Distinguishes Ron Engineering. – QB reversed (below)
FOR EDUCATIONAL USE ONLY
2000 CarswellAlta 403
6 B.L.R. (3d) 32, 264 A.R. 134, 80 Alta. L.R. (3d) 132, 8 W.W.R. 62
Gross v. Great-West Life Assurance Co.
Lyle Gross, E. Lyle Gross Professional Corporation, E.L.G. Holdings Ltd. and
Centre for Active Rehabilitation and Exercise Ltd., Plaintiffs and The GreatWest Life Assurance Company, Defendant
Alberta Court of Queen's Bench
Acton J.
Heard: February 11, 2000
Judgment: May 2, 2000
Docket: Edmonton 9503-15921
Copyright © CARSWELL,
a Division of Thomson Canada Ltd. or its Licensors. All rights reserved.
Counsel: A.G. Appelt and M. Castillo, for plaintiffs.
J.T. Neilson, for defendant.
Subject: Contracts; Corporate and Commercial; Torts
Fraud and misrepresentation --- Negligent misrepresentation (Hedley Byrne principle) -Detrimental reliance
Plaintiffs opened multi-disciplinary rehabilitation clinic in Toronto after personal plaintiff
was encouraged to do so by senior manager of defendant, who told him that such clinic
was needed and that defendant would provide substantial referrals to such clinic -- After
clinic was opened, defendant sent no referrals until clinic was about to close for lack of
patients and then defendant sent very few -- Plaintiffs brought action against defendant
for damages for negligent misrepresentation -- Action allowed -- In order to prove
negligent misrepresentation, plaintiffs had to show that defendant owed them duty of
care based on special relationship, that representation was untrue, inaccurate or
misleading, that defendant had acted negligently, that it was reasonable for plaintiffs to
rely on representation and that representation caused damages claimed -- Defendant did
have duty of care since it was reasonably forseeable, given representations it made and
enthusiasm it showed, that plaintiffs would rely on such representations and put in place
financing in order to open new clinic -- Senior manager made inaccurate and misleading
statements and was negligent in not finding out facts before he encouraged plaintiffs to
open clinic -- Given senior manager's position in defendant and fact that he wrote strong
letter of committment to plaintiffs' bank manager, it was reasonable for plaintiffs to rely
on representations made -- Damages claimed were only for out-of-pocket expenses in
opening clinic and, as such, were result of plaintiffs relying on misrepresentation to their
detriment.
Cases considered by Acton J.:
Haig v. Bamford (1976), [1977] 1 S.C.R. 466, 72 D.L.R. (3d) 68, 9 N.R. 43, 27 C.P.R.
(2d) 149, [1976] 3 W.W.R. 331 (S.C.C.) -- referred to
Hedley Byrne & Co. v. Heller & Partners Ltd. (1963), [1964] A.C. 465, [1963] 1 Lloyd's
Rep. 485, [1963] 2 All E.R. 575, 107 Sol. Jo. 454, [1963] 3 W.L.R. 101 (U.K. H.L.) -applied
Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, 211 N.R. 352, 115
Man. R. (2d) 241, 139 W.A.C. 241, (sub nom. Hercules Managements Ltd. v. Ernst &
Young) 146 D.L.R. (4th) 577, 35 C.C.L.T. (2d) 115, 31 B.L.R. (2d) 147, [1997] 8 W.W.R.
80 (S.C.C.) -- distinguished
Queen v. Cognos Inc., 45 C.C.E.L. 153, 93 C.L.L.C. 14,019, 99 D.L.R. (4th) 626, 60
O.A.C. 1, 14 C.C.L.T. (2d) 113, [1993] 1 S.C.R. 87, 147 N.R. 169 (S.C.C.) -- applied
R. v. Ron Engineering & Construction (Eastern) Ltd., 13 B.L.R. 72, (sub nom. Ron
Engineering & Construction (Eastern) Ltd. v. Ontario) 35 N.R. 40, 119 D.L.R. (3d) 267,
[1981] 1 S.C.R. 111 (S.C.C.) -- distinguished
Rainbow Industrial Caterers Ltd. v. Canadian National Railway, 8 C.C.L.T. (2d) 225, 59
B.C.L.R. (2d) 129, [1991] 6 W.W.R. 385, 84 D.L.R. (4th) 291, 126 N.R. 354, 3 B.C.A.C.
