Key legal and business issues facing the automotive Industry


Product liability and class actions

As in recent years, class actions are anticipated to be an ever-present concern for the automotive sector in 2021, increasingly seeking to certify classes national in scope. While the national scope is, in part, a function of the national distribution and sale of automotive products in Canada, legislation in Alberta, Saskatchewan, British Columbia and Ontario specifically require proposed representative plaintiffs to provide notice of proceedings to other representative plaintiffs in other jurisdictions with alleged claims or issues of the same or similar subject matters.

With respect to the defence of class actions, courts are expected to engage in a more critical analysis of plaintiffs’ theories on liability and damages, particularly in regards to articulating alleged defects and demonstrating a workable methodology to assess and quantify damages on a class-wide basis in 2021. Part of this shift is due to changes in legislation, such as the amendments to the Class Proceedings Act, 1992 introduced in Ontario in October of 2020, while favourable case law is emerging in Ontario and other provinces to challenge plaintiffs’ theories of damages.

The COVID-19 pandemic may also create unique claims from customers, such as claims for repairs outside of warranty due to delays in attending for service alleged to be caused by COVID-19.


Theory of defect

In automotive class actions, the focus of plaintiffs’ theory of liability often rests on the alleged existence of a defect somewhere in the vehicle. The specific defect alleged by a plaintiff is lacking in detail, pleading that particular parts or components located inside the vehicle are “defective” without much more. Recent case law clarifies that boilerplate or vague pleading of an alleged defect is not sufficient to meet the requirement that the pleadings disclose a cause of action.

For example, in Kuiper v Cook (Canada) Inc.1, a proposed class sought to certify a class action concerning a medical device. The plaintiffs alleged that the device was defective, but suggested that the defect causing the device to fail arose out of a “matrix of factors” such as the device’s shape and type of material. The plaintiffs also alleged that the various factors causing the defect made the device “more dangerous to use than they would have been had other and safer design choices been made.”

Ultimately, the Divisional Court held that the plaintiffs’ pleading of defect was insufficient and did not meet the criteria necessary to properly plead a design defect. While the plaintiffs properly pleaded the details of the portions of the design they believed to be defective, they failed to articulate the specific alternative design that they deem to been safer. By only alleging that “other” designs would have been safer, rather than explaining what the alternatives were, the pleading was doomed to fail. Other recent decisions have cited the Divisional Court’s decision, denying certification of poorly pleaded causes of action including negligent design, testing and manufacture.2

Proof of damages

Often, plaintiffs in an automotive class action are motivated to seek damages on a class-wide basis by alleging a “diminution in value” or other form of aggregate damages. In these circumstances, plaintiffs are required to put forward a credible or “workable” methodology to assess the alleged damages on a class-wide basis. Recently, courts have put an increasing focus on the necessity to put forth a “credible and plausible methodology” that can prove damages common to all members of the class, highlighting that a theoretical or hypothetical methodology is insufficient.3

In Maginnis and Magnaye v FCA Canada et al.,4  a proposed class sought damages arising from an emissions “defeat device” that was already being repaired by the manufacturer at no cost to customers. The plaintiffs alleged that they had purchased vehicles without knowledge of the emissions issue, and that if they had known about the emissions issue they would not have purchased the vehicles. They also argued that they had paid a “premium price” for diesel vehicles they believed to be emissions-complaint, and that the free repair caused poor fuel economy and vehicle performance. The court found there was no compensable harm and no basis for certification.

While the court agreed that compensable loss claims were “certainly possible” even when a defective product had been repaired, the loss claimed must be presented with “some thought, with the right plaintiffs and, of course, with at least some evidence”. The plaintiffs’ attempt to point to a settlement of a parallel action in the U.S. was not sufficient to support a claim for damages in Canada, nor was there any evidence that any of the class members paid a “premium price” for the emission features of their vehicles. Further, the free repair resulted in an emission compliant vehicle with a fair market value that was unaffected by the defeat device. Similarly, there was no evidence before the court that the repair of the defeat device resulted in reduced fuel economy or performance. Therefore, the court concluded that a theory as to what “could’ happen and a proposed methodology about how to test whether it happened was “obviously not evidence that anything did in fact happen”.

In Fortin v. Mazda5, a class action commenced in Québec with respect to an alleged defect with vehicles’ door locking mechanism. Similar to Maginnis, Mazda had repaired the issue at no cost to its customers. The plaintiff’s argument was based on the Consumer Protection Act, suggesting that customers would pay less for vehicles with the alleged defect than they would have paid had the defect had never existed. To support this theory, the plaintiff put forth expert evidence in the form of a survey asking consumers what level of compensation would be appropriate for weaknesses in a vehicle’s locking system. Ultimately, these claims for damages and the plaintiff’s methodology were rejected and the court confirmed that plaintiffs alleging a breach of the Consumer Protection Act must nevertheless prove an “actual financial impact” on customers such as the alleged loss of value of the effected vehicles.

There is hope that courts will continue to take a hard look at cases alleging class-wide damages without sufficient theories of damages or workable methodologies to assess damage.

Breach of warranty

In the current COVID-19 context, there is anticipation that auto manufacturers will be forced to contend with a higher volume of claims arising from warranties offered with their vehicles. Generally, warranties applicable to vehicles are for a limited duration (i.e. for three years or 60,000 kilometres, whichever comes first) and exclude coverage for circumstances where customers fail to have their vehicle serviced or repaired within a reasonable period of time. While claims from customers who allege failures of warranted parts shortly after the expiry of warranty periods are not unique, it is anticipated that a greater volume of these claims may arise due to COVID-19 risks and restrictions in Canada. For example, it may be that customers feel uncomfortable or unwilling to have vehicles serviced at authorized dealerships despite reasonable and appropriate precautions being put into place. It may also be that government-mandated restrictions hinder customers’ ability to bring vehicles in for service or repair.

Though the volume of these claims may increase, assessment of these cases are expected to be highly fact-specific with determinations for extended coverage or goodwill being considered on a case-by-case basis.

1  Kuiper v. Cook (Canada) Inc., 2020 ONSC 128 (Div Ct)

2  Williamson v Johnson & Johnson, 2020 BCSC 1746.

3  Kett v Mitsubishi Materials Corporation, 2020 BCSC 1879 at para 159; Pro-Sys Consultants Ltd. v Microsoft Corporation, 2013 SCC 57.

4 2020 ONSC 5462 (“Maginnis”)

5 2020 QCCS 4270

Key Contacts