alert may well owe a duty of care to a purchaser that is not defeated by the relevant policy considerations. This claim should not fail on a rule 21.01(1)(b) motion. Before deciding whether First Alert owes a duty of care to compensate Hughes for purely economic losses, the court should have an evidentiary record.

30At least five other considerations, individually or collectively, may affect this decision. First, the spectre of indeterminate liability arises here. Unlike Winnipeg Condominium or Rivtow Marine, where liability was limited to a small number of persons, liability in this case might embrace a large number of potential claimants.

31Second, to eliminate the defect, Hughes asked for a different remedy from the remedy awarded in the decided cases. What was sought in Winnipeg Condominium and Rivtow Marine was the cost of repairs; what Hughes seeks is a refund for the defective ionization smoke alarm (estimated at $20) and the cost of removing the defective alarm and installing a new one. Although Hughes stops short of asking for the purchase price of a replacement alarm, the remedy he does seek is novel.

32Third, Hughes has an option to eliminate the defect not realistically available to the owner of an apartment building or a barge crane. He can simply discard his defective smoke alarm.

33Fourth, Hughes' claim may be more about product quality than about product defects. A $20 smoke alarm may not perform as effectively as a $100 one. In short, the First Alert smoke detector may not be "defective" at all. For its low cost, it may be giving its owners all the protection they bargained for. Indeed, Hughes' pleading raises this possibility by alleging that a smoke alarm using both ionization and photoelectric technologies will perform better than one, like the First Alert alarm, using only ionization technology. Whether tort law should regulate price and quality issues for products not themselves dangerous may have to be considered in this case.

34Finally, this case raises questions about the relationship between contract and tort. A claim for a refund of the purchase price of a defective item may appear novel when framed in tort, but it is [a] typical contractual claim.

35These five considerations make the imposition of liability on First Alert problematic. But these concerns are better addressed on an evidentiary record. At the pleading stage I do not consider it "plain and obvious" that Hughes' negligence claim against First Alert must fail. I would therefore allow this part of the appeal and dismiss First Alert's motion to strike out, without leave to amend, the negligence claim against it. [page445]

Third issue -- Does Hughes' claim against ULC in negligence for economic loss disclose a reasonable cause of action?

36The motions judge gave Hughes leave to amend his statement of claim to assert a cause of action in negligent misrepresentation against ULC. As ULC has not cross-appealed this ruling, it is not before this court. However, Hughes' negligence claim against First Alert is a live issue on the appeal. As with the Sunbeam defendants, the motions judge concluded that it was not open to Hughes to sue ULC in negligence to recover pure economic loss. Hughes was therefore foreclosed from suing ULC for negligently setting inadequate safety standards, for negligently approving and certifying a product it knew or ought to have known was unsafe and unreliable and for negligently failing to warn of the unreliability of ionization smoke alarms. Hughes submits that the motions judge should have permitted the negligence claim against ULC to proceed to trial. I do not agree. Instead, I agree with the motions judge's conclusion that the negligence claim does not disclose a reasonable cause of action, though I do so for somewhat different reasons.

37The broad question here is whether an independent tester and endorser of a product owes a duty of care to the purchaser of that product if the product turns out to be dangerously defective or if reliance on the defective product proves dangerous. Thus, the negligence claim against ULC differs from the negligence claim against First Alert. The negligence claim against First Alert falls into the fourth of the five categories of recovery for economic loss recognized by the Supreme Court of Canada: the negligent supply of defective goods or structures. First Alert supplied the smoke alarm that Hughes alleges is dangerously defective.

38ULC, however, is not a supplier of smoke alarms. It is an independent tester and endorser of these and many other products. Hughes' claim against ULC therefore does not fit easily within this fourth category. Instead, it seems to me that the claim against ULC for negligence in setting safety standards and testing and approving products either falls into the third recognized category -- the negligent performance of a service -- or, more likely, must be viewed as a category of economic loss not yet recognized by Canadian courts. In either case the claim against ULC must be analyzed using the two-stage Anns test. But the relevant policy considerations will differ from those underlying the recognized duty of care to supply non-dangerous goods.

39The motions judge did apply the Anns test. He held it was [page446] "at least arguable" that ULC owes Hughes a prima facie duty of care because it may have been foreseeable that Hughes would suffer a loss from ULC's negligence in testing or setting standards for smoke detectors. The motions judge concluded, however, that policy considerations at the second stage of the Anns test provide "compelling justification to bar the plaintiff's claim". I agree that residual policy considerations would defeat recognition of Hughes' claims. I do not, however, think it necessary to go to the second stage of the Anns test because, in my view, ULC does not even owe a prima facie duty of care.

40The recent Supreme Court of Canada judgment in Cooper v. Hobart, 2001 SCC 79, 206 D.L.R. (4th) 193 -- released after the motions judge's decision -- emphasizes that recognition of a prima facie duty of care at the first stage of the Anns test requires both foreseeability and proximity. Even accepting that it is foreseeable Hughes might suffer harm from ULC's negligence, the proximity requirement has not been met.

