Liability for Negligent Misrepresentation and Other Employee Errors and Omissions

All men are liable to error; and most men are, in many points, by passion or interest, under temptation to it.

John Locke, 1632-1704

John Locke's description of human nature is most accurate. The reality is that all men make errors. The question is what errors are actionable and which are not.

1. COMMON LAW DUTIES V. STATUTORY DUTIES

There are two types of duties which may lead to tort liability. A statutory duty is an express duty imposed on a person or government agency by statute. For example, under the Building Code Act, 1992,1 the Chief Building Official has a statutory duty to issue permits in compliance with the Act, and has the statutory duty not to issue a permit that is not in compliance with the Act. If a building official breaches a statutory duty (as opposed to a private law duty), there is no cause of action for damages, in the absence of negligence. The Supreme Court of Canada has held that there is no nominate tort of breach of statute.2 However, the exercise of a statutory duty may require a private law duty of care, which, if breached, may lead to a finding of negligence. Accordingly, the Chief Building Official cannot simply process the application and then ignore the material supplied. He must exercise his statutory responsibility to properly review the application and the supporting documents. This does not mean that the Chief Building Official is held to a standard of perfection in the exercise of his statutory duties to review an application. It does mean that he must use reasonable care.

Where a statute gives the official discretionary powers, there is no statutory obligation to exercise that discretion. Nevertheless, failure to properly exercise that discretion may result in the breach of common law duties, generally referred to as private law duties. One of the most fundamental of private law duties is not to conduct oneself in a negligent manner. Conduct is negligent if it creates an unreasonable risk of harm. This paper only attempts to address one type of negligence, namely negligent misrepresentation. Although it frequently occurs within governmental agencies and municipalities, it is one of the most difficult to identify and prevent. One of the reasons is that senior officials and managers are often not aware of the elements of the tort or the potential risks associated with their conduct. For example, most managers will understand the principle that if they carelessly drop a banana peel on the floor of their office causing a visitor to slip and injure himself, they will be sued for damages. On the other hand, most do not realize that if they fail to disclose essential information which may mislead a citizen when making an inquiry and resulting in economic loss, an action for negligent misrepresentation may result.

Because municipalities are regularly required to provide information, they are frequently subject to claims for negligence with respect to the provision of that information. Legislation such as the Municipal Freedom of Information and Protection of Privacy Act 3 expressly provides for an individual’s right of access:

to a record or part of a record in the custody or under the control of an institution unless,

(a) the record or the part of the record falls within one of the exemptions under section 6 to 15; or

(b) the head is of the opinion on reasonable grounds that the request for access is frivolous or vexatious.4

As a result, and except for the specific exemptions, municipalities are required to provide information when it is requested.

More importantly, a municipality in the exercise of its statutory powers is frequently dealing with third parties. As a result, municipalities are required to provide information with respect to local matters, including building, zoning, and planning matters. The tort of negligent misrepresentation places on municipalities the common law duty of care in certain circumstances to ensure that the information which is provided is accurate, true and not misleading.

2. THE TORT OF NEGLIGENT MISREPRESENTATION

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. 5Lord Morris of Borth-Y-Gest held at page 506:

...if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another who relies on such skill, a duty of care will arise...

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.,6 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.7 Mr. Justice Iacobucci stated:

...I reject the so-called restrictive approach as to who can owe a Hedley Byrne duty of care, often associated with the majority judgment in Mutual Life & Citizens’ Assur. Co. Ltd. v. Evatt, [1971] A.C. 793 (P.C.). In my opinion, confining this duty of care to A professionals: who are in the business of providing information and advice such as doctors, lawyers, bankers, architects, and engineers, reflects an overly simplistic view of the analysis required in cases such as the present one. The question of whether a duty of care with respect to representations exists depends on a number of considerations including, but not limited to, the representor’s profession. While this factor may provide a good indication as to whether a "special relationship" exists between the parties, it should not be treated in all cases as a threshold requirement. There may be situations where the surrounding circumstances provide sufficient indicia of a duty of care, notwithstanding the representor’s profession.

