Domtar Inc. v. ABB Inc. et al., (2007) 369 N.R. 152 (SCC)

• Judge: McLachlin, C.J.C., Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein, JJ.
• Court: Supreme Court of Canada
• Case Date: November 22, 2007
• Jurisdiction: Canada (Federal)
• Citations: (2007), 369 N.R. 152 (SCC);2007 SCC 50

Domtar Inc. v. ABB Inc. (2007), 369 N.R. 152 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2007] N.R. TBEd. NO.015

ABB Inc. et Alstom Canada Inc. (appelantes) c. Domtar Inc. (intimée)

Chubb du Canada, Compagnie d'assurance (appelante) c. Domtar Inc. (intimée)

Domtar Inc. (appelante) c. Arkwright Mutual Insurance Company (intimée)

(31176; 31177; 31174; 2007 SCC 50; 2007 CSC 50)

Indexed As: Domtar Inc. v. ABB Inc. et al.

Supreme Court of Canada

McLachlin, C.J.C., Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein, JJ.

November 22, 2007.

Summary:

Domtar manufactured pulp and paper. C.E. manufactured and sold recovery boilers. In 1984, Domtar bought a recovery boiler from C.E. for $13,500,000. The contract of sale came with a clause limiting the seller's liability. The boiler came with a superheater equipped with H-style tie-welds. Cracks and leaks developed in the tie-welds. The boiler experienced down-time. Eventually, Domtar had a C.E. competitor replace the three banks of the superheater with elements that used hinge-pin attachments. Domtar invoked the seller's warranty against latent defects found in the Civil Code of Lower Canada, and the seller's duty to inform, and sued C.E. for damages. In parallel, Domtar sued insurers Lloyd's, Chubb and Arkwright. Domtar settled with Lloyd's for payments which included US $1,000,000 (C $1,578,900) for the settlement "of all past, present and future claims of any and other types". Against Chubb, Domtar invoked a performance bond under which Chubb stood as a surety for C.E. in respect of its obligations to Domtar. The action against Arkwright was based on an all risk insurance policy.

The Quebec Superior Court, in a decision reported [2003] R.J.Q. 2194, allowed the action against C.E. in part. The court ruled that the cracks and leaks did not constitute latent defects but that C.E. breached its duty to inform. C.E. could not invoke the limitation of liability clause against the consequences of the breach of its duty to inform Domtar. The court ordered C.E. to pay Domtar $13,366,583 in damages less the $1,578,900 paid by Lloyd's, which was subrogated in Domtar's rights. Because there was no latent defect, the court dismissed the action against Chubb. In a separate decision reported at SOQUIJ AZ-50180803, the court dismissed the action against Arkwright on the basis that the damage connected with the superheater did not constitute an insured loss. C.E. appealed. Domtar cross-appealed.

The Quebec Court of Appeal, in a decision reported [2005] R.J.Q. 2267, dismissed C.E.'s appeal. The court ruled that C.E. was liable on the basis of both the seller's warranty against latent defects and the breach of the duty to inform. Since C.E. knew or ought to have known about the defect in the tie-welds, it could not rely on the limitation of liability clause. The court allowed Domtar's cross-appeal, ruling that the $1,578,900 paid by Chubb should not have been deducted from the amount payable by C.E. The court increased that amount accordingly. In a decision indexed as 2005 QCCA 730, the court condemned Chubb, solidarily with C.E., to pay Domtar $725,938.90, based on the performance bond. Finally, in a decision reported [2005] R.R.A. 1046, the court dismissed Domtar's appeal in the action against Arkwright, on the basis of the insurance contract clause that excluded coverage for losses resulting from latent defects. C.E. (now ABB Inc. and Alstom Canada Inc.), Chubb and Domtar appealed.

The Supreme Court of Canada dismissed the appeals.

Quebec Nominate Contracts - Topic 3147

Sale - Obligations of seller - Latent defects - General - The Supreme Court of Canada discussed latent defect law in French law and in the Canadian common law - See paragraphs 74 to 85.

Quebec Nominate Contracts - Topic 3148

Sale - Obligations of seller - Latent defects - What constitutes - The Supreme Court of Canada discussed what constituted latent defects within the meaning of art. 1522 of the Civil Code of Lower Canada - See paragraphs 47 to 55.