1, 7 W.A.C. 1, [1991] 3 S.C.R. 3, [1991] R.R.A. 850 (S.C.C.) -- applied
ACTION for damages for negligent misrepresentation.
Acton J.:
1
"If you build it, they will come," was the leitmotif of the American feature film Field
of Dreams. In this case, Dr. Gross, who was considering building a second rehabilitation
clinic in a major Canadian centre and who was looking for a significant source of referrals,
claims that the Defendant insurance company effectively told him, "If you build it in
Toronto, we will send them." So Dr. Gross built his clinic of dreams. But they did not
come. They did not come because the Defendant did not send them. The clinic of dreams
turned into a million dollar nightmare. Dr. Gross and his partners now sue the Defendant
in negligent misrepresentation.
2
Specifically, the Plaintiffs base their claim against the Defendant Insurance Company
on a representation by the Defendant's senior manager Edward Nickerson. They say he
encouraged Dr. Gross to open a multi-disciplinary rehabilitation Clinic in Toronto on the
promise that the Defendant "could provide substantial referrals" to such a Clinic, which
would help to solve the Defendant's problem with rising disability claims in the Toronto
area.
3
When the Defendant sent no referrals, or sent far too few far too late, Dr. Gross and
his partners were forced to cut their losses. These losses extend into the hundreds of
thousands of dollars. The Clinic finally closed its doors on September 16, 1993. The bank
subsequently called its loans and issued demands on the personal and corporate
guarantees. The landlord of the Toronto premises issued demands under the personal
indemnities given with respect to the lease. After stretching their resources to the
maximum limit, the Plaintiffs negotiated acceptable repayment schemes and settlements
with the financiers and ultimately commenced this action for recovery of the monies they
allege were lost as a result of the Defendant's unkept promise.
4
This unfortunate chain of events commenced on October 18, 1991 when Dr. Gross,
at a meeting with Mr. Nickerson at The Great-West Life Office in Winnipeg, engaged in a
discussion about the possibility of Dr. Gross and his partners expanding the number of
their Clinics, based on the successful concept which was the foundation of the Edmonton
Centre for Active Rehabilitation and Exercise ("C.A.R.E. Clinic").
5
Dr. Gross and his Edmonton partners had been discussing plans to open a C.A.R.E.
Clinic in Vancouver prior to October 18, 1991 and had engaged in some preliminary
research about opening a Vancouver C.A.R.E. Clinic.
6
On October 18th, 1991, Dr. Gross attended a meeting in Winnipeg with Mr. Ed
Nickerson, at which time Mr. Nickerson suggested that Dr. Gross should consider opening
up a clinic in Toronto, advising Dr. Gross that Great-West Life would have no problem
filling a 40-patient clinic in Toronto. Dr. Gross spent the day with Great-West Life people
in Winnipeg on that date and during that attendance Mr. Wesley Jones was present for
much of the day, as was Ms. Kathy Helbrecht. However, Ms. Helbrecht's evidence was
that she left the group when it moved to Mr. Nickerson's office after the formal
presentation.
7
The Defendant's offer the evidence of Wesley Jones who is the Manager of Group
Disability Benefit Services with Great-West Life and who testified that he has no
recollection of Mr. Nickerson making a statement that if Dr. Gross opened a Toronto
Clinic, Great-West Life could easily fill such a clinic. However, there is no evidence that
Mr. Jones was with Mr. Nickerson and Dr. Gross the entire time they were together, and,
accordingly, Mr. Jones may not have been present when the representation was made. In
any event, he does not specifically deny that the statement was made. The only person
who denies this statement is Mr. Nickerson himself.
8
Having heard all of the evidence and having observed the witnesses, where the
evidence of Dr. Gross differs from that of Mr. Nickerson, I accept Dr. Gross's version of
events.
9
After Dr. Gross's meeting with Great-West Life, and in particular with Mr. Nickerson,
Dr. Gross recommended to his partners that they change their focus from Vancouver to
Toronto since Great-West Life promised that, if they opened a Toronto C.A.R.E. Clinic,
Great-West Life would provide substantial referrals to such a Clinic.