41Proximity focuses on the relationship between the parties. In Lord Atkin's words in M'Alister (Donoghue) v. Stevenson, 1932 536 (FOREP), [1932] A.C. 562, 101 L.J.P.C. 119 (H.L.), proximity means the "close and direct" relationship needed to establish a duty of care. Or as La Forest J. wrote in Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165 at pp. 187-88, 146 D.L.R. (4th) 577:

The label "proximity", as it was used by Lord Wilberforce in Anns, supra, was clearly intended to connote that the circumstances of the relationship inhering between the plaintiff and the defendant are of such a nature that the defendant may be said to be under an obligation to be mindful of the plaintiff's legitimate interests in conducting his or her affairs.

42As the Supreme Court held in Cooper, relationships that are sufficiently proximate to warrant imposing a duty of care are normally identified by using categories. The court has already recognized a number of categories of relationships that exhibit the required proximity.

43I do not believe Canadian courts have yet recognized that an independent tester and endorser -- in setting safety standards and testing products -- owes a duty of care to the ultimate consumer of a product it has tested and approved. Lack of previous recognition, of course, does not bar a claim from going forward, especially on a rule 21.01(1)(b) motion. The court could recognize a new category. But, in my view, the parties here do not have the necessary "close and direct" relationship that would justify imposing a duty of care on ULC to compensate Hughes for his economic loss. [page447]

44Two main considerations suggest that the proximity requirement has not been met. First, an independent tester and endorser, like ULC, approves products for the benefit of the entire public. By doing so, it encourages manufacturers to design and build their products safely. But it does not undertake responsibility to protect individual homeowners from economic loss if a product it has approved turns out to be defective. Second, it hardly seems fair and just to permit an individual who has not paid for a valuable service like testing to sue the tester when the service is negligently performed. For these reasons, Hughes' negligence claim against ULC does not pass the first stage of the Anns test. Proximity has not been established. Therefore, no duty of care exists.

45Even if a prima facie duty of care did exist, residual policy considerations at the second stage of the Anns test would negate the duty. These residual considerations go beyond the relationship between the parties. They concern broader legal and societal interests: see Cooper. Three stand out.

46First, Hughes' claim raises the spectre of indeterminate liability in an indeterminate amount, a limiting principle in all economic loss claims. The motions judge made this point well at para. 97 of his reasons:

Another important issue is indeterminate liability. To extend liability beyond the limited scope set out in Winnipeg Condominium Corp. No. 36 would create a serious risk of imposing liability in an indeterminate amount. This is of particular concern with respect to ULC. Unlike the manufacturer or retailer, ULC may not profit from each unit sold, or may receive a very small profit. It has, after all, only been involved in the testing of the product. Conceivably, someone in the position of ULC may set standards for a product, for which it is paid, and then be liable for every unit sold if it was negligent in the setting of those standards. In both Rivtow and Winnipeg Condominium Corp. No. 36, at issue was a single structure. Here, we are dealing with liability for a mass-produced product. Given that a defendant in the position of ULC is so far removed in the production process, for it to bear the cost of consumers' contract-like losses could risk bankrupting it.

47The position of ULC can be contrasted with that of First Alert. As a supplier of ionization smoke alarms, First Alert presumably profited from their sale in proportion to the number of units sold. Thus, the danger of imposing indeterminate liability, though present, is a less compelling policy consideration in the claim against it than in the claim against ULC.

48A second and related consideration is that imposing a duty of care on ULC would effectively create an insurance scheme for dissatisfied purchasers, a scheme for which the purchasers have paid nothing. [page448]

49Finally, manufacturers are better positioned to ensure the supply of safe products and provide a more efficient target for redress if their products prove to be unsafe. The law should not expand duties of care at the price of encouraging needless and expensive litigation.

50I agree with the motions judge that Hughes' claim against ULC in negligence for pure economic loss does not disclose a reasonable cause of action. I would therefore dismiss the appeal against ULC.

Fourth issue -- Did the motions judge err in ordering Hughes to pay the costs of the motions?

51The motions judge ordered Hughes to pay the respondents their costs of the motions. Hughes relies on s. 31(1) of the Class Proceedings Act to support his submission that no costs should have been ordered against him. He contends that his claim should be treated as a test case, a novel point of law or a matter of public interest.

52His pleading does raise novel issues. But that consideration does not justify interfering with the motions judge's discretion in ordering costs. Regardless of the causes of action raised in the statement of claim -- even those permitted to go to trial -- the pleading has to be redone because it was so poorly drafted. Its "extensive shortcomings", requiring it to be struck out with leave to amend, support the motions judge's costs order.

D. Conclusion

53I would dismiss Hughes' appeal of the order striking out his claims against Sunbeam, BRK Brands and Pittway. I would allow Hughes' appeal of the order striking out his negligence claim against First Alert and permit him to amend his statement of claim to plead a cause of action in negligence against First Alert for the recovery of economic loss. Because Hughes partly succeeded and partly failed against the Sunbeam defendants (who were represented by the same counsel), I would order no costs as between these parties. I would dismiss with costs Hughes' appeal of the order striking out his negligence claim against ULC. Should counsel wish the court to fix these costs, they may make submissions in writing.