By Charles M. K. Loopstra, Q.C.

You shall not bear false witness against your neighbour.1

Truth in relationships is divinely commanded and has been a pillar of our society. In an idealistic and moralistic society, where truth is an absolute virtue, uttering a falsehood would be considered reprehensible. In today’s society, we don’t put the same premium on the truth. The courts only apply sanctions against falsehoods if:

1. they are made under oath (perjury);
2. they are defamatory; or
3. they constitute a misrepresentation.

Although there are a number of regulatory schemes in place which also require a certain standard of truthfulness (e.g. false or misleading advertising), generally the falsehoods which are actionable are confined to the above.

It is not surprising then that politicians have learned to push the envelope. Society is generally willing to accept broken promises and deceitful comments by politicians as the norm. In other words, politicians do break the Ninth Commandment with impunity. This paper will examine what legal boundaries have been created with respect to such conduct.

Civil conduct is governed by the "duty to my neighbour" principle. All of the common law provinces in Canada (with the exception of Quebec) have developed a set of standards through case law referred to as "private law duties". The law of negligence and defamation is largely developed through the common law. In some cases, the private law duties have been qualified, modified or regulated. As a result, there are statutes which

must be read in conjunction with the common law principles such as the Libel and Slander Act and the Negligence Act. In some cases, statutory duties have been developed which were not recognized by the common law. An example would be the Municipal Conflict of Interest Act.

Municipal councillors are public authorities. They are elected officials and are distinct from other public authorities such as appointed officials and servants and agents of Government. This distinction is important since an elected municipal official is given statutory decision making powers. In some cases, he or she can exercise some discretion in the use of such powers. However, with the exception of the mayor (who, in rare cases, is given some special powers), councillors exercise those powers collectively. Since council speaks as a whole, and not through individuals, decisions of council are, regardless of how one voted, the only decision that is reviewable by the courts. For that reason, historically, some protection has been given to councillors in exercising their rights in order to reach a proper decision. This has led to the defence of "qualified privilege" which will be dealt with later in this paper.

Before dealing specifically with the area of defamation, I will review the prime areas which a councillor needs to be concerned about and are subject to judicial sanction. They are:

1. perjury.
2. negligent misrepresentation;
3. fraudulent misrepresentation;
4. innocent misrepresentation;
5. defamation.

1. Perjury

A person commits the offence of perjury when he makes a false statement under oath.2 Statements under oath include affirmations, affidavits, statutory declarations, examinations for discovery and any judicial or administrative proceeding where one gives evidence under oath or by solemn affirmation. The important thing to remember is that the defence of perjury is not limited to judicial proceedings, but extends to any proceeding where statements are either made in writing or orally under oath. Perjury is an indictable offence, but a conviction cannot be obtained without corroboration.3 Even the giving of contradictory evidence to different judicial proceedings is an indictable offence. However, a conviction cannot be obtained in such a case, unless the Court is satisfied beyond a reasonable doubt that the accused, in giving evidence in either of the judicial proceedings, intended to mislead.4

Government officials are frequently called upon to give evidence under oath, whether it is by way of affidavit, examinations, and as witnesses in administrative and judicial proceedings. Although perjury charges are rare, society puts a premium on telling the truth in judicial and quasi-judicial proceedings with serious consequences if there is an intention to mislead. Often, little attention is paid to the swearing of an affidavit of documents in civil proceedings, even though there is a clear obligation to produce all documents relevant in the action, whether favourable or unfavourable.5

2. Negligent Misrepresentation

The tort of negligent misrepresentation or its more serious sister tort, fraudulent misrepresentation, like defamation, is based on dissemination of false information. However, the distinction between the two is that defamation is based on injury to reputation, whereas negligent misrepresentation is based on economic loss as a result of negligent advice. Another important distinction between the tort of negligent misrepresentation and the tort of defamation is that to succeed in an action for negligent misrepresentation, the wronged party must have reasonably relied on the false information provided. In the case of defamation, there is no test of reasonable reliance.

3. Fraudulent Misrepresentation

A fraudulent misrepresentation is a false representation made with the knowledge that it is false or without an honest belief in its truth or recklessly without caring whether it is true of false. By contrast, a negligent misrepresentation is a false statement made through carelessness. A fraudulent misrepresentation is an actionable tort and can also lead to the remedy of recission in contract. Recission is an equitable remedy and is, therefore, discretionary.

4. Innocent Misrepresentation

In a contractual relationship, where the representation is not fraudulent, it is referred to as an innocent misrepresentation. For the innocent misrepresentation to be actionable, it must constitute a term of the contract. In effect, the remedy is breach of contract. If it is not a term of the contract, the only remedy is in tort, and there must be a finding of negligence constituting a breach of duty.

5. Defamation

The tort of defamation is based on a private law duty not to injure another person’s reputation. It is for practical purposes a strict liability tort, since it does not matter if the defamatory statement was made intentionally or negligently. It is important to understand that the law protects reputation and not character. Character is what a person is. Reputation is what the community thinks he is. As Shakespeare said in Othello:

The courts have developed common law rules to determine what is a person’s reputation, when is it defamed and what damages flow from such defamation.

The principle that a duty of care exists for statements made to others was first enunciated in the British case Hedley Byrne & Co. Ltd. v. Heller and Partners Ltd. 6 Lord Morris of Borth-Y-Gest held at page 506:

In other words, Lord Morris held that where other persons reasonably rely on the judgment, skill, or ability to make careful inquiry of a person, and that person takes it upon himself to give advice or information to someone whom he knows or should know will place reliance on it, a duty of care arises.

The Canadian Courts were quick to apply the Hedley Byrne principle to impose liability on a government official. In Patrick L. Roberts Ltd. v. Sollinger Industries Ltd.,7 the Court held an Ontario Development Corporation loan officer liable for failing to disclose difficulties with respect to a loan application by stating that the "demands of society for protection from the carelessness of others must extend to the facts of this case."

At one time, it was felt that the duty should be restricted to "professionals" who are in the business of providing information and advice. This, by definition, may include certain municipal officials, but would exclude others. This restrictive approach has clearly been cast aside by the Supreme Court of Canada in Queen v. Cognos Inc.8 Mr. Justice Iacobucci stated:

Queen v. Cognos Inc. is also helpful in reviewing the current state of the law of negligent misrepresentation in Canada. In this case, the plaintiff, a dismissed employee, claimed damages arising from statements made by a representative of Cognos Inc. to him before he was hired. After being informed that he would manage a particular project, the plaintiff terminated previous employment in order to work for Cognos Inc. In fact, funding of the project had not been approved. Subsequent to the plaintiff commencing employment with Cognos Inc., the project in question was discontinued. The plaintiff continued to be employed by Cognos Inc. in another capacity for approximately eighteen months, when his employment was terminated. In awarding damages to the plaintiff for tortious negligent misrepresentation as a result of the statements made prior to his commencing employment with Cognos Inc., the Supreme Court of Canada held that the following five elements must be present for a negligent misrepresentation tort claim to be successful:

Should any one of these elements not be proved by the plaintiff, the claim will fail.

3. NEGLIGENT MISREPRESENTATION: GOVERNMENT AGENCIES

AND MUNICIPALITIES

While the test for negligent misrepresentation remains unchanged when the defendant is a government agency or a municipality, the role played by such defendants in society today presents some unique considerations. Consequently, each element of the test for negligent misrepresentation is considered below in that context.

In Hercules Management Ltd. v. Ernst & Young,9 the Supreme Court of Canada most recently examined the test applied to determine whether a duty of care is owed to the party who suffered damage. Mr. Justice LaForest held that the two part duty of care test first enunciated in Anns v. Merton London Borough Council 10 and applied in Canada in Kamloops (City of) v. Nielsen11 applies to negligent misrepresentation claims just as it applies to any other negligence claim. Mr. Justice LaForest describes the prima facie duty of care as follows:

The Hercules Management Ltd.12 case has now blended the Anns/Kamloops principles with the law of negligent misrepresentation. It is important to note that the Anns principle in England has developed differently than in Canada, and as such, it is now necessary to be more careful in analyzing English decisions involving the law of negligent misrepresentation.