10
The Edmonton C.A.R.E. Clinic was succeeding and its initial success was based on
the fact of its receiving substantial referrals from the Workers' Compensation Board in
Edmonton. Once that clinic was firmly established, relying upon those substantial
referrals, it was able to reduce its dependency on the Workers' Compensation Board for
referrals and maintained the size of its client base through a diversity of clients referring
patients to the Edmonton C.A.R.E. Clinic. This is clearly indicated on the coloured graph
prepared by Brian Bailey, incorporated as part of Tab 190 of Exhibit 1 in this trial.
11
This graph shows that by December 1993 the Edmonton C.A.R.E. Clinic had been
able to diversify from reliance upon a single source of clients from its inception in August
of 1991, to four primary sources of clients as of December 1993.
12
The evidence clearly indicates that Dr. Gross expected a similar pattern to emerge
with the Toronto C.A.R.E. Clinic in that, initially, the majority of the patients would come
from Great-West Life referrals and, over time, the Clinic would diversify to incorporate
referrals from other sources, thereby lessening their reliance upon Great-West Life
(unless, of course, Great-West Life was able to keep the clinic continually full of its
referred claimants).
13
The Defendant argues that if a representation was made by Mr. Nickerson on
October 18th, 1991 it was not for the purpose of providing any advice or direction with
respect to the advisability of putting into place a financial framework for a clinic in
Toronto. The Defendant contends that the Supreme Court of Canada's decision in
Hercules Management Ltd. v. Ernst & Young , [1997] 2 S.C.R. 165 (S.C.C.), requires that
the statement upon which the Plaintiffs relied be a statement made for the purpose of
encouraging this personal investment decision and strategy to the Plaintiffs' detriment;
otherwise the action must fail.
14
I disagree. The Defendant's officer made a representation to the Plaintiffs' officer,
upon which the Plaintiffs relied and which set in motion a chain of events aimed at taking
advantage of the representation made by the Defendant, which actions were presumably
designed to benefit both parties under the circumstances.
15
The Defendant urges me to find that, if the facts unfold as the Plaintiffs would have
them unfold, it would be reasonable for the Court to say that C.A.R.E. Ontario has an
action against Mr. Nickerson alone, but that as regards the Defendant, itself, it was not
foreseeable to Great-West Life that Dr. Gross and his partners would rely upon the
statement, to their detriment. Again, I disagree. The evidence is clear that Mr. Nickerson
and therefore Great-West Life knew that Dr. Gross had partners and that any financial
decisions had to be made in consultation with those partners. That evidence supports the
foreseeability of other persons being harmed by this representation.
16
Mr. Nickerson was the individual in charge of making financial decisions pertaining
to the disability arm of Great-West Life's insurance plans, and it was reasonable for Dr.
Gross to rely upon Mr. Nickerson's encouragement with respect to the opening of the
Toronto C.A.R.E. Clinic.
17
Dr. Gross's version of the facts is corroborated by other evidence. First, the letter
Mr. Nickerson had prepared for Dr. Gross to present to the bank to support his
application for financing, and which Mr. Nickerson signed, dated January 23, 1992, clearly
indicates that Great-West Life intended to contribute substantial referrals to this Clinic.
Mr. Nickerson knew that this letter was designed to encourage Dr. Gross's bank to
finance the Toronto undertaking. Mr. Nickerson has many years of experience in this
business and would have been aware that such letters are seldom given by anyone in the
insurance industry to service providers who, the evidence shows, frequently seek such
letters. The letter is significant.
18
Subsequent to the October 18, 1991 meeting there were further meetings between
Mr. Nickerson and Dr. Gross, and telephone conversations between the two of them
which reinforced Dr. Gross's confidence that Great-West Life was anxious to have a
C.A.R.E. Clinic opened in Toronto. I accept Dr. Gross's evidence that at some time during
the course of their early conversations Mr. Nickerson used the words that Great-West Life
could "fill the clinic" if such a clinic was established in Toronto.
19
By providing the letter of January 23, 1992, Mr. Nickerson understood that this was
a commitment letter on behalf of Great-West Life to assist Dr. Gross and his partners
with the financing of the Toronto clinic. This letter corroborates the evidence of Dr. Gross
and contradicts the evidence of Mr. Nickerson. Further support for the significance of this
letter can be found in the evidence of Mr. Harrison, called by the Defendants but who, in
cross-examination, stated that, in 30 years of banking, he does not recall ever seeing
such a strongly worded letter of commitment from a major corporation.
