The liability of manufacturers and specialized sellers: the Court of Appeal tightens the screw

January 1, 2007

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The Court of Appeal rendered an important decision on October 31, 2006, which dealt with the liability of manufacturers and professional sellers, as well as several other related issues. More specifically, the Court of Appeal tightened the screw on the issue of manufacturers' presumed knowledge of defects, deciding that such presumption is "virtually unchallengeable". In addition, the Court seemed to limit the possibility of overturning the presumption to four cases only.The Court of Appeal further decided that the liability between the manufacturer and the professional seller is joint and several. We invite you to read our newsletter on the subject.

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October 19, 2023

Smart product liability: issues and challenges

Introduction In 2023, where do we stand in terms of liability where smart products are concerned? The rules governing product liability set out in the Civil Code of Québec were introduced early in the 20th century in response to the industrial revolution and the growing number of workplace accidents attributable to tool failures.1 Needless to say, the legislator at the time could not have anticipated that, a century later, the tools to which this legislation applied would be equipped with self-learning capabilities enabling them to perform specific tasks autonomously. These “smart products,” whether they are intangible or integrated into tangible products, are subject to the requirements of general law, at least for the time being. For the purposes of our analysis, the term “smart products” refers to products that have: Self-learning capabilities, meaning that they can perform specific tasks without being under a human being’s immediate control. Interconnectivity capabilities, meaning that they can collect and analyze data from their surroundings. Autonomy capabilities, meaning that they can adapt their behaviour to perform an assigned task more efficiently (optional criterion).2 These capabilities are specific to what is commonly referred to as artificial intelligence (hereinafter referred to as “AI”). Applying general law rules of liability to smart products Although Canada prides itself on being a “world leader in the field of artificial intelligence,”3 it has yet to enact its first AI law. The regulation of smart products in Quebec is still in its infancy. To this day, apart from the regulatory framework that applies to autonomous vehicles, there is no legislation in force that provides for distinct civil liability rules governing disputes relating to the marketing and use of smart products. There are two factors that have a major impact on the liability that applies to smart products, namely transparency and apportionment of liability, and both should be considered in developing a regulatory framework for AI.4 But where does human accountability come in? Lack of transparency in AI and product liability When an autonomous product performs a task, it is not always possible for either the consumer or the manufacturer to know how the algorithm processed the information behind that task. This is what researchers refer to as “lack of transparency” or the “black box” problem associated with AI.5 The legislative framework governing product liability is set out in the Civil Code of Québec6 and the Consumer Protection Act.7 The provisions therein require distributors, professional sellers and manufacturers to guarantee that the products sold are free from latent defects. Under the rules governing product liability, the burden of proof is reversed, as manufacturers are presumed to have knowledge of any defects.8 Manufacturers have two means to absolve themselves from liability:9 A manufacturer may claim that a given defect is the result of superior force or a fault on the part of the consumer or a third party; or A manufacturer may argue that, at the time that the product was brought to market, the existence of the defect could not have been known given the state of scientific knowledge. This last means is specifically aimed at the risks inherent to technological innovation.10 That being said, although certain risks only become apparent after a product is brought to market, manufacturers have an ongoing duty to inform, and how this is applied depends on the evolution of knowledge about the risks associated with the product.11 As such, the lack of transparency in AI can make it difficult to assign liability. Challenges in apportioning liability and human accountability There are cases where the “smart” component is integrated into a product by one of the manufacturer’s subcontractors.In Venmar Ventilation,12 the Court of Appeal ruled that the manufacturer of an air exchanger could not be exempted from liability even though the defect in its product was directly related to a defect in the motor manufactured by a subcontractor. In this context, it would be reasonable to expect that products’ smart component would be likely to result many similar calls in warranty, resulting in highly complex litigation cases, which could further complicate the apportionment of liability. Moreover, while determining the identity of the person who has physical custody of a smart product seems obvious, determining the identity of the person who exercises actual control over it can be much more difficult, as custody and control do not necessarily belong to the same “person.” There are two types of custodians of