Privity & Products Liability

This page was last modified on August 24, 2000. There are no plans to update it further.

The Legal Guide includes scope/coverage of legislation, express warranties, implied warranties, privity & products liability, remedies and waivers. Also included are the full text of the legislation, cases (indexed by name, section of Act considered, product, judge & date), law review articles, background law reform reports, top 10 list and table of contents.

This website was created by Karl Dore, the principal architect of the Consumer Product Warranty and Liability Act. It is intended to provide information on the legislation, not to give or offer individual legal advice. For further assistance contact New Brunswick's Consumer Affairs Branch or one of the Rentalsman Offices.

This page was last modified on August 24, 2000. 

Table of Contents

PROTECTION FOR PERSONS NOT PRIVY TO CONTRACT

DANGEROUSLY DEFECTIVE GOODS

Protection for persons not privy to contract

The Consumer Product Warranty and Liability Act (CPWALA provides important protection for parties not privy to the contract between the seller and the buyer.

It makes fundamental changes to the privity of contract rules, both

  • "vertical" privity rules, and
  • "horizontal" privity rules.

CPWALA text

REMEDIES WHERE NO PRIVITY OF CONTRACT

23 Where the seller is in breach of a warranty provided by this Act, any person who is not a party to the contract but who suffers a consumer loss because of the breach may recover damages against the seller for the loss if it was reasonably foreseeable at the time of the contract as liable to result from the breach.

1(1) "seller" means the person who is the supplier under a contract for the sale or supply of a consumer product;

"consumer loss" means

(a) a loss that a person does not suffer in a business capacity; or

(b) a loss that a person suffers in a business capacity to the extent that it consists of liability that he or another person incurs for a loss that is not suffered in a business capacity;

"loss" means loss or damage of any kind, including economic loss, damage to property and personal injury;

Cases

Vertical privity rules

Consumer buyer's rights under section 23. In order to understand the scope of section 23, bear in mind that the CPWALA warranties apply to any sale or supply of a consumer product to anyone by anyone who is a distributor of consumer products of that kind. Forgetting this is a common mistake -- and a big one, because it results in failing to see how section 23 applies throughout the entire distribution chain, from the manufacturer right down to the ultimate consumer, and outside the distribution chain as well.

CPWALA text

2(1) Subject to subsection (2), this Act applies to every sale or supply of a consumer product.

1(1) "consumer product" means any tangible personal property, new or used, of a kind that is commonly used for personal, family or household purposes;

2(2) This Act does not apply to the sale or supply of a consumer product by a seller or supplier

(a) who is not a distributor of consumer products of that kind and does not hold himself out as such; or

(b) who is acting as a trustee in bankruptcy, receiver, liquidator or sheriff, or who is acting under an order of a court.

1(1) "distributor" means a person who supplies consumer products as part of his regular business and, without limiting the generality of the foregoing, includes a producer, processor, manufacturer, importer, wholesaler, retailer or dealer;

The CPWALA warranties, then, apply in favour of any buyer, regardless of whether that buyer is a private individual or a business corporation, or whether the buyer is the ultimate consumer or a distributor of the goods, e.g. retailer. The buyer's seller may be any distributor, regardless of whether that distributor is a retailer, a wholesaler, a manufacturer, an importer, or some other distributor. So the CPWALA warranties apply throughout the chain of distribution -- e.g. they apply to the manufacturer's sale to the wholesaler, the wholesaler's sale to the retailer and, of course, the retailer's sale to the ultimate consumer.

If the buyer's seller breaches one of the CPWALA warranties, section 23 gives protection to persons who are not privy to the contract between that seller and that buyer. Section 23 protects any person against any "consumer loss" that was reasonably foreseeable at the time of the contract as liable to result from the breach and that did so result.

Since "consumer loss" is defined to include "a loss that a person does not suffer in a business capacity," and "loss" is defined to mean "loss or damage of any kind, including economic loss, damage to property and personal injury," section 23 gives extensive protection indeed to the non-business consumer buyer against sellers with whom the consumer has had no dealings whatever.

For example, suppose that the manufacturer of a personal computer sells it to one of its dealers, who in turn resells it to a consumer who buys for personal (i.e. non-business) use. It turns out that the computer is defective and the manufacturer is in breach of its section 10 warranty to the dealer. Suppose further that the dealer has gone out of business, and the consumer ends up having to pay $1,000 to have the computer repaired by someone else. Section 23 gives the consumer the right to recover that $1,000 from the manufacturer.