20
It is also important to recognize that the relationship between Dr. Gross and GreatWest Life had a significant history prior to these events unfolding. Dr. Gross had been a
medical consultant for the Defendant's disability program. He and Great-West Life
collaborated on a book, and he worked closely with the Defendant's employees, Cathy
Tennant and Wesley Jones, on their mutual interest in rehabilitation medicine.
Accordingly, it was reasonable for Dr. Gross to rely on the commitment made by Great-
West Life and to believe Great-West Life when he was advised that patients for the
Toronto clinic would not be a problem as Great-West Life would provide them.
21
The evidence is clear that Dr. Gross and his partners were looking at expanding the
number of clinics, and that they were seriously considering Vancouver as a site for their
second clinic. However, the evidence indicates that the location of the second clinic
changed from Vancouver to Toronto prior to November 9th, 1991. The meetings of the
partnership that are recorded in the Minutes prior to the November 9th, 1991 meeting all
refer to the proposed expansion to Vancouver.
22
There is further corroborating evidence from Dr. Van Schoor, who testified that it
was the latter part of October 1991 when he and Dr. Gross discussed the possibility of his
becoming the Medical Director of such a Toronto clinic, and, of course, Dr. Van Schoor
attended the meeting of the partnership on November 9th, 1991 to discuss this plan.
23
The Defendant contends that when Dr. Gross wrote to Dr. Dufresne on October 8,
1991, prior to his meeting with Great-West Life, his intention was to discuss with Dr. Van
Schoor the possibility of opening a clinic in Toronto. Dr. Gross denies this, and the letter
gives no indication of the purpose for the meeting with Dr. Van Schoor. Dr. Gross and Dr.
Van Schoor both testified that they had been friends for a long time, and it is not
unreasonable to expect that when Dr. Gross was travelling to Toronto he would plan to
meet Dr. Van Schoor in any event, given their prior relationship and their mutual
professional interests.
24
Dr. Gross had made it clear to Great-West Life that they required the referrals in
advance of the clinic's opening in order to introduce the patients to the clinic on a
graduated basis. When no referrals were forthcoming from Great-West Life, Dr. Gross,
Dr. Van Schoor and all of the staff worked to market and promote the clinic as best they
could to other potential clients.
25
The evidence is clear that Great-West Life did nothing to provide referrals to the
Toronto C.A.R.E. Clinic until Mr. Nickerson received the letter from Dr. Gross dated
September 8, 1992 (Exhibit 1, Tab 72), at which time he finally took action and
telephoned Anne Tudor with an urgent direction to make referrals to the clinic. Ms.
Tudor's evidence was that this telephone directive was the first direction she had received
to send files to the Toronto C.A.R.E. Clinic. She promptly identified three files for
referrals. This evidence indicates that Mr. Nickerson clearly had the power to direct
referrals to the Toronto clinic, which power he simply did not exercise until it was too
late.
26
The evidence also indicates that Mr. Nickerson's Toronto staff did not share his
views that this particular clinic was needed in Toronto and that Great-West Life could fill
it, or, at the very least, provide substantial referrals. The evidence is clear that Mr.
Nickerson was negligent in making the representation he made to Dr. Gross. He did not
consult with the persons in Great-West Life's Toronto office to see whether his impression
that Toronto had a problem with disability claims had anything to do with a lack of
rehabilitative facilities in the Toronto area. Both Ms. Tudor and Ms. McCulligh testified
that there were sufficient clinics to deal with the files that the Toronto office had to refer
to an outside source. Anne Tudor's evidence was that she was never asked for her
opinion with respect to any needs in Toronto. Clearly, Mr. Nickerson made
representations to Dr. Gross without investigating whether or not there was any
foundation for such representations to be made.
27
There are five requirements that a plaintiff must meet in order to be successful in a
claim arising out of a negligent misrepresentation (Hedley Byrne & Co. v. Heller &
Partners Ltd., [1964] A.C. 465 (U.K. H.L.) and Queen v. Cognos Inc., [1993] 1 S.C.R. 87
(S.C.C.)):
1. There must be a duty of care based upon a "special relationship" between the
representor and the representee.
