Powder Creek Farms Ltd. v. CNH America LLC, 2013 ABQB 622

Court of Queen ’ s Bench of Alberta Citation: Powder Creek Farms Ltd. v. CNH America LLC, 2013 ABQB 622 Date: 20131022 Docket: 0601 11017 Registry: Calgary Between: Powder Creek Farms Ltd. Plaintiff - and - CNH America LLC, and Hi-Way Service Inc. Defendants _ ________________________________________ ______________ Memorandum of Decision of J.B. Hanebury , Master in Chambers _________________________________________ ______________ [ 1 ] Powder Creek Farms Ltd. purchased two used combines from Hi-Way Service Inc. Both combines were manufactured by CNH America LLC. Powder Creek sued CNH alleging the combines did not function and it suffered losses. CNH initially applied for

summary dismissal of the claim and Powder Creek now seeks to amend its Statement of Claim to expand the allegations against CNH. CNH opposes the amendments but argues that even if the amendments are allowed,

summary judgment should be granted. It says that in the absence of a contractual relationship, Powder Creek cannot claim damages on the basis that the combines were defective. FACTS [ 2 ] Following Powder Creek’s purchase of the combines, there were problems with the units and both defendants had representatives on site for many days trying to make the equipment meet the customer’s needs. Ultimately the plaintiff purchased other equipment and sold the two combines in issue. One is now allegedly located in Red Deer and the other outside of the province.

[3] The plaintiff started this action for crop losses related to its inability to harvest at the appropriate time. It claimed againstCNH under the Farm Implement Act, R.S.A. 2000, c. F-7 for a breach of warranty and its failure to provide parts in a timely way. [4] The parties agreed to proceed under that Act by way of a binding arbitration, which occurred in 2009. The arbitrator foundthat the equipment was used equipment and since the legislation only provides rights to the purchasers of new farm implements, thecombines were not subject to the Act.

This result gutted the claim and CNH argues, quite correctly, that those issues cannot be re-arguedand those claims should be removed from the Statement of Claim. [5] Powder Creek now seeks to amend its Statement of Claim to allege that CNH, as the manufacturer, owed Powder Creek aduty of care and it knew or ought to have known that the negligent design and manufacture of the combines would cause loss or damageto the end user. It alleges that many of the defects were latent defects that posed a foreseeable, real and substantial danger to the healthand safety of the operators of the machines.

The machines, it says, were not fit for their intended purpose. The proposed amendmentsinclude a claim for damages in relation to the 2004 crops and a loss on the resale of the combines. [6] CNH opposes these amendments and says that even if the amendments are allowed,

summary dismissal of the claim shouldbe granted. As Powder Creek has discontinued its claim against the vendor of the combines, Hi-Way Service, CNH is the sole defendant. ISSUES [7] While the initial application was for

summary dismissal of the claim of Powder Creek, the cross application to amend theclaim will be considered first.

Summary dismissal of the resulting claim, as either amended or unamended, will then be considered. Theissue before the Court is whether there is no genuine issue for trial as to the liability of CNH for the losses claimed by Powder Creek. [8] For the reasons that follow I have determined that the claim should be amended and have considered the application forsummary dismissal based on the amended claim. I have declined to grant the application for

summary dismissal of the amended claim. ANALYSIS Should the amendments to the Statement of Claim be granted? [9] Rules 3.62 and 3.65 of the Alberta Rules of Court permit the amendment of pleadings. The test for amendment found underthe former Rules has not changed: Manson Insulation Products Ltd. v. Crossroads C & I Distributors, 2011 ABQB 51, para. 44.

Whilethe bar to amend pleadings is low, an application to do so can be opposed on several grounds: the amendment would cause seriousprejudice to the opposing party not compensable in costs; the amendment is hopeless; the amendment seeks to add a new party or a newcause of action after the expiration of the limitation period; and, there is an element of bad faith associated with the failure to plead theamendment in the first instance: Manson, para. 45 and cases cited therein.

The amendment must be supported by some admissibleevidence: Balm v. 3512061 Canada Ltd., 2003 ABCA 98, para. 26; Mikisew Cree First Nation v. Canada, 2002 ABCA 110, para. 26. [10] CNH argues that in this case: there is insufficient evidence to support the amendments; the amendments would cause itserious prejudice; and, the amendments are hopeless in any event. Insufficient Evidence [11] First CNH argues that there is no evidentiary basis for the amendments alleging that the combines were negligently designedand manufactured and posed a real and substantial danger because of their alleged defects.

To substantiate such amendments, CNH says,expert evidence should be preferred: R. v. J.L.G., 2000 SCC 51 , [2000] 2 S.C.R. 600, para’s. 20, 21; and, R. v. B. Graat, (SCC), [1982] 2 S.C.R. 819 at 838. [12] These two cases deal with the use of expert evidence in a criminal law trial. They are not relevant. [13] In my view, the defects in the equipment that the representative of the plaintiff set out were observable and could be describedby a lay witness. His evidence as to what he observed in relation to the problems with the combines can be considered by the Court. It isnot inadmissible.

