Law and Business Administration in Canada Canadian 14th Edition Smyth Solutions Manual 1

Solution Manual for Law and Business Administration
in Canada Canadian 14th Smyth Soberman Easson

McGill 0133251675 9780133251678
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CHAPTER 5
PROFESSIONAL LIABILITY: THE LEGAL CHALLENGES

This chapter is exceptionally important for business students. It applies the principles of
tort law to professional liability in relation to the basic elements of negligence law; that
is, the duty owed to the plaintiff, breach of that duty, and causation. This chapter also
introduces the tort of deceit and negligent misprepresentation.
However, in many of the examples discussed there is also a contractual relationship
between the plaintiff (client) and defendant (professional). The duty of care that is owed
in the law of torts, to a person who may foreseeably suffer injury may be reinforced by a
contractual duty to take proper care in the performance of one's obligations under the
contract; or it may be imposed by statute. There may also exist, in some circumstances, a
fiduciary duty between professional and client.
The three relationships that may therefore arise in any business relationship are:
Contractual
Fiduciary
In tort (Source p. 102)
It is important for students to be able to examine any business relationship and determine
what obligations exist. Students need to understand, as discussed on pp. 105-107, that a
professional may owe a duty both in contract and in tort, and that the choice of cause of
actin may affect the limitation periods and the remedies. A professional in a contractual
relationship is under an obligation to provide the services, set out in the contract, in a
competent manner. This obligation is implied if not specifically set out in the contract.
When a contractual relationship exists, only the parties to the contract can sue for a
breach.
FIDUCIARY DUTY (Source p. 103)

It is important to review the difference between the ordinary tort duty of care and the
fiduciary duty. Students often wish to extend the fiduciary duty to ordinary situtations
where it clearly does not apply. The parties must be in a fiduciary relationship. Reviewing
the law set out in the Alberta v Elder case, page 103, is critical to ascertaining if a
fiduciary exists. Importantly, a breach of fiduciary duty can occur without a breach of
contract or negligence being present..
Copyright © 2016 Pearson Canada Inc. 5-1

While some professionals are considered to be inherently fiduciaries, this does not apply
to all professionals and determining whether a fiduciary duty exists will depend on the
facts of each case. However, even in situations where an inherent fiduciary duty exists
(for example, solicitor-client), there are times when a breach of the duty will not attach
because of the facts of the case. See Galambos v. Perez 2009 SCC 48, [2009] 2 S.C.R.
678 (Case 5.3 at p. 104).

Professional Liability: The Legal Challenges Chapter 5
The Strother v 3464920 Canada Inc. case, a recent case decided by the Supreme Court of
Canada, is a good case for a dicusssion of fiduciary duty. Strother began a business which
competed with a former client of his at a large law firm – he then left the law firm to
continue the business. The court discusses Strother’s fiduciary duty and its’ concern for
his law partners, explicityly stating that the fiduciary duty to the client remained in place
even when the client was not longer a client of the firm.
LIABILITY FOR INACCURATE STATEMENTS

A misrepresentation, a false statement of a material fact which induced a party to enter
into a contract, is the most likely source of tort liability for professionals. The courts have
defined who a duty of care is owed to, and discussion of cases such as Hedley Byrne v.
Heller and Hercules Management v. Ernst & Young is important for what they have to
say about defining the boundaries of the duty of care in negligent misrepresentation
actions.
A more student centered example of misrepresentation can be found in Olar v.
Laurentian University (2007), Carswell Ont. 3595 (Superior Court of Ontario) aff’d 2008
ONCA 699 (Ontario Court of Appeal) referenced in Chapter 31 because of its online
context.
The online (and hard copy) of the Laurentian University calendar stated that a student
enrolled in the two year engineering program could transfer to another Ontario
university to obtain a degree. When Olar attempted this, he discovered that although
transfer was possible, other Ontario universities would not give full credit for the
courses taken at Laurentian. The trial judge found that the calendar contained a
negligent misrepresentation. Olar was awarded $115,000 for the economic loss
associated with lost income due to increased time in school. Total judgment was
$120,620.00. The Court of Appeal dismissed Laurentian’s appeal.
Another scenario that instructors may want to consider using in the class room is
employer representations to prospective employees. This was the scenario considered by
the Supreme Court of Canada in Queen v. Cognos Inc. [1993] 1 S.C.R. 87. This case
involved a failure to advise job applicants that the project being hired for was subject to
budgetary approval. The case imposed liability on the employer, because the applicants
were in a special relationship within the meaning of Hedley Byrne and that this special
duty was not reserved for professionals but could be found anytime.
With the intentional tort of deceit, or fraudulent misrepresentation, there must be an
element of “guilty knowledge” or a “willful disregard for the falseness of the
information.” (Source p. 107)
Negligent misrepresentation, as discussed in more detail in the 14th edition, occurs where
advice, which was relied upon, is inaccurate – was given negligently. It is the tort of
negligent misrepresentation which professionals may find themselves liable for, but only
if they fit within the criteria set out as”Elements of Negligent Misrepresentation”on page
109. The case of Hedley Byrne deserves attention, as it was the first case of negligent
misrepresentation, holding a bank liable for negligent advice it gave, stating a duty of care

was owed as the bank should have know their advice would be relied upon. Although the
defendant was held not to be liable in the case (because of the express disclaimer of
liability), the decision established the potential liability for negligent mis-statements in
tort.
The Supreme Court of Canada set out five requirements for proving negligent
misrepresentation – this checklist, reproduced on p.109 should be brought to students’
attention. It needs to be noted that the elements of negligence are required, that is duty of
care, breach of the standard of care, and causation, but with professional negligence the
requirements are limited.
THE DUTY OF CARE (Source p. 109)

The question of setting standards for professional services is essentially one of
determining when a professional is in breach of her duty of care, which in turn requires a
determination of the appropriate standard of care to be expected of a professional. In the
Canadian case of Hercules Management Ltd. v. Ernst & Young (1997), 146 D.L.R. (4th)
577 the Supreme Court reiterates the duty of care and adds an examination of policy
considerations that may “negative or limit the scope of the duty.” The court recognized
the need to avoid placing indeterminate liability on parties. The duty is owed where the
information is being used for the purpose for which it was prepared or given for. The
cases on pp. 110-111 will provide students with an understanding of the broad range of
situations where negligent misrepresentation may occur.
THE STANDARD OF CARE FOR PROFESSIONALS (Source p. 112)

As discussed in Chapter 4, the standard of care is set as the ordinary, reasonably person,
but in a professional context the standard is higher. The standard is that of the diligent
and competent professional in that field, who possesses the same degree of skill and
knowledge of a competent member of that profession.
Courts will often look to codes of conduct (see below) within a profession in setting a
standard, although they are not restricted to that code and will base the standard on what
is normal in the industry. For business risk management, it is important that all
professionals keep abreast of changes in the code of conduct of the professional body and
maintain a system of continuing education. It is important for professionals to recognize
that the standard of care has not been met where an omission occurs, or incomplete
information given. Informed consent is a major element of consent, and time should be
taken to discuss the law set out on p. 113.
RELIANCE AND DETRIMENT (Source p. 113)

There must also be a clear causal link, not only in fact but in law, between the breach of
the duty by the defendant and the injury suffered by the plaintiff. This requirement has an
interesting application in negligent misrepresentation actions. A plaintiff must have relied
on the negligent misrepresentation before that misrepresentation can be said to have

"caused" the plaintiff's loss. Therefore, reasonable reliance is an important element in

these actions. To what extent, for example, do investors rely on audited financial
statements of companies before they decide to buy or sell shares? The information must
be used for the purpose that it was provided in order for reliance to be reasonable (See
Hercules and Olar both cited above). Sometines plaintiffs have a duty to independently
investigate or confirm before reliance is reasonable (Crearer v. Grande Prairie Regional
College [2004] A.J. No. 1782 (Q. B.).
THE ROLE OF PROFESSIONAL ORGANIZATIONS (Source p. 114)

An important question to consider in this part is the extent to which a professional code
of conduct may affect the civil liability of the members of that profession. Is compliance
with the accepted standards of the profession a sufficient defence in a negligence action?
Does breach of the code necessarily mean that a professional has been negligent?
Instructors may want to examine the importance of the professional code of conduct by
referring to the development of the Public Accountability Board designed to supervise
public accountants. A dispute arose between the new board and the professional
organization of the Certified General Accountants of Canada over whether the CMA’s
current code of conduct met the board’s requirements. The requirements set by the Public
Accountability Board were reviewed by the Divisional Court in Certified General
Accounts Association of Canada v. Canadian Public Accountability Board, (2008)
O.A.C.129, Ontario Superior Court of Justice, Divisional Court. Importantly, the Court
recognized the CMA’s standing to seek court intervention on behalf of its members.
STRATEGIES TO MANAGE THE LEGAL RISKS (Source pp. 118-119)

Any person engaged in one of the professions, must especially consider the importance of
setting out a code of conduct, as well as compliance with continuous education
requirements of the governing body of the profession for all employees. Equally
important is putting preventataive measures in place, such as the use of disclaimers and
control mechanisms such as having more that one professional work on every file. Even
businesses not engaged in the professions, should be concerned about the possibility of
misrepresentation and a risk management plan should, therefore, contemplate appropriate
training for employees dealing with the public.
A useful exercise would be to have students prepare a strategic plan for a professional
organization.
ETHICAL ISSUE (Source p. 105)

Lessons from Enron
The “Enron Affair” raises a number of legal issues that are suitable for discussion in
class. Apart from the questions of standard of care and duty of care, the case highlights
the huge potential liability that professionals, such as accountants, now face.