2. The representation must be untrue, inaccurate or misleading.
3. The representor must have acted negligently in making that misrepresentation.
4. It must have been reasonable for the representee to have relied on the negligent
misrepresentation.
5. Relying upon the negligent misrepresentation must have caused damages to the
representee.
1. Is There a "Special Relationship" Between Great-West Life and the Plaintiffs?
28
For a number of years prior to October 1991 there had been an ongoing
professional relationship between Dr. Gross and the managers of Great-West Life such
that Dr. Gross trusted Mr. Nickerson and others at Great-West Life in the same way that
they trusted Dr. Gross to provide good and reliable service to their clients.
29
The Defendant urges that the facts of this case fall far short of indicating a "special
relationship" between Great-West Life and the Plaintiffs. They argue that it is, instead,
simply a commercial relationship wherein each party conducts itself according to its own
needs and interests. Again, the Defendant argues that Great-West Life had no knowledge
that assurances were being given with respect to the opening of the C.A.R.E. Ontario
Clinic. They contend that no duty of care can arise when the Defendant has no knowledge
of the Plaintiffs' offering security to a bank find landlords financing this undertaking.
30
I reject this argument because, at the time the representation was made, no clinic
existed in Ontario. It was on the basis of the representation that the Plaintiffs got
together and put in place the necessary financing to open such a clinic, and, in my view,
all of the steps the Plaintiffs took were reasonably foreseeable under the circumstances
given the representation made, and the enthusiasm shown, by the Defendant for the
opening of a clinic in Toronto.
31
Mr. Nickerson should have known that statements made by him would be relied
upon by Dr. Gross in his personal capacity and also in his capacity as principal for E. Lyle
Gross Professional Corporation and as principal for the Centre for Active Rehabilitation
and Exercise Ltd. In my view it is reasonably foreseeable that the other Plaintiffs,
separate legal entities from Dr. Gross but, for all intents and purposes, controlled by Dr.
Gross, are also persons covered by this "special relationship" and are owed the same
duty of care: Haig v. Bamford, [1977] 1 S.C.R. 466 (S.C.C.). Mr. Nickerson should have
known that Dr. Gross, his professional corporation, and the corporation for which he was
the Chief Executive Officer at the time might indeed rely upon those representations.
Indeed, the evidence is that they were relying on these representations and Mr.
Nickerson knew they were relying on them and never did he change his position to accord
with the position he took during the course of his evidence given in this trial. Indeed,
when he realized the seriousness of his mistake, Mr. Nickerson took urgent steps to
rectify the problem by directing his colleagues to send referrals to the Toronto C.A.R.E.
Clinic.
2. The Representation in Question Must be Untrue, Inaccurate, or Misleading
32
The Defendant contends that, irrespective of the claim of Dr. Gross in this action, it
cannot be liable to the other Plaintiffs because of the policy grounds set out in Hercules
Management, supra, wherein the Supreme Court refused to impose liability on the
defendant auditors because of the possibility that the defendant might then be exposed
to "liability in an indeterminate amount for an indeterminate time to an indeterminate
class." (At p. 592) (Plaintiffs' authorities, Tab 2)
33
However, in this case, there is a limited class of persons to whom Great-West Life
could be exposed. All of those persons in that class are known to Great-West Life through
its officers - and those persons include the Plaintiffs. The only other persons could be Dr.
Gross's partners, who have not chosen to pursue this action. Accordingly, the Plaintiffs
are not, as contemplated by Hercules Management, an "indeterminate class." Further, the
claim here is expressly for the expenses incurred as a result of the Plaintiffs' relying on
the representation. Thus, there is no indeterminate liability with respect to the issue of
quantum.
34
And, last, there is no indeterminate liability with respect to the time frame as the
representation in question was specifically narrow and the actions of the Plaintiffs
specifically finite in time.
35
The Defendant contends that there were no proper referrals to be made to the
Toronto C.A.R.E. Clinic. Accepting that evidence to be true, the representations made by
Mr. Nickerson were then inaccurate and therefore misleading.