smart products: The person who has the power of control, direction and supervision over a product at the time of its use (frontend custody); The person who holds these powers over the algorithm that gives the product its autonomy (backend custody)13. Either one of these custodians could be held liable should it contribute to the harm through its own fault. As such, apportioning liability between the human user and the custodians of the AI algorithm could be difficult. In the case of a chatbot, for example, determining whether the human user or the AI algorithm is responsible for defamatory or discriminatory comments may prove complex. C-27: canadian bill on artificial intelligence Canada’s first AI bill (“Bill C-27”) was introduced in the House of Commons on June 16, 2022.14 At the time of publication, the Standing Committee on Industry and Technology was still reviewing Bill C-27. Part 3 of Bill C-27 enacts the Artificial Intelligence and Data Act. If adopted in its current form, the Act would apply to “high-impact AI systems” (“Systems”) used in the course of international and interprovincial trade.15 Although the government has not yet clearly defined the characteristics that distinguish high-impact AI from other forms of AI, for now, the Canadian government refers in particular to “Systems that can influence human behaviour at scale” and “Systems critical to health and safety.”16 We have reason to believe that this type of AI is what poses a high risk to users’ fundamental rights. In particular, Bill C-27 would make it possible to prohibit the conduct of a person who “makes available” a System that is likely to cause “serious harm” or “substantial damage.”17 Although the Bill does not specifically address civil liability, the broad principles it sets out reflect the best practices that apply to such technology. These best practices can provide manufacturers of AI technology with insight into how a prudent and diligent manufacturer would behave in similar circumstances. The Bill’s six main principles are set out in the list below.18 Transparency: Providing the public with information about mitigation measures, the intended use of the Systems and the “content that it is intended to generate”. Oversight: Providing Systems over which human oversight can be exercised. Fairness and equity: Bringing to market Systems that can limit the potential for discriminatory outcomes. Safety: Proactively assessing Systems to prevent “reasonably foreseeable” harm. Accountability: Putting governance measures in place to ensure compliance with legal obligations applicable to Systems. Robustness: Ensuring that Systems operate as intended. To this, we add the principle of risk mitigation, considering the legal obligation to “mitigate” the risks associated with the use of Systems.19 Conclusion Each year, the Tortoise Global AI Index ranks countries according to their breakthroughs in AI.20 This year, Canada ranked fifth, ahead of many European Union countries. That being said, current legislation clearly does not yet reflect the increasing prominence of this sector in our country. Although Bill C-27 does provide guidelines for best practices in developing smart products, it will be interesting to see how they will be applied when civil liability issues arise. Jean-Louis Baudouin, Patrice Deslauriers and Benoît Moore, La responsabilité civile, Volume 1: Principes généraux, 9th edition, 2020, 1-931. Tara Qian Sun, Rony Medaglia, “Mapping the challenges of Artificial Intelligence in the public sector: Evidence from public healthcare”, Government Information Quarterly, 2019, 36(2), pp. 368–383, online EUROPEAN PARLIAMENT, Civil Law Rules on Robotics, European Parliament resolution of 16 February 2017 with recommendations to the Commission on Civil Law Rules on Robotics (2015/2103(INL)), available online at TA (europa.eu). GOVERNMENT OF CANADA, The Artificial Intelligence and Data Act (AIDA) – Companion document, online. EUROPEAN COMMISSION, White Paper on Artificial Intelligence: a European approach to excellence and trust, COM. (2020), p. 3. Madalina Busuioc, “Accountable Artificial Intelligence: Holding Algorithms to Account”, Public Administration Review2020, online. Civil Code of Québec (CQLR, c. C-1991, art. 1726 et seq. Consumer Protection Act, CQLR c. P-40.1, s. 38. General Motors Products of Canada v. Kravitz, 1979 CanLII 22 (SCC), p. 801. See also: Brousseau c. Laboratoires Abbott limitée, 2019 QCCA 801, para. 89. Civil Code of Québec (CQLR, c. CCQ-1991, art. 1473; ABB Inc. v. Domtar Inc., 2007 SCC 50, para. 72. Brousseau, para. 100. Brousseau, para. 102. Desjardins Assurances générales inc. c. Venmar Ventilation inc., 2016 QCCA 1911, para. 19 et seq. Céline Mangematin, Droit de la responsabilité civile et l’intelligence artificielle, https://books.openedition.org/putc/15487?lang=fr#ftn24; See also Hélène Christodoulou, La responsabilité civile extracontractuelle à l’épreuve de l’intelligence artificielle, p. 4. Bill C-27, An Act to enact the Consumer Privacy Protection Act, the Personal Information and Data Protection Tribunal Act and the Artificial Intelligence and Data Act and to make consequential and related amendments to other Acts, Minister of Innovation, Science and Industry. Bill C-27, summary and s. 5(1). The Artificial Intelligence and Data Act (AIDA) – Companion document, Government of Canada, online. The Artificial Intelligence and Data Act (AIDA) – Companion document canada.ca. Bill C-27, s. 39(a). AIDA, Companion document Bill C-27, s. 8. TORTOISE MEDIA, The Global AI Index 2023, available at tortoisemedia.com.