Question 1 - Are there any other answers, beyond the Sarbanes-Oxley Act of 2002 (SOX)
legislation that would minimize conflicts of interest? Should government go further and
set up independent government run auditing groups responsible for auditing all
corporations. The cost of this to the general public would be enormous. Should there be a
government body responsible for overseeing the internal affairs of corporations to ensure
that proper procedures are followed? Would this be too much interference in the private
enterprises of business? What other solutions, more or less intrusive, may be considered?
Question 2 - Should the American government be allowed to enforce SOX on Canadian
and other foreign corporations that trade on U.S. exchanges? The purpose of the
legislation is to protect the American investor, however, should not American investors
being given the choice to make educated decisions about investing in foreign
corporations, knowing that the foreign corporation is not subject to SOX? If not, then
should ALL U.S. legislation regarding corporations be applied to foreign corporations
trading on U.S. exchanges?
Question 3 - Perhaps the most disturbing feature of the case is the ethical issue associated
with the conflict of interest that can arise if accounting firms provide a variety of services
to their clients and the danger that such conflict of interest poses to the general public.
Ethical values such as fairness, respect, integrity and accountability come into question.
Some suggest that Enron represents a failure of professional self-regulation of the
professions demonstrating an inability to prevent abuse. Alternatively, SOX imposes
much stricter government regulation aimed at public corporations. In light of the 2008
market crisis, is stricter regulation the answer? Instructors should be prepared to discuss
the professional standards imposed by the new Public Company Accounting Oversight
Board (United States <www.pcaobus.org>).Some consider this organization as a hybrid
(combination) of government and self regulation. The discussion should also include the
broad inspection powers of the Canadian Public Accountablility Board (<www.cpab-
ccrc.ca>). On February 29, 2008, CPAB released its fifth report describing the results of
its most recent inspections.
INTERNATIONAL ISSUE (Source p. 117)

Solicitor-Client Privilege
The international reach of SOX is mentioned under the Ethical Issue as well and students
should be reminded of the jurisdictional limitations of law and sovereignty issues
associated with reaching beyond national boarders. However, the ethical complexity of
noisy withdrawal should form the biggest part of the class discussion. Ethical issues of
loyalty and confidentiality are raised by this issue as well.
Question 1 - The first question asks students to discuss why lawyers should not be
reporting a corporate client’s improper activity to the Securities and Exchange
Commission. Students will likely point out that doing so would not be in the client’s best
interest. Consequently, a noisy withdrawal could result in a breach of the lawyer’s
fiduciary duty. Reporting such activity also presents a conflict between a lawyer’s duty of
confidentiality and the obligation not to assist or encourage wrongdoing. This may trigger

professional discipline and a number of State Bar Associations announced that they
would discipline any lawyer complying with noisy withdrawl.
Question 2 - Are there any arguments to consider in favour of noisy withdrawals? Noisy
withdrawals can protect the public from corporate wrongdoing. Also, depending on the
students’ knowledge of business law, they may discuss how a corporation’s management
is supposed to act in the best interest of the corporation. Lawyers owe a duty of
confidentiality in the form of solicitor-client privilege but also a duty to the public and the
courts not to participate in illegal activities. A natural comparison exists with a criminal
lawyer’s position when representing a guilty and dangerous client. An obligation for
lawyers to report ongoing illegal or unethical activity in a noisy withdrawal acts as a
safeguard for shareholders and for the public more generally. The Supreme Court recently
endorsed the priority of solicitor-client privilege over another societal value – privacy. In
Canada (Privacy Commissioner) v. Blood Tribe 2008 SCC 44, the Court refused to allow
the Privacy Commissioner to demand production of documents for which privilege was
claimed. One would think that Canada would take a similar position on noisy withdrawl.
Question 3 - “Optional reporting” is not much of an option. It places the lawyer in a
position of choosing between breaching a fiduciary duty of confidentiality and the
competing interest of safeguarding the public. The solicitor-client privilege rule was
developed to allow freedom for clients to be open and honest with their lawyers.
Knowing the lawyer may report wrongdoing under SOX, closes that open communication
between the client and lawyer, making it difficult for a lawyer to be effective in providing
appropriate advice to the client and nullifying the effect of the rule.
Solicitor-client privilege and anti-money laundering legislation are the Ethical Issue
discussed in Chapter 22 at p. 541. Instructors may want to link these two topics.
QUESTIONS FOR REVIEW

1. In terms of distributive justice, the benefits (or utility) gained by the plaintiff who
recovers damages will exceed the losses (or reduced utility) of a professional
defendant who has to pay them but who can recoup the loss by increasing fees and by
purchasing insurance protection to safeguard against liability. (Source p. 102)
2. Due to the uncertainty concerning liability and the risk of heavy damages, insurance
premiums have been rising. Professional fees, in turn, increase to cover insurance
costs. As fees rise, clients expect more for their money, and when they are
disappointed are more likely to sue. (Source p. 102)
3. Equity imposes a fiduciary duty of care where a person is in a special relationship of
trust such as usually exists in professional-client relations. This fiduciary duty arises
even when the professional donates services free of charge, so that no contract exists.
(Source p. 103)
4. Recent court decisions have established that a plaintiff might choose to sue in either
contract or in tort. The difference is that the common law duty of care is not confined
to relationships that arise apart from contract; it exists independently to the duty owed

under the contract and as such has the potential to be broader in scope. The choice
may be important, since the rules governing time limits for bringing an action might
make it advantageous to sue in tort. (Source p. 107)
5. The reluctance of the courts to find persons liable for negligent misstatements in the
absence of direct contractual or fiduciary relationship was based on a fear that the
scope of potential liability might be virtually unlimited. (Source p.108)
6. The House of Lords found that although Heller neither dealt with nor even knew the
identity of Hedley Byrne, Heller should have foreseen that its information would be
used by a customer of the other bank. Accordingly, it owed that customer a duty to
take reasonable care in expressing an opinion about the financial state of Easipower.
The courts have also added a second part to the test for duty of care and that is to
determine if there are any policy reasons to negative or limit the duty of care to avoid
the problem of indeterminate liability. (Source p. 108)
7. A two-part test is applied. The first part requires the court to determine whether there
is a sufficiently close relationship between the plaintiff and the defendant that the
defendant can reasonably foresee the possibility of damage to the plaintiff if he or she
acts negligently. The second branch of the test deals with what is essentially a policy
issue—would it be consistent with public policy to impose liability? (Source p. 110)
8. The fiduciary duty only applies in situations where the three part test from Alberta v
Elder Advocates of Alberta Society applies. Once a fiduciary duty is established it
imposes a greater range of obligations on the professional than is expressly stated in
the contract or required under tort law. The professional must act honestly, in good
faith, and only in the best interests of the client. (Source p. 103)
9. The test for negligent misrepresentation is a five part test. The plaintiff must
demonstrate: (1) that there is a duty of care based on a “special relationship” between
the representor and the representee; (2) the representation in question must be untrue,
inaccurate, or misleading; (3) the representor must have acted negligently in making
the misrepresentation—that is, he or she must have fallen below the requisite standard
of care required of a professional making such a representation; (4) the representee
must have relied, in a reasonable manner, on the negligent misrepresentation; and (5)
the reliance must have been detrimental to the representee in the sense that damages
resulted. (Source p. 109)
10. It is a requirement for liability for a negligent misrepresentation, that the plaintiff
relied on the misrepresentation and that the reliance was reasonable. Therefore, it can
be argued that, if the plaintiff was also negligent, the reliance could not have been
reasonable. (The court rejected that argument in Avco v. Norman). (Source p. 114)
11. The duty to take reasonable care includes the duty to not omit essential steps in
providing professional services. It embraces sins of omission as well as sins of
commission where a duty to disclose is required. (Source p. 112)
12. One possible approach is simply to wait and see whether a client incurs any loss from
relying on professional advice—a hindsight or ex post approach. If the client suffers

loss, the advice must have been unsatisfactory. The danger of this approach is that it
makes no allowance for mere errors of judgment. The fact that advice may have been
wrong does not mean that it was given negligently. (Source p. 111)
13. The essence of causation, in professional-client relationships, is reliance. Did the
client rely and act upon the advice of the professional? Would the client not have
acted in that way if he had not received that advice? (Source p. 113)
14. Professional bodies have a number of special responsibilities: (a) to set educational
and entrance standards for candidates wishing to become members; (b) to examine
and accredit educational institutions that prepare candidates for membership; (c) to set
and adjust standards of ethical conduct and professional competence; (d) to hear
complaints about and administer discipline to members who fail to live up to the
established standards; and (e) to defend the profession against attacks that it considers
unfair, and to look after the general welfare of the profession. (Source pp. 114-115)
15. In isolated cases of negligence, governing bodies ordinarily leave the matter to the
regular courts, allowing the client to seek the appropriate remedy. In cases of repeated
or very serious violations of professional standards, the governing body might be
expected to take disciplinary action to protect the public and the reputation of the
profession as a whole. (Source p. 116)
16. Advocates of MDPs claim a number of advantages: they benefit clients whose
problems cannot readily be compartmentalized into legal and non-legal; they provide
a more efficient “one stop shop” for business clients who require both accounting and
legal services; and by working together as a team, the quality of service provided by
both professions is improved. The possible disadvantages are the possibility that
professional duties and codes of conduct may conflict, and the increased size of the
firm and diversity of services provided may give rise to conflicts of interest. (Source
pp. 117-118)
CASES AND PROBLEMS
1. Does Ashley have a claim against Bill? Is Bill in a professional relationship with her?
Probably, as he is her insurance agent, and she is in a vulnerable position when she relies
on his advice, so he is in a fiduciary relationship with her. He breached his fiduciary
relationship by not telling her of his relationship to Smith’s Appliance. She could bring a
claim for breach of fiduciary duty against Bill.
The Restaurant Association has given an opinion on the best stove – it is probably not an
actionable misrepresentation. A misrepresentation is a false statement of a material fact
which induces someone to enter into a contract.
Did Smith’s Appliance make a misrepresentation? Perhaps, as they stated that the
coolness of the induction was the basis for her choice, and it turned out that this was not
correct. She must have relied upon this advice and it did not form part of the contract for
there to be a misrepresentation.

