Plas-Tex Canada Ltd. et al. v. Dow Chemical of Canada Ltd. et al.,

• Judge: Conrad, O'Leary and Picard, JJ.A.
• Neutral Citation: 2004 ABCA 309
• Citation: 2004 ABCA 309,(2004), 357 A.R. 139 (CA),245 DLR (4th) 650,[2005] 7 WWR 419,357 AR 139,42 Alta LR (4th) 118,4 BLR (4th) 194,27 CCLT (3d) 18,[2004] AJ No 1098 (QL),334 WAC 139,334 W.A.C. 139,357 A.R. 139,(2004), 357 AR 139 (CA),245 D.L.R. (4th) 650,[2004] A.J. No 1098 (QL)
• Date: 13 January 2004
• Court: Court of Appeal (Alberta)

Plas-Tex Can. Ltd. v. Dow Chemical (2004), 357 A.R. 139 (CA);

    334 W.A.C. 139

MLB headnote and full text

Temp. Cite: [2004] A.R. TBEd. OC.103

Plas-Tex Canada Ltd., Plastex Pipeline Systems Ltd., Plastex Profiles Ltd., Plastex Extruders Ltd., and Jaycan Construction Ltd. (respondents/plaintiffs) v. Dow Chemical of Canada Limited (appellant/defendant) and Alberta Opportunity Company, Canadian Standards Association, and Her Majesty the Queen in Right of Alberta (not party to the appeal/defendants)

(0301-0031-AC; 2004 ABCA 309)

Indexed As: Plas-Tex Canada Ltd. et al. v. Dow Chemical of Canada Ltd. et al.

Alberta Court of Appeal

Conrad, O'Leary and Picard, JJ.A.

October 14, 2004.

Summary:

The plaintiffs were affiliated companies which provided pipeline systems to carry natural gas to rural co-ops. The defendant, Dow Chemical of Canada Ltd., sold defective polyethylene resin to two of the plaintiffs. Dow knew of the defect, but did not advise the plaintiffs. Some of the plaintiffs used the resin to manufacture pipe that was installed by other plaintiffs. The pipe produced with the defective resin cracked, allowing natural gas to escape. The plaintiffs had to undertake a major remedial and repair program. The provincial government eventually prohibited use of the pipe. The plaintiffs lost customers and were petitioned into bankruptcy. The trial judge found Dow liable in both contract and tort and awarded the plaintiffs damages for the purchase price of the defective resin, the cost of repairs and lost profits. Dow appealed.

The Alberta Court of Appeal dismissed the appeal. While the court found reviewable error in part of the trial judge's legal analysis, it held that the trial judge came to the correct result and it upheld his damage award.

Contracts - Topic 2122

Terms - Express terms - Exclusionary clauses - Bars - [See Contracts - Topic 3735].

Contracts - Topic 3735

Performance or breach - Fundamental breach - Effect of exclusionary clause - The plaintiffs were affiliated companies which provided pipeline systems to carry natural gas to rural co-h:\macros\ops - Dow Chemical sold defective polyethylene resin to two of the plaintiffs - Dow knew of the defect, but did not advise the plaintiffs - Some of the plaintiffs used the resin to manufacture pipe that was installed by other plaintiffs - The pipe cracked, allowing natural gas to escape - The plaintiffs had to undertake a major remedial and repair program - The government eventually prohibited use of the pipe - The plaintiffs lost customers and were petitioned into bankruptcy - The trial judge found Dow liable in contract based on contracts with two of the plaintiffs (Extruders and Profiles) - The contract with Profiles contained clauses which stated that Profiles accepted all liability for loss or damage resulting from use of the resin - The trial judge concluded that there had been a fundamental breach of the contract because Profiles did not get what it contracted for, that Dow knew of the problems with the resin before it entered into the contract and that Dow could not rely on the liability limiting clauses in the contract - The Alberta Court of Appeal affirmed that Dow could not rely on the liability limiting clauses - Rather than disclose its knowledge of the defect to Profiles, Dow chose to insert liability limiting clauses in the contract - That conduct was unconscionable - Further, even if Dow's attempt to limit its liability had been successful, it would only have limited the damages claimed by Profiles - See paragraphs 44 to 55.