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August 3, 2023

Planned obsolescence: Possible amendments to the Consumer Protection Act to keep an eye on

Introduction On June 1, 2023, the Minister of Justice, Simon Jolin-Barrette, tabled and presented Bill 29 entitled An Act to protect consumers from planned obsolescence and to promote the durability, repairability and maintenance of goods 1 (hereinafter the “Bill”) before the National Assembly. The Bill mainly provides for amendments to the Consumer Protection Act 2 (“CPA”) and reaffirms the government’s desire to protect consumers, in particular by improving the legal warranties available to them and introducing the notion of planned obsolescence into Quebec law. The date on which the new provisions will come into force has not yet been set, but the Bill is nonetheless worthy to consider right now. Proposed amendments to the Consumer Protection Act Purpose of the amendments to the CPA The main purpose of the Bill is to put an end to the business of trading in goods subject to planned obsolescence, defined as a “technique aimed at reducing the normal operating life” of a good3. Warranties The CPA already provides a framework for the legal warranty of quality that may apply to goods forming the object of a contract between a consumer and a merchant. This warranty supplements the warranty provided for in articles 1726 and following of the Civil Code of Québec. Under section 38 of the CPA, goods “must be durable in normal use for a reasonable length of time, having regard to their price, the terms of the contract and the conditions of their use4.” That being said, the Bill would further protect consumers by introducing “a warranty of good working order” for certain new goods that are the object of a contract of sale or long-term contract of lease5. The duration of such warranty would be determined by regulation6. If left unchanged, the warranty would apply to the following goods: Refrigerator; Dishwasher; Washing machine; Dryer; Television set; Desktop or laptop computer; Electronic pad; Cellular telephone; Video game console; Air conditioner; Heat pump. As for additional warranties, commonly referred to as “extended warranties,” merchants would now be required to inform consumers of the terms of their right to resolve a contract that includes an additional warranty7, adding to their obligation to inform consumers of the legal warranty before offering an additional warranty8. Merchant and manufacturer's obligations The Bill would impose a number of new obligations on merchants and manufacturers, particularly as regards display. For example, merchants would have to indicate the duration of the warranty of good working order near the goods concerned, in a manner as equally prominent as their price9. The Bill introduces a warranty of “availability” for goods of a nature that requires maintenance work. Merchants or manufacturers bound by the warranty of availability would have to make the replacement parts, repair services and information necessary to maintain or repair the goods available for a reasonable length of time and at a reasonable price after the contract has been concluded10. Seriously defective vehicles Under the Bill, automobiles would be declared “seriously defective” in the following circumstances, in particular11: After one or more unsuccessful repair attempts for defects under the manufacturer’s conventional warranty, including three unsuccessful repair attempts for the same defect; If the defects appear within three years of the first sale or long-term lease of the automobile where it has not covered more than 60,000 kilometres; The defects render the automobile unfit for the purposes for which it is ordinarily intended. Where all of the above apply, the automobile in question would be deemed to be affected by a latent defect. Penalties As concerns penal fines, the Bill provides for a significant increase in the amounts involved and introduces new offences, such as the following: Failure to meet the obligation to disclose the legal warranty of good working order. This could give rise to a fine of $3,000 to $75,000 in the case of a legal person and of $1,500 to $37,50012 in the case of a natural person. Trading in goods for which obsolescence is planned. Offending companies could be fined a minimum of $5,000 or an amount equal to twice the pecuniary benefit derived from the commission of the offence, whichever is greater. The maximum fine will be $125,000, or an amount equal to four times the pecuniary benefit derived from the commission of the offence, whichever is greater13. The Bill also proposes administrative monetary penalties for “objectively observable” failures to comply with the CPA14. The maximum penalty for a legal person will be $3,500 for each day the failure continues15. Moreover, the Bill provides that officers and directors of a company having committed an offence under the CPA would be presumed to have committed the offence themselves. It would be possible to rebut this presumption insofar as the person concerned is able to establish either that they exercised due diligence or that they took “all necessary precautions” to prevent the commission of the offence16. Conclusion The Bill aims to put a stop to planned obsolescence. The obsolescence of goods is planned where a “technique aimed at reducing its normal operating life is used on them17.” The proposed amendments to the CPA establish a new warranty of “good working order.” It will be interesting to see whether it will tie in with the teachings of the Supreme Court of Canada on the legal warranty of quality in the landmark Domtar decision18. How the notion of planned obsolescence will be applied in practice will also be something to watch closely, as the Courts will be confronted with it for the first time. Certain issues could arise, especially with the burden of proof and evidence aspects. The amendments to the CPA will also entail new obligations for manufacturers and merchants, particularly in terms of disclosure and information regarding the warranty of good working order and the additional warranty. The proposed amendments in the Bill also include a legal warranty of availability of parts and services for goods of a nature that requires maintenance work. The severity of the fines applicable to goods for which obsolescence is planned will be something to consider. In short, this Bill is definitely one to watch! An Act to protect consumers from planned obsolescence and to promote the durability, repairability and maintenance of goods, Bill29 (Introduction – June 1, 2023), 1st Sess., 43rd Legis. (Qc) (“B.”) Consumer Protection Act, CQLR c. P-40.1 B., s. 14; CPA, s. 227.0.4, para. 2 CPA, s. 38 B., s. 3; CPA., s. 38.1 B., s. 3; CPA, s. 38.1, para. 2 Current obligation under the CPA, s. 228.1., para. 1 B., s. 15; CPA, s. 228.3 B., s. 3; CPA, s. 38.8 B., s. 3; CPA, s. 39, para. 1; s. 39.3, para. 1 B., s. 5; CPA, s. 53.1 B., s. 19; CPA, s. 277 Id. B., s. 18; CPA, s. 276.1 B., s. 18; CPA, s. 276.1, para. 2; s. 276.2 B., s. 19; CPA, s. 282.1 B., s. 14; CPA, s. 227.0.4, para. 2 ABB Inc. v. Domtar Inc., 2007 SCC 50