2. A problem facing Mitchell, so far as tort law is concerned, is that it may be difficult to
show that Gordon’s failure to disclose Simpson’s true identity and background was
actually a cause of his loss. This is especially so in the case of the investments made
before Mitchell was introduced to Gordon. As to the later investments, Mitchell may be
able to convince the Court that he would not have acted on Simpson’s advice if Gordon
had told him of Simpson’s real identity.
Was Gordon under a duty to disclose what he knew to Mitchell? This case is based upon
Martin v. Goldfarb (1998), 163 D.L.R. (4th) 639, a decision of the Ontario Court of
Appeal. At trial, the judge based his decision on a breach of fiduciary duty, rather than on
negligence, and held that the plaintiff had suffered personal losses following a breach of
fiduciary duty owed to him by his solicitor, and awarded him substantial damages. The
breach consisted of the solicitor's failing to inform the plaintiff about what he knew of the
disbarred lawyer's past.
The appeal court allowed the lawyer’s appeal in part and ordered a new trial. The lawyer
had not been a party to the fraud, had not profited from it, and was unaware that a secret
profit was being made at the plaintiff's expense. He could not be held to have caused all
losses suffered by the plaintiff, and was responsible only for the direct losses suffered
after the date on which he breached his fiduciary duty.
[NOTE: A further problem in the Martin v. Goldfarb case was that the losses were mostly
suffered by a corporation of which the plaintiff was the controlling shareholder, rather
than by the plaintiff himself. This aspect of the case is considered in Chapter 25.]
3. This case is based on Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd.
(1993), 107 D.L.R. (4th) 169, a decision of the Supreme Court of Canada. In that case the
action was brought against the firm of engineers and against the two employees of the
firm personally. No action was brought against the province, presumably because it was
considered that it was protected by the disclaimer clause (that any representations made
therein were "general information" only and were not guaranteed by the province).
The British Columbia Supreme Court and Court of Appeal dismissed the plaintiff’s
claim, holding that no duty was owed by the engineering firm, or by their employees, to
those firms submitting tenders. The Supreme Court of Canada allowed the plaintiff’s
appeal. The engineering firm owed a duty of care to the construction company. It had
made a negligent misrepresentation and should have known that the construction
company might rely on it. Given the brief tendering period, it was reasonable and to be
expected that the construction company would continue to rely on the engineering firm
(which could have protected itself by a disclaimer). The construction company did in fact
rely on the statement, to its detriment. The contract between the province and the
construction company did not limit the construction company's right of action against the
engineering firm. However, the court held that the individual employees of the
engineering firm did not owe a duty to the plaintiffs. (It is difficult to see why not.)

4. The case law since Hedley Byrne clearly establishes that there may be liability for
damage suffered as a result of negligent mis-statements. The two principal questions here
are:
(1) Did the auditors owe a duty of care to the bank; and
(2) Were they negligent in performing the audits?
The extent of the duty of care owed by professionals, such as auditors, is a difficult issue.
It is clear that they do not owe a duty to everyone who might conceivably read and rely
upon their statements. To determine whether or not a duty exists, the Supreme Court of
Canada laid down a two-part test, in Hercules Managements Ltd. v. Ernst & Young
(1997) 146 D.L.R. (4th) 577. First, there must be a reasonably close relationship between
the plaintiff and the person making the statement, so that the latter can reasonably foresee
that a negligent statement could cause loss to the plaintiff. Second, the courts must deal
with a policy question. Is it in society’s interest to impose liability? The case is based
upon Canadian Commercial Bank v. Crawford, Smith & Swallow (1994), 21 C.C.L.T.
(2d) 89, a decision of the Ontario Court of Justice—General Division. In that case, it was
held that the plaintiff had not established that a duty of care existed. The auditors should
not face unlimited liability. Although the auditors could expect that persons other than the
shareholders (for whom the accounts were prepared) might look at, and rely on, the
accounts, they were not specifically aware that the bank was taking over the account or
that the financial statements were being considered by it. This was not like the situation in
Haig v. Bamford (1976), 72 D.L.R. (3d) 68 (Supreme Court of Canada), where the
accountants knew that the accounts were being prepared in connection with an actual
takeover offer.
5. This question is based on the facts from Queen v. Cognos Ltd. [1993] 1 S.C.R. 87. In
order to rely on the misrepresentation of the employer, the plaintiff, Prince would have to
to prove the five elements of negligent misrepresetantion.
First, did the employer owe a duty of care to Prince? Was there a sufficient proximity of
relationship between the parties that in the contemplation of the employer that
carelessness on its part could cause harm to the plaintiff? Specifically, in this case, was it
reasonably foreseeable that the carelessness by Paulson in describing the job could cause
the plaintiff to suffer the harm that he did; that is, leaving previously secure employment
(both he and his wife), and the expense of moving to Ottawa from Calgary. The second
part of the duty of care test is to determine if there are any policy considerations that
should negative or limit the scope of the duty. The number of job applicants would be a
definable group and therefore indeterminate liability would not be applicable here.
The second element of negligent misrepresentation is that the representation in question

must be untrue, inaccurate or misleading. In this case the representation was “that the
company would commit to significant funds to the project for the next ten years.” By
making this statement Paulson negligently misrepresented the nature and existence of the
job. At the time the statement was made, Paulson may have believed that it would

become true, but the statement was not true at the time it was made, and this was later
borne out by the failure of the Excutive Committee to approve the project.
The third element of the test is that the person making the statement fell below the
standard of care. Paulson was not careful in making the representation to Prince. He did
not act with the care of the reasonable, ordinary person in the circumstances. The standard
of care required by a person making representations is an objective one: it is a duty to
exercise such reasonable care as the circumstances require to ensure that representations
made are accurate and not misleading. The statement was not a mere puffery, but a fact
regarding the terms of employment that was not true.
The fourth element of misrepresentation is that the representee reasonably relied on the
statement. Prince was looking for a new challenging job. If he had been informed that he
would be doing the new job for only five months and then reverting to his present job, it
is reasonable to assume that he would have declined the position. Under these
circumstances it is demonstrable that Prince reasonably relied on the statement of a ten
year commitment to the project in making his decision to quit his job, uproot his family,
and move across the country.
The final element of misrepresentation is that the reliance must have been detrimental to
the representee. Prince suffered the loss of existing secure employment, the expense of
moving, plus the loss of his wife’s income, etc. by accepting the job.
Whether the disclaimers in the employment contract would apply, requires a

consideration of whether the representation was made a term of the contract or not. If it
was, then the plaintiff would be limited to the contractual remedies as per BG Checo
International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 000,
rev'g in part (1990), 44 B.C.L.R. (2d) 145. However, in this case it is more likely that Prince
would not be held to the contractual terms and could instead look to the common law duty
under tort because there were no terms of the contract relating to the misrepresentation. In
Queen v. Cognos Ltd. the Supreme Court held that the Hedley Byrne principal regarding
misrepresentation was not limited to non-contractual situations. A plaintiff can sue in tort
or contract depending on the circumstances of the case.
6. This case is based (rather loosely) on Schilling v. Certified General Accountants Assn.
of British Columbia (1996), 135 D.L.R. (4th) 669, a decision of the British Columbia
Court of Appeal. There, the plaintiffs suffered a loss by the fraudulent conduct of an
accountant, and brought an action against the defendant association for negligence in
permitting the accountant, a former member, to continue to represent himself as
"certified" after the association had obliged him to resign. The court accepted that
professional bodies do owe a duty to the public to try to ensure that their members are
properly qualified. However, they are under no duty to initiate criminal proceedings
against their members. Nor can they be expected to ensure that former members do not
continue to practice and to hold themselves out as members.

CASE SUMMARIES
Adams-Eden Furniture Ltd. v. Kansa General Insurance Co. (1996), 141 D.L.R. (4th)
288 (Manitoba Court of Appeal)
A furniture manufacturer asked an insurance broker to arrange insurance coverage for the
business. The broker arranged coverage with an insurer. The broker was not fully
informed about a previous claim, or about two previous fires. A loss occurred and the
manufacturer made a claim against the insurer; the insurer settled the claim and claimed
over against the broker for negligently failing to make full inquiry and full disclosure. The
claim over failed. The insurer appealed to the Manitoba Court of Appeal who held that
the broker was the agent of the insured and owed no duty of care to the insurer. The
insurer's remedy, in case of non-disclosure of material facts, was to deny liability on the
policy.
Air Canada v. M & L Travel Ltd. (1993), 108 D.L.R. (4th) 592 (Supreme Court of
Canada)
Two directors of a travel agency entered an agreement to sell Air Canada tickets directly
to the public. They were obliged to keep the funds in a trust account and to pay the
monies to Air Canada bimonthly. The funds were put in a general account, but were paid
to Air Canada until relations between the two directors broke down. The business closed
for a number of days. One of the directors tried to make payments to Air Canada, but the
bank refused as it had received conflicting instructions from the directors. The travel
agency did not pay its bank loan and the bank exercised its right to withdraw the funds
from the general account to pay off the loan. Air Canada sued the company and the
directors personally for the loss. At trial, the directors were not found personally liable,
but that was overturned on appeal. The Supreme Court upheld the decision of the
appellate court finding that the director was in a position of trust to Air Canada and had
breached that trust.
Anns v. Merton London Borough Council, [1978] A.C. 728 (England – House of
Lords)
This case was about faulty building construction. A series of maisonettes had been
approved by the local council (Merton) with a foundation depth of three feet or deeper,
with right of inspection by Merton prior to the completion of the buildings. The
maisonettes were completed and sold. Several years later the buildings shifted and the
cause was found to be that the foundation was inadequate, being only two feet, six inches
deep instead of the required three feet or deeper. The owners of the leases to the buildings
sued Merton for negligence. The court held that the test for duty of care was tow parts: (1)
proximity of relationship; and (2) considerations of reasons why there should not be a
duty owed.

Avco Financial Services Realty Ltd. v. Norman (2003), 226 D.L.R. (4th) 175 (Ontario
Court of Appeal)
The defendant along with his wife obtained a mortgage from the plaintiff. The plaintiff
sold the defendant life insurance on the mortgage as well. The defendant took a one year
term on his mortagage. At the end of the term, he renewed the mortgage for a further
term. At that time he was told that he must reapply for life insurance coverage. He and his
wife both did this. The following year when the mortgage had to be renewed, the wife had
been diagnosed with cancer; and so, the insurance company denied her coverage. After
she died, the defendant was unable to support the mortgage payments and the plaintiff
recovered the property under power of sale. The plaintiff sued the defendant for the
shortfall and the defendant counterclaimed for negligent misrepresentation. The trial
judge held that the plaintiff had made a negligent misrepresentation, but further found
that the defendant had been contributorily negligent. The Court of Appeal agreed with the
trial judge’s position that a finding of negligent misrepresentation did not preclude a
finding of contributory negligence.
BAE—Newplan Group Ltd. v. Altius Minerals Corporation, 2010 NLTD (G) 133
(Supreme Court of Newfoundland and Labrador, Trial Division)
The plaintiff entered into a contract with the various defendants to provide engineering
services. The plaintiff alleges that the defendants were unable to pay for the engineering
services because of mismanagement of funds by the various corporate defendants and
specific directors of the corporate defendants. Four of the individual directors brought this
application to have their names struck from the suit, as the pleadings revealed no cause of
action against them. The plaintiff alleges that the failure to disclose relevant information
amounted to a misrepresentation. The court stated at para 20 that, “it is clear that silence
or inaction can become a representation but only in circumstances where the person
alleged to have misrepresented owes a legal duty to a plaintiff to make the disclosure in
question.”
Belknap v. Meakes (1989), 64 D.L.R. (4th) 452 (British Columbia Court of Appeal)
The plaintiff suffered a stroke during a surgical operation and sued the anaesthetist. The
trial judge found that the most likely cause of the stroke was a drop in the plaintiff's blood
pressure, and allowed the action in negligence to succeed. On appeal, the court held that
the onus of proof of negligence and causation is on the plaintiff. The evidence did not
establish that the drop in blood pressure caused the stroke or that the defendant had been
negligent. The fact that some practitioners used a different practice was insufficient to
support a finding of negligence where the defendant's practice conformed to that of a
reasonable body of opinion.

