The Law Reform Reports - Third Report

Volume I deals with a number of matters, including the sale of goods, unfair and deceptive trade practices, small claims courts, consumer class actions, and credit reporting agencies. A general summary of its main recommendations, prepared in English and French, is found starting at page 1. In preparing Volume I, I have again had the good fortune to receive assistance from many persons, and I again use "we" rather than "I" in the body of the report. "We" always means me, and in many cases includes one or more other persons. I have received particularly valuable assistance from Professor Richard W. Bird, one of my colleagues at the UNB Law School, who wrote the chapters on consumer class actions and credit reporting agencies. I have also received valuable assistance from two former colleagues, Professors Christopher S. Axworthy and William G. Webster, who prepared background working papers on small claims courts and credit reporting agencies respectively.

Volume II consists of a comprehensive working paper on general (or unsecured) creditors' remedies, prepared and written by Professor Robert W. Kerr, another colleague at the UNB Law School. A general summary of its main recommendations, prepared in English and French, is found in that volume.

Respectfully submitted,

Karl J. Dore,
Director,
Consumer Protection Project,
Law Reform Division,
Department of Justice,
Province of New Brunswick.

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CHAPTER II
SALE OF GOODS (CONCLUDED)

1. INTRODUCTION

Our First Report <1> dealt with consumer contracts for the sale or supply of goods. It recommends major reform of the present law to give the consumer purchaser various rights and remedies against his seller that cannot be taken away. This Report concludes our study of the sale or supply of consumer goods. It finishes the work on the dealer's responsibility, and it deals with the responsibility of the other parties in the marketing chain -- from the manufacturer through to the ultimate consumer.

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We shall deal with the consumer's rights against the manufacturer and other remote parties (e.g. the wholesaler). We shall also deal with the seller's rights against his supplier and other remote parties, including the manufacturer. And we shall deal with the rights of consumers who do not purchase the goods themselves but yet still suffer injury because the goods are defective, e.g. a member of the actual purchaser's family.

The approach taken to any one of these relationships can have important consequences on the approach to be taken to other relationships in the chain. For example, the position taken on the seller's rights against his supplier (and so on back to the manufacturer) is very relevant to the position to be taken on the consumer's rights against the manufacturer. This point may not be readily apparent at this stage, but it will become clearer as we proceed.

2. THE DEALER'S RIGHTS AGAINST HIS SUPPLIER

We find it convenient to deal first with the seller's rights against his supplier.

(a) Present Law

The present law with respect to the seller's rights [99] against his supplier is the same as the present law governing consumer transactions, which was discussed in detail in the First Report. The same law applies to both business and consumer transactions with respect to express terms, implied terms, remedies for breach, or contracting out of terms or remedies in whole or in part.

If the recommendations of our First Report are implemented there will be basic changes in the law governing consumer transactions, and the dealer will have many responsibilities imposed on him that he does not shoulder at present. We reproduce a partial summary of the main recommendations of the First Report below for convenience of reference.

(b) Recommendations of First Report

The Seller's Responsibilities for What He Says:
Express Terms

Parol Evidence Rule
1. The parol evidence rule, which in many cases automatically restricts the express terms of a contract to what is contained in the written contract, should be abolished in consumer transactions.

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"No Authority" Clauses
2. Clauses in written contracts that deny authority for the salesman to vary the terms of the written contract should be denied effect in consumer transactions. Instead, the normal agency rules should govern, whereby the seller would be liable for everything within the salesman's usual or apparent authority.

Promises and Representations of Fact
3. The consumer protection legislation should make any promise or representation of fact that the seller makes in relation to the goods an express term of the contract, unless the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller's promise or representation.

Opinions
4. The consumer protection legislation should provide that if the seller states his opinion that the goods will meet certain specifications, it is an express term of the contract that the goods will meet these specifications, unless the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on [101] the seller's opinion.

Advertising
5. The consumer protection legislation should make any promise or representation of fact that the seller makes in relation to the goods in his advertising an express term of the contract.

Labels, etc.
6. The consumer protection legislation should deem the seller to make any promise or representation of fact that is contained in labels or other printing on the goods or their container, or in tags or other signs or documents attached to or accompanying or in close proximity to the goods, and such a promise or representation should be an express term of the contract.

The Seller's Responsibilities in the Absence of Express Statements:
Implied Terms as to Title, Quality and Fitness

7. The consumer protection legislation should contain provisions dealing with implied terms as to title, quality, and fitness. These provisions should be based on sections 13, 15, and 16 of the Sale of Goods Act, with the modifications proposed below.

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Title
8. In consumer sales the seller should have the right to sell the goods no later than the time of delivery of the goods to the buyer.

9. The only liens and encumbrances that should be excepted from the protection given to the buyer by clause (c) of section 13 are those that are actually known to and agreed to by the buyer at the time the contract is made. It should also be made clear that clause (b) is subject to such liens and encumbrances.

10. The consumer protection legislation should not include the opening words in the present section 13 "unless the circumstances of the contract are such as to show a different intention."

Quality
11. The implied term as to merchantability should be renamed simply as an implied term as to quality, and should be defined in terms of the goods being of such quality and in such state or condition as it is reasonable to expect having regard to any [103] description applied to them, the price (if relevant) and all the other relevant circumstances.

12. There should not be any requirement that the goods be bought by description in order for the implied term as to quality to apply.

13. The implied term as to quality should apply to all sales by a seller who is acting in the course of a business.

14. It should be made clear that the implied term as to quality applies to used goods.

15. Unless the circumstances are such that it would be apparent to the buyer that the goods are not new and unused, it should be an implied term that the goods are new and unused.

16. The implied term as to quality should cover all the purposes for which the goods are ordinarily used in the absence of a clear indication to the contrary.

17. The implied term as to quality should include a requirement that the goods be durable for a reasonable period of time. In determining [104] what is a reasonable period of time, the price and all the other circumstances should be considered.

18. In cases where the goods consist of more than one component, there should be a requirement that the components be durable for a reasonable period of time, again having regard to all the circumstances of the case.

19. There should be an implied term in the sale of some products, e.g. automobiles and mobile homes, that spare parts and reasonable repair facilities will be available for a reasonable period of time.

20. The implied term as to quality should include a requirement that the goods will comply with applicable New Brunswick and Federal statutes and regulations establishing standards of quality and safety of goods.

21. Subject to recommendation 20, the implied term as to quality should not cover defects in the goods that the seller points out to the consumer, or of which the consumer knows, before the contract is made.

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Fitness for Particular Purpose
22. The consumer protection legislation should make clear that the implied term as to fitness for a particular purpose covers a usual or normal purpose as well as an unusual or special purpose.

23. The proviso to section 15(a) of the Sale of Goods Act, which excludes the implied term as to fitness "in the case of a contract for the sale of a specified article under its patent or other trade name," should be repealed.

24. The wording of section 15(a), whereby the fitness for purpose term will be implied only when the buyer makes known the particular purpose for which he requires the goods so as to show that he relies on the seller's skill or judgment, should be changed in the consumer protection legislation so that the term will be implied if the seller knows of the buyer's purpose, unless the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller's skill or judgment.

25. As was recommended for the implied term as to quality, the fitness term should

(a) apply to any seller who is [106] acting in the course of a business;

(b) make clear that it applies to used goods as well as to new goods; and

Sales by Sample
26. The consumer protection legislation should provide for an implied term as to quality in sales by sample, except for defects in the sample that the seller points out to the consumer, or of which the consumer knows, before the contract is made.

27. In sales by sample the implied term as to quality should include a requirement that the goods will correspond with the sample in quality.

The Consumer's Rights and Remedies for Breach by the Seller of His Responsibilities:
Remedies for Breach of the Terms of the Contract

Rejection Rights
28. The consumer protection legislation should abolish the distinction between conditions and warranties. Instead a consumer buyer should be [107] able to reject the goods for the breach of any term of the contract.

29. The seller should, however, be given a reasonable opportunity to rectify his breach, including a breach of the title obligation, unless it is a major or an irremediable breach.

Loss of Rejection Rights
30. The law relating to loss of rejection rights should also be changed. The consumer should be able to reject for any breach discovered within sixty days after delivery of the goods, provided that he exercises his rejection rights within a reasonable time after discovery of the breach. After the sixty day period has expired the consumer should be entitled to reject only in the case of a major breach.

Consequences If Consumer Does Not Reject
31. If the consumer chooses not to exercise his rejection rights, or if he has lost them, he should be entitled to recover the damages he has suffered from the breach of contract, subject to the normal rules as to foreseeability and the duty to mitigate.

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Consequences If Consumer Does Reject
32. If the consumer exercises his rejection rights, he should be entitled to recover from the seller, subject to recommendation 33, any payments he has made on the purchase price and/or other damages he has suffered from the breach of contract, subject to the normal rules as to foreseeability and the duty to mitigate.

33. If the consumer exercises his rejection rights, the seller should receive some protection for his restitution interests. First, he should be able to get back his goods. Second, except in cases where the buyer exercises his rejection rights within ten days after delivery of the goods, the seller should be entitled to recover or set off from the refund of the purchase price payments, as the case may be, the value of the net benefit derived by the consumer through use of the goods. The burden of proof as to what the value of the benefit is should be on the seller. Third, in cases where the goods have been damaged beyond the deterioration necessarily caused by their contemplated use [109] and for reasons not attributable to the seller's breach, the seller should be entitled to compensation for the difference between the value of the goods as they are and the value they would have had but for that damage.

34. If the consumer exercises his rejection rights, he should have a lien on the rejected goods for any portion of payments made on account of the purchase price that he is entitled to recover.

35. If the consumer exercises his rejection rights, he should have a duty to take reasonable care of the goods after rejection and, subject to his lien rights, allow the seller to take back the goods. However, as is the present law, the consumer should not be under any duty to return the rejected goods to the seller; it should be sufficient that he notify the seller that he rejects the goods.

Regulation of Attempts by the Seller to Avoid or Limit the Responsibilities that the Law Would Otherwise Impose on Him:
Contracting Out of the Terms of the Contract or Remedies for Their Breach

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Implied Terms
36. In consumer transactions the seller should not be allowed to exclude, restrict or diminish the implied terms as to title, quality, and fitness, or the remedies that the law normally provides for breach of them.

Express Terms
37. In consumer transactions the seller should not be allowed to exclude, restrict or diminish the statutory express terms or the remedies that the law normally provides for breach of them.

38. The consumer protection legislation should not allow a contract to provide that the seller or his designate alone shall be the sole judge of whether a product meets the specifications set forth in the seller's promise or whether the consumer is otherwise entitled to present a claim.

39. To ensure uniformity of remedies and to prevent sellers from avoiding the intent of the consumer protection legislation by manipulating the form in which a promise is made, the legislation should deem any promise that the seller makes if the goods fail to meet the specifications [111] set forth in his promise to also be a promise that the goods will meet the specifications set forth in the promise.

General Fairness and Reasonableness Control
40. The consumer protection legislation should provide for a general fairness and reasonableness control power for the courts.

41. The onus should be on the person who alleges that a contract, or a term of the contract, is unfair or unreasonable to show that it is unfair or unreasonable.

42. In deciding the question of fairness and reasonableness, the court should consider all the circumstances of the case, including

(a) whether the consumer knew or ought to have known of the term in question, and understood or ought to have understood its effect;

(b) whether the consumer freely consented to the term in question;

(c) whether the consumer had an [112] opportunity to obtain different terms from that in question from the seller or from someone else, and knew and was able to take advantage of this opportunity;

(d) if the term places a risk on the consumer, which party was in practice in the better position to mitigate the effect of the risk dealt with by the term, for example, by insuring against that risk;

(e) whether the seller took undue advantage of the consumer's position or the consumer's lack of knowledge, ability or experience;

(f) whether the term or the contract appears to be excessively one-sided in favour of the seller.

43. Where the court finds that a contract or a term thereof is unfair or unreasonable, it should be able to refuse to enforce the contract or the [113] term, or limit its application so as to avoid an unfair or unreasonable result.

As presently framed, these recommendations would apply only to contracts for the sale or supply of consumer goods made between a business seller and a consumer buyer. The question that we are concerned with now is whether similar changes should be made in the law governing business transactions in consumer goods -- e.g. sales by manufacturer to retailer, sales by wholesaler to retailer, and sales by manufacturer to wholesaler. It does not, of course, follow that any changes in consumer transactions should also be made in business transactions. Indeed, it is clear that in many cases law that is appropriate for consumer transactions would not be appropriate for business transactions.

For example, we do not think that the detailed disclosure requirements recommended for automobiles and mobile homes in our Second Report <2> would be appropriate for business transactions. Nevertheless in our view there are a number of areas where it would be appropriate and desirable to have the same law governing business and consumer transactions.

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(c) Terms

Of the three areas of terms, remedies, and contracting out, perhaps the terms area presents the strongest case for uniformity. To be sure, the arguments that we made for the statutory express and implied terms in our First Report are strongest in the consumer transaction. We also think, however, that the case is sufficiently strong to provide the same sort of general protection to the business buyer of consumer goods. Our recommendations for consumer transactions are based on what we think are good business practices, and by and large we think that businessmen should be able to get along quite well with these rules in their dealings between themselves. Furthermore, the dealer will have to seI1 to the consumer on these terms and it seems undesirable to place sole responsibility for defective goods on the dealer when he is not the one who caused the defect or other problem. In our view, the middleman ought to have recourse to his supplier so as to establish a chain of responsibility back to the one who is the source of the defect or other problem in the first place.