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:

(i) a duty of care exists based on a special relationship between the representor and the representee;

(ii) the representation must be untrue, inaccurate or misleading;

(iii) the representor must have acted negligently in making the misrepresentation;

(iv) the representee must have relied, in a reasonable manner, on the negligent misrepresentation; and

(v) reliance must have been detrimental to the representee in the sense that damages resulted.

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.

(i) Duty of Care / Special Relationship

In Hercules Management Ltd. v. Ernst & Young,8 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 Council9and applied in Canada in Kamloops (City of) v. Nielsen10 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 first branch of the Anns/Kamloops test demands an inquiry into whether there is a sufficiently close relationship between the plaintiff and the defendant that in the reasonable contemplation of the latter, carelessness on its part may cause damage to the former. The existence of such a relationship - which has come to be known as a relationship of "neighbourhood" or "proximity" - distinguishes those circumstances in which the defendant owes a prima facie duty of care to the plaintiff from those where no such duty exists. In the context of a negligent misrepresentation action, then, deciding whether or not a prima facie duty of care exists necessitates an investigation into whether the defendant-representor and the plaintiff-representee can be said to be in a relationship of proximity or neighbourhood.

The Hercules Management Ltd.11 case has now blended the Anns/Kamloops principles with the law of negligent misrepresentation. It is important to note that theAnns 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.12 states that a "special relationship" exists when:

1. the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and

2. reliance by the plaintiff would, in the particular circumstances of the case, be reasonable.

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, the court examined the nature of the requisite special relationship.13 Ormrod L.J. said:

There is no magic in the phrase "special relationship"; it means no more than a relationship the nature of which is such that one party, for a variety of possible reasons, will be regarded by the law as under a duty of care to the other.14

The British Columbia Court of Appeal in Windsor Motors Ltd. v. District of Powell River15 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. InWindsor 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.,16 Trainor J. said with respect to the duty of care as set out in Hedley Byrne:

The principles of Hedley Byrne, supra, will come into play when one person gives information to another person, knowing full well that the other is relying on such information and in particular its accuracy; and such other person does in fact rely on it.

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 informationdirectly 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.17This 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

(a) the scope of the duty; and

(b) the class of persons to whom it is owed; or

(c) the damage to which a breach of it may give rise.

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

1. In addition to foreseeability of harm, the plaintiff must be one of a class of persons within the reasonable contemplation of the defendant for a "special relationship" to arise.18

2. The purpose for which the information is to be used must be known to the defendant.19

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:

As Cardozo C.J. explained in Ultramares Corp. v. Touche, 174 N.E. 441 (N.Y.C.A. 1931), at p. 444, the fundamental policy consideration that must be addressed in negligent misrepresentation actions centres around the possibility that the defendant might be exposed to "liability in an indeterminate amount for an indeterminate time to an indeterminate class". This potential problem can be seen quite vividly within the framework of the Anns/ Kamloops test. Indeed, while the criteria of reasonable foreseeability and reasonable reliance serve to distinguish cases where a prima facie duty is owed from those where it is not, it is nevertheless true that in certain types of situations these criteria can, quite easily, be satisfied and absent some means by which to circumscribe the ambit of the duty, the prospect of limitless liability will loom.

...In cases where the defendant knows the identity of the plaintiff (or of a class of plaintiffs) and where the defendant’s statements are used for the specific purpose or transaction for which they were made, policy considerations surrounding indeterminate liability will not be of any concern, since the scope of liability can readily be circumscribed.

...The foregoing analysis should render the following points clear. A prima facie duty of care will arise on the part of a defendant in a negligent misrepresentation action when it can be said (a) that the defendant ought reasonably to have foreseen that the plaintiff would rely on his representation and (b) that reliance by the plaintiff, in the circumstances, would be reasonable. Even though, in the context of auditors’ liability cases, such a duty will often (even if not always) be found to exist, the problem of indeterminate liability will frequently result in the duty being negated by the kinds of policy considerations already discussed. Where, however, indeterminate liability can be shown not to be a concern on the facts of a particular case, a duty of care will be found to exist.