There is no question that the prima facie duty has been extended to municipal officials and other government employees. However, it is not correct to say that the duty extends to all municipal or government employees in every situation. It is still necessary to establish a special relationship. Mr. Justice LaForest in Hercules Management Ltd.13 states that a "special relationship" exists when:

In other words, the proximity test in negligent misrepresentation cases is dependent on the relationship of reliance. If there is no evidence of reliance, there is no proximity giving rise to the duty.

In a governmental context, a "special relationship" will arise when a government agency or an employee of the government agency clearly assumes responsibility for the accuracy of the information given, or gives an undertaking or assurance which is equivalent to a contract, or otherwise communicates his or her intention to be bound. Thus, a duty of care exists where a municipal employee responds to an inquiry and is acting within the scope of his employment. This would apply to standard inquiries made with respect to zoning and building issues. Municipalities routinely provide this information and often charge for the service. There is no question that a prima facie duty exists to convey true and accurate information where the party seeking such information intends to rely on it. A duty of care therefore exists where there is a "special relationship" between the representor and the representee. In Esso Petroleum v. Mardon,14 the court examined the nature of the requisite special relationship. Ormrod L.J. said:

The British Columbia Court of Appeal in Windsor Motors Ltd. v. District of Powell River16 held that a municipal officer, acting within the scope of his delegated duties, owes a duty of care to an individual who requests information and whom the officer knows is relying on him to exercise a reasonable degree of care. In Windsor Motors, the plaintiff went to the municipal officer to obtain a list of addresses where the plaintiff could operate a used car sales lot. He was provided with five addresses by an officer of the defendant municipality. After examining each address, the plaintiff chose one and returned to the officer of the defendant municipality in order to obtain the required permits and licences. The plaintiff had received the required documentation and begun operations when he was informed that his business violated the municipality's zoning by-law. As a result, the plaintiff was forced to relocate his business at considerable expense. He successfully sued the municipality for negligent misrepresentation with respect to the list of addresses he obtained from the officer of the defendant municipality.

Where a statement made by a municipal employee affects a property owner in the defendant municipality, a duty of care exists. In Grand Restaurants of Can. Ltd. v. Toronto; Chuzar Restaurants Ltd. v. Grand Restaurants of Can. Ltd.,17 Trainor J. said with respect to the duty of care as set out in Hedley Byrne:

Not all plaintiffs can bring themselves within the "special relationship" test. Being a foreseeable neighbour is not enough. At one time, the courts were of the view that liability would only be established if the defendant passed information directly to the plaintiff, or to someone the defendant knew would transmit it to the plaintiff for a defined purpose, or that the plaintiff had to be an identifiable person.18 This test is now considered to be too restrictive.

The second part of the "special relationship" test derived from the Anns/Kamloops principle is: Are there any considerations which ought to negative or limit

In applying the second branch of the Anns/Kamloops test, the law can now be summarized as follows:

In effect, the Supreme Court of Canada has stated that rather than attaching indeterminate liability to negligent misrepresentation, liability can be avoided for policy considerations. In Hercules Management Ltd., LaForest J. writes:

Applying the second branch of the Anns/Kamloops test, the result may have been different if Executive Holdings Ltd. v. Swiftcurrent 21 was decided today. In that case, the plaintiff owned a professional building located in the business area of the respondent city. The mayor of Swift Current made public statements regarding downtown development plans that would involve moving businesses and demolishing buildings in the area of the plaintiff’s building. Throughout the ensuing eighteen months, further statements and announcements were made by the mayor and other city officials regarding the development project. Ultimately, major difficulties arose and the development project was cancelled. The plaintiff brought an action for damages for loss of rental income, as a number of his tenants had not renewed their leases. Citing Dorsch v. Weyburn,22 wherein the Court held that a "special relationship does exist when representations are made by or on behalf of a municipal body that could adversely affect a property holder in the municipality,"23 the Court held that a special relationship existed between the city and persons in the position of the plaintiff which gave rise to a duty of care on the mayor and other city officials in providing information regarding the development project. Using the test articulated by LaForest, J. in Hercules Management Ltd., one would argue that policy considerations would exist which on the facts of this case would limit both the scope of the duty and the class of persons to whom it is owed.

In Corporation of the Village of Lakefield v. Black,24 the Ontario Court of Appeal affirmed a judgment awarding damages to a plaintiff against a municipality which had made a negligent misrepresentation to the Ontario Ministry of Municipal Affairs with respect to the granting of draft plan approval for lands purchased by the plaintiff. At the time the negligent misrepresentation was made, the plaintiff was not the owner, nor did the draft plan approval issued by the Ministry directly refer to a negligent misrepresentation on which the plaintiff relied. Notwithstanding this indirect relationship between the parties, the Court held:

In commenting on the draft plan approval application, the municipality had advised the Ministry that a municipal water supply was available and that development was not premature. The Ministry issued standard draft plan conditions which did not refer to the availability of a municipal water supply. Subsequently, it was determined that an adequate municipal water supply was not available, and that development of this property was premature. When the plaintiff purchased the property, he consulted his lawyer who reviewed the draft plan conditions and advised the plaintiff that municipal water services would be available when needed and that the subdivision was not premature.

A duty of care arises when a municipality has notice of potential problems at a particular site, and the municipality receives an inquiry with respect to that particular site. In Hartnett v. Wailea Construction,25 the defendant municipality failed to disclose to the plaintiff the existence of a report wherein special care in constructing the foundation of a building was recommended due to the presence of several feet of uncompacted landfill beneath a layer of surface soil. The Court held that the municipality was jointly liable to the plaintiff for breaching the duty of care owed by the municipality to a purchaser of land who had attended at the municipal offices and enquired about building on the land.

The duty of care owed by a municipality is not limited to statements made in response to enquiries. A municipality owes a duty of care with respect to gratuitous statements made by its employees. For instance in 392980 Ontario Limited v. City of Welland,26 although the plaintiff did not request such information, the solicitor for the City of Welland wrote a letter to the plaintiff in which he informed the plaintiff that a particular parcel of land was zoned for apartments, but in which he failed to specify that the zoning was different on a small portion of the land. As a result of the omission, the plaintiff purchased the land in order to erect apartments. When the plaintiff was unable to complete the apartments, it brought an action against the City for negligent misrepresentation. The City was held to be liable for negligent misrepresentation and damages were awarded against it despite the fact that the information was not provided in response to a request by the plaintiff.

Based upon the test to determine whether a duty of care exists as set out in Hedley Byrne, a municipal employee responding to an enquiry from a private party will be under a duty of care with respect to statements made in response to the enquiry virtually all of the time. If the enquiry is directed to the correct department of the municipality, it would be unusual for circumstances to be such that it would be unreasonable for the other party to rely on the employee’s judgment, skill or ability to enquire. In responding to the enquiry, the employee would be providing information or advice. Finally, in most cases the employee knows or should know that the enquirer would rely on the statement. Consequently, municipal employees responding to enquiries directed to the correct department will be under a duty of care, particularly where the response could adversely affect a property owner in the municipality. However, liability for negligent misstatement in these circumstances will not extend to persons who are not within the reasonable contemplation of the defendant or the defendant does not know the purpose for which the information is to be used.

Although routine inquiries of a government employee might not be sufficient to give rise to a duty, they, of course, generally impose a duty where there is a situation of importance and clear reliance on the government agency for assistance. This is especially true if there is a specific legislative or policy directive requiring the government employee to provide the service involved.27

2. Untrue, Inaccurate or Misleading Representation

As was held by the Supreme Court of Canada in Cognos, a negligent misrepresentation is a statement that is untrue, inaccurate or misleading. While this element includes false or factually untrue statements, the minimum threshold is whether or not the statement is misleading. A misleading statement does not have to be untrue or inaccurate; it could be ambiguous or incomplete. For instance, in 392980 Ontario Limited,28 the City solicitor omitted important zoning information from a letter sent to the plaintiff. The Court held that the omission was misleading, and the City was consequently liable for negligent misrepresentation.

