Facts: The plaintiff purchased a new bedplate and reconditioned crankshaft from the defendant for installation in one of its vessels. The defendant assembled and mounted the crankshaft to the bedplate in November 2006 and delivered both items to the plaintiff at Halifax in February 2007. On 27 October 2009, after 13,653 running hours, the new crankshaft suffered a catastrophic failure. The plaintiff commenced this proceeding for damages in excess of $5.6 million. It was undisputed that the failure was caused by insufficient tightening of “the big end stud of the connecting rod of unit 5L”. The plaintiff alleged that the crankshaft was defective when delivered whereas the defendant alleged the plaintiff was responsible for the improper tightening during routine maintenance. The defendant also relied upon the terms of the sale contract between the parties which provided a six month limited warranty and a limitation of liability equivalent to approximately $80,000. The plaintiff argued that the limitation of liability was invalid in the circumstances and pursuant to the Civil Code of Quebec.
Decision: The plaintiff is entitled to judgment.
Held: The issues in the case are: (1) whether the transaction is governed by Canadian maritime law or Quebec civil law; and, (2) based on such governing law, is the defendant liable or entitled to limit its liability.
(1) With respect to the applicable law, this matter relates to a contract of sale and such contracts are not integrally connected to the pith and substance of Parliament’s jurisdiction over navigation and shipping. Although related to maritime activities, this matter is not integrally connected with same. Moreover, there is no practical necessity for a uniform federal law to prescribe the rules governing a seller’s obligations. The fact that such rules may vary by province does not hinder the efficient and coherent conduct of the activities of navigation and shipping. Therefore, as the contract of sale was formed in Quebec, it is the laws of Quebec that apply.
(2) Pursuant to the Civil Code of Quebec: a seller of property is required to warrant that the property to be sold is free of latent defects (art. 1726); in the case of a sale of property by a “professional seller”, a defect is presumed to have existed at the time of sale if the property malfunctions or deteriorates prematurely (art. 1729); and, a seller may not exclude or limit liability unless the defects of which he was aware or could not have been unaware are disclosed (art. 1733). These provisions apply here. The defect is presumed to have existed at the time of sale and this presumption has not been rebutted on the balance of probabilities. The defendant, as a professional seller, is presumed to have known of the existence of a defect at the time of sale and is deemed to be acting in bad faith. This has the effect of rendering any exclusion or limitation clause invalid unless the seller rebuts the presumption of bad faith. Evidence of the seller’s good faith or ignorance of the defect or honest belief in the adequacy of the product sold is not enough. The seller must either demonstrate that the buyer or a third person caused the defect or that only scientific or technological discoveries made after the product was sold would have permitted discovery of the defect at the time of sale.
Comment: On appeal(2017 QCCA 1471), the Quebec Court of Appeal reversed the trial judgment holding the contract was governed by Canadian maritime law and the limitation clause was valid. (The appeal has not yet been summarized.)