Bell v. City of Sarnia (1987), 37 D.L.R. (4th) 438 (Ontario High Court of Justicce)
The plaintiff was working overseas for a number of years. He decided that he would like
to quit his job and move back to Sarnia. He investigated the possibility of operating his
own business. He found a property that was currently zoned for residential. He
approached the city’s zoning department and received assurances that the property could
be rezoned commercial and that his proposed businesses of variety store and fast-food
outlet would comply with the zoning. After investing much time and money, the City
refused to greant him permits with respect to the fast food outlet. He sued for negligent
misrepresentation. The court held that there was negligent misrepresentation and under
the Hedley Byrne principal the municipality was liable for the plaintiff’s economic losses.
Black v. Law Society of Alberta, [1989] 1 S.C.R. 591 (Supreme Court of Canada)
A law firm in Alberta wished to enter a partnership with a law firm in Ontario. The Law
Society enacted rules that prohibited these activities, specifically prohibiting lawyers from
joining in partnership with lawyers who did not normally reside in the province of Alberta
and secondly, prohibiting a lawyer from belonging to more than one law firm. The
Supreme Court struck down the rules as being contrary to the mobility rights and rights of
association as set out in the Charter of Rights and Freedoms ss. 6(2)(b) and 2(d) , nor
were they justified under s. 1 of the Charter.
Border Enterprises Ltd. v. Beazer East Inc. (2002), 216 D.L.R. (4th) 107 (British
Columbia Court of Appeal)
The plaintiff sued a number of defendants for losses arising from contaminated land. One
of the defendants was the Federal Crown. The Crown had requested that the statement of
claim against it for negligent misrepresentation be struck out. The judge agreed and the
plaintiff appealed the decision. The Court of Appeal held that even if the Crown had
made a negligent misrepresentation, the plaintiff was not in a position to rely upon it and
even if the plaintiff could rely upon it, then it would still not pass the test for negligence
as it would create indeterminate liability. The appeal was dismissed on this point.
Bruno Appliance & Furniture Inc. v Hryniak 2014 SCR 8

Page 107, footnote 8
347671 B.C. Ltd. v. Heenan Blaikie (2002), 113 A.C.W.S. (3d) 725: [2002]
B.C.J.No.347 (British Columbia Court of Appeal)
The plaintiffs loaned money to finance the promotion of a concert. The concert was a
financial failure and they lost their investment. They claimed that they relied on a
negligent misrepresentation made by the defendant law firm. The law firm did not act for
the plaintiffs, but acted for the parties with whom the plaintiffs invested. The court found
for the plaintiffs. The law firm owed them a duty of care even though they were not the

firm’s clients. The plaintiffs were engaged in a commercial transaction with their client
and there was a "special relationship" between the law firm and the plaintiffs.
Canada (Privacy Commissioner) v. Blood Tribe Department of Health, 2008 SCC 44

(Supreme Court of Canada)
An employee who had been dismissed requested her personal file from her employer as
she believed that it contained information used to discredit her and have her dismissed.
The employer refused to produce the file. The employee took the matter to the Privacy
Commissioner. The employer turned the file over to the commissioner with the exception
of documents subject to solicitor-client privilege. The employer took the matter to a judge
to determine if the Commissioner was able to compel disclosure of the documents in
question. The reviewing judge determined that the Commissioner was able to compel
production of the documents in order to perform her investigative role. The Federal Court
of Appeal vacated that decision. The Supreme Court agreed with the court of appeal and
dismissed the appeal. Solicitor-client privilege is fundamental to the proper functioning of
our legal system.
Candler v. Crane, Christmas & Co., [1951] 2 K.B. 164 (England - House of Lords)
Ogilvie was director of a mining company in Cornwall, U.K. The company needed more
capital and so Ogilive placed an ad in the papers looking for investors. The plaintiff,
Candler, said he might be interested in investing, if he could review the company’s
accounts. Ogilvie requested that the defendant, Crane, Christmas & Co., a firm of
auditors prepare the account books for Candler’s inspection. Mr. Candler inspected the
books in the presence of the defendant and decided to proceed with the investment. It
turns out the mining company was in bad financial straits. Ogilvie took the investment for
himself and the company went bankrupt. Candler sued the defendant auditor for negligent
misrepresentation. The House of Lords denied the claim as there was no cause of action
for misrepresentation without a contractual relationship. This position was eventually
changed in the House of Lords’ later decision: Hedley Byrne & Co. Ltd. v. Heller &
Partners Ltd. [1964] A.C. 465
Caners v. Eli Lilly Canada Inc. (1996), 134 D.L.R. (4th) 730 (Manitoba Court of
Appeal)
The plaintiff farmer purchased herbicide from the defendant manufacturers. The herbicide
was labelled with a warning: “To cover the possibility of injury to rotational crops, seed
the crops shallow into a warm moist seedbed.” The plaintiff’s crops were damaged by the
failure of the herbicide to control weeds effectively, and in the following year by the
effect of the residue. The manufacturer was held liable for the breach of warranty that the
herbicide was suitable for the purpose for which it was bought; in particular, the warning
was held to have been insufficiently precise. The trial judge reduced the amount of
damages on account of the farmer’s contributory negligence in seeding the second crop
too deep. On appeal, the Manitoba Court of Appeal held that the defence of contributory

negligence was not available. The defence was created by statute—in this case, by s.4 of
the Tortfeasors and Contributory Negligence Act, R.S.M. 1987, c. T-90—which reads, in
part: “contributory negligence by a plaintiff is not a bar to the recovery of damages by
him and in any action for damages that is founded upon the negligence of the defendant,
if negligence is found on the part of the plaintiff which contributed to the damages, the
court should apportion the damages in proportion to the degree of negligence found
against the plaintiff and defendant respectively.” The statute did not apply, since the
plaintiff’s claim was based upon breach of contract.
Capital Community Credit Union Ltd. v. BDO Dunwoody [2001] O.J. No. 4249
(Ontario Court of Appeal)
A credit union hired the defendant as its auditor. The audits missed some important
irregularities in the credit union’s loans. The credit union sued for negligence. The trial
judge held that the auditors had been negligent, but that the credit union had been 30%
contributorily negligent in not mitigating its losses. The Court of Appeal affirmed the trial
judge’s findings.
Central Trust Co. v. Rafuse (1986), 31 D.L.R. (4th) 481 (Supreme Court of Canada)
The defendant solicitor acted for the plaintiff trust company in connection with a
mortgage loan to a corporation that operated a motel and restaurant. Both the plaintiff and
the defendant knew that the loan was to be used to enable certain individuals to buy
shares in the corporation, though they were unaware that such a transaction was unlawful
under the Nova Scotia Companies Act. (The defendant, at least, should have known that.)
In subsequent foreclosure proceedings against the corporation the mortgage was held to
be void and unenforceable. The plaintiff sued the defendant for its loss, resulting from
losing its security; its claim was based both in tort (negligence) and in contract (breach of
an implied term that the solicitor would exercise proper care).The defendant was held
liable. The court held that the common law duty of care in tort is not restricted to non-
contractual situations and is independent of any contract. This was important, since the
limitation period for commencing proceedings starts to run, in contract from the time of
the breach of contract, whereas in tort it did not begin to run until the injury became
apparent; this was (at the earliest) when the validity of the mortgage was first challenged.
Thus, the plaintiff could recover in tort even though it was too late for it to recover in
contract. It was further held that the plaintiff was not contributorily negligent; it had
discharged its duty of care by retaining a qualified lawyer to perform the necessary legal
services. [Recall the discussion in Chapter 4 of the applicability of the defence of
contributory negligence in contract actions.
Chapters Inc. v. Davies, Ward & Beck LLP. [2000] O.J.No.4973 (Ontario Court of
Appeal)

A law firm sought to represent a corporation that was seeking to acquire control of the
plaintiff company. One of the lawyers employed by the law firm had, five years
previously, acted for the plaintiff company. The plaintiffs applied for, and the court
granted, a declaration that a conflict of interest existed and that the defendant law firm
should not be allowed to represent the other corporation. They were in possession of
confidential information about the plaintiffs.
CIA Inspection Inc. v. Dan Lawrie Insurance Brokerss [2010] O.J. No. 3313 (Ontario
Superior Court of Justice)
The plaintiff was an Ontario corporation carrying on business internationally inspecting
oil refinery coke drums. It used very expensive specialized equipment for this job. One of
its sensors was destroyed in an accident on site in Venezuela. It claimed to its insurance
company. The insurer denied the claim, stating that the insurance only covered damages
to the sensor caused in transit, not while in operation at a job site. The plaintiff then sued
its insurance agent. The court held that the broker had a duty to its client to obtain the
correct coverage. The court further held that the plaintiff was 33 1/3% contributorily
negligent in not following up with the broker.
Cooper v. Hobart (2001), 206 D.L.R. (4th) 193 (Supreme Court of Canada)
The plaintiff was an investor who invested with a broker who was eventually suspended
by the Registrar of Mortgage Brokers for various irregularities. The plaintiff sued the
Registrar for negligence for not suspending the broker’s licence sooner and for not
advising the broker’s investors about the investigation into the broker’s violations. The
Supreme Court held that there was no duty of care owed by the defendant to the plaintiff.
Costco Wholesale Canada Ltd. v. British Columbia (1998), 157 D.L.R. (4th) 725
(British Columbia Supreme Court)
Pursuant to the Optometrists Act, R.S.B.C. 1996, c. 342, the Board of Examiners in
Optometry created rules prohibiting business associations between optometrists and non-
optometrists. Two optometrists petitioned for judicial review of the validity of the
prohibitive rules. They argued that the rules violated the freedom of association
guaranteed by s. 2(d) of the Canadian Charter of Rights and Freedoms, and in the
alternative, that the rules were ultra vires on administrative law grounds. The court held
that a business relationship between optometrists and non-optometrists was an association
protected under s. 2(d). The impugned rules had the effect of prohibiting associations that
fell within the scope of the guaranteed freedom and it could not be justified on the basis
of section 1 of the Charter. The absolute prohibition against any business relationship
between optometrists and non-optometrists was overly broad. To the extent the board saw
fit to prohibit such associations, it was required to create rules that could be proven to be
both rationally based and proportionately implemented.

