Simon's Megalomaniacal Legal Resources

Torts - Negligence - Pure Economic Loss

. Ottawa Community Housing Corporation v. Sloan Valve Company

In Ottawa Community Housing Corporation v. Sloan Valve Company (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, here from orders striking "the claim against Sloan under the SGA without leave to amend" and also striking "OCHC’s claim in negligence".

Here the court considers an issue of "pure economic loss that was not recoverable in tort":

[6] .... Nor did the motion judge err in holding that OCHC’s negligence claim was one of pure economic loss that was not recoverable in tort. Accordingly, the motion judge correctly determined that it is plain and obvious that OCHC’s statement of claim discloses no reasonable cause of action or has no reasonable prospect of success under the SGA against Sloan or in negligence against Sloan and Wolseley. She also correctly answered the questions of law in the negative.

....

[36] In its statement of claim, OCHC alleges that it suffered damages as a result of the respondents’ negligence. Before the motion judge, the respondents argued that OCHC’s claim in negligence was from the sale of allegedly shoddy, non-dangerous goods and OCHC did not plead that the respondents’ negligence caused a real and substantial danger to persons or property. Therefore, the respondents contended, it did not fall into any of the categorical exceptions that allows for recovery in tort for pure economic loss.

[37] For its part, OCHC argued that it incurred damages caused by the System and that these damages were recoverable in negligence. OCHC argued that the loss of water constituted loss of property and its damages (increased water costs) were not pure economic loss.

[38] The motion judge rejected OCHC’s submission that the water flowing through the units was OCHC’s property. The motion judge observed that OCHC did not plead that the water which flows through the units is “property” and that, even on the most generous reading of the pleadings, such a claim was entirely unsupported. She reviewed and distinguished the facts from two cases relied on by OCHC in support of their position that the water was its property. The first was a decision of the Exchequer Court: The Nicholls Chemical Co. of Canada v. The King (1905), 1905 CanLII 265 (CA EXC), 9 Ex. C.R. 272. In that case, the plaintiff paid for its sulphuric acid to be shipped by a tanker. The sulphuric acid leaked due to the negligence of the defendant and the plaintiff recovered its losses. The second was a sentencing decision from the Ontario Superior Court where the sentencing judge referred to the “theft of water” in relation to the accused’s conviction for theft under the Criminal Code, R.S.C., 1985, c. C-46: R. v. Su, 2016 ONSC 195. The motion judge distinguished both of the cases and found that they were not capable of supporting OCHC’s assertion that the water was its own property.

[39] Since the motion judge found that there was no property damage or loss of property, she held that it is plain and obvious that OCHC’s claim in negligence discloses no reasonable cause of action and cannot succeed because the claim is for pure economic loss. Based on the caselaw that there is no cause of action in negligence regarding shoddy, non-dangerous goods (1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35, [2020] 3 S.C.R. 504 (“Maple Leaf”)), the motion judge also answered Question 2 in the negative.

[40] Accordingly, the motion judge struck specific paragraphs of OCHC’s statement of claim advancing a negligence claim. However, at OCHC’s request, she granted OCHC leave to amend the pleadings to incorporate certain allegations made against Sloan to advance the negligent misrepresentation claim.

[41] On appeal, OCHC renews its submission that its claim of negligence is not a claim for pure economic loss because the water that flowed through the affected units was OCHC’s property, such that the damage OCHC suffered was properly characterized as property loss. OCHC argues that, on a generous reading of the pleadings, the inclusion of damages for “excess water costs” was properly grounded in negligence because the water was property that it owned.

[42] I do not accept OCHC’s submission.

[43] Fairburn A.C.J.O.’s decision in North v. Bayerische Motoren Werke AG, 2025 ONCA 340, provides a useful framework for distinguishing between standard negligence and pure economic loss in defective product cases. She explains that the common law draws a key distinction between (1) damage caused to a product by an external force or incident, which supports a standard negligence claim, and (2) inherent defects in a product, which raise more complex issues of pure economic loss: North, at para. 25.

