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Pure Economic Loss and the Concept of Premature Commercialization

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Pure Economic Loss and the Concept of Premature Commercialization Aquilina Law September 10, 2021

Pure Economic Loss and the Concept of Premature Commercialization

in Darmar Farms Inc. v. Syngenta Canada Inc.

Pure Economic Loss in Canada

The concept of pure economic loss refers to the loss suffered by an individual, other than loss stemming from physical injury or damage to property. Common law jurisdictions have long struggled with assessing pure economic loss stemming from negligence claims. Canada diverged from English law in the Supreme Court of Canada’s decision in Canadian National Railway Co. v. Norsk Pacific Steamship Co., which both rejected the deviating test within the English case of Murphy v. Brentwood and upheld the so-called “Anns Test” devised in Anns v. Merton LBC, which requires, firstly, a significant relationship of proximity based upon foreseeability and secondly, consideration of policy reasons why a duty of care should not arise.[i]

Despite this divergence, there appears to be a consensus in common law jurisdictions that a theory of liability permitting the recovery of purely economic loss must also repulse frivolous or remote claims and it is to that end that the Supreme Court of Canada has established a quasi numerus clausus of instances where pure economic loss is recoverable through sufficient proximity. Canadian courts are therefore reluctant to presume a duty of care giving rise to a right of recovery for such loss unless the facts before them are analogous to those of a case in which such a duty was previously found to exist.

Facts of the Syngenta case

In the recent decision of Darmar Farms Inc. v. Syngenta Canada Inc., the Ontario Court of Appeal addresses a novel claim of pure economic loss in the face of what is described as “premature commercialization”.

Syngenta Canada Inc. and Syngenta AG (collectively referred to as “Syngenta”) sold corn seed, known as Agrisure, which contained a genetic modification known as MIR 162. While Agrisure was cleared for sale in Canada and the United States, it had not yet been approved by grain regulators in China.

Industry associations warned Syngenta of the trade disruptions that would ensue if products did not have proper authorization. Syngenta undertook not to cause harm by commercializing Agrisure without Chinese approval. However, it made misrepresentations about the timing and substance of the approval process in China and ended up commercializing Agrisure in North America without obtaining the required approval. This led China to bar all North American corn from the Chinese market because the unapproved Agrisure had allegedly contaminated regular corn seed, which created an oversupply of corn in North America and caused a fall in corn prices.

The appellant, Darmar Farms Inc. (“Darmar”), was an Ontario corn grower that neither purchased nor used Agisure seed. It brought a class action law suit on behalf of ‘stakeholders’ suing, inter alia, for pure economic loss resulting from negligence for prematurely commercializing Agrisure. Syngenta moved to dismiss the action as discerning no real cause of action since premature commercialization was outside court-recognized situations where pure economic loss had previously been compensated.

The Motion to Dismiss

The motion judge found that the claim for premature commercialization was a misnomer and irrelevant, as it did not relate to a previously identified potential case of pure economic loss. The judge found that the reference to the claim’s undefined term ‘stakeholders’, which described those in a situation similar to Darmar, gave rise to indeterminate liability to an indeterminate class of persons. This would, in the motion judge’s view, be illogical as Syngenta could not have provided an undertaking to a major portion of North America’s corn market. In addition she noted that Syngenta could not be faulted for the contamination of the corn as it was plead that it was inevitable to happen due to the interconnectedness of the market.[ii]

Thus, the motion judge took the position that it was plain and obvious the claim based on premature commercialization could not succeed and she therefore dismissed the claim.

Rulings

In conducting the proximity analysis of the Anns Test, the Court of Appeal addressed two main points, namely the representations made by Syngenta to the industry associations and the interconnectedness of the corn market. The former established reliance and expectations, both of which are factors for the proximity analysis.

As for the interconnectedness and interdependency of the corn market, these implied that Syngenta knew the effect that its modified corn seed would have on all corn and that even corn not purchased from Syngenta would still be vulnerable to closure of export. The fact that Syngenta’s product would inevitably contaminate the wider corn market would, arguably, put Syngenta in a relationship with Darmar despite the fact that Darmar never purchased its corn seed.[iii]

In regards to the foreseeability portion of the Anns Test, the court found that, due to the context of the established proximity and the relationship founded thereon, there was nothing in Syngenta’s allegations that could take Darmar’s loss outside the scope of foreseeability. The injury that was allegedly foreseeable to Darmar would thus be “reasonably” foreseeable and hence, a prima facie duty of care was arguably in existence.[iv]

Turning to the policy analysis which forms the second stage of the Anns Test, the court stated that this stage “is something which should be relied on narrowly, and rarely if ever due to concerns about indeterminate liability which ought not to persist after a proper stage one analysis.”[v] With this in mind, the Court of Appeal found that Darmar had a reasonable prospect of showing that a duty of care arose and that it did not necessarily give rise to indeterminacy concerns. Even if there were such concerns, the indeterminacy that would arise would indeed flow from the risk that Syngenta undertook in order to protect the industry and this could justly and fairly result in liability.[vi]

Conclusion

If given efficacy, this additional instance of pure economic loss would set Canada apart from many common law jurisdictions insofar as the establishment of a duty of care of a participant to their broader industry is concerned. Whether an emerging tort of premature commercialization will be snuffed out by a future ruling has yet to be seen.

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[i] Canadian National Railway Co. v. Norsk Pacific Steamship Co. [1992] 1 SCR 1021; Anns v. Merton London Borough Council, [1978] A.C. 728 at 751–52; Murphy v Brentwood District Council [1991] UKHL 2.

[ii] Darmar Farms Inc. v. Syngenta Canada Inc., 2019 ONCA 789 at para 29.

[iii] Darmar Farms Inc. v. Syngenta Canada Inc., 2019 ONCA 789 at para 76.

[iv] Darmar Farms Inc. v. Syngenta Canada Inc., 2019 ONCA 789 at para 83

[v] Darmar Farms Inc. v. Syngenta Canada Inc., 2019 ONCA 789 at para 54.

[vi] Darmar Farms Inc. v. Syngenta Canada Inc., 2019 ONCA 789 at para 88. _____________________________________________________________________________________________________________________________

Article by Martin Aquilina, with assistance from Alexander Krush.

This article is for informational purposes only and does not constitute legal advice. If you wish to seek legal advice, contact Martin Aquilina today.

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