It may well be asked why we do not approach this problem in a different way. That is, why should the dealer or other middleman be responsible to the consumer anyway if he is not the one who caused the defect or other problem? Instead, [115] why not make the one who is the source of the defect or other problem (e.g. the manufacturer) directly and solely liable to the consumer? Later in this Report we shall make recommendations for the direct liability of remote parties such as the manufacturer to the consumer. <3> But we also believe there are good reasons to recommend dealer responsibility to the consumer as well, regardless of what rights we think the consumer should have directly against the manufacturer, and regardless of what rights we think the seller should have against the manufacturer.

We would include in these reasons the following. First, in most cases the dealer is the one that is most accessible to the consumer. The dealer is the one that the consumer has dealt with and the one that is usually best placed strategically to handle the consumer's complaint, at least in the first instance. The manufacturer, on the other hand, may be very inaccessible to the consumer. Indeed, he may be beyond the jurisdiction altogether. Second, it will not always be clear to the consumer who really is the source of his disappointed expectations. In many cases it will turn out to be the dealer, not the manufacturer, who has caused the problem. For example, the manufacturer may sell the goods to the dealer as seconds, but the dealer may pass off the goods to the consumer as first class. Another example would be [116] goods that are damaged while they are in the dealer's possession. The consumer has a procedural advantage if he can proceed against his seller. He is not then saddled with the burden to prove matters that are more within the seller's knowledge and control, and accordingly over which the seller should bear the burden of proof. Third, the dealer who bears responsibility is more apt to exercise responsibility. The dealer is in a much better position than the consumer to exercise control over an irresponsible manufacturer.

We accordingly recommend that business contracts for the sale or supply of consumer goods should contain the same statutory express and implied terms as those recommended for consumer transactions in the First Report.

(d) Remedies

With respect to remedies, in our First Report we did not recommend any changes in the present law concerning damages, but we did recommend major changes in the present law concerning rejection rights in consumer transactions.

We do not believe that our reasoning for extended rejection rights in consumer transactions applies to business transactions, and accordingly we would not give the rejection remedy to the business buyer as readily as [117] we would to the consumer buyer. However, as has been done in England <4> and South Australia, <5> we do recommend that two limitations on present rejection rights in business transactions should be removed, namely, the passing of property limitation and the subordination of section 32 of the Sale of Goods Act to section 33. <6> We recommend that the words in section 12(4) of the Sale of Goods Act, <7> "or where the contract is for specific goods the property in which has passed to the buyer," be repealed, and that section 33 of the Sale of Goods Act be made subject to section 32.

(e) Contracting Out

We now come to the most important question, and that is whether we should extend in favour of the business buyer our recommendations that in consumer transactions the seller should not be allowed to contract out, in whole or in part, of the statutory express and implied terms or the remedies that the law normally provides for their breach. The question [118] of what protection the business buyer should receive against contracting out has been debated at length by others. Various proposals have been made and, as might be expected, these proposals range from one end of the spectrum to the other. Some argue that there should be no control of contracting out in business transactions, some argue for general control of contracting out in all business transactions, and some argue for selective control of contracting out in some business transactions. If there is to be control of contracting out in business transactions, whether general or selective, there is the further question of the kind of control -- i.e. should there be an outright ban on contracting out or should there simply be something like a general fairness and reasonableness control on contracting out.

The members of the English and Scottish Law Commissions were equally split on the question of whether there should be general control of contracting out in business transactions. We set out below extracts from their Report <8> in order to give some idea of the different views and reasoning.

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The position of the Law Commissions on the control of exemption clauses in business sales

107. After giving careful attention to the results of our consultation (and the results, as we have endeavoured to show, have been conflicting to a considerable extent), the members of our two Commissions find themselves equally divided on the question, fundamentally one of commercial policy, whether exemption clauses in business sales generally should be subjected to any kind of control at all; we all agree, however, that if there is to be a general control of business sales it should take the form of a reasonableness test. In the paragraphs which follow we set out the views on both sides. It seems convenient to begin by stating the position of those who are opposed to any form of general control in this area, and then to explain the arguments and the proposals of those of us who see a case for extending control to all business sales.

The case against general control in business sales

108. The arguments against a general control of exemption clauses in business sales are briefly as follows:

(a) Freedom of contract is a fundamental principle of our commercial law, and any interference with it must be justified by cogent evidence that in a given area of commerce this freedom has led to injustice or unfairness. The present inquiry has produced a preponderance of evidence in favour of prohibiting exemption clauses in sales to private consumers. There is a widespread demand for this method of consumer protection which cannot be ignored. There is no such demand for the protection of commercial buyers. The evidence has not gone beyond indicating that some commercial [120] buyers are in need of better protection than that which the present law provides; but they represent too small a minority to justify such a radical reform of the law as would be involved in extending, over the whole field of business sales, the legal control of exemption clauses. Control should not go beyond those classes of sales for business purposes which are covered by the proposals referred to in paragraphs 81-84, 90 and 93 of this Report and embodied in the draft clauses in Appendix A to this Report.

(b) The deliberations of our Working Party and the consultation which followed the publication of our Working Paper have shown that there is a substantial body of opinion among those qualified to speak for industry, commerce and the practicing branches of the legal profession which is opposed to any form of control of contracting out in business sales. There is no justification for either ignoring or overriding these opinions.

(c) The argument that if the control of exemption clauses were confined to consumer sales, the retailers' section of trade would find itself in an unfairly vulnerable position, is unconvincing. It is contradicted not only by the Molony Committee's view that retailers are quite able to look after themselves, but also by the view strongly held in important sections of the commercial community that the bargaining position of retailers is even stronger today than it was in 1962 when the Molony Committee reported. Nor is it merely a question of views; account must also be taken of the realities of commercial life. Manu-[121]facturers and wholesale distributors largely depend on retailers for the commercial success of their goods; it would not only be unfair (and there is very little evidence of unfairness) but also contrary to the best interests of manufacturers and wholesale distributors if the retailer were left to bear full and final liability for defects for which he, the retailer, is not responsible in fact or in the eyes of the consuming public. But there is no need for the law to interfere. It is in the best interests of manufacturers and wholesalers to frame and operate their contracts with retailers in a fair and reasonable way.

(d) The question whether there should be any form of control at all is bound up with the question of what kind of control would be feasible. Of the various proposals which were canvassed in the Working Party and on consultation, the only one to receive a fair amount of support was the introduction of a reasonableness test similar to that enacted in section 3 of the Misrepresentation Act 1967. Legislation on these lines would largely destroy that certainty as to the rights and liabilities of the parties which is all-important in commercial contracts. The provision of guide-lines for the assistance of the court would in all probability reduce the uncertainty, but not to such a degree as to make it possible for practicing lawyers to advise their clients with any confidence with regard to the ultimate fate, at the hands of [122] the courts, of such exemption clauses as in their clients' view, sound commercial considerations required to be inserted into their contracts. The inevitable result would be an undesirable amount of litigation. Some lawyers familiar with the situation in Germany, where exemption clauses are subject to judicial review through the instrumentality of a test of "good faith" (which, in essence, is a reasonableness test), state that the uncertainty inherent in this part of the law has proved to be a fertile breeding ground of litigation. It is important to avoid the emergence of a similarly unsatisfactory situation in Great Britain.

(e) The prohibition of exemption clauses in business sales would cause both manufacturers and wholesalers to insure against liability under the Sale of Goods Act and their insurance costs would be passed on to purchasers in addition to retailers' insurance costs (see paragraph l09(b)) below. If exemption clauses in business sales were to be permitted subject to a judicial test of reasonableness, the prospect of litigation of uncertain outcome would still render insurance necessary with higher prices all along the line from the manufacturer to the retailer, who would inevitably pass these on to the consumer.

The case of controlling exemption clauses in business sales

109. Those of us who take the view that the control of exemption clauses should be extended to all business sales rely on the following arguments:

(a) We accept the representations made on behalf of retailers that they [123] need the safeguard of legal protection. If, as the Molony Committee recommended and as we are all agreed, we are in the presence of an urgent social need to change the law in order to give better protection to millions of consumers, it would be morally and socially unjustifiable to reform the law at the expense of a single section of the trading community. The consultation has shown that the Molony Committee's view that retailers were capable of protecting themselves was put in issue, not only by those speaking for the retailers, but also by others, including representatives of the insurance interest. It is common knowledge that despite the growth of multiple stores and supermarkets we are still a country of small shopkeepers who have no powerful trade associations to strengthen their bargaining power. It is equally common knowledge that there is a strong movement towards mergers, with the inevitable consequence that there are fewer and fewer alternative sources of supply available to retailers in relation to any particular product; this is another powerful factor tending to reduce their bargaining power.

(b) The issue whether there should be some legal control of exemption clauses beyond the level of consumer sales affects not only the interests of the retail trade but also the interests of the consuming public. If, as some argued on consultation, the prohibition of exemption clauses in consumer sales alone led to a higher incidence of insolvencies among retailers, the [124] consumers' claims would be placed in jeopardy. If, on the other hand, retailers followed the logical course of protecting themselves by insuring against their liabilities under the Sale of Goods Act, it would in practice be inevitable for the cost of insurance to be passed on to the consumer; the ensuing increase in the price of consumer goods would be bound to have a general inflationary effect. In any event, it is highly problematical whether products liability insurance (which covers the repair and replacement of defective articles) would be generally available. This type of insurance (so we were informed by representatives of the British Insurance Association and of Lloyd's) as opposed to accident insurance (to cover personal injury and damage to property) is not widely obtainable at present; and even in the future, when the insurance market would have adjusted itself to a growing demand for this class of business, it might prove to be unobtainable by the great bulk of retailers who deal in a wide range of goods with a relatively small turnover of each type. It would be more convenient and cheaper for insurance of this type to be carried by the manufacturer who even now often insures against certain types of claims by consumers.

(c) Although the majority of the Working Party had pronounced against a general reasonableness test, this proposal has received sufficient support on consultation to prove not only its viability but also its many attractions. In any event, no revolutionary innov-[125]ation is involved. Section 3 of the Misrepresentation Act 1967 is an important precedent in England; equally important are the precedents in other jurisdictions in Europe and America. In a number of states of the United States of America the courts, in addition to the technique of adverse construction of exemption clauses, have developed powers of striking down such clauses by reference to considerations of public policy. Moreover, under section 2-302 of the U.S. Uniform Commercial Code, the courts in those jurisdictions which have adopted the section have statutory power to strike down exemption clauses on the ground of unconscionability. All the available information tends to show that this provision has not led to the chaos and uncertainty which some commentators predicted. The argument about uncertainty which is the mainstay of the opposition encountered in our own consultation is greatly exaggerated. The degree of certainty attainable under our present law is not as high as its proponents assert; our courts have developed sophisticated techniques for controlling exemption clauses by restrictive interpretation of their terms and, until recently, by the application of the doctrine of fundamental breach. There is no reason to believe that commerce in this country could not adjust itself, as it has in other countries, to a power vested in the courts to determine whether reliance upon an exemption clause is or is not reasonable.

(d) It would produce highly anomalous results to forbid contracting out of liability for misrepresentation, [126] as section 3 of the Misrepresentation Act 1967 has done in English law, while permitting contracting out of the statutory conditions and warranties in business sales. The two are inextricably interwoven, and where there is a breach of section 13 of the Sale of Goods Act there will necessarily have been a misrepresentation also, as will often be the case where there is a breach of section 14(1) and sometimes where there is a breach of section 15. A brief reference has been made above to the doctrine of fundamental breach. A full treatment of that subject is not within the scope of the present Report, but it is plain that the introduction of a general reasonableness test would, at least for the purposes of the law of sale, go a long way towards bridging the gap created by the recent demotion of the doctrine from a rule of law to a question of construction.

The U.K. Supply of Goods (Implied Terms) Act 1973 <9> adopted the views of those members of the Commissions who favoured general control of contracting out in business transactions. The Act imposes a fairness and reasonableness control on contracting out of the implied terms as to quality and fitness in business transactions, and directs the courts to consider all the circumstances of the case in exercising the control, including the following matters:

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(a) the strength of the bargaining positions of the seller and buyer relative to each other, taking into account, among other things, the availability of suitable alternative products and sources of supply;

(b) whether the buyer received an inducement to agree to the term or in accepting it had an opportunity of buying the goods or suitable alternatives without it from any source of supply;

(c) whether the buyer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);

(d) where the term exempts from all or any of the provisions of section 13, 14 or 15 of this Act if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;

(e) whether the goods were manufactured, processed, or adapted to the special order of the buyer.

In the United States, the Uniform Commercial Code <10> contains the following general unconscionability provision, in s.2-302:

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(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

The principle that business buyers should receive some legislative protection, then, is now fairly well established in other jurisdictions. Our inquiry, of course, is not directed to business sales in general, but is restricted to business sales of consumer goods. The Ontario Law Reform Commission's Report on Consumer Warranties and Guarantees in the Sale of Goods, <11> which was also restricted to the consumer goods field, also recommended a general fairness and reasonableness control over contracting out in business sales of consumer goods. <12> On the other hand, the recently proposed Saskatchewan Consumer Products Warranties Act <13> would go much [129] further. It would give the dealer a non-excludable right to recover from the manufacturer any damages the dealer has to pay to a consumer for breach of certain statutory warranties that the manufacturer and dealer are both deemed to give to the consumer.

We have no doubt that there should be some control of exemption clauses in business sales of consumer goods. Our reasons for protecting the consumer against exemption clauses also apply to many businessmen, particularly the small businessman. The real question is the extent of control that should be exercised. Businessmen differ considerably in expertise and ability to look after themselves. Indeed, it is not difficult to think of cases where the buyer is in a stronger position than the seller -- e.g. the large supermarket chain buying produce from the small farmer. Because of this, it is tempting to recommend simply a general fairness and reasonableness control and to leave it at that. However, we have decided, not without some doubts along the way, to recommend more stringent control.