Crown West Steel Fabricators v. Capri Insurance Services Ltd. (2002), 214 D.L.R.
(4th) 577 (British Columbia Court of Appeal)
The plaintiff corporation’s building was destroyed by fire. It discovered that it was
underinsured and was not fully compensated. It brought an action against its insurance
broker in negligence, contract and breach of fiduciary duty, for failing to recommend
adequate insurance coverage. The trial judge found that the defendants were negligent and
he awarded damages for business interruption loss, but reduced the award by thirty-five
percent for contributory negligence. The plaintiffs appealed against the apportionment,
arguing that its claims could be made concurrently as damages for breach of contract and
fiduciary duty, and that contributory negligence could not be used to reduce its damages
under those causes of action. The British Columbia Court of Appeal dismissed the appeal.
The provisions of the Negligence Act should apply to the liability of parties in contract
where that liability is concurrent with their liability in negligence. The contributory fault
of the plaintiff should result in apportionment under both causes of action. (The court also
found that there was no breach of fiduciary duty.)
Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd. (1993), 107 D.L.R. (4th)
169 (Supreme Court of Canada)
The plaintiff construction company won a contract to build a section of highway for the
province. It suffered loss because the specifications and construction drawings prepared
by the defendant firm and their engineers were faulty. The firm was held to have owed a
duty of care to the plaintiff company, which had relied on the drawings and
specifications. The individual engineers who prepared the drawings were not liable: the
plaintiff had relied on the reputation of their firm, not on their individual expertise.
Eastern Power Ltd. v Ontario Electric Financial Corporation 2010 ONCA 467
Page 104 footnote 8
Fine’s Flowers Ltd. v. General Accident Assurance Co. et al. (1974), 49 D.L.R. (3d)
641; affirmed (1977), 81 D.L.R. (3d) 139 (Ontario Court of Appeal)
See Case 5.9 at p. 113 in the text. The defendant was the insurance agent for the plaintiff.
The plaintiff operated a greenhouse in the Ottawa area. It relied on the defendant to
ensure that proper insurance was in place, particularly regarding damage due to loss of
heat. The defendant provided insurance on the plaintiff’s boilers, but neglected to obtain
coverage for the water pumps that were a part of the heating system. The pumps failed
and the insurance company refused payment as the pumps were not insured. The plaintiff
then sued the agent. The agent was found to be liable under negligence for falling below

the standard of care; or the cause of action could be categorized as breach of a special
fiduciary duty.
Edwards v. Law Society of Upper Canada (2001), 206 D.L.R. (4th) 211 (Supreme
Court of Canada)
The plaintiffs were part of a large group of people who were scammed into purchasing
gold. They were told to pay for the gold by depositing their money into a solicitor’s trust
account. There was no gold. They brought a class action against the defendant law society
for negligence in not ensuring that the solicitor’s trust account was being properly
maintained; or for failing to advise them that they would no longer be in a supervisory
role over the trust account. The Supreme Court held that there was no duty of care owed
to the plaintiffs.
Ferrar v Lorenzetti Wolfe 2012 ONCA 851

Page 107 footnote 16
Fletcher v. Manitoba Insurance Co. [1990] 3 S.C.R. 191 (Supreme Court of Canada)
The plaintiffs were injured in a car accident. The other driver did not have sufficient
insurance to cover their damages. The plaintiffs then applied to their own insurer, the
defendant, for the shortfall. The defendant refused to pay as the plaintiffs did not have the
appropriate coverage. The plaintiffs brought an action against the defendant based on
negligent misrepresentation by omission for failing to inform the plaintiffs of the
appropriate coverage. The trial judge held that the defendant failed in its duty to its
insured by not providing them with the information they needed to make an informed
decision about what risks they were preapared to accept and were therefore liable. The
Court of Appeal overturned the decision. The Supreme Court allowed the appeal and
restored the trial judge’s decision.
Frame v. Smith [1987] 2 S.C.R. 99 (Supreme Court of Canada)

This was a family law case. The plaintiff was a husband who sued in tort to try to
overcome his ex-wife’s attempts to frustrate his efforts to access their children as per a
court order. The defendant brought a motion to have the statement of claim struck as not
demonstrating a cause of action. The lower courts granted the application to strike the
claim. The Supreme Court affirmed the lower court’s decisions as the new family law
legislation eliminated the old tortious actions and so they were no longer available. In her
dissent, Madam Justice Wilson discussed the fiduciary obligation. At paragraph 60 she
set out the test for a fiduciary relationship.
Galambos v. Perez 2009 SCC 48, [2009] 3 S.C.R. 247 (Supreme Court of Canada)

See Case 5.3 at p. 104 in the text. A bookkeeper for a law firm made loans to the firm
without the lawyer’s knowledge. The law firm had provided legal services to the
bookkeeper free of charge. The law firm eventually went bankrupt. The plaintiff sued for
breach of fiduciary duty, breach of contract, and negligence. The trial judge dismissed her
action stating that she was simply in a debtor-creditor relationship. The British Columbia
Court of Appeal held that there was a fiduciary relationship and a breach thereof. The
Supreme Court of Canada overruled the Court of Appeal and restored the trial judge’s
judgment. The court held that the Court of Appeal erred in finding a fiduciary relationship
existed here in spite of the per se fiduciary relationship between a lawyer and client. The
circumstances of this particular case did not give rise to a fiduciary relationship.
Haig v. Bamford (1976), 72 D.L.R. (3d) 68 (Supreme Court of Canada)

A firm of accountants negligently prepared an audited financial statement for a
corporation, knowing that the statement was intended to be shown to potential investors
in the corporation. They were held liable to the plaintiff, who invested in reliance on the
statement, even though his personal existence was not known to the firm. He was one of a
group of persons who might be expected to rely on the statement.
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465 (England – House
of Lords)
See Case 5.6 at p. 108 in the text. The plaintiff company was approached by a client
wishing to obtain some advertising. As the nature of the business required the plaintiff to
purchase the advertising for the client on a credit basis, the plaintiff requested a credit
rating by contacting its own bank who in turn contacted the client’s bank, the defendant
company Heller & Partners Ltd. The defendant provided a positive credit rating, but did
have a disclaimer of liability in the letter provided. The credit rating proved to be
inaccurate and shortly thereafter the client went bankrupt. The plaintiff suffered a
substantial financial loss as a result. The House of Lords stated that the loss was
recoverable under tort although the harm suffered was purely financial. Further, the
plaintiff was able to sue the defendant, despite the lack of privity of contract, under the
cause of action of negligent misrepresentation as a tort. The plaintiff was, however,
barred from recovery based on the disclaimer in the credit rating.
Hercules Managements Ltd. v. Ernst & Young (1997), 146 D.L.R. (4th) 577 (Supreme
Court of Canada)
Shareholders in two corporations brought an action against a firm of accountants, alleging
that audits of the corporations' financial statements had been negligently prepared; and
that in consequence, they had incurred investment losses and losses in the value of their
shareholdings. The accountants argued they owed no duty of care to the shareholders in
tort, and that any action should have been brought in the names of the corporations. On
appeal, the Supreme Court of Canada held, dismissing the appeal, that reliance by

shareholders on a corporate audit was foreseeable, and consequently, there was a prima
facie duty of care. However, the purpose of an audit was to enable the shareholders
collectively to exercise control over the directors. Losses caused to shareholders as
individuals were not within the scope of the accountants' duty, and any action should
therefore be brought in the names of the corporation. Consequently, the prima facie duty
of care was negated by policy considerations.
Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41 (Supreme

Court of Canada)
Police arrested and charged the plaintiff with ten counts of robbery. The police did have
some evidence to suggest that the culprit may have been the plaintiff including eye
witnesses. The plaintiff was convicted of one count of robbery. He appealed his
conviction and was acquitted. He had served twenty months in jail for a crime he did not
commit. He then brought this civil action for negligent investigation. The court held that
there was such a tort as negligent investigation (the police are not immune to claims of
negligence); however, the police were not negligent in this case as they did not fall below
the standard of care.
Hodgins v. Hydro-Electric Commission of the Township of Nepean (1975), 60 D.L.R.

(3d) 1 (Ontario Court of Appeal)
See Case 5.8 at p. 111 in the text. The plaintiff wished to construct a pool. He approached
the defendant to determine the best source of energy to heat the pool. The defendant
provided a cost estimate for electric heat. In reliance on this estimate, the plaintiff
installed electric heat. The costs were much higher than anticipated by the estimate and
the plaintiff sued for negligent misrepresentation. The Court of Appeal held that there
was no misrepresentation. At the time the employee of the defendant produced the
estimate the information was accurate. He acted with competence and diligence in
producing the estimate and therefore did not fall below the standard of care at the time the
estimate was made.
Hodgkinson v. Simms, [1994] 3 S.C.R. 377 (Supreme Court of Canada)
See Case 5.2 at p. 104 in the text. A stock broker looked to an expert for tax shelter
advice. The expert recommended multi-unit residential buildings (MURBs) as an
investment. The broker agreed. Later the broker discovered that at the time of his
investment in the MURBs the expert was in fact financially involved with the builders.
He sued for breach of fiduciary duty. The court held that a fiduciary duty did exist in this
case and that the failure to disclose the connection between the expert and the builder was
a breach of the duty.