The distribution chain in this example is short -- manufacturer to dealer to consumer. The same reasoning will apply if the chain is longer. For example, if a wholesaler were added to the distribution chain, the consumer could also recover that $1,000 from the wholesaler.

In many (perhaps most) cases, the consumer will not be much concerned about section 23 because the consumer will have all the protection he or she needs under the warranties given by his or her own supplier. But if that supplier has gone out of business, section 23 will be vitally important.

Horizontal privity rules

Subsequent buyers, donees, users & bystanders. Section 23 does not simply change the so-called "vertical privity" rules. It also changes the so-called "horizontal privity" rules. It extends protection to anyone, whether inside or outside the chain of distribution, who suffers a reasonably foreseeable consumer loss on account of a seller's breach of warranty.

Section 23 protection extends to

  • subsequent buyers from the original consumer buyer;
  • donees (e.g. gift);
  • users (e.g. driver or passenger of buyer's car);
  • bystanders (e.g. person injured in accident caused by dangerously defective car).

Business buyer's rights under section 23. Section 23 does not generally apply in favour of business buyers because their losses, being suffered in a business capacity, would not be "consumer losses." (See below for a major exception.)

To take another computer example, suppose that the manufacturer of a personal computer sells it to one of its dealers, which in turn resells it to a restaurant for use in its business. It turns out that the computer is defective and the manufacturer is in breach of its section 10 warranty to the dealer. Suppose further that the dealer has gone out of business, and the restaurant ends up having to pay $1,000 to have the computer repaired by someone else. Section 23 will not give the restaurant the right to recover that $1,000 from the manufacturer because it is not a "consumer loss" but a business loss.

Business buyer's indemnification rights for liability incurred for consumer loss. Although section 23 does not protect business buyers generally, it does apply in favour of business buyers to the extent of giving them indemnification rights for liabilities that they themselves bear for consumer losses. In giving such recourse rights, CPWALA adopts a policy to impose ultimate responsibility for consumer protection on the one who caused the problem in the first place, rather than stopping at the dealer's doorstep. This it does by means of defining "consumer loss" to include "a loss that a person suffers in a business capacity to the extent that it consists of liability that he or another person incurs for a loss that is not suffered in a business capacity."

For example, suppose the following chain of distribution of a defectively manufactured personal computer -- manufacturer to wholesaler to retailer to consumer buying for personal purposes. Section 23 protects the retailer against the manufacturer for the retailer's own liability to the consumer.

Where a consumer product is incorporated into some other thing

Where a consumer product is incorporated into another consumer product, e.g. wax applied to a car. Because CPWALA applies throughout the chain of distribution of a consumer product, section 23 can provide protection against a defective consumer product that has been incorporated into another consumer product.

For example, suppose that defectively manufactured non-commercial car wax is applied to a car. CPWALA, including section 23, would apply to all the distributors in the wax distribution chain.

Case law

In Lanteigne v. Foulem & Blanchard Ltée (1986, N.B. Queen's Bench) it was held that the CPWALA warranties applied to a replacement muffler system installed in a car.

Where a consumer product is incorporated into a non-consumer product, e.g. paint applied to a house. Section 23 can also provide protection against a defective consumer product that has been incorporated into something else that is not a consumer product. This is so even if what is sold or supplied to the ultimate consumer is not the consumer product itself but the thing into which it has been incorporated.

For example, suppose that defectively manufactured non-commercial house paint is applied to a house, and that the house is later sold. CPWALA would not apply to the contract for the sale of the house because the house would not be a consumer product. But it can apply to the paint that was incorporated into the house because that paint was a consumer product. The paint would have been a consumer product when it was sold by the manufacturer, so the CPWALA warranties would apply to that transaction, and so would section 23. CPWALA and its section 23 would apply to all the distributors in the paint distribution chain.

Section 23 rights/remedies are limited. Third parties only have rights under section 23 if a seller is in breach of its warranty to its own buyer. For example, suppose that a manufacturer sells the goods as "seconds" to a retailer, which in turn passes them off as "first class" to the consumer. The consumer will not have any rights against the manufacturer for this, but, of course, the consumer will have rights against the retailer.

Damages only. The only right under section 23 is to damages. Cancellation/rescission of a contract is not available under section 23.

Section 23 and contracting out. To the limited extent that CPWALA allows the contracting parties to contract out of CPWALA -- i.e. section 25 allows them to agree to some exclusions or restrictions on remedies for breach of express warranties -- any such agreement will also limit the rights of third parties.

CPWALA text

25(6) The right of any person claiming under section 23 is limited to the extent of any exclusion or restriction of remedy that the parties agreed to in the contract and that is effective under this section.