Our main reason for recommending a more stringent control than fairness and reasonableness is that the dealer will not be allowed to contract out in his dealings with the consumer. It strikes us as desirable that in the great majority of cases the dealer should have recourse for his [130] responsibility to the consumer against the one who caused the defect or other problem in the first place. On balance, we prefer the certainty of an absolute prohibition against contracting out of recourse rights over the uncertainty of a fairness and reasonableness control, and accordingly would give the dealer a non-excludable right to indemnification from his supplier and thereby establish a chain of responsibility back to the source of the problem.

We recommend that in business contracts for the sale or supply of consumer goods there should be a prohibition against contracting out of the statutory express and implied terms of the contract. There should also be a prohibition against contracting out of damages for the buyer's liability for consumer losses caused by the seller's breach of contract. (By consumer losses we mean losses that are not suffered in a business capacity.) There should not be a prohibition against contracting out of other remedies that the law normally gives for breach of the statutory terms.

We believe that the dealer's burden will be lessened considerably if these recommendations are implemented. There are, of course, other problems in the area of business sales. For example, the doctor or lawyer or corner grocer who purchases a typewriter for use in his business stands in a similar position to the average consumer. However, since [131] our mandate is limited to consumer protection, we have in effect restricted our most important recommendations to recourse rights the dealer should have with respect to the new responsibilities that will be imposed on him if the recommendations of our First Report are implemented.

3. PRIVITY OF CONTRACT

Having dealt with the rights and responsibilities between the parties to the various contracts made in the chain from manufacturer to consumer buyer, we now turn to the rights and responsibilities between those in the chain who do not have a contract with each other. Perhaps a diagram will assist in clarifying where we have been, and where we are going.

Manufacturer
||
Wholesaler
||
Retailer
||
Consumer

We have been looking at the rights between manufacturer and wholesaler, wholesaler and retailer, and retailer and consumer. We are now going to look at the rights between consumer and manufacturer, consumer and wholesaler, and retailer [132] and manufacturer. We shall also examine the rights of consumers who have not made a contract with anyone, e.g. a consumer who receives the goods as a gift.

(a) Present Law

(i) Contracts

The general principle under the present law is that only the parties to a contract have rights under the contract. <14> In the present context this means, for example, that a consumer who buys goods from a retailer and who has no contract with the manufacturer will not have any contract rights against the manufacturer but only against the retailer. <15> This is so even if the terms of the contract between the manufacturer and the retailer are identical to those of the contract between the retailer and the consumer, and even if there is an identical breach of these terms. <16> Suppose, for instance, that a soft drink [133] manufacturer produces a bottle of pop, which he sells to a dealer who in turn resells to a consumer. Suppose further that the circumstances are such that the implied terms as to quality and fitness under the Sale of Goods Act apply to both contracts, and that there is a breach of these terms because the goods are defective. The consumer will be able to recover against the retailer for breach of contract, and the retailer in turn will be able to recover against the manufacturer for breach of contract, but the consumer will not be able to recover directly against the manufacturer for breach of contract because there is no contract between them. <17>

In some cases, of course, the consumer will have a contract with the manufacturer. The clearest example of this would be the case where the consumer buys the goods directly from the manufacturer. Another possibility would be a situation where, even though the consumer buys the goods from a retailer, there is a collateral contract between the consumer and the manufacturer whereby the manufacturer gives a guarantee in exchange for the consumer buying goods made by the manufacturer. <18> It is, of course, [134] common practice for manufacturers to give express guarantees, and many of these express guarantees can be brought within this principle. However, this possibility exists only when the manufacturer makes an express guarantee or statement, for which he can reasonably be taken to intend contractual responsibility, and on which the consumer relies. Furthermore, since technically the collateral contract would not be a contract for the sale of goods, there would be no implied terms as to quality and fitness of the goods under the Sale of Goods Act; the manufacturer's liability would rest solely on his express guarantee or statement. <19>

(ii) Torts

To say that only the parties to a contract have rights under the contract is not, of course, to say that only [135] parties to contracts have rights. The law of torts imposes certain responsibilities on a supplier of goods even in the absence of a contract. However, there are important differences between contract and tort with respect to obligations imposed and interests protected. While contract imposes strict liability, tort imposes only negligence liability. <20> To return to the soft drink example given above, the seller's responsibilities under the implied terms as to quality and fitness do not depend on negligence at all. The seller may not have caused the defect (in our example it was the manufacturer not the dealer who caused the defect), he may not have been negligent in failing to detect their defective condition, indeed he may have taken the utmost care to avoid defective goods, but none of these considerations are relevant. The seller, whether he be manufacturer, wholesaler, or retailer, is strictly liable to his buyer. The position under tort law is quite different. Under tort law the seller is liable only if he is negligent. <21> However, his duty to take reasonable care against defective products is owed to anyone whose injury is foreseeable, not [136] just immediate buyers. In the foundation case of Donoghue v. Stevenson, <22> Lord Atkin said: <23>

. . . a manufacturer of products, which he sells in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with the knowledge that the absence of reasonable care in the preparation or putting up of the products will result in an injury to the consumer's life or property, owes a duty to the consumer to take that reasonable care.

Tort does not impose a duty to take reasonable care against all defective products, however. It only imposes a duty to take reasonable care against defective products that will result in injury to the consumer's life or property (property in this context does not include the defective product itself).

Turning from the kind of liability to the extent of liability, again there are major differences between contract and tort. One important difference relates to the distinction that tort makes between loss or damage in the product itself (sometimes called direct loss) and loss or damage outside the product, e.g. personal injury or damage to other property (sometimes called consequential loss). Another important difference relates to the treatment of economic loss.

[137]
With respect to loss or damage in the defective product itself (direct loss), contract imposes liability <24> but tort does not. <25> With respect to loss or damage outside the defective product (consequential loss), both contract and tort impose liability for personal injury <26> and damage to property, <27> subject to the limitations of remoteness (reasonable foreseeability in tort, reasonable contemplation in contract) and of course causation (including the duty to take reasonable steps to mitigate one's losses, <28> Subject to the same limitations, contract also imposes liability for economic losses, <29> but tort is much more restrictive in this regard. Tort imposes liability [138] for economic losses flowing from personal injury or damage to other property, e.g. lost wages while recovering from physical injury, but it does not yet impose liability for pure economic losses flowing from the defective product, e.g. loss of use of the defective product, at least where the only basis for recovery is negligence in manufacturing a defective product. <30> The rationale given for this is that ". . . the liability for the cost of repairing damage to the defective article itself and for the economic loss flowing directly from the negligence, is akin to liability under the terms of an express or implied warranty of fitness and as it is contractual in origin cannot be enforced against the manufacturer by a stranger to the contract." <31>

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(b) Some Criticisms of the Present Law

The doctrine of privily of contract places severe limitations on the consumer's rights. It does this directly in contract, of course, and indirectly in tort. Whether this barrier should be retained or removed is a fundamental question.

One cannot help but notice some of the apparent anomalies that result from the present law. Perhaps the most striking is the fact that the manufacturer bears a lesser responsibility to the consumer than the dealer, even if it is the manufacturer who caused the problem in the first place.

Almost equal in curiosity is the fact that in many cases the manufacturer becomes liable indirectly for what he cannot be liable directly. This occurs when the consumer can sue the dealer for breach of contract and the dealer in turn can sue his seller for breach of contract, and so on back to the manufacturer. In this manner, and subject to the normal rules of causation and remoteness, the consumer's damages may be passed back through the chain to the manufacturer. Indeed, the manufacturer may end up paying a substantial part of the legal costs of the various actions in the chain. Kasler and Cohen v. Slavouski <32> [140] provides a neat illustration of this. In that case, as its headnote states:

B, a wholesale furrier, bought some dyed rabbit skins from A for the purpose, as A knew, of making them into fur collars. B having made the fur collars, resold to C, C resold to D, and D to E, a draper.
E then sold a coat, with one of these fur collars attached, to F, a customer, for her own wear. F developed "fur dermatitis," owing to antimony in the fur. F sued E for damages for breach of warranty on the sale of the coat. E gave notice of the action to D, D to C, C to B. and B to A.
E defended, but judgment was given against him for £67 and £248 costs. E claimed this sum, together with his own costs, £643 in all, from D, who paid without resisting the claim. D recovered this amount from C together with a further sum for his costs. C claimed from B, and B having paid £654 and £45 for costs, sued A for £699 damages for breach of warranty on sale of the skins.
The Court found as a fact that E had acted reasonably in defending the original action by F:-
Held, that B was entitled to recover from A (1.) the damages recovered in the original action by F. (2.) the costs of both sides in that action, and (3.) a sum in respect of costs incurred by themselves and C and D respectively in connection with the claims against them.

However, there are as well many cases where the manufacturer escapes liability because of a break in the chain. For example, the manufacturer may have contracted out of liability in his contract with the wholesaler or retailer. <33> Another example would be a case where the dealer or wholesaler is insolvent. And another example would be a case where the injured consumer has no contract with anyone in the chain of responsibility -- e.g., a user or a bystander.

[141]
These latter persons stand in a particularly disadvantageous position because they have no contract rights against anyone. They only have rights under tort law. The results can be ludicrous. A man buys a box of chocolates. He and his sweetheart eat them. The chocolates are poisonous because of contamination in the manufacturing process, and the man and his sweetheart suffer severe personal injury as a result. The retailer will be liable to the man regardless of fault, but he will be liable to the sweetheart only if he was negligent. The manufacturer will not be liable to either man or sweetheart unless he was negligent. <34>

(c) Reform in Other Jurisdictions

In view of these difficulties and anomalies, it is not surprising to find that in many jurisdictions substantial reforms have been made or recommended. We now turn to some of the major developments.

(i) United States

In the United States there have been several major [142] developments. These developments, which have occurred in both contract law and tort law, began in the courts, and continue there still.

Henningsen v. Bloomfield Motors <35> is perhaps the best known case on the contract side. A man bought a new automobile from a dealer. He gave it to his wife as a present. The automobile was defectively manufactured and caused an accident in which the wife was injured. She brought an action against the dealer and the manufacturer for breach of contract. They defended on the ground that she lacked privity, not having a contract with the dealer or manufacturer. The Supreme Court of New Jersey was unanimous in rejecting the privity defence and allowing her action. Mr. Justice Francis, during the course of his celebrated judgment, said: <36>

There is no doubt that under early common-law concepts of contractual liability only those persons who were parties to the bargain could sue for a breach of it. In more recent times a noticeable disposition has appeared in a number of jurisdictions to break through the narrow barrier of privity when dealing with sales of goods in order to give realistic recognition to a universally accepted fact. The fact is that the dealer and the ordinary buyer do not, and are not expected to, buy goods, whether they be foodstuffs or automobiles, exclusively for their own consumption or use. Makers and manufacturers know this and advertise and market their products [143] on that assumption; witness, the "family" car, the baby foods, etc. The limitations of privity in contracts for the sale of goods developed their place in the law when marketing conditions were simple, when maker and buyer frequently met face to face on an equal bargaining plane and when many of the products were relatively uncomplicated and conducive to inspection by a buyer competent to evaluate their quality . . . With the advent of mass marketing, the manufacturer became remote from the purchaser, sales were accomplished through intermediaries, and the demand for the product was created by advertising media. In such an economy it became obvious that the consumer was the person being cultivated. Manifestly, the connotation of "consumer" was broader than that of "buyer". He signified such a person who, in the reasonable contemplation of the parties to the sale, might be expected to use the product. Thus, where the commodities sold are such that if defectively manufactured they will be dangerous to life or limb, then society's interests can only be protected by eliminating the requirement of privily between the maker and his dealers and the reasonably expected ultimate consumer. In that way the burden of losses consequent upon use of defective articles is borne by those who are in a position to either control the danger or make an equitable distribution of the losses when they do occur . . .

There have also been legislative developments. A majority of American states have adopted in their legislation what is now Alternative A of s.2-318 of the Uniform Commercial Code: <37>

A seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, [144] consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.

Many states took the view, however, that this provision did not go far enough and was too restrictive. They either omitted the provision from their legislation or else varied it. <38> In 1966, in an effort to achieve some measure of uniformity despite the lack of "national consensus," <39> Alternatives B and C were added to s. 2-318. They read as follows:

Alternative B: A seller's warranty whether express or implied extends to any natural person who may reasonably be expected to use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.

Alternative C: A seller's warranty whether express or implied extends to any person who may reasonably be expected to use, consume or be affected by the goods and who is injured by breach of the warranty. A seller may not exclude or limit the operation of this section with respect to injury to the person of an individual to whom the warranty extends.

There are important differences in the three Alternatives. Alternative A, of course, is the most restricted [145] one. It extends warranty protection only to members of the buyer's family or household and guests in his home. Furthermore, since the warranty extends only to family or household guests of the seller's buyer, the provision would not apply to very many manufacturers. A manufacturer usually sells to a wholesaler or retailer, and members of their families would rarely be personally injured by the goods. It is the retailer against whom the provision would apply in most cases, for it is his buyer, the consumer, whose family or household guests are most likely to suffer personal injury. Alternatives B and C, in contrast, extend warranty protection in favour of all persons who can reasonably be foreseen to suffer personal injury and against all sellers, whether manufacturer, wholesaler or retailer.

There are also important differences in the Alternatives with respect to the extent of liability. Alternatives A and B are restricted to personal injury coverage. They do not cover direct loss in the defective product itself nor consequential property or economic loss. Alternative C, however, is not so restricted and would seem to apply to any injury, whether to person, property or pocketbook.