The real issue is what weight is ultimately given to that opinion on a

summary judgment application: ArcticFoundations of Canada Inc. et al. v. Mueller Canada Ltd. et al., 2009 MBQB 309, para’s. 84 - 86. [14] CNH further argues that the evidence of the principal of Powder Creek should not be considered as he has something to gainfrom this lawsuit. Every plaintiff has something to gain from a lawsuit; otherwise plaintiffs would not choose to put themselves throughthe process. That is not a reason to disallow his evidence. [15] The evidence is admissible and sufficient to support the amendments.

Serious Prejudice [16] CNH next argues that it will be prejudiced if the amendments are allowed. It was not aware of these specific allegations in2004 and now any opportunity it had to investigate them has been lost due to the passage of time and the sale of the units. [17] The simple response to this concern is that CNH, as much and possibly more than anyone, is in a position to know about theproblems with the combines. These units were built and released by them as pre-production models to test the market. Only a certainnumber were manufactured and they were tracked to assess their performance.

CNH had its staff on site when the problems with theunits in issue occurred: its representative who swore the affidavit attended the site; its combine specialist attended the site for 5 days; itsproduct engineer came from the United States for 2 to 3 days; a number of other CNH factory mechanics, engineers and factory-trainedtechnicians attended on the site; and, one combine was removed from the site for further work after apparently operating for onlyminutes.

[ 18 ] Furthermore, CNH issued two lengthy upgrade requirements for all of these units to deal with a number of problems that developed. It has pages of information on the work done on these particular units to try to make them more functional and productive.

Therefore, even if it did not receive specific complaints about the safety of the units, it was very well aware of the kinds of problems that were occurring. [ 19 ] While CNH may have relaxed its guard during the initial stages of the claim, knowing that the Farm Implement Act was inapplicable, there is no evidence that it destroyed its records or that its witnesses are unavailable. It knew from the beginning that Powder Creek was a most unhappy purchaser who was determinedly seeking redress. Its defence is that the alleged dangerous defects were not dangerous based on the design of the units.

It has not provided information that this defence has been eroded by the time elapsed prior to the requested amendments. Amendments Hopeless [ 20 ] Finally, CNH claims that the amendments are hopeless. An amendment has been held to be hopeless only if it would have been struck out if properly included in the original pleadings: Ramias v. Johnson , 2009 ABQB 386 , para. 49 quoting from Devon Canada Corp v. TransCanada Power Services Ltd. (c.o.b. TransCanada Power, L.P.) , 2007 ABQB 479 , para. 24 .

So long as the plea is arguable, it is allowed: Balm (supra) , para 12. [ 21 ] In oral argument counsel for CNH acknowledged that there is a lower bar for this test than that for

summary dismissal of a claim and this point could therefore be argued in the context of the

summary dismissal application [ 22 ] The amendments are accordingly allowed and this argument has been considered in the context of the application to summarily dismiss the claim. Is there no genuine issue for trial as to the liability of CNH for the losses claimed by Powder Creek? [ 23 ] The test for

summary judgment is well known and has been considered in numerous cases. In short, the Court must be satisfied that there is no genuine issue for trial as to the liability of CNH for the losses claimed by Powder Creek. The burden is on CNH to establish this on the balance of probabilities. Once this is done, the evidentiary burden shifts to Powder Creek to show that there is a genuine issue for trial. In the end, the Court must find that it is beyond doubt that no genuine issue for trial exists: Tottrup et al. v.

Clearwater No. 99 (Municipal District) , 2006 ABCA 380 , para. 10 . [ 24 ] The response required of a plaintiff resisting such an application is described in Forwest Development Enterprises Ltd. v. High River Regional Airport Ltd ., 2012 ABQB 785 (Master) at paragraph 12 : A plaintiff responding to a

summary dismissal application is not required to prove all the requirements of its cause of action, but must raise enough evidence to warrant the cause of action going to trial: Elbow River Marketing Limited Partnership v. Canada Clean Fuels Inc. , 2012 ABCA 328 at paragraph 14 . A respondent may successfully resist by establishing the existence of disputes on material questions of fact, including inferences to be drawn therefrom, or on points of law that cannot be readily resolved given the factual disputes: Condo Corp. 0321365 v. MCAP Financial Corporation , 2012 ABCA 26 at paragraph 43 .

If the evidence establishes that there are missing links in the essential elements of a cause of action or that there is no cause of action in law, there will be no genuine issue for trial: Condo Corp 0321365 v. MCAP Financial Corporation at paragraph 43. [See as well Pioneer Exploration Inc. (Trustee of ) v. Euro-Am Pacific Enterprises Ltd ., 2003 ABCA 298 , para’s. 15 - 19.] [ 25 ] However, the existence of a question of law will not, in and of itself, defeat an application.

As noted in Tottrup , (supra) , at para. 11, an issue of law may be decided summarily in certain cases unless it is unsettled or complex or intertwined with the facts. [ 26 ] There is no contract between the parties and CNH takes the position that the amended claim is in tort for a pure economic loss.