Quebec Nominate Contracts - Topic 3148

Sale - Obligations of seller - Latent defects - What constitutes - Domtar manufactured pulp and paper - C.E. manufactured and sold recovery boilers - In 1984, Domtar bought a recovery boiler from C.E. - The boiler came with a superheater equipped with H-style tie-welds that had a tendency to develop cracks and leaks - At the time of the sale, C.E. knew about the problem but Domtar did not - Cracks and leaks developed - Down time ensued - Eventually, Domtar had a C.E. competitor replace the three banks of the superheater with elements that used hinge-pin attachments - Domtar invoked the seller's warranty against latent defects found in the Civil Code of Lower Canada, and the seller's duty to inform, and successfully sued C.E. for damages - The Supreme Court of Canada affirmed that the tie-weld defects were latent defects that C.E., a manufacturer, knew or should have known about - Domtar would not have bought a boiler with H-style tie welds had it known of the risks attached to this type of attachment - The court held that C.E. had greater boiler expertise than Domtar - As boiler manufacturer, C.E. was required to take its customers' needs and objectives into account in designing its boilers - The fact that Domtar was assisted by an expert did not make the defect apparent - Since the cause of the excessive cracking was unknown to both Domtar and its expert, the defect here was indeed latent - See paragraphs 45, 87 to 101, 107 to 110.

Quebec Nominate Contracts - Topic 3155

Sale - Obligations of seller - Latent defects - Persons liable to warranty - The Supreme Court of Canada discussed the scope of the seller's liability for latent defects under arts. 1522 and following of the Civil Code of Lower Canada, including the presumption of knowledge of latent defects on the seller's part, the manufacturers and specialized professional sellers to whom it applied, the non-specialized professional or non-professional sellers to whom it did not apply, the rebuttable nature of the presumption, and the means of rebutting the presumption on the manufacturer's part - See paragraphs 56 to 72.

Quebec Nominate Contracts - Topic 3156

Sale - Obligations of seller - Latent defects - Exclusionary clauses - The Supreme Court of Canada affirmed that the manufacturer-seller of a recovery boiler could not set up against the buyer a clause limiting its liability for latent defects where the manufacturer-seller failed to rebut the presumption of knowledge applicable to it - Simply having an honest belief in the adequacy of its product was not enough to relieve a manufacturer of liability - See paragraphs 73, 102 to 106.

Quebec Nominate Contracts - Topic 3158

Sale - Obligations of seller - Latent defects - Legal presumption of seller's knowledge - [See second Quebec Nominate Contracts - Topic 3148 ].

Quebec Nominate Contracts - Topic 3159

Sale - Obligations of seller - Latent defects - When seller precluded from raising buyer's knowledge - [See second Quebec Nominate Contracts - Topic 3148 ].

Quebec Nominate Contracts - Topic 3160

Sale - Obligations of seller - Latent defects - Seller's duty to inform - [See second Quebec Nominate Contracts - Topic 3148 ].

Sale of Goods - Topic 4361

Conditions and warranties - Latent defects - General - [See Quebec Nominate Contracts - Topic 3147 ].

Cases Noticed:

Fabrique de la Paroisse de St-Philippe d'Arvida v. Desgagné's Estate et al., [1984] 1 S.C.R. 19; 51 N.R. 241, consd. [para. 34].

Placement Jacpar Inc. c. Benzakour et Zizzi, [1989] R.J.Q. 2309; 26 Q.A.C. 169 (C.A.), consd. [para. 35].

Marquis v. Saltsman, J.E. 2002-1729, SOQUIJ AZ-50143509 (Que. C.A.), refd to. [para. 35].

Rousseau v. 2732-1678 Québec inc., [1999] R.D.I. 565 (Que. C.A.), refd to. [para. 35].

Société en commandite A.C. enr. v. Wadieh, [1997] R.D.I. 307 (Que. C.A.), refd to. [para. 35].

Bertrand v. Pelletier, [1997] R.D.I. 321 (Que. C.A.), refd to. [para. 35].

Poirier v. Martucelli, [1995] R.D.I. 319 (Que. C.A.), refd to. [para. 35].

Trottier v. Robitaille, [1994] R.D.I. 537 (Que. C.A.), refd to. [para. 35].