American tort law developments have been equally [146] impressive. <40> Indeed, in many respects they have overtaken contract developments. In the Henningsen case the court not only rejected the privity defence but also struck down a disclaimer clause on public policy grounds. In Greenman v. Yuba Power Products, Inc., <41> the Supreme Court of California abandoned the contract approach in favour of strict liability in tort for personal injury caused by defective products, saying that the liability was imposed by law and had nothing to do with contract at all. In a process described by Prosser, who was one of America's most prominent tort scholars, as ". . . the most rapid and altogether spectacular overturn of an established rule in the entire history of the law of torts," <42> a large number of American courts in the 1960's abandoned the negligence standard in products liability in favour of strict liability. The reasoning was as follows: <43>

The public interest in human safety requires the maximum possible protection for the user of the product, and those best able to afford it are the suppliers of the chattel. By placing their [147] goods upon the market, the suppliers represent to the public that they are suitable and safe for use; and by packaging, advertising and otherwise they do everything they can to induce that belief. The middleman is no more than a conduit, a mere mechanical device, through which the thing is to reach the ultimate user. The supplier has invited and solicited the use; and when it leads to disaster, he should not be permitted to avoid the responsibility by saying that he made no contract with the consumer, or that he used all reasonable care. It is already possible to enforce strict liability by a series of warranty actions, by the consumer against the retailer, who recovers from the distributor, and so on back to the manufacturer; but this is an expensive, time consuming and wasteful process. What is needed is a shortcut which makes any supplier in the chain liable directly to the user. The 'risk distributing' theory -- the supplier should be held liable because he is in a position to insure against liability and add the cost to the price of his product -- has been an almost universal favorite with the professors; but it has received little mention in the cases, and still appears to play only the part of a make-weight argument.

In 1965 the American Law Institute adopted s. 402A of the Restatement of Torts Second, which in turn has been adopted in a majority of American jurisdictions. <44> S. 402A reads as follows:

Special Liability of Seller of Product for Physical Harm to User or Consumer

(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the [148] ultimate user or consumer, or to his property, if

(a) the seller is engaged in the business of selling such a product, and
(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.

(2) The rule stated in Subsection (1) applies although

(a) the seller has exercised all possible care in the preparation and sale of his product, and
(b) the user or consumer has not bought the product from or entered into any contractual relation with the seller.

In many respects these tort developments go much further than some of the contract developments. They do more than simply extend contract rights in favour of certain beneficiaries who lack privity, which is what s. 2-318 of the Uniform Commercial Code does. They give certain rights that are independent of contract, and thus free the consumer from certain limitations that are inherent in all of the Alternatives under s. 2-318. Chief among these limitations is the seller's freedom to disclaim liability in the contract that he makes with his buyer. S. 2-318 only gives the beneficiary whatever rights the original buyer had. As the Official Comment to s. 2-318 states, "to the extent that the contract of sale contains provisions under which warranties are excluded or modified, or remedies for breach are limited, such provisions are equally operative against beneficiaries of warranties under this section." <45> Under s. 402A, however, [149] the seller cannot use a disclaimer clause to escape liability.

In some respects s. 402A does not go as far as the contract developments. Alternatives B and C under s. 2-318 apply in favour of all persons who can reasonably be foreseen to suffer personal injury, whereas s. 402A applies only in favour of users or consumers. A bystander, e.g. a pedestrian injured by a defective automobile, would come within Alternatives B and C but would not come within s. 402A. Not surprisingly, there are some American cases that extend the strict liability protection in tort in favour of the bystander. In Elmore v. American Motors Corporation, <46> for example, the court did this, saying: <47>

If anything, bystanders should be entitled to greater protection than the consumer or user where injury to bystanders from the defect is reasonably foreseeable. Consumers and users, at least, have the opportunity to inspect for defects and to limit their purchases to articles manufactured by reputable manufacturers and sold by reputable retailers, whereas the bystander ordinarily has no such opportunities. In short, the bystander is in greater need of protection from defective products which are dangerous, and if any distinction should be made between bystanders and users, it should be made . . . to extend greater liability in favour of the bystanders. An automobile with a defectively connected drive shaft constitutes a substantial hazard on the highway not only to the driver [150] and passenger of the car but also to pedestrians and other drivers. The public policy which protects the driver and passenger of the car should also protect the bystander . . .

With respect to the extent of liability, Alternative C of s. 2-318, as we have already noted, seems to apply to any injury, whether to person, property or pocketbook. S. 402A, on the other hand, applies only to physical harm to the consumer or his property. It does not cover economic loss, direct or consequential. There has been much debate over whether s. 402A should be extended to cover economic losses. Two distinguished American judges, Mr. Justice Francis of the New Jersey Supreme Court and Chief Justice Traynor of the California Supreme Court, both leaders in the field of products liability, have come to opposite conclusions on this issue. <48>

(ii) Canada

There have also been important developments with respect to privity in Canada.

a. Ontario

The Ontario Law Reform Commission's Report on [151] Consumer Warranties and Guarantees in the Sale of Goods <49> contains several recommendations that are designed to increase the manufacturer's direct responsibility to the consumer. The Report also deals with the privity problem that exists between dealer and manufacturer when these parties do not have a contract with each other but are separated by a middleman such as a wholesaler. We set out the Commission's recommendations below for convenience of reference. <50>

The Commission recommends that:

1. The doctrine of privity of contract should be abolished in warranty claims by a consumer buyer against the manufacturer of the goods.

2. There should be in The Consumer Products Warranties Act clearly stated statutory rules holding a manufacturer civilly liable for breach of any express warranties and also deeming him to have given a consumer buyer (whether or not the consumer bought the goods from the manufacturer) implied warranties of the same type as run from the retail seller to the consumer buyer.

3. The same definition of an express warranty should apply in the case of representations by a manufacturer as will apply to a seller's representations.

4. The implied warranties of the manufacturer should be subject to adjustments in wording based upon the difference in the factual relationship between the consumer buyer and the retail seller and the consumer buyer and the [152] manufacturer, as illustrated in section 1.d(ii), supra.

5. The measure of damages recoverable by the consumer buyer and the extent to which a manufacturer can exclude or restrict his warranty liabilities to the consumer buyer should be governed by the same principles as obtain between the consumer buyer and his immediate seller in accordance with the recommendations contained in Chapters 2 and 3 of this report. Any notice of a disclaimer clause given to the consumer buyer by or on behalf of the manufacturer before or at the time of the purchase of the goods by the consumer buyer in writing or otherwise, and which may reasonably be expected to come to the buyer's attention in the ordinary course of events shall be effective if the disclaimer or restriction of liability would otherwise be valid.

6. The introduction of the manufacturer's new warranty liabilities should not relieve the retail seller from his warranty obligations to the consumer. However, where the retailer is being sued by a consumer buyer, the retailer should be able to "vouch over" against the person from whom he bought the goods (whether or not that person was the manufacturer of the goods) and to claim an indemnity, unless he is precluded from claiming an indemnity by the terms of his agreement with the seller. The "vouching over" procedure should be similar to the procedure set out in Section 2-607(5) of the Uniform Commercial Code:
Where the buyer is sued for breach of warranty or other obligation for which his seller is answerable over

(a) he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound.

(b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) the [153] original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred.

7. Where the retailer's right to indemnity is subject to a disclaimer or other restrictive clause in the contract between him and his seller, such clauses should be subject to judicial scrutiny and should be unenforceable, in whole or in part, if it would not be fair or reasonable in all the circumstances of the case to allow reliance on the clause.

8. Subject to the qualifications in Recommendation 7 above, where

(a) a retailer has purchased goods from a person other than the manufacturer of them; and

(b) the retailer is being sued by a consumer buyer for breach of warranty, the retailer should have a right of indemnity against the manufacturer that is co-extensive with the consumer buyer's rights against the manufacturer.

9. The definition of "manufacturer" in the proposed Act should include the following classes of persons:

(a) The person who manufactures or assembles the goods, except where the goods are manufactured or assembled for another person who attaches his own brand name to the goods;

(b) Any person who describes himself or holds himself out to the public as the manufacturer of the goods;

(d) In the case of imported goods, the importer of the goods where the foreign manufacturer does not have a regular place of business in Canada.

10. In order that the rights of a successor in title be adequately protected, "consumer buyer" should be defined in the proposed Act to include any person deriving his interest in the goods from or through the original purchaser, whether by purchase, gift, operation of law, or otherwise.

11. For the purposes of Recommendation 10, above, the rights of the successor in title should be no greater than those of the original consumer buyer.

[154]
It will be noted that the Commission opted for a contract approach to manufacturers' liability rather than a tort approach. The Commission thought that a contract approach would be more in harmony with its approach to retailers' liability, which was also a contract approach. The manufacturer-consumer warranty scheme would be modelled on the retailer-consumer warranty scheme, but there would be some differences because of the difference in relationship between manufacturer-consumer and retailer-consumer. Another advantage the Commission saw in a contract approach was that it would allow the manufacturer freedom to limit his liability in appropriate cases just as a retailer could.

However, the recommendations would do more than simply extend in favour of the consumer buyer (and his successors in title) whatever warranty the manufacturer gives to his buyer, the middleman. They go much further in this respect than any of the Alternatives under s. 2-318. They would create, regardless of privity, a direct warranty from the manufacturer to the consumer which in some cases does not depend on the contract between the manufacturer and middleman at all. In particular, the fact that a manufacturer successfully limits his liability vis-a-vis the middleman would not automatically limit the manufacturer's liability vis-a-vis the consumer. There are two reasons for this: first, some disclaimers can be used against businessmen but [155] not against consumers (e.g. contracting out of consequential losses); and, second, a disclaimer is not valid against a consumer in any event unless the consumer receives some notice of it (e.g., a manufacturer might point out certain defects to the middleman but the consumer might not receive notice of these defects).

There are other differences between the Ontario proposals and the American developments. The Ontario proposals do not apply against all sellers but only against manufacturers (although manufacturer is given an extended meaning), whereas Alternatives B and C of s. 2-318 of the Uniform Commercial Code and s. 402A of the Restatement of Torts Second do apply to all business sellers. Furthermore, the Ontario proposals, unlike Alternatives B and C of s. 2-318, do not apply in favour of all consumers, users and bystanders, but only to consumers who have an interest in the goods which they have somehow derived from or through the original purchaser.

Finally, with respect to the extent of liability that is imposed, the Ontario proposals cover all losses within reasonable contemplation, whether they be damage to the consumer's person, property or pocketbook, and whether they be direct or consequential. This, of course, goes far beyond Alternatives A and B of s. 2-318 and s. 402A.

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b. Saskatchewan

In April of 1975 a White Paper on Consumer Products Warranties was tabled in the Saskatchewan Legislature. A Proposal for a Consumer Product Warranties Bill was attached to the White Paper. The Paper and Bill are based in large part on the Ontario Law Reform Commission's Report.

There is, however, one important difference between the Saskatchewan and Ontario proposals with respect to the implied terms as to quality and fitness. In addition to those deriving an interest in the goods from the consumer buyer, the Saskatchewan proposal would extend protection to "the immediate family of the buyer and any natural person who may reasonably be expected to use, consume or be affected by the goods and who suffers personal injury by breach of the warranty." <51>

(iii) United Kingdom

Products liability is currently under consideration by the English and Scottish Law Commissions.

In 1968 the Commissions produced a working paper proposing ". . . that in consumer sales the benefit of the seller's obligations under ss. 12-15 of the Sale of Goods Act 1893 [157] should be extended to any person who may reasonably be expected to use, consume or be affected by the goods." <52> However, the proposal was dropped in the Law Commissions' Report <53> because it was thought that the matter required further study. Instead of pressing this proposal, the Commissions urged that the whole field of products liability should be made the subject of a separate study. This is now being done. <54>

(iv) New Zealand

Products Liability, a Report of the Torts and General Law Reform Committee of New Zealand, was presented to the Minister of Justice of New Zealand in March of 1974. The Report deals primarily with tort liability; almost nothing is said about contract liability. Furthermore, New Zealand has established a comprehensive accident compensation scheme, which provides compensation for all personal injury by [158] accident however caused. The role of products liability in New Zealand is therefore restricted to the areas of property damage and economic loss, and it is these areas that are the subject of the Report.

With respect to economic loss, the Committee was unanimous in thinking that anything beyond the cost of repairing the defective product itself should not be covered by any system of products liability. Their view was that such losses were more appropriately a matter of bargain between the parties. <55>

With respect to property loss (including here the cost of repair of the defective product), the Committee was split. The majority favoured no change in the law (which is the same as our own law), while the minority favoured a system of strict liability based on American tort law. We set out the two views below, along with their supporting arguments.

27. The Majority View

Once the accident compensation scheme comes into force the ambit of products liability will be reduced to property damage and economic loss. In the field of property damage the widespread practice of loss insurance leaves a very small residual area where the consumer may have to bear his own loss. In the view of the majority legislative modification of the present law governing products liability is not warranted.

[159]
28. The majority advances the following specific reasons in support of its rejection of a move to strict tort liability:

(a) The merits of the arguments advocating strict tort liability in the United States are centred on the compensation of life and limb. These arguments lack force when property damage is involved.

(b) In light of the widespread practice of insuring there is good administrative reason for allocating the costs of any property damage to the insured individual. Payment from his own insurance company is likely to be quicker than payment by the manufacturer's insurer. In the latter case the loss has to be investigated by two insurance companies involving duplication of work and extra cost.

(c) A system of strict tort liability would not place a sufficient economic burden on the manufacturer to create an incentive to produce non-defective goods. Negligence liability and strict liability have a similar economic effect on the community. Where the individual bears the loss he pays through his insurance premium; where the manufacturer bears the loss the level of his insurance premium is incorporated into the price of the goods which is passed on to the community.