[44] She went on to explain that in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., 1995 CanLII 146 (SCC), [1995] 1 S.C.R. 85, the Supreme Court held that the cost of repairing a defective building component – absent personal injury or damage to other property – constitutes pure economic loss. The Supreme Court emphasized that the claim was not for damage to “other property” or for personal injury, but solely for the cost of restoring the building to a safe condition.

[45] This principle was reaffirmed in Maple Leaf, where the court clarified that pure economic loss is not generally recoverable in tort, except in limited categories such as the negligent supply of shoddy goods or structures: at para. 21. Even within these categories, recovery is not automatic; the plaintiff must still establish all elements of negligence, including actual damage.

[46] In the present case, OCHC attempts to characterize its loss as arising from an external incident, namely property loss of water caused by the failure of the System, thus invoking the standard negligence framework. However, this framing is unpersuasive. OCHC did not plead that the water which flows through its units is property. Rather, OCHC pleads that it suffered damages from “excess water costs arising from the failure of the [System]”.

[47] The real claim that is being advanced is thus not for property loss, but for increased water bills resulting from an inherently defective product that did not pose a safety risk to persons or other property. Accordingly, the claim falls within the category of pure economic loss, specifically the negligent supply of a defective product. But as Maple Leaf confirms, such claims are exceptional and do not permit recovery in this case because the design defect did not pose a real and substantial danger and OCHC did not incur costs in preventing injury or averting danger: at paras. 47-49, 57.

[48] Respectfully, the core of OCHC’s claim is financial loss that is quintessential pure economic loss, being “economic loss that is unconnected to a physical or mental injury to the plaintiff’s person, or to physical damage to property”: Maple Leaf, at para. 17. OCHC’s costs “were solely financial in nature” and “not causally connected to physical injury to [its] person[] or physical damage to [its] property”: Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737, at para. 30.

[49] I agree with the motion judge that OCHC’s claim that the water was its property is not supported by the pleadings. Reading the pleadings as urged by OCHC to call the lost water in this case “property” would do an end run around the restrictive limits placed on recovery for pure economic loss. I adopt the following words of the motion judge:

The level of generosity that would have to be applied to give the Pleading the reading suggested by OCHC – with the lost water constituting the loss of property – goes beyond the level of generosity required at this stage of the proceeding.

[50] In sum, OCHC’s claim against Sloan is a “shoddy good” claim. And while pure economic loss may be recoverable in certain circumstances, there is no general right in tort protecting against the negligent infliction of pure economic loss. In my view, OCHC’s claim is a matter that should customarily be dealt with by contract and not tort: Arora, at para. 104.

. McDonald v. Toronto-Dominion Bank

In McDonald v. Toronto-Dominion Bank (Ont CA, 2022) the Court of Appeal considers proximity in the context of a claim for 'pure economic loss':

[55] As noted, in cases of pure economic loss arising from negligent performance of a service, the proximity analysis is driven by two factors: the defendant’s undertaking and the plaintiff’s reliance: Livent, at para. 30; Maple Leaf, at para 32. Where the defendant undertakes to provide a service in circumstances that invite the plaintiff’s reasonable reliance, the defendant becomes obligated to take reasonable care: Livent, at para. 30; Maple Leaf, at para. 32. It is “these corollary rights and obligations [that] create a relationship of proximity”: Livent, at para. 30; Maple Leaf, at para. 32.

....

[64] The trial judge’s analysis is consistent with Livent and Maple Leaf, which recognize that a plaintiff’s entitlement to rely on the defendant “operates only so far as the [defendant’s] undertaking goes”: Maple Leaf, at para. 35; Livent, at para. 31. In other words, reliance by the plaintiff that “falls outside of the scope of the defendant’s undertaking of responsibility – that is, of the purpose for which the representation was made or the service was undertaken – necessarily falls outside the scope of the proximate relationship and, therefore, of the defendant’s duty of care”: Livent, at para. 31; Maple Leaf, at para. 35. ...