Contracts - Topic 4005

Remedies for breach - Negligent breach - Availability of tort action - The plaintiffs were affiliated companies which provided pipeline systems to carry natural gas to rural co-ops - Dow Chemical sold defective polyethylene resin to two of the plaintiffs - Dow knew of the defect, but did not advise the plaintiffs - Some of the plaintiffs used the resin to manufacture pipe that was installed by other plaintiffs - The pipe cracked, allowing natural gas to escape - The plaintiffs had to undertake a major remedial and repair program - The government eventually prohibited use of the pipe - The plaintiffs lost customers and were petitioned into bankruptcy - The trial judge found Dow liable in both contract and tort and awarded the plaintiffs damages for the purchase price of the defective resin, the cost of repairs and lost profits - The trial judge awarded all damages to the plaintiffs as a unit - Although Dow did not have privity of contract with all of the plaintiffs, the trial judge noted that the plaintiffs were in a position to sue each other and could be seen as "on-selling" a defective product and he concluded that damages could be considered in light of the inter-company relationships - The Alberta Court of Appeal held that while the symbiotic relationship of the plaintiffs could not support an exception to the requirement of privity, it did support an award for loss of profits to the plaintiffs as a unit in tort - The court found that damages should be assessed on the basis of tort and it was unnecessary to base them on concurrent liability in contract - See paragraphs 63 to 65.

Contracts - Topic 9001

Rights and liabilities of strangers to contract - Privity of contract - Exceptions - [See Contracts - Topic 4005].

Damages - Topic 510

Limits of compensatory damages - Prohibition against double recovery - The plaintiffs were affiliated companies which provided pipeline systems to carry natural gas to rural co-ops - Dow Chemical sold defective polyethylene resin to two of the plaintiffs - Dow knew of the defect, but did not advise the plaintiffs - Some of the plaintiffs used the resin to manufacture pipe that was installed by other plaintiffs - The pipe cracked, allowing natural gas to escape - The plaintiffs had to undertake a major remedial and repair program - The government eventually prohibited use of the pipe - The plaintiffs lost customers and were petitioned into bankruptcy - The trial judge found Dow liable in both contract and tort and awarded the plaintiffs damages for the purchase price of the defective resin, the cost of repairs and lost profits - Dow appealed, arguing that awarding the cost of the resin and the cost of repairs would be a double recovery - The Alberta Court of Appeal rejected the argument - The monies spent on repairs were caused by Dow's failure to divulge the nature of the defect and to warn of the danger - Further, since all the defective pipe had to be replaced, the money spent to purchase the resin was a wasted expenditure - But for Dow's negligence, the plaintiffs would not have suffered loss under both heads of damage - The losses were complementary and not duplicitous - See paragraphs 137 to 139.

Damages - Topic 510

Limits of compensatory damages - Prohibition against double recovery - The plaintiffs were affiliated companies which provided pipeline systems to carry natural gas to rural co-ops - Dow Chemical sold defective polyethylene resin to two of the plaintiffs - Dow knew of the defect, but did not advise the plaintiffs - Some of the plaintiffs used the resin to manufacture pipe that was installed by other plaintiffs - The pipe cracked, allowing natural gas to escape - The plaintiffs had to undertake a major remedial and repair program - The government eventually prohibited use of the pipe - The plaintiffs lost customers and were petitioned into bankruptcy - The trial judge found Dow liable in both contract and tort and awarded the plaintiffs damages for the purchase price of the defective resin, the cost of repairs and lost profits - Dow appealed, arguing that the award for loss of profits after the bankruptcy was too remote - Dow further argued that if lost profits were awarded, then there should be no award for the cost of the resin - The Alberta Court of Appeal rejected the arguments - The trial judge's conclusion that the defective resin caused the plaintiffs to lose profits was supported by the evidence - There was no merit in Dow's argument that an award for loss of profits and for the cost of the resin and repairs would be double recovery - The amounts spent for the resin and on repairs were separate losses - In any case, there was authority for the award of loss of profits as well as loss for the cost of materials - See paragraphs 146 to 147.

Damages - Topic 531

Limits of compensatory damages - Remoteness - Torts - Recoverable damages - Purely economic loss - The plaintiffs were affiliated companies which provided pipeline systems to carry natural gas to rural co-ops - Dow Chemical sold defective polyethylene resin to two of the plaintiffs - Dow knew of the defect, but did not advise the plaintiffs - Some of the plaintiffs used the resin to manufacture pipe that was installed by other plaintiffs - The pipe cracked, allowing natural gas to escape - The plaintiffs had to undertake a major remedial and repair program - The government eventually prohibited use of the pipe - The plaintiffs lost customers and were petitioned into bankruptcy - The trial judge found Dow liable in both contract and tort and awarded the plaintiffs damages for the purchase price of the defective resin, the cost of repairs and lost profits - The Alberta Court of Appeal held that the trial judge did not err in deciding that Dow should be liable for economic loss, i.e., the loss of profits of the plaintiffs, and also for the cost of repairs - Policy considerations supported liability in this products liability case where the defect presented a known danger to the public and the consumer was reasonable in relying on the manufacturer's expertise - See paragraphs 116 to 133.