It argues that this claim clearly fails on several bases to raise a genuine issue for trial and therefore it should be summarily dismissed. [ 27 ] Firstly, it argues that a pure economic loss can only be claimed if the combines were dangerously defective and there is no evidence of a dangerous defect. [ 28 ] Secondly, it argues on the same basis that the claim for a breach of the duty to warn should not be allowed to proceed. [ 29 ] Thirdly, it argues that even if there is evidence of an alleged dangerous defect sufficient to raise a genuine issue for trial, the losses claimed are not tied in any way to the alleged defect and are incapable of compensation. [ 30 ] Finally, it argues that the claim for losses for a non-dangerous defect cannot proceed as it has no support in law. [ 31 ] Powder Creek responds that: there is evidence of dangerous defects; the damages it claims are compensable; and, there is a genuine issue for trial as to whether it has a claim for damages even if the defects were not dangerous. [ 32 ] It argues that the law in relation to its claim is complex and unsettled and “developing or novel areas of law should not be decided in

summary judgment applications, without the benefit of a full exploration of the facts”: Persons with Developmental Disabilities, Edmonton Region Community Board v. Pearl Villa Homes Ltd ., 2010 ABQB 786 ; Shell v. Barnsley et al ., 2006 MBCA 133 , para. 14 . Background: Claims in Tort for Pure Economic Loss [ 33 ] With no contractual relationship between it and CNH, Powder Creek has framed its amended claim in tort. The losses claimed are for: reduced income due to the reduced quality and quantity of crops; reduced sale price on the sale of the combines; and, costs for using and buying replacement equipment.

There is no claim for injury to Powder Creek’s person or property, with the result that the

damages claimed are for pure economic loss. This is not in dispute. [34] Over the past few decades the courts have considered what scope should be given to claims in tort when pure economic lossesare suffered and no contract exists between the parties. Historically, recovery in tort for a pure economic loss was not allowed. However,more recently, the Canadian courts have developed certain exceptions to this general rule: Canadian National Railway Co. v.

NorskSteamship Co., (SCC), [1992] 1 S.C.R. 1021 (SCC). [35] One of these exceptions is what has been termed the “dangerous defect” exception and the ability to seek damages in relationto this exception was described in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., (SCC),[1995] 1 S.C.R. 85, where the Supreme Court held at para. 43: I conclude that the law in Canada has progressed to the point where it can be said that contractors (as well as subcontractors, architectsand engineers) who take

part in the design and construction of a building will owe a duty in tort to subsequent purchasers of the buildingif it can be shown that it was foreseeable that a failure to take reasonable care in constructing the building would create defects that posea substantial danger to the health and safety of the occupants.

Where negligence is established and such defects manifest themselvesbefore any damage to persons or property occurs, they should, in my view, be liable for the reasonable cost of repairing the defects andputting the building back into a nondangerous state. [36] In other words, when a builder has negligently constructed a building that has a dangerous defect, a claimant does not have towait until the damage to property or person has occurred to make a claim.

The policy reasoning behind the exception was simple: itsought to discourage reckless and hazardous behaviour and to provide an incentive for the parties to remedy or repair the defects beforetragedy occurred: Bird, para. 37. [37] The Alberta Court of Appeal extended the dangerous defect exception to products liability in the case of Plas-Tex CanadaLtd. v. Dow Chemical of Canada Ltd., 2004 ABCA 309. The Court found at paragraph 90 that there is a duty on a manufacturer,independent of any contractual obligation, to take reasonable care not to manufacture and distribute a product that is dangerous.

Breachof this duty can be pursued in negligence by persons who have not contracted with the manufacturer. However, as noted in Hughes v.Sunbeam Corp (Canada) Ltd., (ON CA), [2002] O.J. No. 3457 (Ont. C.A.), the line as to when a defect constitutes adangerous defect can sometimes be difficult to draw. [38] With that background, I turn to the arguments of CNH. 1. Is there a genuine issue for trial as to whether a dangerous defect existed? [39] In support of its application, CNH first argues that the evidence of the principal of Powder Creek is insufficient to withstandthe application for

summary dismissal. CNH argues that its evidence establishes that there was no substantial danger to the health andsafety of the operators or others (“dangerous defect”) and the evidence in response, being from a layperson, not an expert, is of little ifany weight. It relies on Arctic Foundations (supra), where a similar argument was upheld. The issue in that case was the inadequateevidence provided in relation to the danger resulting from pipe designed to protect the permafrost. [40] While expert evidence may be necessary in certain circumstances, not every situation demands that it be provided at this stageof the proceedings. While, as Arctic Foundations notes, each party in a

summary judgment application is required to put its best footforward, each case need not be proven to the degree it would be at trial. Once CNH has met its initial burden, the obligation on PowderCreek is to provide sufficient admissible evidence to satisfy the Court that there is a genuine issue for trial. When determining whether agenuine issue for trial exists, the Court considers the totality of the evidence.