Hopp v. Lepp (1980), 112 D.L.R. (3d) 67 (Supreme Court of Canada)

The plaintiff was due to have a back operation performed by the defendant. The defendant
did not tell the plaintiff that this was his first time performing the operation since
obtaining his specialist's license (although he had performed the operation many times
without actual supervision in the past). The plaintiff wanted to have the operation in
Calgary but the defendant convinced him to have it in Lethbridge, saying that the
operation was not serious, but without disclosing that there was no medical specialist
support in Lethbridge in case of an emergency. The plaintiff signed a consent form and
underwent the surgery which did not go well. The plaintiff had to undergo further surgery
by a neurosurgeon and was left with permanent disabilities due to nerve damage. He sued
the defendant in negligence and battery, claiming his consent to the operation had been
vitiated by the non-disclosures.
The court held that there was no negligence in the diagnosis, the choice of surgery, the
operation itself, or in the post-operative care. The court further held that the plaintiff's
consent had not been vitiated. The doctor was not obliged to disclose the number of times
he had performed the operation since he was fully qualified. It was a routine operation
that could be performed as easily in Lethbridge as in Calgary. The doctor had fully
disclosed the seriousness of the operation.
Hollis v. Dow Corning Corp. (1995), 129 D.L.R. (4th) 609 (Supreme Court of
Canada)
The plaintiff underwent breast implant surgery on the advice of her doctor. Later she
suffered pain and another doctor operated and discovered that one of the implants had
ruptured. It was later discovered that the company knew that this was a risk and had failed
to warn the doctor. The Supreme Court held that the duty of a manufacturer to warn is
ongoing and the learned intermediary rule applied. The defendant was found liable.
Hughes v. Sunbeam Corp. (Canada) Ltd. (2003), 219 D.L.R. (4th) 467 (Ontario Court
of Appeal)
The plaintiff brought a class action suit against the manufacturer of a defective smoke
alarm. He included as a defendant the Underwriters’ Laboratories of Canada (the party
responsible for certifying and approving the detectors). The defendants brought a motion
before the judge to have claims against them struck out as the claims did not disclose a
cause of action. The court of appeal upheld the trial judge’s decision to strike many of the
claims (including ULC) as there was not sufficient proximity of relationship to establish a
duty of care owed to the defendant, or establishing a duty of care would create a situation
of indeterminate liability.
Hunt v. TD Securities Inc. (2003), 229 D.L.R. (4th) 609 (Ontario Court of Appeal)

See Case 5.1 at p. 104 in the text. The Hunts were an older couple who had brought their
mutual funds to the defendant for investment. The investment contract was non-
discretionary; that is, all transactions had to be approved by the Hunts. The defendant sold
some shares owned by the Hunts. The stock prices on those shares subsequently rose in
value. The Hunts sued for breach of a fiduciary duty. The Courtof Appeal held that there
was no fiduciary relationship as the parties did not meet the test and therefore, no breach.
However, the court did agree that there was a breach of contract.
JB Printing Ltd. v. 829085 Ontario Ltd. [2003] O.J. No. 1230, aff'd (2004) 192 O.A.C.
313 (Ontario Court of Appeal)
The plaintiff wished to purchase a printing press from a broker. The defendant was the
previous owner of the press. The plaintiff asked the defendant about the press and the
defendant voluntarily told the plaintiff that“it’s a great press” and “there is nothing wrong
with it.” The plaintiff relied on these statements and purchased the press. These
statements turned out not to be true. The trial judge found as fact that a component of the
press was damaged compromising its performance. The trial judge held that the defendant
was liable for negligent misrepresentation. The Court of Appeal affirmed this decision.
J. Nunes Diamonds Ltd. v. Dominion Electric Protection Co. (1972), 26 D.L.R. (3d)
699 (Supreme Court of Canada).
The plaintiff, a diamond merchant, had a contract for burglary protection with the
defendant. The contract limited the defendant's liability for breach of contract to $50. It
also contained a clause that excluded any conditions, warranties, or representations other
than those written in the contract. A neighbouring merchant's business, protected by the
same system, was robbed and the defendant was unable to explain how the system had
been defeated. The plaintiff then asked the defendant to inspect his premises. An
unidentified representative of the defendant came and made a representation about the
quality of the system, saying that even its own engineers could not get through the
system. Shortly thereafter, the plaintiff's business was robbed by thieves who
circumvented the security system.
The plaintiff's insurer paid him and exercised its right of subrogation against the
defendant. The court held that the defendant was not liable for more than $50. The
statement made after the contract was formed did not alter the allocation of risk as it had
been made in the original contract. The representation was not actionable in negligence;
liability was fully accounted for under the contract since the representation was related to
performance of the contract.
Kamloops (City of) v. Nielsen [1984] 2 S.C.R. 2 (Supreme Court of Canada)

The city, although aware through its building inspector of a defect in on-going
construction, failed to prevent the construction of a house with defective foundations.
Three years later, the original owners sold the house to Nielson. A year after that, Nielsen
discovered that the foundation had subsided and sued the city and the original owners for
negligence. The Court held that the city was in breach of its statutory duty in failing to
protect the plaintiff against the builder's negligence. The city was held twenty-five percent
responsible and the original owners seventy-five percent. The court set out the Canadian
test for negligence:
(1) is there a sufficiently close relationship between the parties (the [defendant]
and the person who has suffered the damage) so that, in the reasonable
contemplation of the [defendant], carelessness on its part might cause damage to
that person? If so,
(2) 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 damages to
which a breach of it may give rise? (at 10 per Wilson, J.)
Kerr v. Danier Leather Inc. 2007 SCC 44 (Supreme Court of Canada)

Danier included a forecast of fourth quarter results in a prospectus prepared for an initial
public offering of shares. After the release of the prospectus, but before the public
offering closed, Danier became aware that the forecast in the prospectus was overly
optimistic and unlikely to be realized; it did not disclose this new assessment.
Shareholders brought a class action for misrepresentation pursuant to s. 130 of the
Securities Act and were successful at trial. The Court of Appeal overturned the trial
judgment and the Supreme Court dismissed the appeal. The forecast was accurate at the
time of filing. Subsequent disclosure was not required by statute because the new
information did not qualify as a “material change” under s. 57 of the Securities Act. The
SCC held that forecasting was a matter of business judgment but the business judgment
rule could not be used to limit a statutory duty to disclose (in this case none was found).
The Court also ordered costs and made interesting comments about the use of class
actions by shareholders and the role of costs in class action litigation.
Kitchen v. McMullan (1989), 62 D.L.R. (4th) 481 (New Brunswick Court of Appeal)
The plaintiff suffered delayed bleeding following a tooth extraction. He was diagnosed as
a mild haemophiliac and a blood replacement product called cryoprecipitate was
prescribed and administered. The bleeding stopped. Then another product "Hemofil" was
prescribed and administered. The prescribing physician knew that this product carried a
higher risk of transmitting hepatitis but did not inform the plaintiff of this. The plaintiff
contracted hepatitis. Evidence was that the risk was very low and not usually disclosed.
On the other hand, delayed bleeding if left uncontrolled is life threatening. The plaintiff's

action was dismissed. The risk ought to have been disclosed, but a reasonable person in
the plaintiff's position would not have refused treatment.
Korz v. St. Pierre (1987), 61 O.R. (2d) 609 (Ontario Court of Appeal)
The fiduciary duty of a solicitor to his/her client may last beyond the term of the retainer.
The duty to avoid a conflict of interest will likewise continue, even after the relationship
is over.
Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574
Junior mining company “Corona” revealed confidential information about a property to

senior mining company “Lac” in the hope of establishing a joint venture. Lac used the
information to buy the property. The court held that this was a breach of confidence and
that a fiduciary relationship existed. The court reiterated the test for a fiduciary
relationship. As well, the court stated that generally, certain types of relationships give
rise to a fiduciary relationship: “director-corporation, trustee-beneficiary, solicitor-client,
partners, principal-agent, and the like.”
London Drugs Ltd. v. Kuehne & Nagel International Ltd. (1992), 97 D.L.R. (4th) 261
The defendant agreed to store a transformer for London Drugs. The storage contract
contained a clause limiting its liability to $40 on any one packet, unless the bailor chose
to purchase additional insurance. Employees of the defendant negligently dropped the
transformer while trying to move it, causing damage of almost $34,000. The defendant
was held to be vicariously liable in negligence, but was entitled to rely on the contractual
provision limiting its liability to $40. The employees were personally liable for their own
negligence, but they too were entitled to rely on the contractual exemption even though
they were not parties to the contract. It was contemplated that the transformer would be
stored by employees, and to uphold the doctrine of privity of contract would have the
effect of allowing London Drugs to circumvent a limitation that it had expressly agreed
to. (This case is discussed further in Chapter 11, "Privity of Contract and the Assignment
of Contractual Rights")
Manufacturer’s Life Insurance Co. v. Pitblado & Hoskins, 2009 MBCA 83, [2009] 2
W.W.R. 638 (Manitoba Court of Appeal)
The City of Winnipeg agreed to amend a lease with respect to some land it owned as a
developer of the neighbouring lot needed financing and Manufacturer’s Life would not
agree to the mortgage without the changes. Winnipeg neglected to mention another party
who was also using the land as a parking lot under a different lease. Disputes arose

between the third party and the developer. As a result the developer was unable to
proceed with development of the property and went into default on its mortgage. The
court held (and was affirmed by the Court of Appeal) that the City had made a negligent
misrepresentation and that the mortgagee was entitled to make a Hedley Byrne claim
against it. The court used the five step test as laid out in Queen v. Cognos.
Martin v. Goldfarb (1998), 163 D.L.R. (4th) 639 (Ontario Court of Appeal)
Martin was a property developer in the nursing home business. He owned substantial
properties in Ontario and decided to move into the Toronto market. He purchased a
property owned by Anthony, a member of the Frog Pond Group. Martin was then
persuaded by FPG and particulary, Mr. Axton to purchase another property. Both of these
purchases ultimately turned out to be a disaster. It turns out that Axton was a former
lawyer, who had been disbarred and convicted for fraud. Axton’s lawyer was Goldfarb.
After the intital two transactions, Martin became very dependent on Axton for financial
advice. Goldfarb became Martin’s lawyer. Neither Martin nor Goldfarb were aware of the
frauds being perpetrated by Axton and FPG against Martin although Goldfarb did know
about Axton’s past and did not disclose his knowledge to Martin. Martin lost so much
money that his corporations were petitioned into bankruptcy. Martin sued Goldfarb for
breach of fiduciary duty. The difficulty for the court was in assessing what damages
applied. The court referred to the decision in Hodgkinson v. Simms, [1994] 3 S.C.R. 377
that restitution is in order for a breach of fiduciary duty, that is, the beneficiary should be
put in the position he would have been had the breach not occurred. Further, the court
also noted that a plaintiff should not receive a higher award of damages simply because
the action is characterized as a breach of fiduciary duty.
McLintock v. Alidina [2010] O.J. No. 49 (Ontario Superior Court of Justice)

The plaintiff sued her family physician for negligence. In the year 2000 the plaintiff went
to see the defendant for a physical. As part of the physical, the defendant sent the plaintiff
for a mammogram. The defendant had a follow up interview with the plaintiff on
September 20, 2000. Unfortunately, the mammogram result was not received by the
defendant until two days later. There were some irregularities with the results and so a
subsequent mammogram was scheduled. The plaintiff did not show up for the scheduled
mammogram as she was not made aware of it. She continued to see this doctor for
another five years. In 2005 a lump was discovered on her breast. The defendant
rescheduled a mammogram and cancer was discovered. The plaintiff received treatment.
The court held that the doctor did fall below the standard of care, but the plaintiff could
not recover as she had suffered no damages. Had the second mammogram proceeded as
scheduled, the result would have been the same and the harm suffered was not increased
by the docotr’s negligence.