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October 8, 2020

The Unforeseen Benefits of Driverless Transport during a Pandemic

The COVID-19 pandemic has been not only causing major social upheaval but disrupting business development and the economy as well. Nevertheless, since last March, we have seen many developments and new projects involving self-driving vehicles (SDV). Here is an overview. Distancing made easy thanks to contactless delivery In mid-April 2020, General Motors’ Cruise SDVs were dispatched to assist two food banks in the delivery of nearly 4,000 meals in eight days in the San Francisco Bay Area. Deliveries were made with two volunteer drivers overseeing the operation of the Level 3 SDVs. Rob Grant, Vice President of Global Government Affairs at Cruise, commented on the usefulness of SDVs: “What I do see is this pandemic really showing where self-driving vehicles can be of use in the future. That includes in contactless delivery like we’re doing here.”1 Also in California in April, SDVs operated by the start-up Nuro Inc. were made available to transport medical equipment in San Mateo County and Sacramento. Toyota Pony SDVs were, for their part, used to deliver meals to local shelters in the city of Fremont, California. Innovation: The first Level 4 driverless vehicle service In July 2020, Navya Group successfully implemented a Level 4 self-driving vehicles service on a closed site. Launched in partnership with Groupe Keolis, the service has been transporting visitors and athletes on the site of the National Shooting Sports Centre in Châteauroux, France, from the parking lot to the reception area. This is a great step forward—it is the first trial of a level 4 vehicle, meaning that it is fully automated and does not require a human driver in the vehicle itself to control it should a critical situation occur. Driverless buses and dedicated lanes in the coming years In August 2020, the state of Michigan announced that it would take active steps to create dedicated road lanes exclusively for SDVs on a 65 km stretch of highway between Detroit and Ann Arbour. This initiative will begin with a study to be conducted over the next three years. One of the goals of this ambitious project is to have driverless buses operating in the corridor connecting the University of Michigan and the Detroit Metropolitan Airport in downtown Detroit. In September 2020, the first SDV circuit in Japan was inaugurated at Tokyo’s Haneda Airport. The regular route travels 700 metres through the airport. A tragedy to remind us that exercising caution is key On March 18, 2018, in Tempe, Arizona, a pedestrian was killed in a collision with a Volvo SUV operated by an Uber Technologies automated driving system that was being tested. The vehicle involved in the accident, which was being fine-tuned, corresponded to a Level 3 SDV under SAE International Standard J3016, requiring a human driver to remain alert at all times in order to take control of the vehicle in a critical situation. The investigation by the National Transportation Safety Board determined that the vehicle’s automated driving system had detected the pedestrian, but was unable to classify her as such and thus predict her path. In addition, video footage of the driver inside the SDV showed that she did not have her eyes on the road at the time of the accident, but rather was looking at her cell phone on the vehicle’s console. In September 2020, the authorities indicted the driver of the vehicle and charged her with negligent homicide. The driver pleaded not guilty and the pre-trial conference will be held in late October 2020. We will keep you informed of developments in this case. In all sectors of the economy, including the transportation industry and more specifically the self-driving vehicles industry, projects have been put on hold because of the ongoing COVID-19 pandemic. Nevertheless, many projects that have been introduced, such as contactless delivery projects, are now more important than ever. Apart from the Navya Group project, which involves Level 4 vehicles, all the initiatives mentioned concern Level 3 vehicles. These vehicles, which are allowed on Quebec roads, must always have a human driver present. The recent charges against the inattentive driver in Arizona serve as a reminder to all drivers of Level 3 SDVs that regardless of the context of an accident, they may be held liable. The implementation of SDVs around the world is slow, but steadily gaining ground. A number of projects will soon be rolled out, including in Quebec. As such initiatives grow in number, SDVs will become more socially acceptable, and seeing these vehicles as something normal on our roads is right around the corner. Financial Post, April 29, 2020, “Self-driving vehicles get in on the delivery scene amid COVID-19,”.

