This new type of class-action tort grew from genetically modified corn seed

A proposed class-action lawsuit based on the novel tort of “premature commercialization” is going ahead in Ontario.

The Supreme Court of Canada announced Dec. 10 it will not hear an appeal from Syngenta Canada Inc., which is facing a proposed class action by Canadian corn growers who suffered from an import ban from China.

Allegations against international seed producer Syngenta have not been proven in court.

The significance to liability insurers is the fact that the defendant is not alleged to have caused damage to the plaintiffs’ properties. Instead, it is based on alleged “pure” economic loss.

Initially, a lawsuit by representative plaintiff Darmar Farms Inc. was thrown out of court in 2018 by the Ontario Superior Court of Justice. In Darmar Farms Inc. v. Syngenta Canada et al., Justice Helen Rady found the proposed class action had no reasonable prospect of succeeding on the grounds of misrepresentation, the federal Competition Act or premature commercialization.

Justice Rady’s ruling was partially overturned in 2019 on appeal. The Court of Appeal for Ontario upheld Justice Rady’s finding that the class action cannot proceed on the basis of alleged misrepresentation and alleged breaches of the federal Competition Act. However, the appeal court also ruled that the lawsuit can proceed on allegations of premature commercialization, overturning one of Justice Rady’s findings.

Syngenta applied for leave to appeal to the Supreme Court of Canada, which announced Dec. 10 that the leave application is denied. The Supreme Court does not normally issue reasons for denying application for leave to appeal.

Several Canadian law firms, including Davies Ward Phillips & Vineberg LLP, describe premature commercialization as an emerging and novel tort.

Meanwhile, Torys LLP partner Andrew Bernstein was quoted by Law Times as observing that common law “has struggled for decades in dealing with negligence law when the relationship is economic — as opposed to a consumer who suffers illness or injury from a product, for example.”

In 2010, Syngenta started selling its Agrisure corn seed in North America, which contains a genetically modified trait known as MIR 162. That type of seed was not approved for use in China until 2014. By 2013, China had banned all North American corn imports because some of that corn was found to be contaminated by Agrisure.

The ban on exports to China was said to have caused a drop in prices for North American corn because of lower demand. Canadian corn producers who did not use Agrisure were still affected. The rationale for the ban by China on North American corn imports was that corn produced by Agrisure could “co-mingle” with other corn from North America.

In 2015, Darmar Farms started its proposed class action against Syngenta. The intended class of plaintiffs is Canadian corn growers who had not used Agrisure but who were affected by the ban on exporting corn to China.

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After the 2019 Court of Appeal for Ontario ruling, law firm McKenzie Lake suggested that all corn producers in Canada who priced their corn for sale after Nov. 18, 2013, could be potential plaintiffs in the suit against Syngenta alleging premature commercialization.

“The concept of pure economic loss refers to the loss suffered by an individual, other than loss stemming from physical injury or damage to property. Common law jurisdictions have long struggled with assessing pure economic loss stemming from negligence claims,” wrote Martin Aquilina, international business lawyer at HazloLaw, in a blog post last March about the Court of Appeal for Ontario ruling.

“The decision of the Court of Appeal in Darmar Farms Inc. v Syngenta Canada Inc. shows that the door is not closed to new categories of claim for pure economic loss, and that it is important to undertake a separate duty of care analysis for each cause of action that is pleaded because such analysis may yield different results based on how the cause of action is articulated,” wrote Marie-Andrée Vermette, chair of the commercial litigation practice group at law firm WeirFoulds.

In its lawsuit, Darmar alleges that Syngenta undertook not to cause damage to the corn market by introducing another MIR genetic trait without necessary global approvals. The lawsuit alleges Canadian corn producers relied on this undertaking.

Originally in 2018, Justice Rady found that the statement of claim against Syngenta is “framed” in allegations of misrepresentation.

“The claim for premature commercialization is somewhat misleading or a misnomer in the sense that the plaintiff does not assert that the defendants could not market its product domestically as they saw fit. Rather, the allegation is that the defendants undertook not to do so unreasonably,” Justice Rady wrote in her original ruling.

In its 2019 decision, the Court of Appeal for Ontario agreed that there is no reasonable prospect that a lawsuit against Syngenta for negligent misrepresentation could succeed.

But the allegations of “premature commercialization” do not completely overlap the allegations upon which Darmar based its misrepresentation claim, Justice Benjamin Zarnett wrote for the Court of Appeal for Ontario in its unanimous ruling.

“Darmar could have been damaged by the commercialization of Agrisure and its timing even if no misrepresentations had been made that it could rely upon,” wrote Justice Zarnett.

In ruling that the lawsuit cannot proceed on the basis of misrepresentation, the Court of Appeal for Ontario cited the Supreme Court of Canada’s 2017 ruling in Deloitte & Touche v. Livent Inc. (Receiver of).

Deloitte was found liable for $40 million in damages to broadway musical company Livent, whose founders (Garth Drabinsky and Myron Gottlieb) perpetrated a fraud that Deloitte failed to detect when it was auditing Livent’s books. Livent, whose productions included Phantom of the Opera and Joseph and the Amazing Technicolor Dreamcoat went into receivership in 1999. Drabinsky and Gottlieb were sentenced to prison in 2009 for fraud and forgery, after being fired by Livent’s new management. Livent filed its suit against Deloitte in 2002.

In Syngenta, Justice Zarnett discussed the impact of the 2017 Livent ruling on lawsuits for pure economic loss. A court must first consider proximity — whether the parties are in such a close and direct relationship that it would be just and fair to impose a duty of care in law. Next, the court must consider foreseeability of harm, or whether an injury to the plaintiff was a reasonably foreseeable consequence of negligence of the defendant.

“Unless Darmar relied on the representations within the scope of a proximate relationship with Syngenta, Sygenta did not owe it a duty of care in respect of those representations. The scope of proximity and of reasonable foreseeability in a misrepresentation case is defined by the purpose for which the representation was made,” Justice Zarnett wrote, citing the 2017 Deloitte v. Livent ruling.

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