(d) The attitude of the courts concerning questions of proof and sufficiency of evidence is as important as are the substantive rules for defining the risks to be borne. Under either system of products liability the link between the defective product and the harm must be established. This means in practice that the plaintiff must not have caused his own injuries, and that the product must have been defective when sold by the defendant rather than having become unsafe due to the intervening conduct of someone else in the distributive chain on the way to the consumer. A system of strict liability would not relieve this burden of proof.

[160]
(e) The practical difficulties that might otherwise face a plaintiff under the present law are substantially eased by the doctrine of res ipsa loquitur.

(f) The plaintiff under the present law is further assisted by the tendency in many cases for the manufacturer to settle in order to avoid publicity and to protect his standing with his wholesalers and retailers.

(g) The experience of the Committee confirmed by its enquiries shows that claims for property damage caused by defective products in which the plaintiff does not obtain reasonable compensation are rare.

(h) In many cases the plaintiff will have a remedy under the law of contract.

29. The Minority View

The minority favours the adoption of the theory of strict liability that has swept through the United States. It believes this would provide better protection for the New Zealand consumer by expanding the incidence of recovery to include cases where hardship could result under the present law. These encompass, in particular, cases where the person who suffers property damage is uninsured or inadequately insured and where the failure of the product stems from a defect in design or in a component part manufactured by someone other than the defendant manufacturer, perhaps overseas. It could be impossible to prove negligence on the manufacturer's part in cases involving this type of defect. It is also of significance that many products sold in New Zealand are entirely manufactured overseas.

The minority acknowledges that the cogent arguments in favour of strict liability where personal injury is in question lose some of their force when applied to property damage and that the residual area in which strict liability could operate would be rather small. However, personal hardship is never a minor matter for the individual who suffers it. It is no consolation to him to be told that because his case falls into an unusual category redress is not available.

The reasons advanced by the minority for favouring strict tort liability are as follows:

[161]
(a) The use of res ipsa loquitur which appears adequate to secure recovery for most plaintiffs is justified by reasons of policy. These reasons of policy could be expressed in different ways but the minority's view is that a manufacturer who puts goods on the market in the course of a profit-making enterprise and does his best to induce the public to buy them should in fairness accept full responsibility for unsafe or otherwise defective goods. After all, the consumer is usually in no position to know when goods are unsafe or defective.

This rationale would however apply equally to the small range of cases in which plaintiffs would fail to recover under existing law. Imposition of strict liability would accordingly give full and rational recognition to the policy reasons in question. It is preferable as a matter of principle to adopt openly, directly and consistently a rule which comes close to being achieved in practice anyway.

(b) The imposition of strict liability would avoid cases of hardship that could arise under the present law. The minority believes it is not a satisfactory answer to an unsuccessful plaintiff that a prudent man would have protected his property by taking out insurance. It is wrong in principle to restrict the manufacturer's liability for defective products on the assumption that consumers will be covered by insurance they are under no obligation to carry. Moreover there could be situations in which the consumer's insurance is irrelevant, e.g., if a defective motor launch explodes and causes a fire which burns down a wharf.

A further point about insurance is that in these times of rapid inflation people will tend to be under-insured. This could be particularly relevant in cases where serious property damage is done, e.g., a house is burned down because of a fire caused by a defective heating appliance. The actual financial damage done to the plaintiff may far exceed the sum assured.

(c) The minority has also given some consideration [162] to the theory that strict liability provides a greater deterrent than negligence liability against the production of defective products, by placing responsibility on the party best able to promote the safety of the product. The minority agrees that this argument is of no great weight in the conditions prevailing in this country, particularly having regard to the imminent removal of personal injury claims from the ambit of consideration. However the very fact that manufacturers will shortly be absolved from financial liability for injury caused by their products may be some justification for imposing on them strict liability for property damage and repair loss. Such deterrent effect as there is in this approach would then operate at least in this residual area.

(d) Our Views and Recommendations

As is usual with consumer protection reform, the review of developments elsewhere produces a wide variety of possible courses of action from which to choose. We now turn to our own views.

In our view, the present law with respect to the manufacturer's direct responsibility to the consumer is in a most unsatisfactory state. That the retailer should be liable to the consumer for defective goods, but that the manufacturer should not be, even though it is the manufacturer not the retailer who has caused the problem, is a [163] proposition that flies in the face of common sense. <56> Yet in many cases this is the law. To us it is clear that the manufacturer's direct responsibility to the consumer should be increased from what it is now. This could be done by making changes in contract law, tort law, or both.

(i) Contracts

As a matter of technique, we, like the Ontario Law Reform Commission, find the contract approach to be [164] convenient for most purposes. On a contract basis, the main stumbling block for the consumer is the doctrine of privity of contract. In our view, the doctrine of privity of contract, as it relates to liability for defective products, is an unfair and needless limitation on consumer rights and accordingly should be abolished in consumer transactions. We recommend that in the case of contracts for the sale or supply of consumer goods a supplier's guarantee, whether the supplier be manufacturer, wholesaler, retailer or other business distributor, and whether the guarantee be express or implied, should apply in favour of all persons who may reasonably be expected to buy, consume, use or be affected by the goods. Such persons should be able to recover from the supplier any loss that is caused by his breach of the guarantee, whether the loss be economic loss or damage to person or property, provided that such loss is not suffered in a business capacity, and subject to the normal rules as to causation and remoteness. For this purpose a loss should not be treated as being suffered in a business capacity if it represents liability for a loss that is not suffered in a business capacity.

In framing this proposal we have borrowed what we consider to be the best from the developments elsewhere. We now proceed to set out our reasoning on a point by point basis.

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a. Why an extended contract right? One of the objections frequently raised against all of the Alternatives under s. 2-318 of the Uniform Commercial Code is that the Alternatives extend to the beneficiaries only whatever rights the original buyer had. Thus the manufacturer, for example, could contract out of the implied terms as to quality and fitness in the original contract with his buyer and thereby avoid liability to the ultimate consumer as well. The Restatement of Torts Second, on the other hand, would not allow the manufacturer to contract out of the obligations it imposes at all. The Ontario Law Reform Commission attempts to get the best of both worlds, by allowing the manufacturer to limit his responsibility in some cases but not in others. The Commission does not adopt the s. 2-318 extended contract right approach. Instead it adopts a system of direct guarantees from manufacturer to consumer. It thereby avoids the problem of the manufacturer getting out from obligations to the consumer by contracting out with the wholesaler or retailer. At the same time the Commission thought it would be unfair to deny the manufacturer the opportunity that the retailer has to limit his responsibility in appropriate cases, e.g. by pointing out defects in the goods, and accordingly would give the same opportunity to the manufacturer. The Commission got around the complication of no direct contact between manufacturer and consumer by recommending that "any [166] notice of a disclaimer clause given to the consumer buyer by or on behalf of the manufacturer before or at the time of the purchase of the goods by the consumer buyer in writing or otherwise, and which may reasonably be expected to come to the buyer's attention in the ordinary course of events shall be effective if the disclaimer or restriction of liability would otherwise be valid." <57>

We also believe that a manufacturer should not be allowed to contract out of all responsibility but that he should be allowed to limit his responsibility in appropriate cases, just as a retailer can. However, since we have already recommended earlier in this Report that business contracts for the sale or supply of consumer goods should have the same guarantees as consumer contracts and that contracting out of these guarantees should be prohibited, we can take a more simple approach than that taken by the Ontario Law Reform Commission. We can simply extend the original contract rights in favour of the designated beneficiaries.

An important difference between our proposal and the Ontario proposal is that we would not require the manufacturer to give notice to the consumer in order to avoid responsibility, but would only require the manufacturer to give notice to his buyer. Under our proposal, for example, if the [167] manufacturer sells the goods as "seconds" to the retailer, who in turn passes them off as "first class" to the consumer buyer, the consumer buyer will not have a legal complaint against the manufacturer on account of the goods being "seconds." but will of course have a legal complaint against the retailer. An approach such as ours has been criticized on the ground that "dealings between buyer and seller do not provide a satisfactory criterion for determining the liability to injured third parties." <58> Taking as an example a situation where the seller specifically draws certain defects to the attention of his buyer, Professor Waddams states that "it may be that there are ways in which the supplier can properly limit his liability even to remote parties, but it is submitted that he should not be able to do so simply by drawing defects to someone else's attention." <59> If we were imposing liability only for negligence, we could accept this as valid criticism for [168] some <60> cases. But we are imposing strict liability, for both safety-related defects and non-safety-related defects, and for all losses, whether they be damage to person, property or pocketbook. We do not see why the third party should have any greater rights than the original buyer with respect to the kind and extent of liability that we are recommending here.

b. Kind and extent of liability. The reasons for imposing strict liability for losses, whether direct or consequential, are the same as those we set out for the retailer in the First Report. We repeat part of them here for convenience of reference.

We favour strict liability rather than fault liability because we do not believe that fault liability addresses itself to all the issues. It is not true to say that goods will only be defective if someone is at fault. It is known that, notwithstanding defect prevention devices and quality control measures, the defective product is and will continue [169] to be produced. This is due in part to the fact that it reaches a point where the costs of preventing defects are greater than the costs of the defects themselves. We, of course, do not argue with this fact. Rather our concern is that the costs of the defects themselves should not fall on the shoulders of the individual consumer who happens to have been unlucky enough to purchase one of the (say) defective automobiles, but should go back to the seller (and so on back to the manufacturer if he is the one who is responsible for the defect in the first place) who in turn can spread these costs among those who benefit from the products being sold, i.e., the consumers of those products. Just as the price of the product includes the cost of preventing defects, it should also include the costs of the defects themselves. Indeed, it is when the price includes all the costs that there exists the most effective incentive to increase quality control measures to the point where the costs of preventing defects are greater than the costs of the defects themselves.

It is perhaps in the area of consequential damages that most sellers would have the greatest reservations. It is one thing to impose liability when you are giving protection only to the buyer's restitution interest. It is quite another thing to impose strict liability when you are protecting the buyer's expectation interest. In so far as the buyer's [170] restitution interest is concerned, the law is requiring the seller to disgorge a benefit that he has received from the buyer. The buyer's loss has been the seller's gain. In so far as the buyer's expectation interest is concerned, however, the buyer's loss is not necessarily the seller's gain at all. Indeed, a very inexpensive but defective product may be responsible for very serious damage to person, property or pocketbook. This kind of risk is much more difficult to evaluate than is the risk involved in having simply to replace a defective product, but if it is difficult for the businessman to evaluate, it is even more difficult for the consumer to evaluate. Again, we fail to see why the burden of this loss, which is caused by the defective product, should be borne by the individual consumer. It is really a cost of the production, sale and use of goods of that type and should be reflected in the price of the product. If the true costs are not reflected in the price then, as economists would say, there is a misallocation of resources. If the true costs are reflected in the prices, and it is found that consumers are unwilling to pay these prices and that the product cannot be sold, all we can say is that we are not convinced' that consumers and society will be the worse for it. It is also sometimes said that such liabilities would inhibit the development of new products and innovative ideas. [171] In economic terms, however, we fail to see why these new products should not bear their costs rather than having them borne by the individual consumer. And in non-economic terms, we certainly fail to see why the individual consumer should bear these costs.

Our proposal for strict liability is in line with the developments elsewhere in Canada and the United States. Our proposal to cover both direct and consequential losses is in line with the developments elsewhere in Canada, but differs from Alternatives A and B under s. 2-318 of the Uniform Commercial Code and s. 402A of the Restatement of Torts Second. Alternatives A and B cover only personal injury, while s. 402A covers personal injury and property damage. We would cover personal injury, property damage and economic loss, direct and consequential. We do not think that imposing liability for economic loss will place undue hardship on suppliers, since we have also imposed the limitations that the loss must be caused by the supplier's breach, that it must not have been suffered in a business capacity, and that it must fall within the usual rules as to causation and remoteness. Furthermore, it would be anomalous to hold the retailer liable for economic loss, but not the manufacturer, when it is the manufacturer who has caused the problem.

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c. The persons protected. In recommending protection for all persons who may reasonably be expected to buy, consume, use or be affected by the goods, we have gone much further than the Ontario proposal, which limits protection to the consumer buyer and "any person deriving his interest in the goods from or through the original purchaser, whether by purchase, gift, operation of law, or otherwise." <61> In our view the Ontario proposal is too restrictive in this respect. We see no good reason why protection should be extended only to "successors in title." For example, in our view a wife who is injured in an accident caused by a defective automobile purchased by her husband should not be excluded from protection because the husband had not given her the car but was simply letting her ride in it as a passenger. Our recommendation also goes further than s. 402A of the Restatement of Torts Second in that it protects bystanders as well as users and consumers. In this respect we prefer Alternatives B and C of s. 2-318 of the Uniform Commercial Code and the reasoning of the Supreme Court of California in Elmore v. American Motors Corporation. <62>

Our recommendations would also include the business buyer as a beneficiary of the extended warranty rights to the extent that he incurs liability for consumer losses resulting from the supplier's breach of contract. This [173] recommendation follows from the policy decision taken earlier in this Report to stream the liability for consumer losses back to the supplier who caused the problem in the first place.

d. The persons responsible. Throughout this part of the Report, we have referred to the manufacturer's liability. We found this terminology a convenient and effective method of bringing home and continually reinforcing the point that we were attempting to make the legal responsibility reach back to the source of the problems, which in many cases is the manufacturer. However, like Alternatives B and C of s. 2-318 of the Uniform Commercial Code and s. 402A of the Restatement of Torts Second, but unlike the Ontario proposal, our actual recommendations apply to all who contract to sell or supply consumer goods in the course of business, whether they be manufacturers, wholesalers, retailers, or other business distributors. We believe that our reasoning for retailer responsibility applies mutatis mutandis to other middlemen as well. Finally, of course, an action or judgment against one supplier should not of itself constitute a bar to the bringing of an action against another supplier.