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April 3, 2020

The Impact of COVID-19 on Contracts

With the ongoing COVID-19 pandemic, governments and agencies are implementing an increasing number of measures of all kinds. The state of emergency is giving rise to a multitude of legal concerns, in particular contractual ones. The temporary closure of many businesses, public places and borders and the resulting economic uncertainty is leading businesses to question their contractual obligations, which may have become difficult to meet. In such a context, can debtors fail to meet their obligations without being held liable? The answer to this question can be found either in the text of the contract binding the parties or in the Civil Code of Québec (hereinafter “C.C.Q.”). Many contracts do in fact provide for exemption mechanisms. They set out which of the parties will bear the risks associated with events beyond their control. In the absence of contractual provisions to that effect, the rules set out in the C.C.Q. apply. The Civil Code of Québec and superior force Article 1693 C.C.Q. provides that the debtor of an obligation is released from said obligation when it cannot be performed by reason of superior force. However, the burden of proof of superior force is on the debtor. In Quebec law, superior force is defined as an unforeseeable and irresistible event that is external to the party subject to the obligation. It makes the performance of an obligation impossible1. Thus, in certain circumstances, natural phenomena, such as earthquakes, floods and others, or human acts, such as a state of emergency declared by a government, illness or death, may be considered superior force. Determining whether an event in a particular context constitutes superior force must be done by taking into account all relevant factors. For an event to qualify as superior force, it must meet the following three conditions or criteria. It must be: Unforeseeable Irresistible Exterior An event is unforeseeable when the parties to a contract, acting as reasonably prudent and diligent persons, could not foresee it at the time that the contract was concluded. There is no need for the event to be a new phenomenon. For example, ice storms in Quebec are not unusual. In 1998, however, the ice storm led to an unforeseeable situation. The magnitude of the 1998 ice storm was such that it was sometimes described as superior force. An event is irresistible when (i) any person placed in the same circumstances cannot reasonably avoid it and (ii) it makes the performance of an obligation impossible. Thus, if the performance of an obligation remains possible, but is simply more difficult, more perilous or more expensive, the event having caused the complication cannot be considered superior force. For an event to be considered exterior, the debtor must have no control over it and must not be responsible for causing it. The debtor must even be able to demonstrate that it has taken all reasonable steps to mitigate its consequences. On the basis of these criteria, the current state of emergency in Quebec may be deemed to be a situation of superior force for some debtors. The analysis must be made on a case-by-case basis and consider the specific obligations of each debtor. For example, the production stoppage ordered by the Government of Quebec, imposing the suspension of workplace activities other than priority activities as of March 25, 2020, makes it absolutely impossible for certain businesses to perform the obligations covered by this decree. For others, the state of emergency may have financial consequences, but these do not make their obligations impossible to perform. While the ongoing crisis can be considered an unforeseeable event for the purposes of a contract concluded years ago, this can hardly be the case for a contract concluded in the last few days, when the disease was already endemic or the pandemic had been announced by the health authorities. In the event of superior force, a debtor is released from the obligation(s) affected by the superior force2. Depending on the importance of these obligations, the release may, in certain cases, lead either to the termination