In my view, there is a genuine issue for trial on thisquestion. [41] Powder Creek’s representative describes a number of problems that he alleges constitute dangerous defects including: theradiator overheated and burst its hoses with a boiling mixture of water and antifreeze; the radiator fans disintegrated, detached andpenetrated the radiator; the machines wandered and were difficult to control when driven in road gear on a road; the straw spreadersplugged, leading to a threat of fire; hydraulic hoses would burst or explode; the internal straw chopper knives were known to fly apartand puncture the fuel tanks; and, excessive dust from the rotor cage assembly created a fire hazard. [42] The representative for CNH refuted these claims arguing that, even if the problems occurred, the equipment was designed insuch a way that the resultant alleged dangers could not occur.

The machines, he said, did not pose any risks to the health or the physicalsafety of the operators or others. [43] However, on cross-examination the evidence of CNH’s representative was more nuanced. First, he confirmed that the size ofall of the components of an existing combine had been increased and this expanded unit was being used for the first time and itsperformance monitored. For this reason only 90 such units were manufactured.

The two combines in issue were part of this limitedproduction. [44] He confirmed he has not spoken to the CNH engineer who worked on site with the Powder Creek equipment as to thelikelihood of any danger. [45] He had no evidence either way as to whether hoses had burst. He admitted that if someone was working on the engine and afan blade detached there would be an element of danger. He agreed that he had not road tested the units and if there were an accident,there was a risk of injury. A slipped belt, he confirmed, could result in a threat of fire. Similarly, if a hydraulic hose burst there could be adanger.

He acknowledged that the company’s upgrade bulletin warned of an accumulation of crop material in the engine manifold, anarea that he said can reach 1000 degrees. He acknowledged that barley was one crop being harvested by Powder Creek and barley dusthas a very low flashpoint. [46] Produced by CNH were two mandatory upgrade bulletins for the combines. The first was dated July 8, 2004, and required themachines to be upgraded at a dealer location. They would be on site for 8 to 9 days and “due to the complexity of the work, the rework

[would] be completed by 3 factory trained technicians assisted by one dealer provided technician.” [47] The second upgrade bulletin was dated July 28, 2005, and stated that it was being released to address a variety of concernswith the combines including: “crop material accumulates on engine exhaust manifold; engine radiator hose contacts the A/C compressorpulley; feeder chain failures; and feeder slip clutch is activating prematurely and plugs feeder”. [48] CNH argues that Powder Creek’s complaint is really about productivity and performance issues with the units, but becauseclaims based on those concerns are not included as actionable in the exceptions found in Bird (supra), Powder Creek is attempting toshelter its true claim under a subsequently manufactured claim of a dangerous defect.

The goal, CNH argues, is to keep its action alive. [49] CNH may be correct and this may ultimately be the determination of the trial judge. However, in my view this evidence issufficient to raise a genuine issue for trial as to whether the combines had one or more defects that presented a real and substantial dangerto health or safety. [50] Furthermore, as the case law makes clear, this area of the law of tort liability for dangerous defects is developing and thequestion of liability in a situation such as this requires a thoughtful analysis from a policy perspective: Brett-Young Seeds Ltd. et al v.K.B.A.

Consultants Inc. et al., 2008 MBCA 36, para’s. 34, 35, 39, 42; Plas-Tex Canada Ltd. (supra). Where the law is developing,summary judgment is inappropriate: Persons with Developmental Disabilities (supra); Shell (supra). As a result, this court cannotsummarily dismiss a claim for a dangerous defect only because it is intertwined with concurrent performance and productivity issues. [51]

Summary dismissal of the claim on this basis is denied. 2. Is there a genuine issue for trial in relation to the claim for a breach of a duty to warn? [52] Powder Creek also claims damages for a breach of a duty to warn. The Supreme Court of Canada held that this is a dutyplaced on a manufacturer : to warn all those who may reasonably be affected by potentially dangerous products...This duty extends even to those persons who arenot party to the contract of sale , [but] [t]he potential user must be reasonably foreseeable to the manufacturer or supplier... Bow Valley Husky (Bermuda) Ltd. v.

Saint John Shipbuilding Ltd., (SCC), [1997] 3 S.C.R. 1210, para. 19. [See aswell: Olshask Farms Ltd. v. Skene Farm Equipment Ltd., [1987] A.J. No. 26 (A.B.Q.B.)]. [53] CNH argues that this duty to warn is a subset of the liability of a manufacturer for the production of goods found to pose asubstantial risk to health and safety and, therefore, it responds with the same arguments as made in relation to that claim. [54] I agree with its view of the nature of this claim. As CNH’s evidence and arguments did not result in

summary dismissal of theinitial claim for the manufacture of good with a dangerous defect, the same result follows. Furthermore, I note that the first mandatoryproduct upgrade for the combines was issued prior to the problems occurring with Powder Creek’s combines, with the result that if thedefects alleged were dangerous, CNH may well have had some knowledge of them. 3.