Damages - Topic 5710

Contracts - Breach of contract - Damages - Breach of contract compared with tort - [See Contracts - Topic 4005].

Sale of Goods - Topic 4106

Conditions and warranties - Implied or statutory terms as to quality or fitness - Fitness or suitability of goods - The plaintiff companies provided pipeline systems to carry natural gas to rural co-ops - Dow Chemical sold defective polyethylene resin to two of the plaintiffs - Dow knew of the defect, but did not advise the plaintiffs - Some of the plaintiffs used the resin to manufacture pipe that was installed by other plaintiffs - The pipe cracked, allowing natural gas to escape - The plaintiffs had to undertake a major remedial and repair program - The government eventually prohibited use of the pipe - The plaintiffs lost customers and were petitioned into bankruptcy - The trial judge found Dow liable in contract based on contracts with two of the plaintiffs (Extruders and Profiles) - The trial judge held, inter alia, that there had been a breach of the implied condition of fitness under s. 16(2) of the Sale of Goods Act with respect to sales under the Extruders contract - The Alberta Court of Appeal affirmed that there was a breach of s. 16(2) - The defective resin that Dow was in the business of selling was not fit for the purpose of being made into pipe that could safely carry natural gas and the trial judge did not err in finding that Extruders relied on the seller's skill or judgment - See paragraphs 36 to 39.

Sale of Goods - Topic 4108

Conditions and warranties - Implied or statutory terms as to quality or fitness - Merchantable quality - The plaintiff companies provided pipeline systems to carry natural gas to rural co-ops - Dow Chemical sold defective polyethylene resin to two of the plaintiffs - Dow knew of the defect, but did not advise the plaintiffs - Some of the plaintiffs used the resin to manufacture pipe that was installed by other plaintiffs - The pipe cracked, allowing natural gas to escape - The plaintiffs had to undertake a major remedial and repair program - The government eventually prohibited use of the pipe - The plaintiffs lost customers and were petitioned into bankruptcy - The trial judge found Dow liable in contract based on contracts with two of the plaintiffs (Extruders and Profiles) - The trial judge held, inter alia, that there had been a breach of the implied condition of merchantable quality under s. 16(4) of the Sale of Goods Act with respect to sales under the Extruders contract - Dow appealed, arguing that s. 16(4) was not breached because Extruders failed to prove that the resin could not be used for any purpose other than producing pipe that carried natural gas - The Alberta Court of Appeal affirmed that there was a breach of s. 16(4) - Dow knew of the proposed use of the resin and that the pipe created from it would crack, allowing the escape of natural gas - Dow's argument that such pipe could still carry water or brine had no merit - Given the dangerous consequences of transporting natural gas through pipe that would crack, the trial judge did not err in finding that no reasonable buyer aware of the defects of pipe made with the resin would have bought it at any price - See paragraphs 40 to 43.

Torts - Topic 77

Negligence - Duty of care - Relationship required to raise duty of care - The plaintiffs were affiliated companies which provided pipeline systems to carry natural gas to rural co-ops - Dow Chemical sold defective polyethylene resin to two of the plaintiffs - Dow knew of the defect, but did not advise the plaintiffs - Some of the plaintiffs used the resin to manufacture pipe that was installed by other plaintiffs - The pipe cracked, allowing natural gas to escape - The plaintiffs had to undertake a major remedial and repair program - The government eventually prohibited use of the pipe - The plaintiffs lost customers and were petitioned into bankruptcy - The trial judge found Dow liable in tort - Dow argued that the trial judge erred in finding a duty of care owed to any of the plaintiffs -The Alberta Court of Appeal held that the trial judge did not err in finding that Dow had a duty to warn all of the plaintiffs of the dangers associated with the use of the defective resin - Dow also had a duty to take reasonable care not to manufacture and distribute a dangerous product - There was reasonable foreseeability of harm to each plaintiff and the requisite proximity existed with each plaintiff - There were no policy considerations within the relationships and no residual policy considerations that would negate or limit the finding that Dow owed a duty of care to each of the plaintiffs, including those not in a contractual relationship with Dow - See paragraphs 66 to 103.