Applying the second branch of the Anns/Kamloops test, the result may have been different if Executive Holdings Ltd. v. Swiftcurrent 20 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,21 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,"22 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,23 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 negligent misrepresentation on which the plaintiff relied. Notwithstanding this indirect relationship between the parties, the Court held:

Lakefield made the representation based on its special knowledge of the circumstances and as a formal response to permit evaluation of a request for approval of a plan to subdivide this property. It ought to have foreseen that its representation would be relied on by someone seeking to effect that very subdivision, particularly where its representation was reflected in the draft plan approval which resulted from the representation...Given that Lakefield was fully aware that its representation was being made in the context of a proposed plan of subdivision, it must be taken to know of the class of those who could properly complain about its misrepresentation, namely, those who would seek to subdivide the property. Moreover, the representation was made for the very purpose of facilitating the subdivision of the property. It was in just this context that the respondent used the representation. He relied on it to purchase the property for development. Hence, there is no risk of indeterminacy. The scope of Lakefield’s liability is readily circumscribed.

[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,24 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,25 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.26

(ii) 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 27 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.,28 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),29 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.30

(iii) Negligence

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:

The applicable standard of care should be the one used in every negligence case, namely the universally accepted, albeit hypothetical, "reasonable person". The standard of care required by persons making representations is an objective one.

... Although the representor's subjective belief in the accuracy of the representations and his moral blameworthiness, or lack thereof, are highly relevant when considering whether or not a misrepresentation was fraudulently made, they serve little, if any, purpose into an inquiry into negligence. As noted above, the applicable standard of care is that of the objective reasonable person. A representor's belief in the truth of his or her representations is irrelevant to that standard of care.

To put it simply, would the statement be misleading to the reasonable person or would the plaintiff be reasonably misled.

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,31 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 advisors 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:

I am not suggesting that the failure to divulge every bit of irrelevant and arcane information will breach the standard of care. An advisor's responsibility is not one of complete or perfect disclosure. Trivia need not be mentioned. The duty rather, is one of reasonable disclosure, and what is reasonable varies according to circumstances. The mere failure to divulge is but one factor among others to be considered in deciding whether there has been negligence... Thus, where an advising person possesses or can easily obtain important and relevant information, and where this advising person fails to divulge this information in circumstances where economic loss is reasonably expected, the standard of care will have been breached.32

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

In Inland Feeders v. Virdi,33 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."34 Further, the Court held that it is possible for municipal officers to provide incorrect information, but not be liable for negligent misrepresentation:

It is one thing to say that municipal officers must be careful and skilful and reasonably competent, and that if they are not they may be liable in negligence. It is another thing to say that they must be right in their representations or they and their municipality will both be liable to compensate anyone who suffers loss by acting on incorrect representation. In the latter case the municipal officers become insurers that the building projects in their municipalities will not be threatened by zoning or building codes or whatever else the representation concerns.35

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.

(iv) Reasonable Reliance

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.,36 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,37 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)38 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.,39 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.,40 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:

...to recover on the rationale of Hedley Byrne, the plaintiff must do some act to his economic detriment in reliance on the representation, and he must have had reasonable grounds for relying on the representation. It is one thing, for instance, to rely on serious statements made in the context of business or professional relationships and quite another on those made on informal or social occasions.

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".41 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,42 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.

(v) Detrimental Reliance Resulting in Damages

The plaintiff must have detrimentally relied on the statement, such that damages resulted. In Gadutsis v. Milne,43 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.

As in all other torts, the limiting principles relating to damages apply to the tort of negligent misrepresentation, including certainty, remoteness and mitigation.