(ii) Torts

Although these proposals take care of most cases [174] involving defective consumer products, they do not take care of all cases. In particular, they do not take care of cases where consumer goods are not supplied by way of contract at all, e.g. free samples of goods distributed by the manufacturer. In many cases the consumer has no real complaint if such goods are defective, because nothing has been paid for them. Different considerations apply, however, where such goods are not only defective but are also dangerous. We believe that the consumer should receive full protection against dangerously defective consumer goods, whether they are supplied by way of contract or not.

We would accordingly recommend the following proposal, which is modelled on s. 402A of the Restatement of Torts Second, but with the same kind of modifications that we made for our warranty proposals:

(1) A person who in the course of business supplies any consumer goods that are unreasonably dangerous to person or property because of a defect in design, materials or workmanship should be liable to any person who may reasonably be expected to buy, use, consume or be affected by the goods and who suffers loss because of such goods, whether the loss be economic loss or damage to person or property, provided that such loss is not suffered in a business capacity, and subject to the normal rules as to [175] causation and remoteness. For this purpose a loss should not be treated as being suffered in a business capacity if it represents liability for a loss that is not suffered in a business capacity.

(2) No person should be liable under this provision for any loss that arises from a defect that was not present in the goods at the time he supplied them or, subject to applicable New Brunswick and Federal safety standards, for any loss that arises from a defect that he has pointed out to the person to whom he supplied the goods before the loss was suffered.

(3) The liability under this provision should not depend on contract.

(4) The liability under this provision should not depend on negligence but should be a strict liability.

(5) No person should be allowed to contract out of the liability imposed by this provision.

4. EXTRA-PROVINCIAL SUPPLIERS

The extra-provincial supplier has caused us much concern. The supplier who is outside New Brunswick poses special complications and limitations on New Brunswick consumer protection laws that the inside supplier does not. Since many, indeed most, manufacturers of consumer durables [176] are located outside New Brunswick, it is very important that these problems be recognized and dealt with as far as our powers permit.

The problems can be broken down into two major categories. The first concerns making our consumer protection laws apply to the extra-provincial supplier, and the second concerns enforcing those laws against the extra-provincial supplier.

(a) Limitations on New Brunswick's Legislative Powers

The New Brunswick Legislature is not, of course, supreme. Public and private international law, and The British North America Act, <63> place restrictions on its powers both within and beyond its boundaries.

Under the B.N.A. Act, a Province has legislative jurisdiction over "Property and Civil Rights in the Province." <64> Since contracts are included in civil rights, New Brunswick clearly has jurisdiction over New Brunswick contracts. It does not have jurisdiction over non-New Brunswick contracts, however, because of the limiting words [177] "in the Province." It is not entirely clear for this purpose what are New Brunswick contracts and what are not New Brunswick contracts; indeed, our terminology, although convenient for purposes of shorthand expression, really begs the question.

To take one extreme, where all acts in relation to the making and performance of a contract occur in New Brunswick it would seem to be a New Brunswick contract. At the other extreme, where all acts in relation to the making and performance of a contract occur outside New Brunswick, it would seem to be a non-New Brunswick contract. But where some acts take place in New Brunswick and some take place outside New Brunswick, the position becomes less clear. To return to extremes, we do not believe that New Brunswick's jurisdiction is limited to cases where all acts in relation to the contract occur in New Brunswick, nor do we believe that New Brunswick has jurisdiction in all cases where any act in relation to the contract occurs in New Brunswick. We do believe that New Brunswick has jurisdiction over contracts that are made in New Brunswick, at least where the goods are to be consumed in New Brunswick. <65> We also [178] believe that New Brunswick has jurisdiction over contracts whose proper law, in the private international law sense, is New Brunswick. <66> It seems quite likely that New Brunswick does not have jurisdiction over the terms of any other contracts for the sale or supply of goods. <67>

According to Dicey and Morris, <68> the proper law of a contract, in the private international law sense, means ". . . the system of law by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection." <69> The parties themselves are thus free to choose the proper law of the contract. However, some limitations are placed on their freedom to choose because otherwise the public policy of a forum could be evaded very easily. Again, from Dicey and [179] and Morris, "no court, it is submitted, will give effect to a choice of law . . . if the parties intended to apply it in order to evade the mandatory provisions of that legal system with which the contract has its most substantial connection and which, for this reason, the court would, in the absence of an express or implied choice of law, have applied." <70> This is not as easy as it sounds, however. There is a distinction between an attempt to evade the mandatory laws of a jurisdiction, which is invalid, and an attempt to apply the laws of another jurisdiction because of important links with it even though the contract in question does not have its most substantial connection with that jurisdiction, which is usually valid. <71> It is probable that an express choice of law clause in a contract would be struck down only if it is one that could not reasonably have been made. <72>

There are, then, many contracts over which New Brunswick has no legislative control even though there are important links with New Brunswick. For example, take the [180] case of an Ontario supplier who solicits orders in New Brunswick but who concludes his contracts in Ontario. Further, although he knows the goods are to be consumed in New Brunswick, the place of delivery and performance under the contract is somewhere in Ontario. Since the contract would not be made in New Brunswick, and since New Brunswick would not be the proper law of the contract under private international law rules, it would seem that New Brunswick would not have legislative jurisdiction over the terms of the contract. In many cases it would not be difficult for the extra-provincial supplier to arrange his affairs in such a way as to take advantage of these limitations on New Brunswick's legislative powers.

New Brunswick could probably reach more extra-provincial suppliers through a tort law approach. Again, it would have to be shown that it was dealing with civil rights in the Province. Torts fall within civil rights, and accordingly torts that are committed in New Brunswick would fall within civil rights in the Province.

A crucial question, therefore, is whether a tort is committed in New Brunswick. <73> To take extreme cases [181] again, it would seem clear that where all acts and all damage occur in New Brunswick then any tort would be committed in New Brunswick. However, if all acts and all damage occur outside New Brunswick then any tort would be committed outside New Brunswick. But what about the middle ground? For example, what if all acts take place outside New Brunswick but all damage occurs inside New Brunswick? Two recent Supreme Court of Canada decisions dealt with this very problem, although in different contexts.

In Moran et al. v. Pyle National (Canada) Ltd. <74> the plaintiffs brought an action in Saskatchewan against an Ontario manufacturer. The defendant was not a resident of Saskatchewan, nor did he carry on business or have any property or assets in Saskatchewan. Normally, Saskatchewan courts would not have jurisdiction over such a defendant. However, Saskatchewan allows its courts to take jurisdiction over a non-resident defendant if the defendant has committed a tort in Saskatchewan. The issue before the Court was whether in this case a tort had been committed in Saskatchewan. It was alleged that the defendant had negligently manufactured a defective light bulb which caused the death of the plaintiffs' relative. All of the manufacturer's acts took place in Ontario, but the damage occurred in Saskatchewan. The [182] Supreme Court of Canada held that the tort was committed in Saskatchewan.

Mr. Justice Dickson, who delivered the judgment of the Court, noted that the cases on this difficult problem did not seem to be in agreement. A number of different tests had been suggested. One theory, the so-called "place of acting" theory, focused on the place where the original act of the defendant which caused the final damage occurred. Another theory, the so-called "last event" theory, focused on the place where the event which completes the cause of action and brings it into being occurred. After canvassing these and other theories, Mr Justice Dickson concluded: <75>

Generally speaking, in determining where a tort has been committed, it is unnecessary, and unwise, to have resort to any arbitrary set of rules. The place of acting and the place of harm theories are too arbitrary and inflexible to be recognized in contemporary jurisprudence. In the Distillers' case and again in the Cordova case a real and substantial connection test was hinted at. Cheshire . . . has suggested a test very similar to this; the author says that it would not be inappropriate to regard a tort as having occurred in any country substantially affected by the defendant's activities or its consequences and the law of which is likely to have been in the reasonable contemplation of the parties. Applying this test to a case of careless manufacture, the following rule can be formulated:

[183]
where a foreign defendant carelessly manufactures a product in a foreign jurisdiction which enters into the normal channels of trade and he knows or ought to know both that as a result of his carelessness a consumer may well be injured and it is reasonably foreseeable that the product would be used or consumed where the plaintiff used or consumed it, then the forum in which the plaintiff suffered damage is entitled to exercise judicial jurisdiction over that foreign defendant. This rule recognizes the important interest a State has in injuries suffered by persons within its territory. It recognizes that the purpose of negligence as a tort is to protect against carelessly inflicted injury and thus that the predominating element is damage suffered. By tendering his products in the market place directly or through normal distributive channels, a manufacturer ought to assume the burden of defending those products wherever they cause harm as long as the forum into which the manufacturer is taken is one that he reasonably ought to have had in his contemplation when he so tendered his goods. This is particularly true of dangerously defective goods placed in the interprovincial flow of commerce.

Mr. Justice Dickson also stressed, however, that the rules for determining situs for the purpose of a court exercising jurisdiction are not necessarily the same as those to be used to identify the legal system under which the rights and liabilities of the parties are to be determined. <76>

This very distinction was actually made by the Supreme Court of Canada in Interprovincial Co-operatives Ltd. et al. v. The Queen in Right of Manitoba, <77> which dealt with the place of commission of a tort in the context of which juris-[184]diction's laws were to be applied. In that case the defendants had discharged contaminants outside Manitoba into waters that drained into Manitoba and caused damage in Manitoba. Manitoba had legislation imposing liability for damage suffered in Manitoba from pollution, regardless of where the acts of pollution took place, and regardless of whether the defendants had authority to do the acts at the place where they did them. The issue, then, was whether Manitoba could enact legislation imposing liability for damage suffered in Manitoba even though all of the acts that caused the damage occurred outside Manitoba and all of these acts were authorized at the place where they occurred. The Supreme Court of Canada, by a four to three majority, held that the Manitoba Legislature did not have such authority.

The majority struck down the legislation on the ground that it was directed at acts done outside Manitoba and accordingly purported to have extra-territorial effect. Mr. Justice Pigeon, speaking for himself and two other members of the majority, took the view that only Parliament had legislative authority over a pollution problem that was not really local in scope but rather was truly interprovincial. Mr. Justice Ritchie, the other member of the majority, disagreed with Mr. Justice Pigeon's view that only Parliament had legislative jurisdiction in this case, but agreed [185] that Manitoba did not have jurisdiction to legislate with respect to conduct and rights of the defendants outside Manitoba. In Mr. Justice Ritchie's view, acts cannot amount to actionable torts at all if they are lawful at the place where they are done.

Mr. Justice Ritchie did make one concession to Manitoba's legislative authority, in that he would not require that the act be a tort where it was committed but would simply require that the act not be lawful where it was committed. This follows from his adoption, as applicable in Canada, of the rule formulated by Mr. Justice Willes in Phillips v. Eyre <78> that: <79>

As a general rule, in order to found a suit in England for a wrong alleged to have been committed abroad, two conditions must be fulfilled. First, the wrong must be of such a character that it would have been actionable if committed in England . . . Secondly, the act must not have been justifiable by the law of the place where it was done.

McLean v. Pettigrew, <80> an earlier decision of the Supreme Court of Canada, illustrates this rule rather well. In [186] that case the plaintiff, who was a gratuitous passenger in the defendant's car, was injured because of the defendant's negligence in Ontario. A gratuitous passenger had no right of action under Ontario law in such a case, but Ontario law did impose a penalty against a driver who was guilty of negligence. Under Québec law, the driver would also be civilly liable to the injured passenger. The plaintiff brought an action against the defendant in Québec and was successful. There is, then, no requirement that the act be a tort where it is committed but simply that it not be justified at the place where it is committed.

Chief Justice Laskin, speaking for the minority, took the view that the legislation was within Manitoba's authority, saying: <81>

Manitoba's predominant interest in applying its own law, being the law of the forum in this case, to the question of liability for injury in Manitoba to property interests therein is undeniable. Neither Saskatchewan nor Ontario can put forward as strong a claim to have their provincial law apply in the Manitoba action; in other words, the wrong in this case was committed, or the cause of action arose in Manitoba and not in Saskatchewan or in Ontario. There is hence no need to consider . . . Phillips v. Eyre . . .

Chief Justice Laskin did not think that Manitoba was attempting to "bring within its borders a tort which [187] could not justifiably be litigated there under Manitoba law by common law choice of law principles" <82> simply because the cause of damage for which liability was imposed occurred outside Manitoba.

Despite the differences in the reasoning of the majority judgments, it would seem that the New Brunswick Legislature could not impose liability against an extra-provincial supplier for damage caused to persons in New Brunswick if the supplier acted only outside New Brunswick and his acts were not wrongful at the place where they occurred. At the same time, however, it seems clear from the majority judgments that there was a major concern that, if Manitoba's legislation were constitutionally valid in this case, the result would be that Manitoba could turn an act that was lawfully done in another Province into an unlawful act. In our view, the case does not preclude a Province from exercising legislative jurisdiction where damage occurs in the Province and some, but not all, of the acts that contribute to that damage take place in that Province. In our view, if an extra-provincial supplier does any act in New Brunswick that contributes to damage to a person in New Brunswick, then New Brunswick has legislative jurisdiction to impose liability on the extra-provincial supplier for the damage.