Similarly, in Fletcher v. Manitoba Public Insurance Co.,29 where the Appellant had not been informed about uninsured motorist coverage by the Defendant insurance company and subsequently did not purchase any, the Supreme Court of Canada held that a public insurer has a duty to ensure that customers have sufficient information in order to make an informed choice. As a result of Fletcher, the possibility exists that circumstances may arise where a municipal employee, as an employee of a public corporation, has a positive duty to ensure that an enquirer is equipped with sufficient information to make an informed decision. Thus, a municipal employee may be required to provide information that goes beyond the response to the enquiry that was made.

Whether an omission constitutes an untrue, inaccurate or misleading statement depends, at least in part, on the interaction between the parties. In Vintage Brewing Co. v. Newcastle (Town),30 the plaintiff contacted the town planner to determine a suitable location for a brew-it-yourself business. The plaintiff indicated a preference for a particular area of town, and was advised by the town planner that the appropriate zoning was in a commercial district. The plaintiff located her business in a commercial district, and later discovered that the business could be located in an industrial district where she would pay lower rent and taxes. The plaintiff claimed she would have located in an industrial district if she had been informed that such was available by the town planner. The Court held that such an omission could constitute a misleading statement. However, the plaintiff specified she wanted to locate her business within a limited area. Unknown to the plaintiff, there was no industrial zoning in that area. Because the plaintiff had stated that she was only interested in a particular area, the omission by the town planner did not constitute negligent misrepresentation.

Where a municipal employee provides information that is not complete or that is misleading, the municipality may be liable for negligent misrepresentation. Ultimately, the court will make the determination based on the relationship and relative knowledge of the parties, and all of the circumstances surrounding the disclosure of the information.

General and equivocal statements in response to inquiries may not be held to be misleading or inaccurate.31

For a statement to constitute negligent misrepresentation, it must be made negligently and not merely inaccurately. In other words, there must be a breach of the requisite standard of care. Iacobucci J., in Cognos described the standard of care as follows:

Since negligent misrepresentation can result from omissions as well as positive misstatements, in order to properly understand the standard of care, it must be considered in the context of what is proper disclosure.

In Spinks v. Canada,32 a nuclear engineer recruited by the Crown from Australia, was not advised of his pension options, which was one of the key reasons for the interview. This was described as erroneous advice. Mr. Spinks sued the government as a result. At trial, it was held that erroneous advice contemplates a positive misstatement, and that no such misstatement had been made to the appellant. On appeal, it was held that it was an error of law to construe the phrase "erroneous advice" as requiring a positive misstatement. Where one party is advising another, the failure to divulge material information may be just as misleading as a positive misstatement. This is especially true when the information is of a specialized nature, which is easily available to the advisor, but not easily obtained by the party being advised. The duty of the advisor is to advise completely, accurately and fully.

One of the other aspects of the Spinks case was that Linden J., held that there was a duty of disclosure because a specific obligation to disclose pension options was undertaken as department policy. A personnel management manual charged the government department with the responsibility of "providing a counselling service to employees on all superannuation matters, with particular reference to elections".

Linden J., then concludes that:

This case presents a text book review of government liability for negligent misrepresentation.

In Inland Feeders v. Virdi,34 the plaintiff developer purchased land and spent money constructing a cattle feedlot after having been assured by the municipality’s planning director that feedlot use was permitted under the existing zoning by-law. In fact, feedlot use was not permitted under the zoning by-law. The planning director was not held to be liable for negligent misrepresentation despite the inaccuracy of his opinion regarding the permitted use of the land because the information could have been obtained elsewhere by the plaintiff. While the planning director provided no express qualification as to his own skill or authority, the relationship between the parties was such that the plaintiff's directors "knew all the facts to which any such qualifications might have referred."35 Further, the Court held that it is possible for municipal officers to provide incorrect information, but not be liable for negligent misrepresentation:

Where a municipal employee or officer undertakes to provide information with sufficient care, skill and competency, yet provides untrue, false or misleading information, the relationship between the parties, and in particular any knowledge possessed by the plaintiff with respect to the employee’s skills, will be a key factor in determining whether the statements in question were in fact misleading.

The plaintiff must reasonably have relied on the statement in question. Where the reliance is not reasonable, there is no tort of misrepresentation. In Town of The Pas v. Porky Packers Ltd.,37 an officer of the plaintiff was simultaneously a developer and a member of the Town Council and the Planning Commission. The Town issued a building permit to the plaintiff to build an abattoir despite objections from two ratepayers that the proposed abattoir would contravene a section of the municipality’s planning scheme which prohibited noxious and offensive uses in the area. The plaintiff completed construction and commenced operations. The Town assured the plaintiff that it could continue to operate the abattoir, and ultimately proceeded to amend its planning scheme to allow the plaintiff to so operate. After the amendment was refused by the Manitoba Municipal Board, the plaintiff brought an action for negligent misrepresentation for damages for loss of its investment and lost expectation of profit. The claim was unsuccessful, the Supreme Court of Canada holding that there was no reasonable reliance on the Town’s representatives because of its own officer’s knowledge and expertise. In other words, the plaintiff was not entitled to rely on statements made by the Town regarding planning when the plaintiff had particular expertise in that regard.

Similarly, in Scrivens v. Township of North Elmsley,38 the plaintiff received a building permit knowing that it had been granted in contravention of the side-yard provisions of the Township Restricted Area by-law. The Court held that because the plaintiff knew the permit had been granted in contravention of the by-law, the plaintiff’s reliance on the building permit was not reasonable. As a result, the Township was not liable for negligent misrepresentation.

Finally, in Amsep Corp. v. Mississauga (City),39 a plan of subdivision had been submitted to the City, and was approved on the condition that sufficient parkland be dedicated to the City or cash-in-lieu of parkland dedication was paid. The subdivider delivered a cheque to the City, but was informed that payment was not required until a building permit was issued. When the builder applied for a building permit, he was informed that he was required to pay cash-in-lieu for parkland dedication. The plaintiff's claim for negligent misrepresentation against the City was unsuccessful because he had not inquired about the payment at the building department, from whence building permits were issued. In addition, the plaintiff admitted not having read the entire building permit application. The Court held that the plaintiff's reliance on statements made by municipal employees with respect to the payment of cash-in-lieu was not reasonable because the inquiry was not directed to employees of the building department.

Where the plaintiff has general expertise in the subject matter of the statement in question or has specific knowledge that the statement in question is untrue or inaccurate, it is very unlikely that, absent special circumstances, a court will hold that reliance placed on said statement is reasonable. Reliance is a question of fact to be determined by the surrounding circumstances. If there is no evidence of reliance, there is no liability, even if the statement is misleading.

In J. Nunes Diamonds Ltd. v. Dominion Electric Protection Co.,40 an employee was sent by the defendant to check over a burglar alarm service. During this inspection, the employee, in a response to an inquiry about the effectiveness of the service, responded that even the company’s engineers could not enter the building without the alarm going off. The premises were later broken into and valuable jewellery was stolen. The court refused to hold the defendant liable for these statements which were unauthorized, unrelated to the worker’s job. In this case, the plaintiff’s reliance was unreasonable in the circumstances.

Statements of opinion fall within a grey area. Where an ordinary person would not believe the opinion given, no liability will ensue. Similarly, the courts have held that negligent advice given in a casual way may not attract liability. Thus, where a building inspector is asked for an opinion about the compliance of a building during a casual conversation at a cocktail party, his best recollection may not, if proven to be inaccurate, attract liability. This principle may also apply to gratuitous statements made outside the scope of his duties. For instance, where a works department worker responsible for maintaining the municipality’s sewer system was asked about the soils conditions in the area relating to a proposed tender bid, his gratuitous opinion, even if in error or incomplete, should not attract liability.

In John Bosworth Ltd. v. Professional Syndicated Developments Ltd.,41 a developer was held to have unreasonably relied on informal statements about zoning regulations. The statements were made by a mayor who was not responsible for zoning matters at a social luncheon and during an unsolicited telephone conversation. The court held:

Often, governmental officials are requested to provide information with respect to matters over which they have no direct jurisdiction. For example, a building official may refuse to issue a building permit unless it complies with all "applicable law". "Applicable law" is defined in the regulations as "any general or special Act, and all regulations and by-laws enacted thereunder, which prohibit the proposed use of the building unless the Act, regulation or by-law is complied with"42. It may very well be that certain provincial regulations would prevent the issuance of a building permit in a flood plain. However, the building official may not be negligent in failing to point out this deficiency or in issuing a permit in error. In Sharadan Builders v. Mahler,43 town officials were excused from liability when they did not inform the plaintiff’s solicitor about the restrictions of a conservation authority in regard to the issuance of a building permit. The court explained that the officials did not hold themselves out as being "engaged in the business of or otherwise expert in advising upon requirements for building permits other than those imposed by the municipality itself". In effect, the court held that it was not reasonable for the plaintiff to rely upon the advice of the town officials in these circumstances.