McDonnell v. Richter [2010] A.J. No. 794 (Alberta Court of Queen’s Bench)
McDonnell leased residential premises to Richter and his girlfriend, White; for tax
purposes Richter asked to have the tenancy agreement put in the name of his corporation,
NRG. Richter was the sole director, officer and shareholder of the NRG. The tenancy
agreement included coverage for the tenant in case of fire. The premises were damged by
fire. The court was asked to ascertain whether Richter and White could claim under the
insurance policy. The court held Richter and White could claim, in spite of the tenancy
being in the name of NRG because it was clear from the facts that McDonnell knew that
the premises were to be occupied by Richter and White; that the premises were residential
and not commercial; and further that the decisions in London Drugs Ltd. v. Kuehne &
Nagel International Ltd. (1992), 97 D.L.R. (4th) 261 suggested that the court look to the
commercial reality of the transaction to determine who the agreement was meant to cover.
Mondesir v. Manitoba Assn. of Optometrists (1998), 163 D.L.R. (4th) 703 (Manitoba
Court of Appeal)
A patient of an optometrist was dissatisfied with his treatment and arranged to be
examined at the offices of a second optometrist. The examination was conducted by the
second optometrist's nephew and employee. After being diagnosed with glaucoma, the
patient filed a complaint against the first optometrist with the provincial association of
optometrists, alleging failure to make a timely diagnosis of her condition. Pursuant to the
Optometry Act, R.S.M. 1987, c. O70, the complaints committee conducted a preliminary
investigation, and charged the optometrist with two counts of professional misconduct,
and directed the matter over to the discipline committee for hearing. The second
optometrist, at whose offices the patient had attended for the second opinion, was a
member of the complaints committee. The optometrist against whom the complaint had
been made sought an order prohibiting the association from proceeding with the
disciplinary hearing on the basis of reasonable apprehension of bias. The motions judge
agreed however on appeal the Manitoba Court of Appeal held that the existence of an
apprehension of bias at the investigative stage of the administrative process created by the
legislation does not warrant the granting of a prohibition order. The complaints
committee and the discipline committee operate independently. In the absence of
evidence of a real and substantial prejudice to the optometrist, the hearing before the
discipline committee was an adequate alternate remedy to the granting of a prerogative
writ.
M. Tucci Construction Ltd. v. Lockwood [2000] O.J. No. 3192 (Ontario Superior
Court of Justice); 8 B.L.R. (3d) 113 (affirmed [2002] O.J. No. 423, Ontario Court of
Appeal)
The owners of a motel entered a contract with the plaintiff contractor, who provided
financing. The owners and contractor were both advised by the same accountant. The
project fell through and the contractor lost most of the funds provided. The court held that
there had been negligent misrepresentation by the accountant, who was in breach of

fiduciary duty to the contractor. However, the plaintiff contractor was 40% contributorily
negligent, in failing to obtain independent advice, or to read the terms of the agreement.
Mustapha v. Culligan of Canada Ltd., 2008 SCC 27 (Supreme Court of Canada)

The plaintiff changed a bottle of water and saw in the new bottle a dead fly and part of
another fly. The incident caused him severe psychological harm. He sued the defendant
water supply company. The trial judge found the defendant to be liable, but the decision
was overturned. The Supreme Court held that while the standard of care was breached,
the injury was not foreseeable. Such an extreme reaction was not something a person of
normal fortitude would suffer and therefore it was not foreseeable.
Nocton v. Lord Ashburton, [1914] A.C. 932 (England—House of Lords)

Nocton was a solicitor employed by Ashburton. At Nocton's suggestion, and despite the
warnings of Nocton's partners that Nocton had a personal interest in the deal which was
not likely to be profitable, Ashburton borrowed money to give a £65,000 mortgage to two
builders. Part of the property was later released by Ashburton from the security at
Nocton's suggestion; the security then was insufficient to cover the mortgage. The
mortgagors defaulted on payment, and Ashburton could not in turn make the payments on
his loan which came due in its entirety. Ashburton sued Nocton for indemnity for breach
of his fiduciary duty. The court held that a special duty between the parties arose out of
their circumstances and relations. Breach of fiduciary duty was not covered by the Statute
of Limitations. Ashburton was entitled to be indemnified by Nocton.
Northwest Territories (Commissioner) v. Portz, 27 C.C.L.T. (2d) 241, [1996] 3

W.W.R. 94 (Supreme Court of the Northwest Territories)
The defendant, Portz, was a bank manager at TD Bank. He left his job to take over
management of an agriculture start up company that was struggling. As part of a
$300,000 government grant, the company had to obtain new management (Portz) and this
new director had to sign a personal guarantee. Portz was told that all of the directors had
signed personal guarantees. He agreed to sign a guarantee for $25,000. Once he was in his
new position he learned that matters were much worse than he had known. Existing
government loans were in arrears and significantly more money than the $300,000 grant
would be required to keep the company going. The company went bankrupt. The
government tried to collect on Portz’s guarantee, but Portz had discovered that the other
directors’ guarantees had not been properly prepared and were, therefore, not valid. The
government sued for recovery of the guarantee and the defendant defended that the
plaintiff had neglected to disclose information that they were required to disclose; that
is,it made a negligent misrepresentation by omission. The court held that the plaintiff was
required to disclose the arrears of the government loan and the invalid guarantees of the
other directors.

Oz Optics Ltd., v. Timbercon, Inc. [2010] O.J. No. 1963 (Ontario Superior Court of
Justice)
Two companies were working together to gain a contract with a third company. They had
no contract between them. The relationship between the two companies broke down and
the defendant stared dealing with a competitor of the palintiff on the project. The
defendant presented the third party with two bids, one from the project with the plaintiff
and one from the project with the competitor. The third party selected the latter to
contract with. The plaintiff sued for negligent misrepresentation among other causes of
action. The defendant argued that there was no contract between itself and the plaintiff.
The court held that as per Hedly Byrne the duty of care could arise in tort independently
from a contract. However, the plaintiff failed on its claim as it was unable to meet the test
for negligent misrepresentation as no false statement was made.
Queen v. Cognos Inc. [1993] 1 S.C.R. 87 (Supreme Court of Canada)

This case involved a failure to advise a job applicant that the project being hired for was
subject to budgetary approval. The plaintiff worked as an accountant in a firm in Calgary.
He was actively seeking other, more challenging work. The defendant was attempting to
launch a new product and was seeking an accountant to help with the development of
software for an accounting program. The representative of the defendant stated to the
plaintiff that the project was approved and offered the plaintiff the job. The plaintiff
moved his family from Calgary to Ottawa to take the job. The employment contract
contained a clause that allowed the employer to terminate the employment on one
month’s notice. The funding did not go through for the project and the plaintiff was
terminated.The case imposed liability on the employer for negligent misrepresentation
because the parties were in a special relationship within the meaning of Hedley Byrne.
The defendant breached the standard of care of the ordinary, reasonable person. The
plaintiff was not restricted to contractual remedies, but was instead allowed to rely on the
common law duty owed in tort.
Reibl v. Hughes (1980), 114 D.L.R. (3d) 1 (Supreme Court of Canada)

The plaintiff's condition was diagnosed by a doctor as hypertension (high blood pressure)
that was causing headaches. The defendant neurosurgeon was consulted and discovered a
partially blocked artery unrelated to the hypertension condition. He suggested that the
blockage should be remedied surgically to reduce the risk of death or stroke by
diminution of the blood supply to the brain. The defendant did not disclose to the plaintiff
adequately that the operation would not cure the headaches, nor that there was a four
percent risk of death and a ten percent risk of stroke during the surgery. The defendant
merely told the plaintiff that he would be better off with the operation than without. The
plaintiff signed a consent form and underwent the operation. He suffered a massive stroke
as a consequence of the operation and the right side of his body was paralysed. He sued.