[188]
We accordingly recommend the following proposals:

(1) A person who in the course of business does any act in New Brunswick that furthers the supply of consumer goods that are unreasonably dangerous to person or property because of a defect in design, materials or workmanship, and who is the supplier of those goods, should be liable for any loss suffered by any person in New Brunswick because of such act, whether the loss be economic loss or damage to person or property, provided that such loss is not suffered in a business capacity, and subject to the normal rules as to causation and remoteness. For this purpose a loss should not be treated as being suffered in a business capacity if it represents liability for a loss that is not suffered in a business capacity.

(2) If it is proved that

(a) a person in the course of business has done an act in New Brunswick to further the supply of consumer goods, and

(b) that person was the supplier of consumer goods that were unreasonably dangerous to person or property because of a defect in design, materials or workmanship, and

(c) that such goods caused a loss to a person in New Brunswick that falls within the normal rules as to causation and remoteness, [189] then it should be presumed that the act referred to in (a) furthered the supply of the goods referred to in (b) and was the proximate cause of the loss referred to in (c), and that such loss was the reasonably foreseeable result of such act, unless it is proved that there is no connection whatsoever between such act and such loss.

(3) No person should be liable under these provisions for any loss that arises from a defect that was not present in the goods at the time he supplied them or, subject to applicable New Brunswick and Federal safety standards, for any loss that arises from a defect that he has pointed out to the person to whom he supplied the goods before the loss was suffered.

(4) The liability under these provisions should not depend on contract.

(5) The liability under these provisions should not depend on negligence but should be a strict liability.

(6) No person should be allowed to contract out of the liability imposed by these provisions.

These proposals are modelled on the recommendations that we made earlier in this Report for strict tort liability against suppliers of dangerously defective consumer goods. <83> However, we have made some important [190] modifications to the model so as to reach as many extra-provincial suppliers as possible. The proposals that we make here are not directed against acts that occur outside New Brunswick but are directed against acts that occur inside New Brunswick. Furthermore, in order for our proposals to operate, the act in New Brunswick must contribute to a loss in New Brunswick, that is, there must be a causal connection between the act in New Brunswick and the loss in New Brunswick. At the same time, however, for obvious reasons, we would place part of the burden of proof with respect to causal connection between act and loss on the person who does the act. We believe that these proposals are within New Brunswick's legislative jurisdiction as dealing with torts committed in New Brunswick and therefore falling within "Property and Civil Rights in the Province."

In addition to torts that are committed in New Brunswick, we also believe that we can make New Brunswick tort law apply to acts that occur outside New Brunswick if those acts are wrongful at the place where they occur. This follows from Phillips v. Eyre, which we have already discussed above. <84> This has important ramifications, particularly with respect to Federal consumer protection legislation. The present [191] Federal consumer protection legislation rarely gives civil remedies to consumers who are injured by its breach. In many cases the main reason for this would seem to be the fear that the Federal government does not have the legislative jurisdiction to give a civil remedy. Whatever constitutional difficulties the Federal government might have in this respect, it would seem clear that there is no constitutional impediment preventing New Brunswick from giving civil remedies for breach of Federal consumer protection legislation. <85> The act that violated the legislation, even if committed outside New Brunswick, would be wrongful wherever it occurred and, applying Phillips v. Eyre, New Brunswick law would be applied in an action in New Brunswick. We accordingly recommend that: a person who in the course of business breaches any Federal consumer protection legislation or regulations should be liable to any person who suffers loss because of that breach, whether the loss be economic loss or damage to person or property, provided that such loss is not suffered in a business capacity, and subject to the normal rules as to causation and remoteness. For this purpose a loss should not be treated as being suffered in a business capacity if [192] it represents liability for a loss that is not suffered in a business capacity.

(b) Enforcement of New Brunswick's Laws

Even when New Brunswick can make its consumer protection laws apply to the extra-provincial supplier, there remains the problem of enforcing those laws against the extra-provincial supplier. Ideally, of course, we would want the New Brunswick consumer to be able to fully enforce all of his rights in New Brunswick by bringing any necessary legal action here and collecting on any judgment here. Unfortunately, however, this is not always possible or practical.

New Brunswick has wide powers, which it has already exercised in large measure, to give jurisdiction to courts in New Brunswick to entertain actions against persons who are outside New Brunswick. <86> Whether a court outside New Brunswick will recognize a judgment by a New Brunswick court, however, is another question. <87> This question becomes important when the defendant does not have sufficient [193] assets in New Brunswick to satisfy the judgment and it is necessary to enforce the New Brunswick judgment outside New Brunswick. Under private international law rules, a court, for instance an Ontario court, will not enforce the judgment of a foreign court, for instance a New Brunswick court, unless one of the following conditions is met: <88>

(1) Where the defendant is a subject of the foreign country in which the judgment was obtained;

(2) Where the defendant at the time of the commencement of the proceedings was physically present in or a resident of, or domiciled in, the foreign country in which the judgment was obtained;

(3) Where the litigant voluntarily had submitted himself to the jurisdiction of the court of the foreign country in which the judgment was obtained:

(a) where the defendant as a plaintiff or counter-claimant had selected the foreign court,

(b) where the defendant voluntarily had appeared,

Steps should be taken, therefore, to ensure that New Brunswick judgments will be recognized outside New Brunswick. This can be done by requiring extra-provincial suppliers to submit to our jurisdiction as a condition to acting in New [194] Brunswick, <89> and we so recommend. In this connection, however, it is important to note that submission to jurisdiction for this purpose must be actually obtained -- it is not sufficient simply to enact legislation deeming submission to have been obtained. <90>

We cannot over-emphasize the importance of taking the necessary steps to ensure that the judgments of New Brunswick courts will be recognized by courts outside of New Brunswick. Not only is this desirable in all cases, because it allows the consumer to bring his action in New Brunswick rather than have to bring it outside New Brunswick, but it is absolutely essential in tort cases. This is because, under Phillips v. Eyre, which we have already discussed, <91> an action in tort cannot be brought in a jurisdiction that does not recognize that tort in its own jurisdiction. If, for example, certain conduct is a tort in New Brunswick, but it is not a tort in Ontario, no action can be brought in Ontario for the tort. An action can be brought in New Brunswick, but any judgment recovered in New Brunswick will not be enforced in Ontario unless New Brunswick courts have jurisdiction in the private inter-[195]national law sense. If New Brunswick courts do have jurisdiction in the private international law sense, the Ontario courts will enforce the judgment even though it arises out of conduct that is not regarded as a tort in Ontario and even though the Ontario courts would not entertain an action for the tort themselves. <92>

- 195 -

5. RECOMMENDATIONS

We recommend that:

Business Sales: Statutory Terms
1. Business contracts (i.e. contracts made between businessmen) for the sale or supply of consumer goods should contain the same statutory express and implied terms as those that we recommended for consumer transactions in the First Report.

Business Sales: Remedies for Breach
2. We do not believe that our reasoning for extended rejection [196] rights in consumer transactions applies to business transactions. However, we do recommend that (a) the words in section 12(4) of the Sale of Goods Act, "or where the contract is for specific goods the property in which has passed to the buyer," should be repealed and (b) section 33 of the Sale of Goods Act should be made subject to section 32.

Business Sales: Contracting Out
3. In business contracts for the sale or supply of consumer goods there should be a prohibition against contracting out of the statutory express and implied terms of the contract. There should also be a prohibition against the seller contracting out of liability to the buyer for damages for the buyer's liability for consumer losses caused by the seller's breach [197] of contract. (By consumer losses we mean losses that are not suffered in a business capacity.). There should not be a prohibition against contracting out of other remedies that the law normally provides for breach of the statutory terms.

Privity of Contract
4. The doctrine of privity of contract should be abolished in consumer transactions. In the case of contracts for the sale or supply of consumer goods a supplier's guarantee, whether the supplier be manufacturer, wholesaler, retailer or other business distributor, and whether the guarantee be express or implied, should apply in favour of all persons who may reasonably be expected to buy, consume, use or be affected by the goods. Such persons should be able to recover from the supplier any loss that is caused by his breach of the guarantee, [198] whether the loss be economic loss or damage to person or property, provided that such loss is not suffered in a business capacity, and subject to the normal rules as to causation and remoteness. For this purpose a loss should not be treated as being suffered in a business capacity if it represents liability for a loss that is not suffered in a business capacity.

Safety-Related Defects
5. (a) A person who in the course of business supplies any consumer goods that are unreasonably dangerous to person or property because of a defect in design, materials or workmanship should be liable to any person who may reasonably be expected to buy, use, consume or be affected by the goods and who suffers loss because of such goods, whether the loss be economic loss or damage to person or property, provided that such loss is not suffered in a business capacity, and subject to the normal rules as to causation and remoteness. For this [199] purpose a loss should not be treated as being suffered in a business capacity if it represents liability for a loss that is not suffered in a business capacity.

(b) No person should be liable under this provision for any loss that arises from a defect that was not present in the goods at the time he supplied them or, subject to applicable New Brunswick and Federal safety standards, for any loss that arises from a defect that he has pointed out to the person to whom he supplied the goods before the loss was suffered.

(d) The liability under this provision should not depend on negligence but should be a strict liability.

(e) No person should be allowed to contract out of the liability [200] imposed by this provision.

Extra-Provincial Suppliers
6. (a) A person who in the course of business does any act in New Brunswick that furthers the supply of consumer goods that are unreasonably dangerous to person or property because of a defect in design, materials or workmanship, and who is the supplier of those goods, should be liable for any loss suffered by any person in New Brunswick because of such act, whether the loss be economic loss or damage to person or property, provided that such loss is not suffered in a business capacity, and subject to the normal rules as to causation and remoteness. For this purpose a loss should not be treated as being suffered in a business capacity if it represents liability for a loss that is not suffered in a business capacity.

[201]
(b) If it is proved that

(i) a person in the course of business has done an act in New Brunswick to further the supply of consumer goods, and

(ii) that person was the supplier of consumer goods that were unreasonably dangerous to person or property because of a defect in design, materials or workmanship, and

(iii) that such goods caused a loss to a person in New Brunswick that falls within the normal rules as to causation and remoteness,

then it should be presumed that the act referred to in (i) furthered the supply of the goods referred to in (ii) and was the proximate cause of the loss referred to in (iii), and that such loss was the reasonably foreseeable result of such act, unless it is proved that there is no connection whatsoever between such act and such loss.

[202]
(c) No person should be liable under these provisions for any loss that arises from a defect that was not present in the goods at the time he supplied them or, subject to applicable New Brunswick and Federal safety standards, for any loss that arises from a defect that he has pointed out to the person to whom he supplied the goods before the loss was suffered.

(d) The liability under these provisions should not depend on contract.

(e) The liability under these provisions should not depend on negligence but should be a strict liability.

(f) No person should be allowed to contract out of the liability imposed by these provisions.

7. A person who in the course of business breaches any Federal consumer protection legislation or regulations [203] should be liable to any person who suffers loss because of that breach, whether the loss be economic loss or damage to person or property, provided that such loss is not suffered in a business capacity, and subject to the normal rules as to causation and remoteness. For this purpose a loss should not be treated as being suffered in a business capacity if it represents liability for a loss that is not suffered in a business capacity.

8. Extra-provincial suppliers should be required to submit to the jurisdiction of New Brunswick courts as a condition to acting in New Brunswick.

Footnotes

<1> First Report of the Consumer Protection Project: Consumer Guarantees in the Sale or Supply of Goods (Department of Justice, New Brunswick, 1974).

<2> Second Report of the Consumer Protection Project: Consumer Guarantees for Automobiles and Mobile Homes (Department of Justice, New Brunswick, 1974).

<3> See text, infra, at pages 163 - 173.

<4> Misrepresentation Act, 1967, 15 & 16 Eliz. II, c. 7, s. 4 (Imp.).

<5> Misrepresentation Act, 1971-72, S.S.A. 1972, No. 46, ss. 10, 11, 12.

<6> For a full discussion, see our First Report at pages 114-122.

<7> R.S.N.B. 1973, c. S-1.

<8> Exemption Clauses in Contracts, First Report: Amendments to The Sale of Goods Act 1893 (1969), paras. 107-109.

<9> S. 4.

<10> 1972 Official Text (with comments), published by The American Law Institute and the National Conference of Commissioners on Uniform State Laws.<11> (1972, Department of Justice, Ontario).

<12> Ibid., at page 77.

<13> Proposal for a Consumer Products Warranties Bill, ss. 4(1), 9. This Proposal was attached to a White Paper on Consumer Products Warranties that was tabled in the Saskatchewan Legislature on April 3, 1975.

<14> See, e.g., Dunlop Pneumatic Tyre Co., Ltd. v. Selfridge & Co., Ltd., [1915] A.C. 847 (H.L.).

<15> See, e.g., Chapman v. Seven-Up Sussex Ltd. (1970), 2 N.B.R. (2d) 909 (N.B. Sup. Ct.), per Dickson J. at page 914.

<16> See, e.g., Young & Marten Ltd. v. McManus Childs Ltd., [1969] 1 A.C. 454 (H.L.), per Lord Pearce, at pages 469-470.

<17> Ibid.

<18> Shanklin Pier, Ltd. v. Detel Products, Ltd., [1951] 2 K.B. 854 (Q.B.).

<19> But see Traders Finance Corporation Ltd. v. Haley (1966), 57 D.L.R. (2d) 15 (Alta C A.), where Johnson J.A., speaking for the Court, said, at page 18: "Where, as here, a purchaser goes to a manufacturer, makes known the purpose for which he requires equipment, is told that specific pieces of equipment shown to him would do the required job, then, notwithstanding who may be the parties to the ultimate agreement of sale, the manufacturer is, in my opinion, the seller within the Sale of Goods Act."

<20> Grant v. Australian Knitting Mills, Limited, [1936] A.C. 85 (P.C.).

