Liability for latent defects on a product
Businesses strive to get away from recourses based on latent defects affecting one of their products.
It has become customary to insert in contracts for the procurement of equipment an exoneration clause by which liability is limited or waived should the product be affected by latent defects.
In Québec Law, one must distinguish between the contractual guaranty and the guaranty imposed by the Civil code of Québec. While a supplier may get away from any liability for the lack of quality of a product, the adequacy for a certain purpose or any other problem, it will not be allowed to waive liability imposed by articles 1726 and following of the Civil code of Québec relating to the guaranty against "…latent defects which render it unfit for the use for which it was intended or which so diminish its usefulness that the buyer would not have bought it or paid so high a price if he had been aware of them." This liability for latent defects applies not only to the repair or replacement of the good but also, in the case of a manufacturer or professional seller, to all the damages sustained by the purchaser, by reason of that defect.
It was already acknowledged in jurisprudence that the manufacturer and the professional seller of a certain category of goods could not exonerate themselves from liability for latent defects except by showing clearly that they were in a complete impossibility to detect the defect. While this jurisprudence was generally accepted, it had not yet sustained the Supreme court of Canada test.
In a decision of November 2007, in the matter of ABB Inc. –vs- Domtar Inc., the Supreme court issued a clarification of the whole latent defects issue.
In that case, Defendants were trying to free themselves from the obligation of guaranty for latent defects by arguing that it was impossible for them to detect the defect. However, the burden of proof imposed by the Supreme court is extremely high: anyone invoking this argument must show, in a very clear manner, that, in applying all the technical principles and scientific knowledge then available, it was impossible for a specialist of that trade to detect the problem. This leads us to conclude that the presumption of liability established by the Civil code is quasi conclusive.
The Supreme court even goes further by stating clearly that when the manufacturer or professional seller does not overcome the presumption, any contractual clause limiting liability will be considered unopposable to Plaintiff.
Consequently, any such clauses will have no effect whatsoever in limiting the existence of the guaranty, the time period for such guaranty, the scope or the value of the guarantee.
This bulletin is intended as a general information instrument and is not to be considered as a legal advice or opinion on any of the issues raised.