Executive Summary: Key Legal and Evidentiary Issues

• Implied warranty under Ontario’s Sale of Goods Act (SGA) is confined to “sellers”; a manufacturer that did not sell directly cannot be sued on s. 15 implied conditions

• Negligence claim framed as increased water bills from a non-dangerous, defective product is pure economic loss and not recoverable in tort

• Attempts to recast “lost water” as property damage failed; the pleadings did not allege ownership of the water and supporting authorities were distinguishable

• Rule 21 “plain and obvious” threshold met; SGA claim against the manufacturer struck without leave, negligence claim struck with limited leave to bolster negligent misrepresentation only

• Arora v. Whirlpool governs: lack of privity defeats SGA implied warranty against non-seller manufacturers

• Appeal dismissed; questions of law answered “no” and costs of $28,565.34 awarded against the appellant

Background and parties
A public housing provider retrofitted approximately 15,000 units in 2012 with a pressure-assisted toilet flushing system manufactured by a U.S. company and supplied by a Canadian distributor. After several years of reduced water costs, the owner observed a spike in water consumption, traced to widespread cartridge failures that caused water leakage. The manufacturer later supplied 16,000 replacement cartridges, which were installed by contractors.

What led to the dispute
In 2022, the owner sued both the manufacturer and the distributor for $7.67 million plus special damages, pleading breaches of express and implied warranties (including under the SGA), negligence, and negligent misrepresentation. The losses claimed included excess water costs and internal/external remediation expenses. On a Rule 21 motion, the defendants sought to strike the SGA implied warranty claim against the manufacturer and the negligence claim against both, and alternatively asked the court to decide two questions of law about whether the SGA implied warranty can run against a non-seller manufacturer and whether a non-dangerous product defect supports a negligence duty for pure economic loss.

Motion judge’s ruling
The motion judge struck the SGA implied warranty claim against the manufacturer without leave to amend and struck the negligence claim against both defendants with leave only to roll limited allegations into negligent misrepresentation. She answered both legal questions in the negative. Notably, the motion did not attack the SGA claim against the distributor, the express warranty claim alleged via a collateral contract against the manufacturer, or negligent misrepresentation; those claims remained.

Issues on appeal
On appeal, the owner argued: (1) the SGA claim could proceed against the manufacturer because pre-sale assurances made it a “seller” in substance; (2) the negligence claim was not pure economic loss because the “lost water” was its property; and (3) leave to amend should have been broader.

Appellate analysis on the Sale of Goods Act
The Court of Appeal held it is “plain and obvious” the SGA implied warranty remedy runs only against a seller who is party to the contract of sale. Arora v. Whirlpool is controlling authority: a manufacturer that did not sell directly and lacks privity is not a “seller” for s. 15 purposes. The pleadings did not allege the manufacturer was party to the sale contract; reliance on pre-sale communications could, at most, support an express “collateral contract” theory (which was not struck), but cannot convert a non-party manufacturer into a statutory “seller.” The court declined to extend or rely on a brief endorsement (CIT Financial) to displace Arora’s detailed analysis.

Appellate analysis on negligence and pure economic loss
The court characterized the damages as financial: excess water charges caused by an inherently defective but non-dangerous product. That is classic pure economic loss and not generally recoverable in negligence absent a recognized exception involving real and substantial danger or other special circumstances. The pleadings did not allege the water flowing through the units was the owner’s property, and the authorities offered to analogize “lost water” to property damage were distinguishable. Reframing the bills as property loss would improperly sidestep settled limits on pure economic loss recovery.

Ruling on leave to amend
Refusing leave to amend the SGA and negligence claims was a proper exercise of discretion. The fatal defects—lack of privity for the SGA claim and the pure economic loss nature of the negligence claim—could not be cured by amendment. Limited leave to incorporate certain allegations into negligent misrepresentation was maintained.

Disposition and costs
The appeal was dismissed. The answers to both legal questions remained “no,” and the appellant was ordered to pay $28,565.34 in costs, all-inclusive.