Appeal court authorizes class action against Mazda

A class action against an automobile manufacturer that was dismissed by a lower court was partially overturned by the Quebec Court of Appeal after it held that Mazda Canada Inc. failed to disclose “important information” to consumers in a timely manner.

Hailed as a victory for consumers, the appeal court’s decision bucks the nationwide growing trend against economic loss based tort claims, and serves a clear reminder to manufacturers that it is in their best interests to promptly inform consumers over “important facts” regarding their products and to fix products afflicted with latent defects expeditiously, according to consumer law experts.

“In this decision the Quebec Court of Appeal recognizes the social role that consumer protection legislation plays, and the importance of interpreting it liberally,” remarked Alexandre Plourde, a lawyer with the non-profit consumer advocacy group Option consommateurs in Montreal. “That’s significant because this law seeks to rebalance the power between consumers and business.”

The Quebec class action against Mazda, certified in 2010, sought damages for an alleged defect of the locking mechanism on Mazda 3 models. The suit, stemming from a rash of thefts, alleged that a design defect permitted the driver’s side door in the Mazda 3 model for the years 2004-2007 to be unlocked by simple pressure or a blow above the front driver’s side door handle. The claim also alleged that the defect rendered the Mazda 3 highly vulnerable to theft. The class action was divided into two sub-classes: those who were victims of theft or an attack near the handle of the driver’s door (Group 1), and those who alleged they suffered inconveniences associated with the installation of the strengthening device (Group 2).

Thefts using this technique first surfaced in British Columbia in fall 2006. Following an increase in the number of reported break-ins, Mazda developed in December 2006 a device to strengthen the door locking mechanism for new vehicles. After the media got wind of the issue, break-ins to Mazda 3 vehicles increased dramatically, and Mazda introduced a service campaign in British Columbia in February 2007 to install the strengthening device on existing vehicles. Mazda, concerned about its image, advised its dealers that it would be “counter to the public interest to publicize the situation.” The service program was eventually extended to the whole country, and launched in Quebec in April 2008.

The trial judge dismissed the class’ argument that the “substantial weakness” of the locking mechanism was a sufficiently serious breach of the usage warranty to bind Mazda under the Quebec Consumer Protection Act (CPA). The judge held that the mere presence of a deficiency does not give rise to a breach of the statutory warranty. The lower court judge also found that the lock complied with federal statutes and industry standards, and performed as it should in its ordinary usage. The real issue was one of quality, held the judge, who also rejected the allegation that Mazda concealed the alleged defect.

The Quebec appeal court overturned the lower court decision, and held that the defective locking mechanism “caused significant loss of use to its owners.” After examining the scope of the Quebec consumer law, the appeal court reiterated that section 37 of the CPA requires that purchased goods live up to the “legitimate expectations” of consumers while section 38 requires that goods be “durable in normal use” for a reasonable length of time. If goods are not “fit” and do not “serve” a reasonable period, then there is a presumption that the defect in the product occurred before the sale of the item, held appeal court Justice Guy Gagnon in a 38-page ruling in Fortin c. Mazda Canada inc. 2016 QCCA 31.

Heeding guidance from the Supreme Court of Canada ruling in ABB Inc. v. Domtar Inc., [2007] 3 S.C.R. 461, the appeal court noted that consumers must show that the loss of use must be serious and must render the good unfit for its intended use or must so diminish its usefulness that the buyer would not have purchased it at the price paid. That does not mean however that the defect must render the good completely unusable. Rather the consumer must show that its usefulness was reduced significantly in relation to the “legitimate expectations” of a prudent and diligent buyer. The other element that consumers must show when asserting that a product is defective is that they did not know that the defect existed at the time of purchase, held Justice Guy Gagnon. Once a consumer has shown that the product was defective and that they did not know about it, consumers have the right to claim punitive damages under section 272 of the CPA.

“This is an important ruling because it considerably diminishes the burden of proof consumers face when they have to prove that a product has a latent defect under the CPA,” said Luc Thibaudeau, a Montreal commercial lawyer with an expertise in consumer law. “The appeal court reminds us that consumers benefit from certain presumptions under articles 37 and 38. The moment that a consumer is able to show there is a significant loss in the product, the consumer will benefit from the presumption that a latent defect exists.”

While the defective locking mechanism caused “significant loss of use” to its owners, the appeal court found that Mazda “performed its obligation” by correcting the flaw. Group 1 members therefore cannot obtain additional compensation through a reduction of their “obligation” (such as a reduction in the price of the vehicle) based on the design flaw. However they – just like Group 2 members — are entitled to a reduction of their obligation because Mazda breached the CPA by failing to disclose important information. Group 1 members are also entitled to compensatory damages under section 272 of the CPA.

“The fact that Mazda voluntarily chose to perform its contractual obligations does not limit the possibility for members of this group (Group 1) to obtain extracontractual compensation damages, such as the cost of repairs, the cost of the insurance deductible, or the value of the stolen goods,” held Justice Gagnon. “In this respect, the causal connection between Mazda’s fault and the damages claimed has been shown.”

The appeal court also found that while industry norms or regulatory standards understandably are often used by the courts to determine whether a good is fit, it should at most serve as a starting point to analyze the issue. Even though a product meets industry norms or regulatory standards, a manufacturer can nevertheless still be held liable for producing a good that is defective, held Justice Gagnon.

“The judge of first instance put a lot of emphasis over the fact that Mazda did not breach industry norms to come to the conclusion that there was no latent defect” in the locking mechanisms, noted Sébastien Richemont, a Montreal commercial litigator with Woods LLP who successfully plead the case. “The appeal court remedied the situation by saying that although it can be a criteria that can be analyzed to determine whether or not there is a latent defect, the central element that must be considered is the legitimate expectations of the consumer. That is an important finding.”

But the ruling does have a silver lining for manufacturers, said Thibaudeau. The decision underscores the importance for manufacturers to act as soon as they discover their products have a latent defect, said Thibaudeau. By refusing to award punitive damages against Mazda, the appeal court recognized that the carmaker made an effort to remedy the situation when it launched its service campaign. “That’s not bad news for manufacturers, especially for those who act as soon as they find out their product is affected by a defect,” said Thibaudeau, a partner with Lavery.

Marc Lacoursière, a law professor specializing in consumer law and whose work was cited by the appeal court ruling, believes that consumers come out winning following the ruling, if only because it makes it clear that the central criteria that must be taken into account when determining whether a product has a latent defect are the legitimate expectations of consumers. “The ruling clarifies the importance of the consumers’ legitimate expectations to the detriment of industry standards,” said Lacoursière. “It’s the consumer’s point of view that matters and the reasonable expectation that a product that is purchased should function well.”

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