Is there no genuine issue for trial because the losses claimed do not result from the alleged dangerous defect? [55] CNH next argues that the losses alleged do not fall within the kind of damages that can be claimed for a dangerous defect andthere is no causal relationship between those losses and the alleged defects. [56] Powder Creek’s claim is primarily for the loss in value it suffered on the sale of the units and the loss of profits resulting froma reduction in the quality and quantity of its crops due to their delayed harvesting. [57] While some case law has restricted the damages claimed for a dangerous defect to the cost of remedying that defect, thedetermination of what damages will be allowed involves a careful policy analysis and, upon occasion, loss of profits has been allowed:Plas-Tex (supra), para’s. 124 - 133.

See as well: Brett-Young Seeds Ltd. (2008) (supra), para. 35. The claim for the loss at harvestshould not be dismissed at this stage of the proceedings. [58] The ability to claim for the loss on the resale of a product has not been considered by the Courts. [59] The Court in Bird, at para. 43, found that a contractor responsible for a dangerous defect would be liable for the costs ofrepairing the building. The policy reason for awarding such damages was to ensure the prompt repair of such defects and to encourageproper construction in the first instance.

As the Court noted, most repairs cost less than the cost of the sale and repurchase of a home andfew homeowners will choose to abandon or sell a building. [60] However, products, by their nature, are different than buildings. Abandonment or resale is a far more likely result when adangerous defect is discovered in a product.

As noted in Brett-Young (2008) (supra), at para. 49, a number of appellate courts have leftthe door open for the consideration of economic losses other than those for repair: Hughes, (supra), para. 31, Plas-Tex, (supra), para.133. [61] With the expansion of the dangerous defect exception to products, the ability to claim damages for loss of profits, and theaforementioned judicial commentary, it cannot be said that there is no genuine issue for trial in relation to this aspect of the claim,recognizing however, that only a part of such a claim is tied to the alleged dangerous defects. [62] CNH then argues that the evidence in relation to the loss of profit ties those losses to the lost productivity and performance ofthe units and therefore there is no causal relationship between the damages and the alleged tort. [63] CNH is correct that Powder Creek’s evidence is framed in this way.

However, as discussed, when the dangerous defect isintertwined with a lack of functionality or performance, such a characterization does not mean that the damages are in no way related to

the alleged dangerous defect. For example, when the equipment had to be unplugged while harvesting barley, there would be downtimeboth because of the failure of the equipment to operate, the need to repair it, and the need to ensure the barley dust did not catch fire. Itrequires the consideration of the trial judge to assess what, if any, damages relate to the alleged dangerous defects. [64] The claim for damages for dangerous defects in the equipment cannot be dismissed summarily at this stage of theproceedings. 4.

Is there a genuine issue for trial in relation to the claim for damages resulting from a non-dangerous defect? [65] Finally, CNH seeks to strike the claim of Powder Creek for pure economic loss resulting from the design and manufacture ofdefective combines. It argues that the Supreme Court of Canada’s suggestion in Bird that the door was left open for the futuredevelopment of the law was directed only at defective buildings, not defective products. Furthermore, there is now sufficient precedentto find that such a claim is not allowed in law.

As well, it argues, the equipment in this case was used, not new equipment, and no caselaw has considered used equipment. Finally, it says, in Alberta a statutory warranty scheme has been put in place for claims againstmanufacturers of defective combines and this legislation puts an end to further common law claims. [66] Three of these arguments can be disposed of quickly. The comments in Bird were obiter and cannot be seen to limit thedevelopment of tort law in this area to buildings alone.

The dangerous defect exception itself has since expanded to include products. [67] As to the legislation limiting the remedy available, no evidence or case law was provided that indicated that the FarmImplement Act was intended to supplant any claims against manufacturers for used equipment. Its ambit is limited to new equipment andnothing within its provisions indicates an intention to restrict any common law remedies relating to used equipment.

This is not a reasonto dismiss this aspect of the claim. [68] As to the argument that this equipment is used and there are too many intervening parties to even consider a claim for pureeconomic loss, the Supreme Court of Canada in Bird did not find this to be an impediment in relation to a claim for a dangerous defect ina building. In fact, it acknowledged that there could be many intervening purchasers: para’s. 35, 48, 50.

This is not a reason to dismissthis aspect of the claim. [69] I turn therefore to the remaining argument of CNH: there is sufficient judicial precedent that this claim should not be allowedto proceed and it should be disposed of summarily. [70]

Summary judgment applications present a particular challenge when new or unusual arguments are raised by a party. Thecommon law develops over time, a process usually described as “slow and incremental ... based largely on the mechanism of extendingan existing principle to new circumstances”. Sound policy reasons support this “judicial reluctance to dramatically recast establishedrules of law”: Watkins v. Olafson, (SCC), [1989] 2 S.C.R. 750, p. 760. [71] However, if new arguments are dismissed summarily due to an absence of precedential support, the development of the lawcan be stymied.