Dealing with the issue of remoteness, the negligent misstatement must be the proximate cause of the loss. Causation alone is not enough, the negligent misstatement must be the proximate cause of the damage, i.e. not too remote as to bar recovery.

4. DEFENCES AVAILABLE TO MUNICIPALITIES

AND GOVERNMENT AGENCIES

(i) 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.

(ii) Legislative, Judicial and Quasi-Judicial Functions

Statements made while the municipality is acting in its judicial or quasi-judicial capacity44 or in its legislative capacity45 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,46 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.,47 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:

In exercising such authority, a municipality (no less than a provincial Legislature or the Parliament of Canada) may act beyond its powers in the ultimate view of a Court, albeit it acted on the advice of counsel. It would be incredible to say that in such circumstances that it owed a duty of care giving rise to liability and damages for its breach. Invalidity is not the test of fault and it should not be the test of liability.48

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

Under the considerations on which Hedley Byrne's enunciation of principle rests, it cannot be said in the present case either that a special relationship arose between the plaintiff and the defendant or that the defendant assumed any responsibility to the plaintiff with respect to procedural regularity. This would equally be my view if the plaintiff had been the applicant for the re-zoning bylaw. The re-zoning application merely invokes the defendant's legislative authority and does not bring the applicant in respect of his particular interest into any private nexus with the defendant whose concern is a public one in respect of the matter brought before it.49

In JRS Holdings v. District of Maple Ridge 50 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),51 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:

The legislative or policy decision had already been made to improve the [road]. It was open to the trial judge to find that the statements made by the Reeve were in the appellant’s operational or business capacity rather than its legislative or quasi-judicial capacity. The council was assembled to answer questions of the type raised by the respondent. The act of answering the questions gave rise to a private duty of care...Perhaps the strongest evidence that the decision to upgrade the [road] was not a legislative or quasi-judicial act is that, when it finally was upgraded, no by-law, resolution or other formal act of Council was required.

(iii) 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.52 In Cognos,53 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,54 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.

(iv) 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:55

(1) "... keep silent or decline to give the information or advice sought";

(2) "... give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require..."; and

(3) "... answer without any such qualification".

A disclaimer can be implied, or it can consist of an express verbal or written statement. In Dha v. Ozdoba,56 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 57 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,58 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,59 the Court looked at the use of a standard disclaimer commonly used in clearance letters. The disclaimer read:

The foregoing information is given for your convenience only and it should be clearly understood that you must satisfy yourself as to whether the premises and the existing or proposed use thereof is or would be in conformity with all applicable by-laws and regulations of the city.

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:

...I am unable to advise whether the subject premises complies with all by-laws and regulations administered by this department. A recent check of our records disclosed no known outstanding items against the property.

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,60 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".61

A recent decision of the British Columbia Court of Appeal 62 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 63 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 64 puts it this way:

Assuming that in the absence of a disclaimer the plaintiffs' reliance would have been reasonable, was it reasonable for the plaintiffs to rely with knowledge of the disclaimer?

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.65 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:66

Payment for information or advice is very good evidence that it is being relied upon and that the informer or advisor knows that it is.

(v) 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.67

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.,68 the employer was held vicariously liable for the deliberate wrongful acts of the employee on the basis that:

. . . where an employee is given authority which amounts to 'total intervention' or control which is then misused through the perpetration of a deliberate wrongful act, the employer will be vicariously liable.

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 v. Blue Mountains (Town),69 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:

There was nothing in the circumstance to alert the plaintiff or any other citizen that the Reeve was speaking only for himself or that he was anything other than the spokesperson for the municipality...No matter how uncomfortable it might have been for the other members of council, it was surely incumbent upon them to speak up if, as it turned out to be the case, the Reeve did not represent their views. They must have known that the respondent was relying upon these statements and they could not simply leave the respondent with the impression that council had improved the median improvement of the [road]. The fact that there was no such commitment was highly pertinent information.

(vi) 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."70 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 plainti