The court held that the duty of disclosure had been breached since the defendant had not
told the plaintiff of a material risk of stroke or death arising from the surgery. This did not
vitiate consent, so no action in battery could be sustained against the doctor. However, it
did amount to negligence which caused the plaintiff's loss since a reasonable person in the
plaintiff's position would not have undergone the operation with full disclosure.
Roberge v. Bolduc, [1991] 1 S.C.R. 374 (Supreme Court of Canada)

The respondents were two parties engaged in a purchase and sale of property. The first
respondent had title searched before finalizing the deal. He went to a notary, the
appellant, who stated that there was a defect with the title to the property. The notary for
the second respondent argued that the defect was cured by a judge’s order making it res
judicata. The appellant disagreed. The first respondent then sought advice from another
notary who agreed with the appellant’s opinion. The first respondent refused to close the
purchase agreement and the two parties entered into a lawsuit. The first respondent cross
claimed against the appellant. At trial the court held that the appellant had been negligent
as the defect was in fact res judicata and due to his negligence the sale did not go through
and the parties suffered losses. The appellant appealed to the Supreme Court when the
Court of Appeal refused to grant leave to appeal and the Supreme Court affirmed the
decision of the trial judge.
Rogers v. Faught (2002), 212 D.L.R. (4th) 366 (Ontario Court of Appeal)
The plaintiff claimed to have received injuries as a result of negligent treatment from a
dental hygienist. She brought an action against the provincial college of dental surgeons,
claiming that they had breached their duty of care towards her because they had not
undertaken adequate risk management. (She also claimed that the colleges were liable for
breaches under s. 7 of the Canadian Charter of Rights and Freedoms, due to the violation
of security of her person; under s. 15, because the type of injury she suffered mostly
occurred in women; and that the colleges had violated her right to equal protection of the
law.) The motions judge dismissed all claims against the colleges. The plaintiff’s appeal
was also dismissed. The college did not owe a duty of care to the patients of dentists and
dental hygienists. The Regulated Health Professions Act, 1991, S.O. 1991, c. 18, s. 38,
provided that no action for damages should be instituted against a college for an act done
in good faith in the performance of a duty or exercise of a power under the Act. That
provision indicated a legislative intent not to create such a duty. (The claims under the
Charter also failed because the application of the Charter was confined to government
action, not inaction.)
Schilling v. Certified General Accountants Assn. of British Columbia (1996), 135

D.L.R. (4th) 669 (British Columbia Court of Appeal)

See Case 4.11 at p. 102 in the text. The plaintiffs invested large amounts of money with
an investment company that was run by an accountant. The accountant maintained his
designation of “certified” in spite of the fact that his membership with the Association
had been withdrawn. The accountant absconded with the plaintiffs’ money. The plaintiffs
brought an action against the certifying association (the defendant) for failing to prevent
the accountant from using the designation “certified.” The trial judge held the Association
to be liable for negligence; however, the Court of Appeal held that the defendant did not
owe a duty to the plaintiffs and was therefore not liable.
Seney v. Crooks (1998), 166 D.L.R. (4th) 337 (Court of Appeal of Alberta)
The plaintiff broke her wrist and was referred to the defendant as a speciailist. When she
went to meet with him for the first time, her wrist was already in a cast. The doctor knew
that the healing that was in progress was not going to result in a full recovery, but
believed that the result would be functionally acceptable. He did not discuss this with her
or any other options, such as surgery. When the cast was removed several weeks later, the
plaintiff had one further visit with the defendant shortly thereafter. Sometime later, the
plaintiff had corrective surgery, but the surgery was not entirely successful. The plaintiff
lost some of the mobility in her wrist, but it was largely functional. The plaintiff then
sued the defendant for negligence. The trial judge held that the defendant had not been
negligent in his treatment. However, the defendant had breached his fiduciary duty to
keep the plaintiff fully informed. The Court of Appeal overturned this decision. They
agreed that there was a breach of a fiduciary obligation, but that alone did not attach
liability. The plaintiff still had to demonstrate that the breach caused her injury to be
worse than it would have been, had she been informed and able to take the surgery earlier.
This was not the case here.
Sharbern Holding Inc. v Vancouver Airport Centre Ltd. 2011 SCC 23

Page 109 footnote 26
Silver v. IMAX Corporation et al., [2009] Nos. 5573 and 5585 (Ontario Superior
Court of Justice)
This case is a class action filed against IMAX for negligent misrepresentations made in
its 2005 audited financial records filed with the Ontario Securities Commission and the
U.S. Securities and Exchange Commission. The records did not comply with GAAP
standards. The class action was commenced by shareholders who lost value on the stocks
when the errors were revealed. This case involved both statutory and common law
misrepresentation causes of action. The court considered the issue of indeterminate
liability with respect to the common law cause of action and provided leave to the
plaintiffs for fulfuilling the requirement of good faith for the statutory cause of action.

Smith v. Jones (1999), 169 D.L.R. (4th) 385 (Supreme Court of Canada)
An accused was charged with aggravated sexual assault of a prostitute. His counsel
referred him to a psychiatrist for a forensic assessment. Counsel advised the accused that
his conversations with the psychiatrist would be privileged. During the assessment, the
psychiatrist feared the accused was dangerous and would likely commit further offences
unless he received sufficient treatment. The accused pleaded guilty to aggravated assault,
and the matter was put over for sentencing. When the psychiatrist learned that the
sentencing judge would not be advised of his concerns, he brought an application for a
declaration that he was entitled to disclose the information he had received in the interests
of public safety. The Supreme Court of Canada held that solicitor-client privilege is the
highest privilege recognized by the court. If a public safety exception applies to
solicitor-client privilege, then by necessary implication the exception applies to all
privileges and duties of confidentiality. However, the privilege is subject to certain clearly
defined exceptions such as danger to public safety, if there are appropriate circumstances.
The test provided by the court asks three questions: (1) is there a clear risk to an
identifiable person or group of persons? (2) Is there a risk of serious bodily harm or
death? (3) Is the danger imminent? If after considering all the appropriate factors it is
determined that the threat to public safety outweighs the need to preserve the privilege,
then the privilege must be set aside. However, the disclosure of the privileged
communication should be as limited as possible.
Strother v. 3464920 Canada Inc., [2007] 2 S.C.R. 177 (Supreme Court of Canada) A
lawyer acting for two companies in the same competitive field became financially
interested in the second company. The first company sued on the grounds of conflict of
interest. The court held that there was a breach of fiduciary duty caused by the conflict of
interest; that the lawyer could not zealously promote the interests of the plaintiff
company, while holding a financial interest in its competitor.
.
Sugar v. Peat Marwick Ltd. (1988), 55 D.L.R. (4th) 230 (Ontario High Court)
See Case 4.5 at p. 93 in the text. A lender learned of inaccuarcies in the account books of
one of its borrowers. The lender put the borrower into receivership under its mortgage
security. The plaintiff purchased the borrower’s businesss based on the borrower’s
account books. The new business failed and the plaintiff sued the lender. The lender was
found liable for fraudulent misrepresentation for not revealing the true state of the
borrower’s finances.
ter Neuzen v. Korn (1995), 127 D.L.R. (4th) 577 (Supreme Court of Canada)
The plaintiff was infected with HIV as a result of artificial insemination carried out by the
defendant physician. The risk of infection in this way did not become widely known until
some months later and, at the time of the insemination, no test was available in Canada

for the detection of HIV in semen. The defendant had followed what were then the
standard Canadian procedures for recruiting and screening donors. At trial, the jury found
the defendant negligent and awarded damages of almost $1 million. On appeal, the
finding was overturned. There was no room for a finding of negligence where the
defendant had followed the standard practice of the profession, unless that standard
practice was obviously inadequate.
Toromont Industrial Holdings v. Thorne, Gunn, Helliwell & Christenson (1977), 14

O.R. (2d) 87 (Ontario Court of Appeal)
See Case 5.10 at p. 114 in the text. An investment company requested a financial report
on a business it was considering purchasing. It requested the report from the defendant, a
firm of investment analysts. The defendant provided the report; however, the plaintiff did
not have time to read it. The plaintiff acted to make the purchase based on concerns that
another purchaser was interested. Later it was revealed that the report was negligently
produced; the value of the business was significantly less than what was stated in the
report and less than what the plaintiff paid to purchase it. The plaintiff sued for negligent
misrepresentation, but the court held that there was no reliance on the misrepresentation
and therefore the plaintiff did not meet the test as set out in Queen v. Cognos.
Winnipeg Condominium Corp. No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85

A developer built a building that was subsequently purchased by the plaintiff. The
plaintiff became concerned about some masonry work and had it inspected. The inspector
and other engineers offered the opinion that the building was structurally sound. A few
years later some of the masonry (cladding) collapsed. The plaintiff had the masonry
repaired and replaced the remaining masonry. The plaintiff sued the various defendants
for the cost of the repairs. The Supreme Court held that it was reasonably foreseeable that
the remaining masonry may fall and cause injury to persons or property and that the
defendants were liable.


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Solution Manual for Law and Business Administration

in Canada Canadian 14th Smyth Soberman Easson

PROFESSIONAL LIABILITY: THE LEGAL CHALLENGES

FIDUCIARY DUTY (Source p. 103)

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LIABILITY FOR INACCURATE STATEMENTS

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THE DUTY OF CARE (Source p. 109)

THE STANDARD OF CARE FOR PROFESSIONALS (Source p. 112)

RELIANCE AND DETRIMENT (Source p. 113)

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"caused" the plaintiff's loss. Therefore, reasonable reliance is an important element in

THE ROLE OF PROFESSIONAL ORGANIZATIONS (Source p. 114)

STRATEGIES TO MANAGE THE LEGAL RISKS (Source pp. 118-119)

ETHICAL ISSUE (Source p. 105)

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INTERNATIONAL ISSUE (Source p. 117)

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QUESTIONS FOR REVIEW

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CASES AND PROBLEMS

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The second element of negligent misrepresentation is that the representation in question

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Whether the disclaimers in the employment contract would apply, requires a

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Bruno Appliance & Furniture Inc. v Hryniak 2014 SCR 8

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Canada (Privacy Commissioner) v. Blood Tribe Department of Health, 2008 SCC 44

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Ferrar v Lorenzetti Wolfe 2012 ONCA 851

Frame v. Smith [1987] 2 S.C.R. 99 (Supreme Court of Canada)

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Haig v. Bamford (1976), 72 D.L.R. (3d) 68 (Supreme Court of Canada)

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Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41 (Supreme

Hodgins v. Hydro-Electric Commission of the Township of Nepean (1975), 60 D.L.R.

Hodgkinson v. Simms, [1994] 3 S.C.R. 377 (Supreme Court of Canada)

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Hopp v. Lepp (1980), 112 D.L.R. (3d) 67 (Supreme Court of Canada)

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Kamloops (City of) v. Nielsen [1984] 2 S.C.R. 2 (Supreme Court of Canada)

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Kerr v. Danier Leather Inc. 2007 SCC 44 (Supreme Court of Canada)

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Junior mining company “Corona” revealed confidential information about a property to

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McLintock v. Alidina [2010] O.J. No. 49 (Ontario Superior Court of Justice)

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Mustapha v. Culligan of Canada Ltd., 2008 SCC 27 (Supreme Court of Canada)

Nocton v. Lord Ashburton, [1914] A.C. 932 (England—House of Lords)

Northwest Territories (Commissioner) v. Portz, 27 C.C.L.T. (2d) 241, [1996] 3

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Queen v. Cognos Inc. [1993] 1 S.C.R. 87 (Supreme Court of Canada)

Reibl v. Hughes (1980), 114 D.L.R. (3d) 1 (Supreme Court of Canada)