Weighing against this, of course, is the real waste of time and resources that occurs if arguments that present no genuineissue for consideration are allowed to continue to trial. [72] This tension requires resolution by the Court each time it determines whether new arguments should be allowed to proceedand it must exercise its judgment when making this determination, often in the absence of a full evidentiary record or a completeexploration of the relevant policy concerns. [73] Case law has held that where the claim involves a “difficult and important point of law” it should be allowed to proceed toensure the law, including the law of torts, continues “to meet the legal challenges that arise in our modern industrial society”: Gariepy v.Shell Oil Co. [2002] O.J.

No. 2766, para. 42 quoting from Hunt v. Carey Canada Inc. (SCC), [1990] 2 S.C.R. 959, p.990-991. [74] However, where the Courts have found no support in the case law or jurisprudential writing for a novel claim, they haverefused to allow it to proceed to trial: Love v. News Datacom Ltd., 2006 MBCA 92; Wuttunee v. Merck Frosst Canada Ltd., 2007SKQB 29. The claim should not be simply “wishful, fanciful or imaginative thinking” by the plaintiff: Manitoba (Hydro Electric Board)v.

John Inglis Co. 2000 MBQB 218, para. 20, cited in Arctic Foundations (supra), para. 68. [75] Therefore, to determine whether this aspect of Powder Creek’s claim should be allowed to proceed to trial, a review of theexisting case law is instructive to assess the comments of the court to date on a claim in tort for pure economic loss resulting from a non-dangerous defect. [76] The Supreme Court of Canada in Norsk (supra), acknowledged the need for a “further definition [of] what factors give rise toliability for pure economic loss in particular categories of cases”.

It said that when determining if liability will be extended in newsituations, proximity will be considered, and there must be enough special factors to avoid the “imposition of indeterminate andunreasonable liability.” The development of the law, it said, should be coherent and in accordance with the existing approach: para. 258. [77] Three years later, in 1995, in Bird (supra), the same Court noted the importance of policy issues when considering thequestion of recovery in tort for pure economic loss.

It held that the degree of danger created by the negligent construction of a building isa “cornerstone” of the policy analysis that must take place to determine if the pure economic loss will be recoverable in tort. That dangeris what founded the compelling policy reasons to impose tortious liability: para. 12. [78] The Court said that it was unnecessary to consider the question of recovery for non-dangerous defects in a building as it wasnot raised by the parties.

The Court noted, nonetheless, that the policy concerns that arose in relation to the right to claim in tort fordangerous defects, exist as well for non-dangerous defects. [79] The first is the avoidance of the limitations of contractual warranties and the second is the interference with the well known

doctrine of caveat emptor : para. 41, 44, 45. These concerns are variations of the fundamental concern that allowing recovery for economic loss in tort could result in “liability in an indeterminate amount for an indeterminate time to an indeterminate class”: para. 4, quoting from Cardozo C.J. in Ultramares Corp. v. Touche , 174 N.E. 441.

In other words, a finding of liability for a non-dangerous defect could open the flood gates and overrun the existing law by which commerce operates. [ 80 ] The Court noted that despite this concern, some jurisdictions, including New Zealand, Australia and numerous American states, have recognized some form of a general duty of builders and contractors to subsequent purchasers for the reasonable fitness and habitability of a building. [ 81 ] Since Bird , a number of cases have considered issues tied to the dangerousness of a defect, such as whether the danger must be imminent and how dangerous it must be: Brett-Young Seeds (2008) (supra) , para. 40 and cases cited therein.

In Hughes (supra) , at para. 28, the Ontario Court of Appeal was dealing with defective smoke detectors that were not in themselves dangerous and went so far as to comment that “the safety rationale for compensation does not always support a clear distinction between dangerous and non- dangerous defects”. [ 82 ] The issue of whether liability in negligence was possible in the case of a non-dangerous defect received comment in two Alberta Court of Appeal decisions, Blacklaws (supra) , and Plas-tex (supra) , and a decision from the Court of Queen’s Bench. [ 83 ] In the first, Blacklaws , the majority commented at paragraphs 55 and 62: That does not mean that other categories [in tort] cannot be created in the future.

But the fact that the categories are not closed, and new ones may be created in the future, does not mean that every case is considered as one of first impression... ... ...Even if one were to try to put this [the facts in the case] inside that category [economic losses caused by defective products or buildings], the Supreme Court of Canada has never approved liability for economic loss on facts like the present ones. Such liability here would be barred...The [ Bird case] requires physical harm to the plaintiffs or their chattels, or imminent risk of it.

A shoddy but not dangerous building does not suffice for torts liability. ...Even if one applies the pure two-part test in Anns v. Merton London Borough Council (1977), [1978] A.C. 728 (U.K. H.L.) , the [ Bird ] case uses its second test [policy considerations] to exclude torts liability for safe but shoddy building... [ 84 ] This decision was considered by Acton J. in Condominium Plan No. 943 1710 v. Christenson , 2001 ABQB 180 , an application for

summary dismissal of a claim for a non-dangerous defect. She noted that in Blacklaws the issues before the Court did not include whether a subsequent purchaser could claim for economic losses due to shoddy workmanship. As a result, the comments of the Court were not binding upon her. She held that

summary dismissal should not be granted both in light of the law found in other jurisdictions and the comments found in Bird that such a claim may be considered on the basis of full argument and with reference to the unique and distinct policy issues raised. [ 85 ] In Plas-tex (supra), a 2004 decision of the Alberta Court of Appeal, the claim was for losses resulting from the negligent manufacture of a dangerously defective pipe.