Business buyers. Except to the limited extent allowed by section 25, CPWALA does not allow any contracting out of liability for any "consumer loss." And since "consumer loss" is defined to include not only non-business losses but also any business loss to the extent that it represents liability for a non-business loss, the business buyer is given non-excludable recourse rights for such liability. This is a major exception to CPWALA's general rule in section 26 allowing business buyers to waive their CPWALA rights. This exception is made pursuant to CPWALA's policy to trace ultimate responsibility for consumer protection back to the source of the problem, rather than stop at the dealer's doorstep.

CPWALA text

26 Where there is a contract for the sale or supply of a consumer product and the buyer makes or holds himself out as making the contract in the course of a business, the parties may agree to exclude or restrict any warranty or remedy provided by this Act but, except to the extent allowed by section 25, such agreement shall be ineffective with respect to any consumer loss for which the seller would be liable if no such agreement had been made.

1(1) "consumer loss" means

(a) a loss that a person does not suffer in a business capacity; or

(b) a loss that a person suffers in a business capacity to the extent that it consists of liability that he or another person incurs for a loss that is not suffered in a business capacity;

Case law

To date, section 23 appears to have been overlooked, at least in the courts. For example, in LeBlanc (P.J.) v. Oland Breweries Ltd. (1992), 130 N.B.R.(2d) 271; appeal dismissed (1994), 142 N.B.R. (2d) 287 (N.B. Court of Appeal), a "beer tent" worker was injured by a defective bottle of beer when it exploded.

The distribution chain for that bottle was:

Bottle manufacturer
||
Labatt
||
Oland Breweries
||
New Brunswick Liquor Corporation
||
Employer of the injured worker

However, the defect did not originate with the bottle manufacturer but with Oland Breweries.

The injured worker successfully sued Oland Breweries in tort for negligence.

Section 23 was not argued, but it would have given the injured worker full protection for his injury, on a strict liability basis, against both Oland Breweries and New Brunswick Liquor Corporation. (New Brunswick Liquor Corporation would not be liable for common-law tort because it was not negligent. But section 23 imposes strict liability.)

Oland Breweries itself made a third party claim against the bottle manufacturer in both contract and tort, but was unsuccessful. (This claim was not appealed.) The manufacturer had not supplied a defective or otherwise unsatisfactory bottle. Furthermore, as far as the contract claim was concerned, the trial judge said Oland Breweries had no contract rights against the manufacturer because it lacked privity.

Again, section 23 was not mentioned, but it would have made a big difference had the fact been that the manufacturer supplied a defective bottle in breach of its contract with Labatt. In that case the manufacturer's breach would have caused Oland Breweries a reasonably foreseeable consumer loss as regards its liability to the injured worker, and Oland Breweries would have been protected by section 23 despite its lack of privity with the manufacturer. New Brunswick Liquor Corporation would have been similarly protected by section 23.

For further discussion on products liability, see the next section.

Dangerously defective goods

The so-called "products liability" part of CPWALA, section 27, gives protection against defective consumer products that pose unreasonable safety hazards to person or property. Section 27's protection is against reasonably foreseeable "consumer losses" caused by such safety-related defects. Section 27 does not depend in any way on contract. Moreover, it imposes strict liability on suppliers (as opposed to negligence liability).

CPWALA text

PRODUCT LIABILITY
27(1) A supplier of a consumer product that is unreasonably dangerous to person or property because of a defect in design, materials or workmanship is liable to any person who suffers a consumer loss in the Province because of the defect, if the loss was reasonably foreseeable at the time of his supply as liable to result from the defect and

(a) he has supplied the consumer product in the Province;

(b) he has supplied the consumer product outside the Province but has done something in the Province that contributes to the consumer loss suffered in the Province; or

(c) he has supplied the consumer product outside the Province but the defect arose in whole or in part because of his failure to comply with any mandatory federal standards in relation to health or safety, or the defect caused the consumer product to fail to comply with any such standards.

27(2) For the purposes of paragraph (1)(b), where a person has done anything in the Province to further the supply of any consumer product that is similar in kind to the consumer product that caused the loss, it shall be presumed that he has done something in the Province that contributed to the consumer loss suffered in the Province, unless he proves irrefragably that what he did in the Province did not in any way contribute to that loss.

27(3) A person is not liable under this section

(a) for any loss that is caused by a defect that is not present in the consumer product at the time he supplies it; or

(b) for any loss that is caused by a defect that he has reason to believe exists and that he discloses to the person to whom he supplies the consumer product before the loss is suffered, if the defect does not arise in whole or in part because of his failure to comply with any mandatory federal or provincial standards in relation to health or safety and the defect does not cause the consumer product to fail to comply with any such standards.