of the contract in its entirety, or to the suspension of the performance of certain obligations. Thus, suspension should only occur when the obligations are to be performed successively and the impossibility of performance is only temporary. A debtor who is released from an obligation by reason of superior force may not demand consideration from the other contracting party3. Superior force cannot be used as a means of exemption for a debtor who is subject, under the terms of the contract, to an obligation qualified as an obligation “of warranty4”. The debtor must then perform the obligation and assume all risks related to the occurrence of an unforeseeable and irresistible event over which it has no control. A debtor faced with the current difficulties arising from the global COVID-19 pandemic must, in all cases, take steps to minimize the damage. For example, it must try to find new suppliers or subcontractors before claiming that it is unable to fulfil its obligations. Contracts may provide for different conditions Parties to a contract may include provisions in the contract governing the consequences of uncontrollable situations, such as superior force, and thus deviate from what is provided for in the C.C.Q. In practice, many contracts contain a broader or more restrictive definition of events that may constitute superior force. For example, strikes and fires will generally not be considered cases of superior force within the meaning of the C.C.Q., but may be under the terms of a contractual provision. Likewise, a party may, at the time that a contract is concluded, undertake to fulfil its obligations even if it is subject to a situation of superior force. In so doing, it waives the right to invoke such grounds for exemption in advance. The parties may also provide for steps to be taken in order to benefit from a contractual provision governing superior force, such as the sending of a notice within a stipulated time limit. The usual provision dealing with superior force requires the party invoking it to send a notice to the other party justifying its use of the provision. Failure to send such notice within the prescribed time limit may result in the affected party being barred from availing itself of the superior force provision. It is therefore particularly important for a party to pay close attention to the formalities and other requirements set out in the contract when invoking such a provision. A contract may additionally contain a provision that determines what effects the occurrence of an event considered as superior force will have. For example, the parties may agree that superior force will result in the termination, suspension or modification of an obligation, such as the proportional adjustment of a minimum volume to be delivered. Finally, the parties to a contract may set out the consequences of unforeseen and external situations that do not, strictly speaking, make the performance of an obligation impossible. For instance, the parties may anticipate the risk of an unexpected increase in the cost of an input by means of a hardship clause. A matter of sound foresight, such a clause may have significant consequences in the current situation, even if it does not specifically address superior force. Conclusion A superior force situation and the exercise of the rights that may result from it must be analyzed with the following in mind: A case-by-case analysis is required for each situation. Other legal concepts may apply depending on the circumstances, such as the duty of good faith of the parties to a contract, the duty to minimize damage, and the duty to demonstrate the absence of an alternative. Business risks or reputation risks may apply to both the party wishing to invoke superior force and the party against whom it is invoked. A review of the terms and conditions of the parties’ insurance policies, which may provide compensation for financial losses, may also be appropriate. Article 1470 C.C.Q. Article 1693 C.C.Q. Article 1694 C.C.Q. This is opposed to obligations qualified as “of result” or “of means,” for which the debtor may be released by reason of superior force.

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