<21> The doctrine of res ipsa loquitur can be of great help in proving negligence in some cases: see Linden, Canadian Negligence Law (1972, Butterworths), c. 5; Waddams, Products Liability (1974, Carswell), at pages 54-58.

<22> [1932] A.C. 562 (H.L.).

<23> Ibid., at page 599.

<24> Sale of Goods Act, R.S.N.B. 1973, c. S-1, s. 50(3).

<25> At least where the only basis for recovery is negligence in manufacturing a defective product: Rivtow Marine Ltd. v. Washington Iron Works et al. (1973), 40 D.L.R. (3d) 530 (Can. Sup. Ct.). Mr. Justice Laskin, as he then was, delivered a strong dissent, with which Mr. Justice Hall concurred.

<26> Grant v. Australian Knitting Mills, Limited, [1936] A.C. 85 (P.C.).

<27> Western Processing & Cold Storage Ltd. et al. v. Hamilton Construction Co. Ltd. et al. and Dow Chemical of Canada Ltd. (1965), 51 D.L.R. (2d) 245 (Man. C.A.).

<28> See Linden, Canadian Negligence Law (1972, Butterworths), c. 7; Cheshire, Fifoot & Furmston, The Law of Contract (8th ed., 1972, Butterworths), part VIII.

<29> See, e.g., Sunnyside Greenhouses Ltd. v. Golden West Seeds Ltd. (1972), 27 D.L.R. (3d) 434 (Alta. C.A.], affirmed 33 D.L.R. (3d) 384 (Can. Sup. Ct.).

<30> Rivtow Marine Ltd. v. Washington Iron Works et al. (1973), 40 D.L.R. (3d) 530 (Can. Sup. Ct.). Where the basis for recovery is not simply negligence in manufacturing a defective product, but some other kind of negligence, such as failure to warn about known dangerous defects, then pure economic loss can be recovered, as happened in Rivtow itself. Indeed, speaking about the law of negligence in general, the majority adopted the following proposition as an accurate statement of law: ". . . the existence of a duty to take reasonable care no longer depends on whether it is physical injury or financial loss which can reasonably be foreseen as a result of a failure to take such care." (at p. 547). The full ramifications of Rivtow remain to be seen: see Waddams, Products Liability (1974, Carswell), at pages 26-37.

<31> Ibid,, at page 541.

<32> [1928] 1 K.B. 78 (K.B.).

<33> This avenue of escape would not be open to the manufacturer if the recommendations we made earlier in this Report are implemented.

<34> See Daniels and Daniels v. R. White & Sons, Ltd., and Tarbard, [1938] 4 All E.R. 258 (K.B.).

<35> (1960), 161 A. 2d 69 (N.J. Sup. Ct.).

<36> Ibid., at pages 80-81.

<37> 1972 Official Text (with comments), published by The American Law Institute and the National Conference of Commissioners on Uniform State Laws.

<38> See U.C.C. Master Edition, Vol. 1, for the various actions taken by the states.

<39> U.C.C. Master Edition, Vol. 1, Editorial Board Note on 1966 Amendment.

<40> See Prosser, The Assault Upon the Citadel (Strict Liability to the Consumer) (1960), 69 Yale L.J. 1099; Prosser, The Fall of the Citadel (Strict Liability to the Consumer) (1966), 50 Minnesota L.R. 791.

<41> (1963), 377 P. 2d 897 (Cal. Sup. Ct.).

<42> Prosser, The Fall of the Citadel (Strict Liability to the Consumer) (1966), 50 Minnesota L.R. 791, at pages 793-794.

<43> Ibid., at pages 799-800.

<44> See C.C.H., Products Liability Reporter, para. 4070.

<45> Comment 1.

<46> (1969), 451 P. 2d 84 (Cal. Sup. Ct.).

<47> Ibid., at page 89.

<48> See Santor v. A. & M. Karagheusian Inc. (1965), 207 A. 2d 305 (N.J. Sup. Ct.), and Seely v. White Motor Co. (1965), 403 P. 2d 145 (Cal. Sup. Ct.).

<49> 1972 (Department of Justice).

<50> Ibid., at pages 76-77.

<51> S. 2(c)(ii).

<52> Provisional Proposals Relating to Amendments to Sections 12-15 of the Sale of Goods Act 1893 and Contracting Out of the Conditions and Warranties Implied by Those Sections (1968), The Law Commission Working Paper No. 18 and the Scottish Law Commission Memorandum No. 7, para. 37.

<53> Exemption Clauses in Contracts, First Report: Amendments to the Sale of Goods Act 1893 (1969), paras. 60-63.<54> We received a copy of a working paper by the Commissions on November 13, 1975, which unfortunately was too late for inclusion in our Report. See Liability for Defective Products (1975), The Law Commission Working Paper No. 64 and The Scottish Law Commission Memorandum No. 20.

<55> Para. 25.

<56> The point was made even more bluntly in a Submission of the Consumers' Association of Canada (Ontario) and the Consumers' Association of Canada (National) to the Ontario Ministry of Consumer & Commercial Relations on the Green Paper on Consumer Product Warranties, on November 29, 1973. The Submission states: "Nobody but a manufacturer's lawyer would doubt today that the consumer who formally buys goods from the retailer should be given the right to proceed against the manufacturer as well as the retailer, even though there is no formal contractual relationship between the consumer and the manufacturer. Both vertical and horizontal privity must be abolished if the law is to correspond meaningfully with the average man's expectations. Who but a 19th century lawyer could see any sense in preventing a husband from obtaining his legal remedy when goods given to him as a gift by his wife turn out to be faulty, simply because the goods were purchased by his wife (thereby making the formal contract between the seller and the wife)? That the technical obstructions created by vertical and horizontal privity of contract should have been allowed to remain in our law so long after their absurdity was clear will undoubtedly remain a matter of curiosity to future generations of historians. It is to be hoped that our own generation of law reformers will not be looked upon as equally curious specimens, but that instead, privity will finally be abolished." (at pages 35-36)

<57> At page 76.

<58> Waddams, Products Liability (1974, Carswell), at page 242. It may be of interest to note that Professor Waddams was criticizing here the approach taken by the Ontario Law Reform Commission to the rights that successors in title from the consumer buyer should have, which was that they "should be no greater than those of the original consumer buyer."

<59> Ibid., at page 237.

<60> But not all cases. A manufacturer who pointed out a defect to the dealer would in many cases be entitled to expect that the dealer would also point it out to his buyer. See Prosser, The Fall of the Citadel (Strict Liability to the Consumer) (1966), 50 Minnesota L.R. 791, pages 826-828.

<61> At page 77.

<62> See text, supra, at page 149.

<63> (1867), 30 & 31 Vic., c. 3 (Imp.).

<64> Ibid., s. 92 (13).

<65> See Reference re the Farm Products Marketing Act, R.S.O. 1950, c. 131, as am. (1957), 7 D.L.R. (2d) 257 (Can. Sup. Ct.), per Kerwin C.J.C., at page 264; Attorney-General for Manitoba v. Manitoba Egg and Poultry Association et al. (1971), 19 D.L.R. (3d) 169 (Can. Sup. Ct.), per Laskin J. (as he then was), at page 187.

<66> This is not because New Brunswick can directly make law concerning contracts involving rights outside the Province, but because New Brunswick can make its own law of contract, and through the operation of the proper law of the contract doctrine the law so made affects contracts of which New Brunswick law is the proper law.

<67> See Royal Bank of Canada v. The King, [1913] A.C. 283, 9 D.L.R. 337 (P.C.).

<68> The Conflict of Laws (9th ed., 1973, Stevens & Sons Ltd.).

<69> Ibid., at page 721.

<70> Ibid., at page 730.

<71> Ibid., at pages 729-732. See also Mann, The Amended Sale of Goods Act 1893 and the Conflict of Laws (1974), 90 L.Q.R. 42.

<72> Mann, The Amended Sale of Goods Act 1893 and the Conflict of Laws (1974), 90 L.Q.R. 42, at page 47.

<73> See Fridman, Where Is a Tort Committed (1974), 24 U. of Tor. L.J. 247, for a discussion of some of the issues.

<74> (1973), 43 D.L.R. (3d) 239 (Can. Sup. Ct.).

<75> Ibid., at pages 250-251.

<76> Ibid., at page 242.

<77> (1975), 53 D.L.R. (3d) 321 (Can. Sup. Ct.).

<78> (1870), L.R. 6 Q.B. 1 (Ex. Ch.).

<79> Ibid., at pages 28-29. Adopted by Mr. Justice Ritchie at page 347.

<80> [1945] S.C.R. 62, [1945] 2 D.L.R. 65 (Can. Sup. Ct.).

<81> At page 339.

<82> Ibid.

<83> See text, supra, at pages 173 -175.

<84> See text, supra, at page 185.

<85> See, e.g. Ross v. Registrar of Motor Vehicles et al. (1973), 42 D.L.R. (3d) 68 (Can. Sup. Ct.), at page 80.

<86> The Rules of the Supreme Court, O. 11.

<87> For an excellent and exhaustive article on this question, see Castel, Recognition and Enforcement of Foreign Judgments in Personam and in Rem in the Common Law Provinces of Canada (1971), 17 McGill L.J. 11.

<88> Ibid., at pages 31-32.

<89> See Employers' Liability Assurance Corpn. v. Sedgwick Collins & Co., [1927] A.C. 95 (H.L.).

<90> See Read, Consent as a Basis of Jurisdiction in Personam of a Foreign Court, Annotation, [1931] 1 D.L.R. 1.

<91> See text, supra, at page 185.

<92> See Dicey and Morris, The Conflict of Laws (9th ed., 1973), page 1018 ff. Some Canadian Provinces have by legislation modified the common law rules in some cases. For a full discussion see Castel, Recognition and Enforcement of Foreign Judgments in Personam and in Rem in the Common Law Provinces of Canada (1971), 17 McGill L.J. 11, especially at pages 72-79.

Table of Contents

KARL J. DORE
FACULTY OF LAW
THE UNIVERSITY OF NEW BRUNSWICK
FREDERICTON, N.B.

CHAPTER II
SALE OF GOODS (CONCLUDED)

1. INTRODUCTION

2. THE DEALER'S RIGHTS AGAINST HIS SUPPLIER

(a) Present Law

(b) Recommendations of First Report

The Seller's Responsibilities for What He Says:
Express Terms

The Seller's Responsibilities in the Absence of Express Statements:
Implied Terms as to Title, Quality and Fitness

The Consumer's Rights and Remedies for Breach by the Seller of His Responsibilities:
Remedies for Breach of the Terms of the Contract

Regulation of Attempts by the Seller to Avoid or Limit the Responsibilities that the Law Would Otherwise Impose on Him:
Contracting Out of the Terms of the Contract or Remedies for Their Breach

(c) Terms

(d) Remedies

(e) Contracting Out

3. PRIVITY OF CONTRACT

(a) Present Law

(i) Contracts

(ii) Torts

(b) Some Criticisms of the Present Law

(c) Reform in Other Jurisdictions

(i) United States

(ii) Canada

a. Ontario

b. Saskatchewan

(iii) United Kingdom

(iv) New Zealand

(d) Our Views and Recommendations

(i) Contracts

(ii) Torts

4. EXTRA-PROVINCIAL SUPPLIERS

(a) Limitations on New Brunswick's Legislative Powers

(b) Enforcement of New Brunswick's Laws

5. RECOMMENDATIONS

Footnotes

About UNB

Did you know?

Table of Contents

KARL J. DOREFACULTY OF LAWTHE UNIVERSITY OF NEW BRUNSWICKFREDERICTON, N.B.

CHAPTER IISALE OF GOODS (CONCLUDED)

1. INTRODUCTION

2. THE DEALER'S RIGHTS AGAINST HIS SUPPLIER

(a) Present Law

(b) Recommendations of First Report

The Seller's Responsibilities for What He Says:Express Terms

The Seller's Responsibilities in the Absence of Express Statements:Implied Terms as to Title, Quality and Fitness

The Consumer's Rights and Remedies for Breach by the Seller of His Responsibilities:Remedies for Breach of the Terms of the Contract

Regulation of Attempts by the Seller to Avoid or Limit the Responsibilities that the Law Would Otherwise Impose on Him:Contracting Out of the Terms of the Contract or Remedies for Their Breach

(c) Terms

(d) Remedies

(e) Contracting Out

3. PRIVITY OF CONTRACT

(a) Present Law

(i) Contracts

(ii) Torts

(b) Some Criticisms of the Present Law

(c) Reform in Other Jurisdictions

(i) United States

(ii) Canada

a. Ontario

b. Saskatchewan

(iii) United Kingdom

(iv) New Zealand

(d) Our Views and Recommendations

(i) Contracts

(ii) Torts

4. EXTRA-PROVINCIAL SUPPLIERS

(a) Limitations on New Brunswick's Legislative Powers

(b) Enforcement of New Brunswick's Laws

5. RECOMMENDATIONS

Footnotes

About UNB

Did you know?

KARL J. DORE
FACULTY OF LAW
THE UNIVERSITY OF NEW BRUNSWICK
FREDERICTON, N.B.

CHAPTER II
SALE OF GOODS (CONCLUDED)

The Seller's Responsibilities for What He Says:
Express Terms

The Seller's Responsibilities in the Absence of Express Statements:
Implied Terms as to Title, Quality and Fitness

The Consumer's Rights and Remedies for Breach by the Seller of His Responsibilities:
Remedies for Breach of the Terms of the Contract

Regulation of Attempts by the Seller to Avoid or Limit the Responsibilities that the Law Would Otherwise Impose on Him:
Contracting Out of the Terms of the Contract or Remedies for Their Breach