Torts - Topic 78

Negligence - Duty of care - Effect of statutory precautions or safeguards on the scope of the duty of care - The plaintiff companies provided pipeline systems to carry natural gas to rural co-ops - Dow Chemical sold defective polyethylene resin to two of the plaintiffs - Dow knew of the defect, but did not advise the plaintiffs - Some of the plaintiffs used the resin to manufacture pipe that was installed by other plaintiffs - The pipe cracked, allowing natural gas to escape - The plaintiffs had to undertake a major remedial and repair program - The government eventually prohibited use of the pipe - The plaintiffs lost customers and were petitioned into bankruptcy - The trial judge found Dow liable in tort - The Alberta Court of Appeal held that the trial judge was correct in discounting as a consideration in determining the standard of care, the fact that the resin had been certified by the Canadian Standards Association - See paragraphs 106 to 107.

Torts - Topic 79

Negligence - Duty of care - Factors limiting or reducing scope of duty of care - [See Torts - Topic 77].

Torts - Topic 86

Negligence - Duty of care - Duty to warn -[See Torts - Topic 77].

Torts - Topic 4205

Suppliers of goods - General principles and definitions - Basis for liability - Contract v. tort - [See Contracts - Topic 4005].

Torts - Topic 4326

Suppliers of goods - Negligence - Manufacturers - Standard of care - [See Torts - Topic 78].

Torts - Topic 4327

Suppliers of goods - Negligence - Manufacturers - Defective goods - [See Torts - Topic 77].

Torts - Topic 4335

Suppliers of goods - Negligence - Manufacturers - Duty to warn users respecting dangers - [See Torts - Topic 77].

Torts - Topic 4340

Suppliers of goods - Negligence - Manufacturers - Damages - Measure of - [See both Damages - Topic 510 and Damages - Topic 531].

Torts - Topic 4343

Suppliers of goods - Negligence - Manufacturers - Knowledge of use involving risk to third parties - [See Torts - Topic 77].

Cases Noticed:

Associated Indemnification Corp. v. Dow Chemical Co. (1993), 814 F. Supp. 613, refd to. [para. 19].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 211 D.L.R.(4th) 577; 2002 SCC 33, refd to. [para. 32].

Herron et al. v. Hunting Chase Inc. et al. (2003), 330 A.R. 53; 299 W.A.C. 53; 2003 ABCA 219, refd to. [para. 34].

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. 48].

Western Irrigation District v. Alberta et al. (2002), 312 A.R. 358; 281 W.A.C. 358; 33 M.P.L.R.(3d) 62; 2002 ABCA 200, refd to. [para. 48].

Catre Industries Ltd. v. Alberta (1989), 99 A.R. 321 (C.A.), refd to. [para. 49].

Canadian Fracmaster Ltd. v. Grand Prix Natural Gas Ltd. (1990), 109 A.R. 173 (Q.B.), refd to. [para. 49].

Syncrude Canada Ltd. et al. v. Hunter Engineering Co. and Allis-Chalmers Canada Ltd. et al., [1989] 1 S.C.R. 426; 92 N.R. 1; 57 D.L.R.(4th) 321; [1989] 3 W.W.R. 385, refd to. [para. 50].

Olshaski Farms Ltd. v. Skene Farm Equipment Ltd. and Massey Ferguson Industries Ltd. (1987), 77 A.R. 52; 49 Alta. L.R.(2d) 249 (Q.B.), refd to. [para. 52].

Bryandrew Holdings Ltd. v. Sifton Properties Ltd. (1994), 38 R.P.R.(2d) 95 (Ont. Gen. Div.), refd to. [para. 52].

Atlas Supply Co. of Canada v. Yarmouth Equipment Ltd. and Murphy (1991), 103 N.S.R.(2d) 1; 282 A.P.R. 1 (C.A.), refd to. [para. 52].

BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; 147 N.R. 81; 20 B.C.A.C. 241; 35 W.A.C. 241, refd to. [para. 60].

Royal Bank of Canada v. Got (W.) & Associates Electric Ltd. et al., [1999] 3 S.C.R. 408; 247 N.R. 1; 250 A.R. 1; 213 W.A.C. 1, refd to. [para. 60].

Canlin Ltd. v. Fibres Canada Ltd. (1983), 40 O.R.(2d) 687 (C.A.), refd to. [para. 62].

Asamera Oil Corp. v. Sea Oil and General Corp. - see Baud Corp. N.V. v. Brook.

Baud Corp. N.V. v. Brook, [1979] 1 S.C.R. 633; 23 N.R. 181; 12 A.R. 271; [1978] 6 W.W.R. 301; 89 D.L.R.(3d) 1, refd to. [para. 62].

Global Marine Projects Ltd. v. Colvic Craft plc, [1988] E.W.J. No. 4468 (C.A.), refd to. [para. 63].

Anns v. Merton London Borough Council, [1978] A.C. 728; [1977] 2 W.L.R. 1024; [1977] 2 All E.R. 492 (H.L.), appld. [para. 68].