Cloutier v. Létourneau, [1993] R.L. 530 (Que. C.A.), refd to. [para. 35].

Rousseau v. Gagnon et al., [1987] R.J.Q. 40; 4 Q.A.C. 248 (C.A.), refd to. [para. 35].

Auto Peliss ltée v. Proulx Pontiac Buick ltée, [2001] R.J.Q. 856 (Que. C.A.), dist. [para. 43].

Garage Robert inc. v. 2426-9888 Québec inc., [2001] R.J.Q. 865 (C.A.), dist. [para. 43].

Trois Diamants Autos (1987) ltée v. M.G.B. Auto inc., [2001] R.J.Q. 860 (C.A.), dist. [para. 43].

Kravitz v. General Motors Products of Canada Ltd., [1979] 1 S.C.R. 790; 25 N.R. 271, consd. [para. 44].

Samson & Filion v. Davie Shipbuilding & Repairing Co., [1925] S.C.R. 202, consd. [para. 61].

Touchette v. Pizzagalli, [1938] S.C.R. 433, consd. [para. 62].

Manac inc./Nortex v. Boiler Inspection and Insurance Co. of Canada, [2006] R.R.A. 879 (Que. C.A.), refd to. [para. 66].

Oakwood Construction Inc. v. Ratthé, [1993] R.D.I. 181 (Que. C.A.) refd to. [para. 66].

Blandino v. Colagiacomo, [1989] R.D.I. 148 (Que. C.A.), refd to. [para. 66].

Oppenheim v. Forestiers R.P.G.M. inc., J.E. 2002-1197, SOQUIJ AZ-50133145 (Que. C.A.), refd to. [para. 66].

London & Lancashire Guarantee & Accident Co. of Canada v. La Cie F.X. Drolet, [1944] S.C.R. 82, refd to. [para. 72].

Civ. 1re, 24 nov. 1954, J.C.P. 1954.II.8565, obs. H. B., refd to. [para. 78].

Civ. 1re, 19 janv. 1965, D. 1965.389, obs. G. Cornu, refd to. [para. 78].

Com., 6 nov. 1978, J.C.P. 1978.II.19178, obs. J. Ghestin, et G. Cornu, refd to. [para. 78].

Com., 8 oct. 1973, J.C.P. 1975.II.17927, obs. J. Ghestin, refd to. [para. 79].

Civ. 3e, 30 oct. 1978, J.C.P. 1979.II.19178, obs. J. Ghestin, obs. G. Cornu, refd to. [para. 79].

Tony's Broadloom & Floor Covering Ltd. v. NMC Canada Inc. (1995), 22 O.R.(3d) 244, affd. (1996), 95 O.A.C. 358; 31 O.R.(3d) 481 (C.A.), refd to. [para. 80].

Jenkins v. Foley (2002), 215 Nfld. & P.E.I.R. 257; 644 A.P.R. 257; 2002 NFCA 46, refd to. [para. 80].

Parlby Construction Ltd. v. Stewart Equipment Co., [1972] 1 W.W.R. 503 (B.C.S.C.), refd to. [para. 80].

Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; 247 N.R. 97; 126 O.A.C. 1, refd to. [para. 83].

Syncrude Canada Ltd. et al. v. Hunter Engineering Co. and Allis-Chambers Canada Ltd. et al., [1989] 1 S.C.R. 426; 92 N.R. 1, refd to. [para. 83].

McLean (R.G.) Ltd. v. Canadian Vickers Ltd., [1971] 1 O.R. 207 (C.A.), refd to. [para. 83].

Banque de Montréal et autre c. Hydro-Québec et autres, [1992] 2 S.C.R. 554; 138 N.R. 185; 48 Q.A.C. 241, refd to. [para. 108].

Statutes Noticed:

Civil Code of Lower Canada, art. 1522 [para. 47, Appendix]; art. 1523, art. 1524, art. 1527, art. 1528 [Appendix].

Civil Code of Québec, S.Q. 1991, c. 64, art. 1726, para. 1 [para. 53, Appendix].

Authors and Works Noticed:

Barret, Olivier, Vente, in P. Raynaud, dir., Répertoire de droit civil (2nd Ed. 1979) (2007 Update), t. X, nos. 563, 565 [para. 76].

Bénabent, Alain, Droit civil: Les contrats spéciaux civils et commerciaux (5th Ed. 2001), no. 226 [para. 76].