27(4) The liability of a person under this section does not depend on any contract or negligence.

1(1) "consumer loss" means

(a) a loss that a person does not suffer in a business capacity; or

(b) a loss that a person suffers in a business capacity to the extent that it consists of liability that he or another person incurs for a loss that is not suffered in a business capacity;

1(1) "loss" means loss or damage of any kind, including economic loss, damage to property and personal injury;

Cases

When section 27 is not necessary. Most of the cases covered by section 27 are covered by other parts of CPWALA anyway, so for most cases section 27 is actually unnecessary. Indeed for most cases the equivalent of section's 27 protection, and much more, is given by other sections of CPWALA.

Section 27 applies only to safety-related defects. But the CPWALA warranties apply to all defects, whether safety-related or not. Moreover, in addition to the warranty rights the consumer has against her or his own supplier (e.g. retailer), section 23 gives protection against other suppliers in the distribution chain with whom the consumer has had no dealings whatever (e.g. manufacturer or wholesaler).

When section 27 is necessary. Section 27 is the only section of CPWALA that could apply to:

(1) a supplier who does not supply the goods by contract, e.g. a free sample; or

(2) a supplier who supplies goods under a contract that is not governed by New Brunswick law.

Even in these two cases, there may be other suppliers in the distribution chain to whom the other sections of CPWALA will apply. For example, regarding (1), only section 27 could apply to a retailer who gives a free sample, but if the retailer itself had purchased the sample goods from another supplier, CPWALA's warranties and section 23 could apply to that supplier.

The suppliers responsible. Section 27 can apply to any distributor (including manufacturer, wholesaler, retailer, dealer, importer, producer and processor) who either

(a) supplies the dangerously defective goods in New Brunswick;

(b) does something else in New Brunswick that contributes to the injured party's loss [and note the strong presumption provided by section 27(2)]; or

(c) supplies, outside New Brunswick, goods which fail to meet federal health or safety standards.

Persons protected. Section 27 protects anyone who suffers a reasonably foreseeable "consumer loss." And because of the wide definition of "consumer loss," section 27 is available not only to one, such as a consumer, who suffers a non-business loss, but also to a supplier itself for liability it bears for such a non-business loss. (The object of CPWALA is to stream legal liability back to the source of the problem.)

For example, suppose that a candy manufacturer distributes a free sample of its candy in New Brunswick. Suppose that it gives the sample to a wholesaler, who gives it to a retailer, who gives it to a consumer. Suppose further that the candy is dangerously defective because of faulty manufacture and that it causes physical injury to the consumer. The consumer can recover against the retailer, the wholesaler and the manufacturer. The retailer can recover against the wholesaler and the manufacturer for its liability to the consumer. And the wholesaler can recover against the manufacturer for its liability to the consumer and the retailer.

Case law

Section 27 has not yet been applied by the courts. In LeBlanc (P.J.) v. Oland Breweries Ltd. (1992), 130 N.B.R.(2d) 271; appeal dismissed (1994), 142 N.B.R. (2d) 287, a "beer tent" worker was injured by a defective bottle of beer when it exploded. The distribution chain for that bottle was: bottle manufacturer to Labatt to Oland Breweries to New Brunswick Liquor Corporation to the injured worker's employer. However, the defect did not originate with the bottle manufacturer but with Oland Breweries. The injured worker successfully sued Oland Breweries in tort for negligence.

Section 27 was not argued, but it would have given the injured worker full protection for his injury, on a strict liability basis, against both Oland Breweries and New Brunswick Liquor Corporation. (New Brunswick Liquor Corporation would not be liable for common-law tort because it was not negligent, but section 27 imposes strict liability.) For its liability to the injured worker, New Brunswick Liquor Corporation in turn would have had full indemnification rights against Oland Breweries.

Oland Breweries itself made a third party claim against the bottle manufacturer in both contract and tort, but was unsuccessful. (This claim was not appealed.) The manufacturer had not supplied a defective or otherwise unsatisfactory bottle.

Again, section 27 was not mentioned, but it would have made a big difference had the fact been that the manufacturer supplied a defective bottle. In that case Oland Breweries would have suffered a reasonably foreseeable consumer loss as regards its liability to the injured worker, and Oland Breweries itself would have been protected against the manufacturer by section 27. New Brunswick Liquor Corporation would have been similarly protected by section 27.

On the facts of LeBlanc (P.J.) v. Oland Breweries Ltd., the injured worker could also receive full protection for his injury under section 23 of CPWALA. See the discussion above.