Nielsen v. Kamloops (City) and Hughes, [1984] 2 S.C.R. 2; 54 N.R. 1; [1984] 5 W.W.R. 1; 10 D.L.R.(4th) 641; 29 C.C.L.T. 97; 8 C.L.R. 1; 26 M.P.L.R. 81; 66 B.C.L.R. 273, refd to. [para. 69].

Cooper v. Hobart - see Cooper v. Registrar of Mortgage Brokers (B.C.) et al.

Cooper v. Registrar of Mortgage Brokers (B.C.) et al., [2001] 3 S.C.R. 537; 277 N.R. 113; 160 B.C.A.C. 268; 261 W.A.C. 268; 206 D.L.R.(4th) 193; 2001 SCC 79, refd to. [para. 69].

Edwards et al. v. Law Society of Upper Canada et al., [2001] 3 S.C.R. 562; 277 N.R. 145; 153 O.A.C. 388; 2001 SCC 80, refd to. [para. 69].

Donoghue v. Stevenson, [1932] A.C. 562; [1932] All E.R. Rep. 1 (H.L.), refd to. [para. 72].

Hollis v. Dow Corning Corp. et al., [1995] 4 S.C.R. 634; 190 N.R. 241; 67 B.C.A.C. 1; 111 W.A.C. 1, refd to. [para. 72].

Hercules Management Ltd. et al. v. Ernst & Young et al., [1997] 2 S.C.R. 165; 211 N.R. 352; 115 Man.R.(2d) 241; 139 W.A.C. 241; 146 D.L.R.(4th) 577, refd to. [para. 72].

Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R. 1189; [1973] 6 W.W.R. 692; 40 D.L.R.(3d) 530, refd to. [para. 73].

Bow Valley Husky (Bermuda) Ltd. et al. v. Saint John Shipbuilding Ltd. et al., [1997] 3 S.C.R. 1210; 221 N.R. 1; 158 Nfld. & P.E.I.R. 269; 490 A.P.R. 269, dist. [para. 84].

Winnipeg Condominium Corp. No. 36 v. Bird Construction Co. et al., [1995] 1 S.C.R. 85; 176 N.R. 321; 100 Man.R.(2d) 241; 91 W.A.C. 241; [1995] 3 W.W.R. 85, consd. [para. 88].

Canadian National Railway Co. et al. v. Norsk Pacific Steamship Co. and Tug Jervis Crown et al., [1992] 1 S.C.R. 1021; 137 N.R. 241; 91 D.L.R.(4th) 289, refd to. [para. 100].

Central Trust Co. v. Rafuse and Cordon, [1986] 2 S.C.R. 147; 69 N.R. 321; 75 N.S.R.(2d) 109; 186 A.P.R. 109; 37 C.C.L.T. 117; 42 R.P.R. 161; 31 D.L.R.(4th) 481; 34 B.L.R. 187, refd to. [para. 101].

Viridian Inc. v. Dresser Canada Inc. et al. (2002), 312 A.R. 93; 281 W.A.C. 93; 2002 ABCA 173, refd to. [para. 117].

Ultramares Corp. v. Touche (1931), 255 N.Y. Supp. 170 (C.A.), refd to. [para. 118].

Houweling Nurseries Ltd. v. Fisons Western Corp. (1988), 37 B.C.L.R.(2d) 2 (C.A.), refd to. [para. 140].

Nathu v. Imbrook Properties Ltd. (1992), 125 A.R. 34; 14 W.A.C. 34; 2 Alta. L.R.(3d) 48 (C.A.), refd to. [para. 145].

Gill v. Kittler (1983), 44 A.R. 321 (Q.B.), refd to. [para. 147].

Sunnyside Greenhouses Ltd. v. Golden West Seeds Ltd., [1972] 4 W.W.R. 420; 27 D.L.R.(3d) 434 (Alta. C.A.), affd. [1973] 3 W.W.R. 288; 33 D.L.R.(3d) 384 (S.C.C.), refd to. [para. 147].

Authors and Works Noticed:

Edgell, D.F., Product Liability in Canada (2000), p. 245 [para. 131].

Waddams, Stephen M., The Law of Contracts (4th Ed. 1999), p. 349 [para. 51].

Counsel:

J.P. McMahon, for the respondents/plaintiffs;

E.P. Groody and J.T. Eamon, for the appellant/defendant.

This appeal was heard on January 13, 2004, before Conrad, O'Leary and Picard, JJ.A., of the Alberta Court of Appeal. The following reasons for judgment of the Court of Appeal were delivered by Picard, J.A., on October 14, 2004.