Where a statement is misleading or incomplete, rather than false, liability would depend on the nature of the plaintiff's expertise or specific knowledge. In addition, for reliance to be reasonable, the enquiry should be directed toward the correct department of the municipality. Where the statement in question is not made by an employee of the department that is responsible for the subject matter of the enquiry, reliance on the statement will likely be considered to be unreasonable. As with the other elements of negligent misrepresentation however, this determination will depend on all of the circumstances surrounding the statement made by the municipal employee and the relationship between the parties.

The plaintiff must have detrimentally relied on the statement, such that damages resulted. In Gadutsis v. Milne,44 the plaintiff inquired and was informed by an employee of the building department that the land in question was zoned for a restaurant. As a result, the plaintiff obtained a building permit, began to renovate the restaurant, and had partially paid for the renovations. In fact, the building permit had been issued in error and the plaintiff was subsequently ordered to stop work. The plaintiff was awarded damages by the Court because he relied on the statement from the building department to his detriment. On the other hand, had he not commenced the work, he may not have suffered damages notwithstanding the misrepresentation. Similarly, if he discovered the misrepresentation before commencing work, he may not be entitled to damages. Finally, if he completes the work after having discovered the misrepresentation, he may not have reasonably mitigated his damages, thereby having his award reduced for failure to mitigate.

1. Fail to Establish the Five Elements of Negligent Misrepresentation

Where a person has commenced an action for negligent misrepresentation, he must prove each element on a balance of probabilities. To avoid liability, the defendant must only show that the plaintiff did not meet one of the five elements of negligent misrepresentation. When reviewing a Statement of Claim, it may be prudent to review it in order to establish whether or not the plaintiff has in fact pleaded all five elements or whether there is a factual basis for the five elements in the pleadings. If one of the elements is clearly lacking, you may wish to serve a Demand for Particulars to flesh out all of the relevant facts. If upon review of all of the relevant facts you are reasonably certain that there is no basis for a claim, you may consider bringing a motion for Summary Judgment to bring a quick end to the matter.

2. Legislative, Judicial and Quasi-Judicial Functions

Statements made while the municipality is acting in its judicial or quasi-judicial capacity45 or in its legislative capacity46 cannot form the basis of a successful negligent misrepresentation claim. If a municipality can demonstrate that a statement that is the subject of a negligent misrepresentation claim was made in this capacity, it is completely immune. Consequently, the municipality could not be liable for negligent mis-representation.

In Bowen v. Edmonton,47 due to the hazard of soil instability, the plaintiffs were unable to build on a lot purchased with the intention of building a residence. They asserted that the City failed to perform duties in respect of replotting the subdivision. Although the City was held to be negligent in approving the replotting scheme, without having regard to the hazard of soil instability, the plaintiffs' claim was dismissed. The resolution of the City council which approved the scheme of replotting was legislative in nature and not administrative. Decisions related to zoning and subdivision involve the balance of a developer's interest against those of the public. The fault of the City in respect of its legislative and quasi-judicial functions cannot give rise to a cause of action.

In Wellbridge Holdings Ltd.,48 the plaintiff leased certain lands in the City with the intention of constructing an apartment building. It relied on the validity of a zoning by-law which was declared invalid by the Courts. Although initially the building permit application was refused, it was compelled to be issued by the Board of Adjustment. Subsequently, the by-law was declared to be invalid and the building permit was revoked. The Court held that there is a distinction between actions at an operating level from actions at a legislative or quasi-judicial level where the municipality is exercising discretionary statutory authority. Mr. Justice Laskin wrote:

Mr. Justice Laskin also discusses the application of the Hedley Byrne principle to the facts of this case. He writes:

In JRS Holdings v. District of Maple Ridge,51 the municipality negligently passed a resolution for the imposition of levies which the developer paid. The developers sought to seek recovery on the basis of negligent misrepresentation as an alternative remedy. It was held that the municipality was exercising legislative functions and there was no duty of care in this case.

When relying on the defence that the misrepresentation was as a result of a legislative, judicial or quasi-judicial function, one must be careful not to confuse that with a misrepresentation resulting from such a function. For instance, if the developer had sought representation from the town's solicitor before the payment of the levies whether or not the resolution was valid, the result may have been actionable.

In Moin v. Blue Mountains (Town),52 the Ontario Court of Appeal held that a reeve’s promise at a council meeting that a certain road would be constructed was not a mere "political" promise nor was he acting in a legislative or quasi-judicial capacity. The Court held:

3. Misrepresentations based upon Promises of Future Conduct

The Courts have held that the tort of negligent misrepresentation does not extend to matters of future expectation.53 In Cognos,54 Iacobucci J. at pages 657-658 reviewed existing case law that holds that only representations of existing facts can give rise to actionable negligence. However, he declines to decide whether or not this view of the law is correct and goes on to make a factual finding in Cognos that the representations were not those relating to the plaintiff's future involvement and responsibilities, but those relating to the very existence of the job for which he had applied. Similarly, in Moin,55 the Court held that a decision had already been made to upgrade the road in question (which was an existing fact) and that the representations with respect to when it would be done related to existing fact, namely, that the municipality had made a commitment to rebuild the road in a timely way. It would, however, appear that the Courts have held open the defence that a promise of future conduct is not actionable.

4. Disclaimers

The Courts have accepted the principle that a person making a representation can limit his liability. Going back to Hedley, Byrne, Lord Reid suggested this could be accomplished in three ways:56

A disclaimer can be implied, or it can consist of an express verbal or written statement. In Dha v. Ozdoba,57 the municipality’s building inspection manager approved clearly deficient plans. The approval from the building department and the building permit both contained a warning that it was the responsibility of the individual homeowner to ensure that all construction carried out was in accordance with all municipal and provincial regulations. The Court followed Rothfield v. Manolakos,58 in holding that where a municipal authority acts under statute, it owes a common law duty of care to the owners/builders to ensure that the structure is safe and sound and that it meets applicable building regulations. The Court notes that there do not appear to be any judgments in Canada as to whether a municipality is relieved of a duty of care to an owner or builder by its reliances on the representations of the owners or builders’ professional advisor. The Court holds that the language of the by-law, or the disclaimer on the building permit or the approval from the building department were sufficient to relieve the defendant municipality of a common law duty it would otherwise have.

In Gadutsis v. Milne,59 the municipality relied upon a disclaimer clause to avoid liability. The court questioned whether a municipality could insert such a waiver in light of its statutory obligations, but decided that as the application containing such disclaimer had been signed by the plaintiff, he had acquiesced to the clause. As the disclaimer was specific to damages arising as a result of revocation of the permit, and the plaintiff’s claim was not related to revocation, the court held that the disclaimer did not apply.

Written disclaimers are often used in response to letters of inquiry addressed to municipalities, frequently referred to as "clearance letters". Often the municipality charges a fee for this service. One could argue that there is a contract for the provision of information which includes a disclaimer. In Victoria & Grey Trust Co. v. Apple,60 the Court looked at the use of a standard disclaimer commonly used in clearance letters. The disclaimer read:

On the facts of this case, the city was held not to be liable for failing to inform the solicitor making the inquiry that the property failed to comply with two provisions of the city zoning by-law. The letter stated:

The Court held that the words in the city's letter did not mean that there were no infractions of the zoning by-law and other by-laws administered by the building department, because if that were so, reference to the by-law and other legislation would have been redundant. But more importantly, it was the disclaimer paragraph in the letter that avoided liability. The Court held that there was no ambiguity in that statement.