The Court set out the detailed analysis that must be undertaken when considering tort liability in such a situation, and extended the liability found in Bird for dangerously defective buildings to dangerously defective products. It held that foreseeability of substantial danger to health and safety was the test to be met when imposing liability for pure economic loss: para. 15.

However, as in Blacklaws , the question of loss for a non-dangerous defect was not before the Court, with the result that its comments are not binding on that issue. [ 86 ] Other jurisdictions have wrestled with this issue, with differing results. [ 87 ] In Gariepy v. Shell Oil Co ., [2002] O.J. No. 2766 , the application was to certify a class proceeding. In the course of its decision the Court said at para. 42 that “the possibility exists that claims for repairs in non-dangerous situations may yet be held to be recoverable... [and] it is at least clear that the issue is not foreclosed”.

The Court let that aspect of the claim proceed. [ 88 ] In Sable Offshore Energy Inc. v. Ameron International Corp ., 2007 NSCA 70 , a case determined after the aforementioned Alberta decisions, the Court considered an application to strike those portions of a claim that sought recovery for pure economic loss arising from non-dangerous defects in products. The claim also sought damages for dangerous defects and those portions of the claim were not in issue. [ 89 ] The Court looked at the prior case law and found that each decision was based on its own unique facts.

None, it found, squarely faced the issue of whether the law is sufficiently settled to find that the action is unsustainable. [ 90 ] The Court in that case quoted from Canadian Tort Law , A. Linden and B. Feldthusen, (2006, Butterworths), where the authors noted that the question remains open whether the Canadian courts will extend recovery in negligence to non-dangerous defects. They pointed out that the recent trend is toward disallowing recovery for non-dangerous defects as a matter of law.

However, finding that the test is not whether the recent trend seems to disallow a cause of action, but whether the action is certain to fail, the Court refused to strike the claim. The Supreme Court of Canada refused an application for leave to appeal this decision: [2007] S.C.C.A. No. 425, See as well: Griffin v. Dell Canada Inc ., 2009 O.J. No. 3438, para. 7 - 11 . [ 91 ] One jurisdiction has considered the question at trial and upon appeal: M. Hasegawa & Co. v. Pepsi Bottling Group (Canada), Co ., 2002 BCCA 324 . In that case Pepsi capped and bottled water for Agua who in turn sold the water to Hasegawa.

There were defects in the caps and Hasegawa suffered pure economic loss when it recalled the water. It sued Pepsi, the manufacturer. Hasegawa was unsuccessful at trial and appealed. [ 92 ] The Court rejected the claim finding that it was founded within the context of the law of the sale of goods and warranties as to the fitness of a product for its intended use. The means of protection open to Hasegawa was in contractual arrangements with Agua, or

Pepsi, if Hasegawa had entered into direct contractual arrangements with them. Tort law, the Court said at para. 60, “should not be used here to disrupt the allocation of risk.” The claim was dismissed. See as well: Brett-Young Seeds Limited v. Assie , 2002 MBCA 74 , para. 15 ; Hoffman v. Monsanto Canada Inc ., 2005 SKQB 225 , para. 40 ., Arctic Foundations , (supra) , para. 95. [ 93 ] The case law indicates that, at this stage of the proceedings, unless the case represents an unsupportable leap in the law, it should be allowed to proceed.

The Courts have not universally disallowed, struck or dismissed claims for pure economic loss resulting from non-dangerous defects. In fact, it is instructive that leave to appeal the decision in Sable (supra) , was denied by the Supreme Court of Canada. M. Hasegawa is not binding on this Court, but in any event is distinguishable on its facts from the present situation.

As a result, the existing jurisprudence is insufficient in itself to find that there is no genuine issue for trial. [ 94 ] Therefore, unless the claim is otherwise unsustainable, it should be allowed to proceed to trial and the arguments considered. [ 95 ] To determine if the claim is otherwise unsustainable, the tests applied by the Courts to ultimately determine the issue of whether a claim for pure economic loss is possible must be considered.

If their application at this early stage results in a recognition that they cannot be met, there can be no genuine issue for trial. [ 96 ] The Supreme Court of Canada suggested that when new categories of claims for pure economic loss arise and there is the necessary negligence and the loss is foreseeable, the Court should examine them from the perspective of whether there is the necessary proximity and consider as well “the pragmatic perspective of the purposes served and the dangers associated with the extension [of the law] sought”: Norsk (supra) , para. 258. [ 97 ] This kind of analysis was described and undertaken by the Alberta Court of Appeal in Plas-tex (supra) , para. 70, et seq .