Cornu, Gérard, obs. sous Civ. 1re, 19 janv. 1965, Rev. trim. dr. civ. 1965.665 [para. 78].

Cornu, Gérard, obs. sous Com., 6 nov. 1978 et Civ. 3e, 30 oct. 1978, Rev. trim. dr. civ. 1979.392 [para. 79].

Côté, Pierre-André, and Jutras, Daniel, Le droit transitoire civil: Sources annotées (1994) (1996 Looseleaf Update), pp. I/3-1 ff. [para. 29].

Deslauriers, Jacques, La vente 1, in Barreau du Québec, Cours de la formation professionnelle 1988-1989, Droit civil et procédure civile, vol. 3, Contrats et vente, p. 82 [paras. 56, 66].

Edwards, Jeffrey, La garantie de qualité du vendeur en droit québécois (1998), pp. 275 [para. 57]; 276, 280-281 [para. 58]; 289 [para. 41]; 289 to 294 [para. 65].

Faribault, Léon, Traité de droit civil du Québec (1961), t. 11, pp. 295 [paras. 58, 66]; 296 [para. 66].

Fridman, Gerald Henry Louis, The Law of Contract in Canada (5th Ed. 2006), p. 592 [para. 83].

Huet, Jérôme, Les principaux contrats spéciaux (2nd Ed. 2001), pp. 329 to 330 [para. 76].

Jobin, Pierre-Gabriel, Précis on Sale, in Reform of the Civil Code (1993), vol. 3A, pp. 60 [para. 54]; 61 [para. 51]; 62 [para. 66].

Jobin, Pierre-Gabriel, Précis sur la vente, dans La réforme du Code civil, Obligations, contrats nommés (1993), vol. 2, pp. 464 [para. 54]; 466 [para. 51]; 467, 468 [para. 66].

Lamontagne, Denys-Claude, Droit de la vente (1995), pp. 103 to 104 [para. 66].

Langelier, F., Cours de droit civil de la province de Québec (1909), t. V, p. 77 [paras. 59, 66].

le Tourneau, Philippe, La responsabilité civile (3rd. Ed. 1982), p. 375, no. 1183 [para. 78].

Mignault, Pierre-Basile, Le droit civil canadien (1906), t. VII, pp. 112 [para. 58]; 113 [para. 65]; 118 [para. 59].

Pothier, Robert Joseph, Oeuvres de Pothier (1823), t. II, no. 214 [para. 57].

Pourcelet, Michel, La vente (5th Ed. 1987), pp. 149 [para. 51]; 158 [paras. 59, 65]; 159 [para. 65]; 160 [para. 56].

Québec, Ministère de la Justice, Commentaires du ministre de la Justice - Le Code civil du Québec: Un mouvement de société (1993), t. I, pp. 902 [para. 72]; 1078 [para. 53]; t. III, pp. 71 [para. 27]; 72 [para. 28].

Rousseau-Houle, Thérèse. Précis du droit de la vente et du louage (2nd Ed. 1986), pp. 134 [para. 54]; 135 [para. 56]; 138 [para. 66];139 to 152 [paras. 59, 66]; 156 [para. 56].

Counsel:

Éric Mongeau, Patrick Girard and Charles Nadeau,   for   the   appellants,   ABB   Inc.,

Alstom Canada Inc. and Chubb Insurance Company of Canada;

André Legrand, Olivier F. Kott, Gregory B. Bordan and Emmanuelle Demers, for the appellant/respondent, Domtar Inc.;

Gordon Kugler and Stuart Kugler, for the respondent, Arkwright Mutual Insurance Company.

Solicitors of Record:

Stikeman Elliott, Montreal, Quebec, for the appellants, ABB Inc., Alstom Canada Inc. and Chubb Insurance Company of Canada;

Ogilvy, Renault, Montreal, Quebec, for the appellant/respondent, Domtar Inc.;

Kugler, Kandestin, Montreal, Quebec, for the respondent, Arkwright Mutual Insurance Company.

These appeals were heard on November 8, 2006, by McLachlin, C.J.C., Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein, JJ., of the Supreme Court of Canada.

The judgment of the Supreme Court was delivered in both official languages on November 22, 2007, by LeBel and Deschamps, JJ.