Several recent cases have examined contractual disclaimers also referred to as "exemption clauses, exclusionary clauses or exculpatory clauses". In Hunter Engineering Co. v. Syncrude,61 the Supreme Court of Canada held that exclusion clauses should, prima facie, be enforced according to their true meaning, even in a case of fundamental breach. However, the Court also stated that a Court has power to grant relief if the clause is found to be "unconscionable" or "unfair or unreasonable".62

A recent decision of the British Columbia Court of Appeal 63 includes a lengthy discussion on the effectiveness of disclaimers in negligent misrepresentation actions. The Court reviews the law with respect to disclaimers starting with Hedley, Byrne through the recent Supreme Court of Canada decisions and concludes that there have been few reported decisions dealing with this issue. However, the Court concluded that the view expressed in Hedley, Byrne that an unambiguous disclaimer bars recovery is no longer the law in Canada. That form of view was dependent on a finding that there had to be a voluntary assumption of responsibility as a basis for finding a duty of care. Where there is a disclaimer, there cannot be a finding of assumption of liability. Rather, the prevailing view in Canada appears to be the test of reasonable reliance. As Cognos 64 points out, "reasonable reliance" is one of the essential tests in establishing a tort as a misrepresentation, regardless of a disclaimer. In effect, in the case of a disclaimer, there is a second reasonable reliance test. Esson J.A. in Keith Plumbing 65 puts it this way:

Whether the reliance is reasonable with knowledge of the disclaimer appears to be a question of fact. In Keith Plumbing, the fact that the plaintiff, to the knowledge of the bank, had no alternative source of information available to it made the reliance reasonable. By contrast, in a case where the recipient of the information decides to rely upon it rather than going to the trouble or expense of obtaining it elsewhere, the reliance may not be reasonable. The sub-test for determining reasonable reliance in the face of a disclaimer may more appropriately be referred to as "justifiable reliance".

Regardless of whether the misrepresentation is made in a contractual context or a tort context, disclaimers can be effective. However, they are not protection against fraudulent misrepresentation.66 In a tort context, disclaimers would be construed in the context of whether or not there is reliance on the misrepresentation and where the disclaimer is clear and unambiguous, a Court would likely find that reliance on the statement is reasonable. On the other hand, in situations when the municipality is the only source of certain information, and the municipality makes a positive misstatement for which it then subsequently offers a disclaimer, it is unlikely that a Court would find such a disclaimer reasonable. In such a case, one would argue that there was reasonable reliance on the positive misstatement, notwithstanding the use of the standard disclaimer. As Lord Devlin stated in Hedley, Byrne:67

5. Employee Acting Outside Scope of Employment

When a claim for negligent misrepresentation by a municipality is received, the first questions that should be asked is whether the representor was acting within the scope of his authority.

Where a fire official led a caller to believe that a fire truck was on its way but did not dispatch a fire truck, the Court held that because the fire official was acting within the scope of his employment, the municipality was liable for his negligent misrepresentation.68

Because this defence connotes an element of reasonableness, it is therefore linked to reasonable reliance. It is difficult to foresee a court holding that reliance on a statement made by an employee to the plaintiff is reasonable, however the municipality is not liable because the employee was acting outside of the scope of his employment. As a result, it is unclear how successful this defence will be where a court has already held that reliance by plaintiff on the statement was reasonable.

It is important to note however that in British Columbia Ferry Corp. v. Invicta Security Service Corp.,69 the employer was held vicariously liable for the deliberate wrongful acts of the employee on the basis that:

Thus, if a municipality chooses to give an incompetent employee complete discretion to give advice at the counter, or write letters on the municipality's letterhead, without proper supervision, the municipality would be hard-pressed to argue that the employee was acting outside the scope of his authority. On the other hand, if that employee was given strict instructions not to give certain advice, but nevertheless gave such advice without the knowledge of the employer, the employer could argue that the employee was acting outside the scope of his authority, making the employee liable for the negligent misrepresentation but not the employer.

In Moin,70 where the reeve made a negligent misrepresentation in a council meeting, and the rest of the members of council sat silent, the Court held that:

6. Contributory Negligence by the Plaintiff

In order to prove negligent misrepresentation, the plaintiff must show that reliance on the statement in question was reasonable. If reliance on the statement was not reasonable, a key element of negligent misrepresentation has not been proved. Consequently, contributory negligence does not constitute a defence to negligent misrepresentation, but a means of reducing the damages payable after liability has been determined.

In holding the plaintiff contributorily negligent in Grand Restaurants, the Court held that the "plaintiff cannot be described as a neophyte to the restaurant business".71 In fact, the plaintiff knew the requirements with respect to liquor licences, inspections, demands for compliance with various legislation and had been specifically warned about deficiencies with respect to the above. At page 773, the Court concluded that the plaintiff was contributorily negligent for fifty percent of its losses because "the extent of the reliance which the plaintiff placed on the city's response as regards work orders was, in the circumstances, unreasonable." In so holding, the Court cited Nance v. B.C. Electric R. Co. Ltd.,72 wherein the Court held at page 711:

Consequently, the plaintiff owes a duty to himself to take all reasonable care to avoid and mitigate any foreseeable risks or harm. Where the plaintiff does not exercise such care, and as a result incurs damage, the plaintiff is contributorily negligent.

7. Causation / Remoteness of Damage

This principle always assumes that there has been a negligent act, but deals with the issue as to what extent the negligent party will be held liable for his negligent conduct. Government conduct must not only be negligent to be actionable, but must also cause the loss. Ordinary causation principles will be applied to government action.

The best way to deal with this issue is to use a common sense approach. Mr. Justice Dickson has articulated the principle as follows:

8. Statutory Defences

Some statutes provide statutory protection for the conduct of municipal employees in the exercise of their duties "in good faith". Most statutes however go on to state that the employer is not relieved of the tortious conduct of their employees. Thus, in such cases, if there is liability, it is nevertheless imposed on the employer.

9. Reliance on Disclaimers

In cases where there is no statutory protection, employees, along with their employers, will be liable for negligent misrepresentation. However, a disclaimer or exclusion clause protecting the employer may also protect the employee.74 On the other hand, it is not clear whether this only applies in contract or also for negligent misrepresentation.75

10. Mitigation

The rule of mitigation is another principle that can operate to reduce damages. In effect, the rule examines the plaintiff’s conduct after the wrong, limiting the plaintiff’s damages by not allowing him to recover compensation for a loss that could, by taking reasonable action, have been avoided. What is reasonable is a question of fact depending on the particular circumstances of the case. More importantly, the burden of proof is on the defendant to prove that the plaintiff acted unreasonably in failing to mitigate his damages.

11. Pro-active Steps to Reduce Damages

In certain cases where the defendant is impecunious, the defendant may not be able to mitigate his damages. In such cases, the plaintiff may be well advised to take pro-active steps to reduce such damages. In a recent case which received national coverage, the Town of Richmond Hill in a negligent misrepresentation and negligent inspection case was able to finance the plaintiff’s $6,000,000 repair costs, which were subsequently repaid in a comprehensive settlement, thereby avoiding a multi-million dollar claim which, but for the repairs, would have resulted in the demolition of the building.76

In order to understand what constitutes a defamatory comment, it is important to understand what is a person’s reputation. Reputation is what the person appears to be to the community. It is a question of fact and not opinion. Reputation is not what a person deserves. Thus, when a person defames another, even though he may be a scoundrel in his eyes and deserves that reputation, if an untruthful statement is made about him which has a tendency to lower his reputation in the community, then it is actionable. Defamation is a strict liability tort. It does not matter whether defamation was intentionally made or negligently made. For defamation to be actionable, there must be publication either in writing or orally. This means that the defamation must be communicated to someone other than the person defamed. A person can also be liable for the repetition of a defamatory statement.

It is difficult to formulate a simple test to determine what is considered to be defamatory. The classic definition that was often used was that which is calculated to injure a reputation of another by exposing him to hate or contempt or ridicule.77 A more recent test often used is that defamation tends to lower a person in the estimation of right thinking members of society generally.78

Notwithstanding these tests, the results are not always obvious. In Ralston v. Fomich,79 in a heated council meeting, one alderman called the other a sick son-of-a-bitch. The comment was repeated to reporters after the meeting and published in the newspapers. The court held that the words son-of-a-bitch are by themselves not defamatory, although insulting. For example, you can have sympathy for a poor son-of-a-bitch, admiration for a brave son-of-a-bitch, affection for a good old son-of-a-bitch, envy for a rich son-of-a-bitch, and incongruously dislike for a proper son-of-a-bitch. However, when adding the adjective "sick" the words are defamatory, since it suggested the plaintiff was mentally ill, unstable or unbalanced, perverted, unwholesome or morally corrupt, or that he was unfit to hold public office.