. Subway Franchise Systems of Canada, Inc. v. Canadian Broadcasting Corporation (I)

In Subway Franchise Systems of Canada, Inc. v. Canadian Broadcasting Corporation (I) (Ont CA, 2021) the Court of Appeal considers at length the test for a negligence duty of care where the claim is in pure economic loss [paras 73-131].

. 1688782 Ontario Inc. v. Maple Leaf Foods Inc.

In 1688782 Ontario Inc. v. Maple Leaf Foods Inc. (SCC, 2020) the Supreme Court of Canada held that pure economic loss was not covered by a negligence duty of care:

[18] To recover for negligently caused loss, irrespective of the type of loss alleged, a plaintiff must prove all the elements of the tort of negligence: (1) that the defendant owed the plaintiff a duty of care; (2) that the defendant’s conduct breached the standard of care; (3) that the plaintiff sustained damage; and (4) that the damage was caused, in fact and in law, by the defendant’s breach. To satisfy the element of damage, the loss sought to be recovered must be the result of an interference with a legally cognizable right. As Cardozo C.J. explained in Palsgraf v. Long Island Railroad Co., 162 N.E. 99 (N.Y. 1928), “[n]egligence is not actionable unless it involves the invasion of a legally protected interest, the violation of a right” (p. 99; see also Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263, at para. 45; Livent, at para. 30; R. Stevens, Torts and Rights (2007), at p. 24). It is well established that the law imposes liability for negligent interference with and injury to the rights in bodily integrity, mental health and property (Saadati, at para. 23, citing A. Ripstein, Private Wrongs (2016), at pp. 87 and 252‑53). Recovery for injuries to these rights is grounded in the duty of care recognized in Donoghue v. Stevenson, [1932] A.C. 562 (H.L.).

[19] This explains why the common law has been slow to accord protection to purely economic interests. While this Court has recognized that pure economic loss may be recoverable in certain circumstances, there is no general right, in tort, protecting against the negligent or intentional infliction of pure economic loss. For example, economic loss caused by ordinary marketplace competition is not, without something more, actionable in negligence (A.I. Enterprises Ltd. v. Bram Enterprises Ltd., 2014 SCC 12, [2014] 1 S.C.R. 177, at para. 31, citing Mogul Steamship Company v. McGregor, Gow & Co. (1889), 23 Q.B.D. 598 (C.A.), at p. 614, aff’d [1892] A.C. 25 (H.L.)). Such loss falls outside the scope of a plaintiff’s legal rights — the loss is damnum absque injuria and unrecoverable (E. J. Weinrib, “The Disintegration of Duty” (2006), 31 Adv. Q. 212, at p. 226; D. Nolan, “Rights, Damage and Loss” (2017), 37 Oxf. J. Leg. Stud. 255, at pp. 262‑68). Indeed, the essential goal of competition is to attract more business, which may mean taking business away from others. Absent a contractual or statutory entitlement, there is no right to a customer or to the quality of a bargain, let alone to a market share. As Taylor J.A. wrote for the British Columbia Court of Appeal in Kripps v. Touche Ross & Co. (1992), 1992 CanLII 923 (BC CA), 94 D.L.R. (4th) 284, at p. 297:

It seems possible that pure economic loss simpliciter accounts for the overwhelming majority of all loss suffered by one person as a foreseeable and proximate result of the acts or omissions of another . . . . This must necessarily be so in a free market for goods and services, employment and investment, and the continuing struggle for property, promotion and profit.

[20] Citing the work of Professor Feldthusen (B. Feldthusen, “Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow” (1991), 17 Can. Bus. L.J. 356, at pp. 357‑58; B. Feldthusen, Economic Negligence: The Recovery of Pure Economic Loss (2nd ed. 1989), at para. 200 (currently in its sixth edition)), this Court has applied a classificatory scheme that identifies four categories of pure economic loss that can arise between private parties (Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC), [1992] 1 S.C.R. 1021, at p. 1049; Winnipeg Condominium, at para. 12).[1] In Livent, the Court effectively reduced the categories to three, by its treatment of two of the previously stated categories ⸺ negligent misrepresentation, and negligent performance of a service ⸺ as a single kind of pure economic loss. This made sense, because the considerations that inform the proximity analysis are identical for both. In particular, the same two factors ⸺ the defendant’s undertaking, and the plaintiff’s reliance ⸺ are in such cases determinative of the proximity analysis (para. 30), upon which we will elaborate below.