Firstly, the relationship or proximity between the parties must be considered. This determination is made by asking two questions. Was the harm that occurred reasonably foreseeable as a consequence of the defendant’s act? If so, should there be liability in tort? [ 98 ] To answer the first question in the affirmative there must be a reasonable foreseeabilty of harm and proximity; i.e., there must be the type of relationship in which a duty of care may arise.

In other words, was the relationship such that the defendant, in the course of conducting its affairs, was under an obligation to be mindful of the legitimate interests of the plaintiff: para. 72 If so, then policy considerations must be undertaken to ensure that the relationship is one where it is just and fair to impose a duty of care. [ 99 ] When the duty of care is one which falls outside an existing category in tort, the second stage of analysis then occurs and residual policy concerns are taken into account including whether the recognition would create the “spectre of unlimited liability to an unlimited class”: para. 74. [ 100 ] In the facts of this case it is arguable that the necessary proximity can be found.

With the limited manufacture of this newly enlarged combine, the apparent tracking of its performance and the issuance of mandatory bulletins for very significant upgrades, a reasonable foreseeability by CNH of harm to the ultimate owners could possibly be established. Powder Creek, despite not being the original owner, is a party who could be seen to be closely and directly affected by CNH’s negligence. The relationship could be found to be one where it is not unjust and unreasonable to find a duty of care.

Such a finding cannot be ruled out. [ 101 ] In this case, both the policy concerns necessary to determine the justness and reasonableness of a finding of a duty of care and the residual policy concerns to be considered at the second stage, have not been fully argued, nor are they capable of being properly considered without a better evidentiary record: Del Harder v. Denny Andrews Ford Sales Inc ., [1995] A.J. No. 608, para. 32 ; Condominium Plan No. 943 1710 (supra) . [ 102 ] However, there is one fundamental policy concern that underpins much of the case law.

It is found in many cases, including Plas-tex (supra), and was described in Bird (supra) : will the finding of liability raise the spectre of indeterminate liability?

Will it open the floodgates to claims by an indeterminate class of plaintiff over an indeterminate period of time, in an indeterminate amount: para’s. 48-50. [ 103 ] Assuming the first test does not indicate that the claim is unsustainable, this question can act as a sieve to separate out those cases that clearly raise no genuine issue for trial. [ 104 ] At this stage of the proceedings, that concern can be addressed by the following question: are there distinguishing features or exceptions found in the factual matrix of this case that would limit its ambit?

If no such features exist, the claim would so upend the present business and legal context that it can raise no genuine issue for trial. [ 105 ] In my view there are such features. This is not the case of the mass production of shoddy equipment or the mass construction of shoddy buildings. There is evidence that indicates that in this case there was a very limited production of a new, much larger size of combine coupled with a monitoring and mandatory adjustment of its ongoing performance.

While CNH resisted the use of the word “prototype” in relation to this equipment, the appropriateness of that label cannot be ruled out on the evidence before this Court. As it was alleged by counsel for Powder Creek, unknown to them, the farmers who used this equipment may have been its unwitting testers on behalf of CNH, its designer and manufacturer. [ 106 ] Therefore, I have come to the conclusion that the question of the liability of CNH for non-dangerous defects in the combines raises a genuine issue for trial. CONCLUSION

[107] The amendments to the claim are allowed. The parts of the claim that relate to the application under the Farm Implement Actare dismissed, as that claim has been concluded. [108] As for the balance of the claim,

summary dismissal of a claim should only be granted when there is no genuine issue for trial.When the law is developing, prudence should be exercised when determining if the application will be granted. In the facts of this case,the claim, as amended, may proceed to trial. [109] However, the Court had the ability under Rule 159(4), and now has a similar authority under Rule 1.4, to impose terms inrelation to a

summary judgment application: Mr. Submarine v. Aristotelis Hldg. (1993) 1993 ABCA 153 , 102 DLR (4th) 764(Alta. C.A.); Hamill v. Kudryk, 2013 ABCA 37. While I have not been convinced to the degree necessary that there is no genuine issuefor trial, the success of the application to dismiss comes within the category described in Hamill (supra), as a “near miss”: para. 10. Forthat reason, the imposition of conditions is appropriate. [110] This action was filed in 2006 and is still not set down for trial.

Therefore, if the plaintiff wishes to proceed to trial with thisclaim it must either file an agreed-to litigation plan or set down an application to put in place such a plan within 45 days of the date ofthese reasons, failing which its claim is dismissed. Should it fail to honour the plan, the defendant has leave to apply to strike the claim. [111] If the parties wish to speak to costs, they may do so within 30 days of the date of this decision. Heard on the 23rd day of May, 2013. Dated at the City of Calgary, Alberta this 22nd day of October, 2013. J.B. Hanebury M.C.C.Q.B.A. Appearances: Kevin S. Feth, Q.C..

Field LLP for the Defendant CNH America LLC Stanley Carscallen, Q.C., Suzanne M. Porteous Carscallen LLP for the Plaintiff Powder Creek Farms Ltd.