Language directed at public officials may take on a special meaning. Where a mayor of one municipality accused a mayor of another municipality that he "stole" some minutes of a meeting, the words were held to be defamatory.80 The Court held that the use of the word "stole" in these circumstances had the effect of calling the plaintiff a thief and a criminal, and relied on the following statement from an Alberta trial decision:

Truth, also known as the defence of justification, is a complete defence. A true statement, no matter how damaging, cannot be defamatory. However, the defence of justification does not mean you are justified in perverting the truth. The statement must be substantially true. Also, if the truth involves equal or more reprehensible conduct by the person defamed, that is not a defence. Calling a person a liar, when in fact he is a thief but not a liar, does not make the comment less defamatory. A false statement does not become true because you heard it from someone else.

It is important for a defendant to plead all of the particulars on which he relies for the defence of justification. The defendant bears the onus to prove that the words are substantially true and once he has particularized his defence, he is limited at discovery and trial to the issues that have been defined by the particulars so furnished. A defendant may not use the discovery process to find a defence of which he was not aware at the time of pleading.82

The publication of a news release by the City of Vancouver Police Department to the effect that a number of males had been charged with prostitution offences in the "kiddie stroll" area of Vancouver was found not to be defamatory of the plaintiff, even though there was no evidence that the plaintiff was soliciting child sex and in fact he was acquitted of the charge of soliciting an adult police officer. The media report given by the police to the newspapers was found to be accurate and, therefore, the defence of justification applied. On the other hand, the news reports published by the media were found to be defamatory, since they implied that the plaintiff was soliciting child sex.83

Aside from the defence of justification, the most important protection available to municipal councillors is the defence of privilege. Absolute privilege, which is a complete defence, no matter what is said, does not apply to normal deliberations of council, except in rare circumstances when it acts as a statutory tribunal 84 or involved in litigation.85

Since absolute privilege allows defamatory statements to be immune from action, it is important to recognize when this defence is available to the municipal councillor and what limitations, if any, are placed on such a defence. As indicated, if council is acting as a statutory tribunal, the defence may be available. To qualify, it must be acting in a quasi-judicial capacity exercising functions which are similar to a Court of Justice. In Perry v. Heatherington,86 Munroe J. said:

Some of these attributes that have been identified to determine whether absolute privilege applies to the tribunal are:

Even if a councillor is exercising some quasi-judicial function under a municipal statute which appears to have all the attributes of a court, absolute privilege only extends to those limited functions that will be deemed to be judicial functions. Thus, it does not extend to administrative functions carried out by the same tribunal, nor does it protect comments made outside of the scope of the proceedings.

Absolute privilege was provided to a county auditor who was appointed by the city council under the provisions of the Consolidated Municipal Act to investigate and undertake an accounting of road expenditures.94 In that case, Riddell, J. A. said:

(iii) Litigation privilege

Like all other litigants, municipalities are protected by an absolute privilege during the course of judicial proceedings. This privilege extends to all participants in the litigation, including the judge, jury, witnesses, parties and their counsel. This principle is simply stated by Kelly C.B. as follows:

Thus, if a councillor is required to testify under oath, or swear an affidavit in a judicial proceeding, he cannot be sued for defamation in any thing that is written or said in the course of such a proceeding. This privilege, however, does not extend outside of the proceeding. Privilege attaches to the occasion upon which the communication is made, and not to the communication itself.96 It has also been extended to all steps taken in contemplation of litigation.97 For example, if a councillor made a defamatory statement to the municipality’s solicitor who was seeking information in connection with potential litigation, the information would be absolutely privileged.98

In Canada, in a litigation context, the privilege extends to all words spoken or pleaded, no matter how malicious, insulting or defamatory they may be, and even though irrelevant to the matter in issue. It generally makes no difference that the remarks are malicious and totally irrelevant to the issues before the court or that they are made about persons involved in the proceedings, or even made about persons who are complete strangers to the judicial proceedings.99 However, defamatory comments made outside of the scope of the proceedings are not protected.100

Qualified privilege is available as a defence to a defamatory statement on certain occasions and on certain conditions. As in the case of absolute privilege, it is a matter of public policy to provide immunity for defamatory statements where it is in the public interest not to restrict certain communications. The principle has been summarized by Lord Atkinson as follows:102

The privilege however is not absolute. As the defence suggests, the privilege is qualified in a number of ways. These qualifications can be summarized as follows:

Dubin, J.A. in Littleton v. Hamilton,103 sets out the legal test which a defendant must satisfy in order to meet the defence of qualified privilege as follows:

In Ward v. McBride,104 Mr. Justice Riddell held a statement by a city alderman, who suggested the plaintiff had robbed the city, thereby imputing a crime, to be subject to the defence of qualified privilege. In making this finding, he observed the following:

1. Examples of when the defence of qualified privilege prevailed in a municipal context.

The defence of "fair comment" or better referred to as "comment on a matter of public interest" is protected by qualified privilege. However, there are certain criteria that must exist:

Consent is also a complete and absolute defence to a defamatory statement. Examples of consent would be:

In certain circumstances, a municipal corporation is liable for defamatory statements made by its elected representatives if those statements were made while acting in the course of their duties.115 If council publishes a defamatory comment (as part of its agenda), or if a councillor repeats a statement at a council meeting which is defamatory in nature, the municipality may well be held to be liable. There is no question that municipalities are liable for defamatory statements made by its officers or servants in the course of their duties when acting within the scope of their employment.

When the publication of a defamatory statement is made by council as a whole or a committee of council, and the defence of qualified privilege is not available, the municipality may well be liable, since it is the actions of council as a whole on behalf of the municipality that is committing the tort of defamation. In addition, where the mayor or councillors make defamatory statements as individuals, the municipality may be liable. Traditionally, the municipality’s vicarious liability was dependent on the following factors:

The mayor and councillors are generally not considered to be employees of the municipal corporation. However, they may well be acting as agents of the corporation within the scope of their authority. If council, in some way, acts to ratify the defamatory conduct of a mayor or councillor, the municipality will be found to be liable. In Dawson v. The Council of the Shire of Bulli,116 the Court held that a shire council ratified and approved the action of their building inspector when, after being asked by counsel for a builder what they intended to do about a defamatory letter written by the inspector, they responded that they endorsed their inspector’s action in the matter.

The Supreme Court of Canada, in two recent decisions involving vicarious liability, has somewhat expanded the scope of liability which requires some reassessment of the traditional principles in determining vicarious liability. In Bazley v. Curry,117 the court was dealing with the vicarious liability of a non-profit employer as a result of the employee’s sexual abuse. Since defamation can be an intentional wrong, the court’s pronouncements on vicarious liability with respect to intentional wrongs may lead to some new developments in assessing vicarious liability on the part of municipalities in defamation cases. In Bazley, Madam Justice McLachlin applied a two-part test to determine vicarious liability in the case of intentional torts:

Madam Justice McLachlin suggested that courts should be guided by the following principles:

In Watson v. Southam Inc.,118 Wilson, a Regional councillor and a chair of the environmental services committee of the Regional government, along with others, was held liable for defamation. Wilson had been advised of an altercation at the municipality’s filtration plant involving a political rival. Wilson reported the matter to a reporter for the local newspaper and also spoke about the matter at an environmental services committee meeting at which he was the chairman. The various comments made by Wilson to the reporter and to the committee were held to be defamatory and malicious. The Region conceded that it was vicariously liable for the liability of its employees and for the liability of Wilson, the Regional councillor. (Presumably, the Region’s insurance coverage extended to its employees and as such they were indemnified by the Region.)

Although the Regional Municipality was a party to the action at trial, it was found not to be liable for defamation in its own right. However, the municipality was held liable for aggravated damages as the defamation was aggravated by its wrongful conduct. The conduct identified by the court as being wrongful was the Regional Municipality’s suppression of a report originally prepared by a Regional employee indicating that there was no basis for criminal charges. Notwithstanding that report, counsel for the Region had argued at trial that an assault had occurred. The trial judge found that the Regional Municipality had failed to correct the public record when it could have done so, and that its failure to do so during a period when one of the plaintiffs was running for office, aggravated that plaintiff’s damages.