[21] The current categories of pure economic loss incurred between private parties are, therefore:

(1) negligent misrepresentation or performance of a service;

(2) negligent supply of shoddy goods or structures; and

(3) relational economic loss.

The distinguishing feature among each of these categories is that they describe how the loss occurred. Focussing exclusively upon how the loss occurs can, however, put strain on the analysis by obfuscating both fundamental differences and similarities among cases of pure economic loss (J. Stapleton, “Duty of Care and Economic Loss: A Wider Agenda” (1991), 107 Law Q. Rev. 249, at pp. 262 and 284). Further, it obscures the starting point in a principled analysis of an action in negligence, which is to identify what rights are at stake and whether a reciprocal duty of care exists (Livent, at para. 30). It is proximity, and not a template of how a loss factually occurred, that remains a “controlling concept” and a “foundation of the modern law of negligence” (Norsk, at p. 1152; Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737, at para. 25).

[22] Properly understood, then, these categories are simply “analytical tools” that “provide greater structure to a diverse range of factual situations . . . that raise similar . . . concerns” (Martel, at para. 45; Design Services, at para. 31). Organizing cases in this way was and is therefore done for ease of analysis in ensuring that courts treat like cases alike. The fact that a claim arises from a particular kind of pure economic loss does not necessarily signify that such loss is recoverable.[2] Where the loss is recoverable, however, this Court has clarified that the decided cases within these categories should be regarded as reflecting particular kinds of proximate relationships (Cooper, at para. 36; Livent, at paras. 26‑27). But to be clear, the invocation of a category, by itself, offers no substitute for the necessary examination that must take place “of the particular relationship at issue in each case” between the plaintiff and the defendant (Livent, at para. 28; see also Dorset Yacht Co. v. Home Office, [1970] A.C. 1004 (H.L.), at p. 1038). In other words, what matters is whether the requirements for imposing a duty of care are satisfied ⸺ and, in particular, whether the parties were at the time of the loss in a sufficiently proximate relationship. Where they are, it may be because the relationship falls within a previously established category of relationship in which the requisite qualities of closeness and directness were found, or is analogous thereto (Livent, at para. 26; see also Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, at para. 15; Mustapha v. Culligan of Canada Ltd., 2008 SCC 27, [2008] 2 S.C.R. 114, at para. 5). Or, a plaintiff may seek to establish a “novel” duty of care after undertaking a full Anns/Cooper analysis.

[23] With respect, the appellant’s submissions reflect a misunderstanding of the significance of the categories of pure economic loss. The appellant argues that a duty of care in this case “is established through the application of two well‑established categories of recovery for pure economic loss [of] negligent misrepresentation or negligent performance of a service, and negligent supply of dangerous goods” (A.F., at para. 50). Again, a duty of care cannot be established by showing that a claim fits within a category of pure economic loss. It is necessary to determine whether the appellant’s alleged loss represents an injury to a right that can be the subject of recovery in tort law and possesses the requisite factors to support a finding of proximity under that category. We repeat: the manner in which pure economic loss is said to have occurred or how that loss has been catalogued within the categories of pure economic loss does not signify that the defendant whose negligence caused that loss owes the plaintiff a duty of care. The relevant “category” for the purpose of supporting a duty of care is that of proximity of relationship. Meaning, what is necessary to support a duty of care is that the relationship between a plaintiff and a defendant bear the requisite closeness and directness, such that it falls within a previously established category of proximity or is analogous to one (Livent, at para. 26; see also Childs, at para. 15; Mustapha, at para. 5).