The trial judge further found that the Regional Municipality was liable for the aggravated damages awarded against the defendant Regional councillor, Wilson. Wilson had made a statement to the local newspaper to the effect that the Regional solicitors had given an opinion that assault charges would not be laid because a certain employee did not actually see the assault occur. These words were found to be inconsistent with the evidence and malicious. The court further found that the Regional councillor was speaking as an agent on behalf of the Regional Municipality in giving this interview to the newspaper. As a result, the Regional Municipality was liable for the aggravated damages assessed against the Regional councillor.

There is further reference to aggravated damages in the trial judge’s decision which is rather unusual:

On appeal,119 the orders against the Regional Municipality were set aside on the grounds that proper notice had not been given pursuant to s. 5(1) of the Libel and Slander Act which was held to apply to non-media defendants as well as media defendants. This is an important clarification of the law with respect to the requirement to give such notices to non-media defendants, a requirement often overlooked by plaintiffs. The Court of Appeal did not comment on the reasons for finding liability against the Regional Municipality, and in that respect the judgment stands.

The question has arisen whether or not council or a committee of council can reproduce or publish reports and submissions received from third parties which may contain defamatory statements and rely on the defence of qualified privilege. In Nowlan v. Moncton Publishing Co. Ltd.,120 it was held that a sanitary engineer’s report considered at a local board of health meeting was covered by qualified privilege. In a recent case, the court refused to grant summary judgment in favour of a municipality dismissing a claim for defamation against the municipality by reason of its publication of a letter, as part of the council agenda, claiming extortion. In that case, the judge considered the matter a triable issue.121

Ordinarily, general damages are awarded to a successful plaintiff in a defamation case which will compensate the plaintiff for his or her entire loss, including an estimate of actual and anticipated pecuniary losses. Historically, damage awards have been low. As noted by Cory J. in Hill v. Church of Scientology,122 the average damage award in reported libel cases was $30,000 between 1987 and 1991, and less than $20,000 between 1992 and 1995. In 1991, Hill had been awarded $1,600,000 in damages even though he had not suffered and was not likely to suffer any pecuniary damages. Notwithstanding, the Supreme Court of Canada refused to impose a cap on general damage awards in defamation cases. As a result, there has been a steady escalation in the level of libel damage awards following Hill v. Church of Scientology.

In Hodgson v. Canadian Newspapers Co.,123 Hodgson was awarded $880,000 in damages which was reduced on appeal to $780,000. The Court of Appeal did not interfere with the award of general damages and only declined to uphold the award of pecuniary damages. The Court noted that:

In Hodgson, the plaintiff had lost his job which allowed the Court to calculate his pecuniary damages. The Court then effectively doubled this calculation by way of an award of general damages. Although the Court of Appeal did not interfere with this award, it clearly criticized this approach. The Court concluded:

Presumably, the Ontario Court of Appeal wished to convey a message to the Trial Division that excessive damage awards in defamation cases were not appropriate. It should be noted, however, that many defamation cases are tried by a jury and clearly the Supreme Court of Canada has indicated that the courts should not impose a cap on such awards.

We would offer the following practical advice to elected officials in an attempt to avoid defamation:

A municipality can limit the risk with respect to negligent misrepresentation. Some suggestions would include:

Most municipalities carry Errors and Omissions liability policies. In some cases, the retention levels (deductible portion of the policy) are very high which means the municipality is self-insured for most errors and omissions. Even if the self retention levels are low, insurance premiums are usually "experienced rated" meaning that the greater number of successful claims, the higher the premium. It is also generally thought that several million dollars of coverage is sufficient to cover almost any potential error or omission. This is no longer realistic. Errors and omissions resulting in economic losses can result in staggering awards. Another recent development (which tends to inflate errors and omissions claims) is the so-called "stigma claim" in which a plaintiff may seek damages for economic loss as a result of the negligent misstatement which had a tendency to stigmatize his business or property. The "diminution of value" concept is really borrowed from contract law. It remains to be seen how far the Courts go with this principle in the context of negligence cases. However, since the distinction between claims based in contract and tort are becoming increasingly blurred (they are no longer mutually exclusive), it is likely that the Courts will accept this as an appropriate measurement of damages.

Most municipal errors and insurance policies cover the mayor and members of council, statutory officers, employees and volunteers. Coverage is usually restricted to situations where the insured is acting on behalf of the named insured (i.e. the municipality) or while in the performance of any statutory duty. Coverage usually extends to any error or omission, misleading statement or neglect or breach of duty in that capacity.

An important restriction contained in most policies is that the insured cannot interfere in the claims process. This means that if an error or omission has been identified which could lead to a claim, it should be promptly reported. The insured is not entitled to assume any obligation or incur any expense in connection with a claim, thereby compromising the insurer's right to deny liability or otherwise defend the claim. This is an area which could lead to potential conflict, since often the municipality wishes to deal with the claim when it arises, thereby hoping to settle the matter. For example, in a case, where the municipality failed to identify an outstanding work order in a request for a clearance letter, on a complaint brought by the affected ratepayer, the municipality proceeded to lift the order to permit the refinancing of the property. The expectation was that the problem would go away. However, the ratepayer subsequently sued the municipality for damages. Had the matter been promptly reported and dealt with by the insurer, a release could have been exchanged for the lifting of the order.

It is also important to note that most Errors and Omissions policies exclude claims for personal injury. Personal injury can be defined to include matters such as libel, slander and defamation of character. Accordingly, it is important to determine whether or not your general liability policy includes coverage for such torts.

4. Conclusion

While the elements of tortious negligent misrepresentation remain constant, defending a government agency or municipality from such a claim presents unique considerations. A duty of care will almost always be owed, even where the information is provided gratuitously by an employee. Where an employee has omitted information, the statement may still constitute a misleading representation. While this fact would be no different for any other defendant, the unique role played by municipalities with respect to zoning, planning and building information makes it more likely that an omission will constitute a misleading statement. As with any other negligent misrepresentation claim, the statement must have been made negligently, reliance on the statement must have been reasonable, and such reliance must have resulted in damages.

Defences available to municipalities are unique. Where the municipality is acting in its judicial, quasi-judicial or legislative capacity, there is no private law duty of care. In addition, municipalities may invoke disclaimer clauses in an attempt to limit liability with respect to statements made by their employees. The success of a standard disclaimer clause may be limited however. Where municipal officers and employees do not have authority to bind the municipality, or where they are acting outside the scope of their employment, the municipality is not liable for any negligent misrepresentations they make. This defence will be more successful where it is or should be clear to the representee that the officer or employee is acting beyond the scope of his employment.

Preventing defamatory comments is more problematic from a risk management point of view. Buying muzzles for your politicians and employees is not an option. The best approach is to educate staff and attempt to make them more aware of the duties and responsibilities associated with the tort of defamation.

1. Exodus 20, v. 16
   
2. Section 131 of the Criminal Code of Canada
   
3. Sections 132 and 133 of the Criminal Code of Canada
   
4. Section 136 of the Criminal Code of Canada
   
5. Rule 30.02 of the Rules of Civil Procedure
   
6. [1964] A.C. 465
   
7. (1978), 19 O.R. (2d) 44 (C.A.)
   
8. [1993] 1 S.C.R. 87
   
9. [1997] 2 S.C.R. 165
   
10. [1978] A.C. 728 (H.L.)
    
11. [1984] 2 S.C.R. 2
    
12. Supra
    
13. Ibid at 188
    
14. [1976] 2 All E.R. 5
    
15. Ibid at 22
    
16. (1969), 4 D.L.R. (3d) 155
    
17. (1981), 32 O.R. (2d) 757 (Ontario H.C.J.)
    
18. Ministry of Housing and Local Government v. Sharpe, [1972] Q.B. 223 (C.A.)
    
19. Haig v. Bamford, [1977] 1 S.C.R. 466; Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd., [1993] 3 S.C.R. 206
    
20. Hercules Management Ltd., supra
    
21. [1985] 1 W.W.R. 341
    
22. (1982), 23 Sask. R. 161 (Q.B.)
    
23. Executive Holdings, supra at 354
    
24. (1998), 41 O.R. (3d) 741 (C.A.)
    
25. (1989), 43 M.P.L.R. 298 (B.C.S.C.)
    
26. (1984), 45 O.R. (2d) 165
    
27. Granitile Inc. v. Canada, [1998] O.J. No. 5028; Luo v. Canada (Attorney General) (1997), 33 O.R. (3d) 300 (Div. Ct.)
    
28. Supra
    
29. (1990), 74 D.L.R. (4th) 636
    
30. (1996), 37 M.P.L.R. (2d) 74 (Ont. Gen. Div.)
    
31. Apex Mountain Resort Ltd. v. British Columbia (2000), 50 C.C.L.T. (2d) 123 (B.C.S.C.) affirmed on appeal (2001), B.C.C.A. 479; Armour Group Ltd. v. Nova Scotia (Attorney General) [2000] N.S.J. No. 462
    
32. (1996), 134 D.L.R. (4th) 223
    
33. Ibid at 238
    
34. (1981), 22 R.P.R. 50 (B.C.C.A.)
    
35. Ibid at 58
    
36. Ibid
    
37. [1977] 1 S.C.R. 51
    
38. (1989), unreported, Doc. No. 55/86 (Ont. S.C.)
    
39. (1994), 22 M.P.L.R. (2d) 240 (Ont. Gen. Div.)
    
40. [1971] 1 O.R. 218 (C.A.); affirmed [1972] S.C.R. 769. Note: the case also stands for the proposition that the Hedley, Byrne principle is inapplicable where the relationship is governed by contract, unless the negligence relied on can be considered an independent tort unconnected to the performance of the contract. This is no longer the law in Canada. See Central Trust Co. v. Rafuse (1986), 37 C.C.L.T. 117 (S.C.C.); rehearing [1988] 1 S.C.R. 1026
    
41. (1979), 97 D.L.R. (3rd) 112 (Ont. S.C.)
    
42. Ontario Building Code, s. 1.1.3.2
    
43. (1978), 22 O.R. (2d) 122 (C.A.)
    
44. [1973] 2 O.R. 503
    
45. Sirras v. Moore, [1974] 3 All E.R. 776
    
46. Wellbridge Holdings Ltd. v. The Metropolitan Corporation of Greater Winnipeg, [1971] S.C.R. 957
    
47. (1977), 4 C.C.L.T. 105 (Alta. S.C.)
    
48. Supra
    
49. Ibid, 969
    
50. Ibid, 967
    
51. (1981), 122 D.L.R. (3d) 398
    
52. (2000), 13 M.P.L.R. (3d) 1 (Ont. C.A.)
    
53. Campbell v. B. Leslie Real Estate & Development Ltd. (1971), 1 N.R. 90 (Man.C.A.), appeal to S.C.C. dismissed (1973), 1 N.R. 89
    
54. Supra
    
55. Supra
    
56. Supra at 486
    
57. (1990), 39 C.L.R. 248 (B.C.S.C.)
    
58. [1989] 2 S.C.R. 1259
    
59. [1973] 2 O.R. 503
    
60. (1984), 25 M.P.L.R. 220
    
61. [1989] 1 S.C.R. 426
    
62. For discussion on whether an exemption clause is reasonable see Fraser Jewelers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 34 O.R. (3d) 1
    
63. Keith Plumbing & Heating Co. v. Newport City Club Ltd., [2000] B.C.C.A. 141
    
64. Supra
    
65. Supra
    
66. Hasham v. Kingston (1991), 4 O.R. (3d) 514
    
67. Supra at 529
    
68. Densmore v. Whitehorse (City), [1986] 5 W.W.R. 708
    
69. (1997), 35 C.C.L.T. (2d) 182
    
70. Supra
    
71. Supra at 722
    
72. [1951] 3 D.L.R. 705
    
73. Hoffer v. School District of Assiniboine South (1971), 21 D.L.R. (3d) 608 at 613
    
74. London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299
    
75. See Edgeworth, supra
    
76. YRCC No. 772 v. Richmond Hill (Town) et al. Court File No. 96-CU-114639 (Ont. Gen. Div.)
    
77. Youssoupoff v. Metro-Goldwyn Meyer Pictures Ltd. (1934), 50 M.P.L.R. 581 (C.A.)
    
78. Murphy v. LaMarsh (1970) 73 W.W.R. 114; aff'd [1971] 2 W.W.R. 196
    
79. (1992), 66 B.C.L.R. (2d) 166
    
80. Peters v. Hamilton-Brown, [2000] N.B.J. No. 29
    
81. Mack v. North Hill News Ltd. (1964), 44 D.L.R. (2d) 147 (Alta. S.C.)
    
82. Care Canada v. Canadian Broadcasting Corp., [1998] O.J. 1532; Kent v. Kehoe, [2000] N.S.C.A. 3
    
83. Grassi v. WIC Radio Ltd., [2000] B.C.J. No. 170
    
84. Perry v. Heatherington, [1971] 5 W.R. 670 (B.C.S.C.)
    
85. Lowther v. Baxter (1892), 22 N.S.R. 372 (C.A.)
    
86. Supra, p. 671
    
87. Stark v. Auerbach (1979), 11 B.C.L.R. 355 (S.C.); Perry v. Heatherington, supra
    
88. Addis v. Crocker, [1961] 1 Q.B. 11 (C.A.)
    
89. Ibid
    
90. Ibid
    
91. Ibid
    
92. Ibid
    
93. Ibid
    
94. Nixon v. O'Callaghan (1926), 60 O.R. 76 (C.A.)
    
95. Dawkins v. Lord Rokeby (1873), L.R. 8 Q.B. 255 at 263; aff'd (1875), L.R. 7 H.L. 744
    
96. Hill v. Church of Scientology (1995), 2 S.C.R. 1130
    
97. Larche v. Middleton (1989), 69 O.R. (2d) 400 (H.C.J.)
    
98. Web Offset Publications v. Vickery (1999), 43 O.R. (3d) 802
    
99. Electra Sign Ltd. v. Gallagher (1995), 38 C.P.C. (3d) 141 (Man. Q.B.); aff'd (1996), 109 Man. R. (2d) 248 (Q.B.); Henderson v. Broomhead (1859), 157 E.R. 964 (Ex. Ch.)
    
100. Hill v. Church of Scientology, supra
     
101. Horrocks v. Lowe (Lord Diplock), [1974] 3 All ER 662 at 668 (H.L.)
     
102. Adam v. Ward, [1917] A.C. 309 at 334; adopted in McLouglin v. Kutasy,[1979] 2 S.C.R. 311
     
103. (1974), 4 O.R. (2d) 283 at 285
     
104. (1911), 24 O.L.R. 555
     
105. (1996), 31 M.P.L.R. (2d) 13
     
106. Ibid, p. 33
     
107. [1995] B.C.J. No. 1656
     
108. (April 3, 1987), Doc. 829/86 (Ont. Div. Ct.)
     
109. (1993), 105 D.L.R. (4th) 37
     
110. (1971), 24 D.L.R. (3d) 554
     
111. [1994] N.J. No. 302 (Nfld. S.C.)
     
112. (1973), 39 D.L.R. (3d) 321 (S.C.C.)
     
113. (1975), 58 D.L.R. (3d) 228 (B.C.S.C.)
     
114. (1980), 12 M.P.L.R. 273 (Q.S.C.)
     
115. McKinnon v. Dauphin, supra, at p. 30
     
116. (1927), 27 N.S.W.S.R. 509
     
117. (1999), 174 D.L.R. (4th) 45; Jacobi v. Griffiths (1999), 174 D.L.R. (4th) 71
     
118. [1998] O.J. No. 369 (Ont. Gen. Div.)
     
119. [2000] O.J. No. 2555
     
120. (1952), 4 D.L.R. 808
     
121. Lake v. Demb, [1998] O.J. No. 2609 (Ont. Gen. Div.)
     
122. Supra
     
123. (1998), 39 O.R. (3d) 235 and (2000), 49 O.R. (3d) 161 (C.A.)

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