36
Even if, as Ms. Tudor testified, the late referrals that were made were not
appropriate referrals, but, rather, were made because of Mr. Nickerson's insistence that
referrals be directed to the clinic, then the representation made in October 1991 was
untrue. However, it is my view that Mr. Nickerson did not consciously make an untrue
statement; he was merely negligent in not making himself aware of the facts before he
chose to encourage Dr. Gross to open a Toronto clinic.
37
I reject any argument that the representation made by Mr. Nickerson was a
representation with respect to future expectations. The representation made by Mr.
Nickerson was that Great-West Life had an existing need for such a clinic in Toronto and
if Dr. Gross and his partners opened such a clinic, Great-West Life could "contribute
substantial referrals." Mr. Nickerson did not qualify the representations that he made.
And over the period of time when it was obvious to Mr. Nickerson that Dr. Gross was
acting upon the representation, he made no attempt to either qualify his representation
or back away from it under the circumstances. Indeed, what Mr. Nickerson did do was
write a letter to Dr. Gross's bank three months after the initial representation was made.
To reinforce the representation through such a strong letter of commitment certainly
contradicts Mr. Nickerson's denial of making the representation in the first place.
3. The Representor Must Have Acted Negligently in Making the
Misrepresentation
38
As I have already made clear, in my view, Mr. Nickerson and therefore Great-West
Life was negligent in making the misrepresentation.
4. Did the Plaintiffs Rely on the Negligent Misrepresentation in a Reasonable
Manner?
39
In Hercules Management, supra, the Supreme Court approves of a quote from a
text by Professor Bruce Feldthusen in paragraph 43 where the Professor sets out five
indicia of what constitutes reasonable reliance:
1. The defendant has a direct or indirect financial interest in the transaction in respect of
which the representation was made.
40
Great-West Life had expressed, through Mr. Nickerson, an interest in having the
Plaintiffs open the Ontario clinic because they were expending far too much money on
disability claims in the Toronto area, and the clinic would presumably reduce the
Defendant's costs.
2. The defendant was a professional or someone who possessed special skill, judgment of
knowledge.
41
In this case, Mr. Ed Nickerson was the disability claims manager and, accordingly,
he had, or ought to have had, the specialized skill and knowledge with respect to what
Great-West Life required in order to reduce its expenses in this area. He also had a staff
that could advise him as to what the needs of Great-West Life were with respect to
additional clinics.
3. The advice or information was provided in the course of the defendant's business.
42
It is clear that the representation was made by Mr. Nickerson in the course of the
Defendant's disability insurance business to Dr. Gross who was known to them to be a
professional experienced in the rehabilitation of persons suffering from disabilities.
4. The information or advice was given deliberately and not on a social occasion.
43
I believe there is no dispute that the representation was made at Great-West Life's
head office in Winnipeg and was followed up during later business dealings between Dr.
Gross and Mr. Nickerson during the course of business discussions by way of telephone.
5. The information or advice was given in response to a specific inquiry or request.
44
It is clear from all of the evidence that Dr. Gross had, throughout the course of his
association with Great-West Life, been seeking business from them. It was certainly
implicit in his attendance at the head office in Winnipeg that he was requesting GreatWest Life to send more patients to the Edmonton Clinic. It is not unreasonable to expect
him to respond positively to a suggestion that if he opened a clinic in Toronto, GreatWest Life would either be able to fill that clinic or send substantial referrals to such a
clinic. In my view, while the request may not have been expressly stated, it was clearly
understood that this was the purpose of Dr. Gross's continuing to engage Great-West Life
in professional conversation and contact.
45
The Defendant also contends that, if the statement was made, it would be
appropriate to characterize that statement as one that was clearly intended to be
hyperbole. While that may have been the case, the fact of the matter is that Mr.
Nickerson chose not to correct the misimpression when he could see clearly that Dr.
Gross was indeed relying on that very statement. There was ample opportunity to correct
any misimpression; Mr. Nickerson chose not to do so.
46
The Defendant argues that there has to be certainty with respect to when referrals
would begin and the exact number of referrals rather than simply the statement that
substantial referrals would be made in order for the misrepresentation to be one such
that it could be reasonably acted upon. If that were the law, the requirement would be
similar to the requirements for certainty of terms in contracts. This is a claim in
negligence and, accordingly, the test is simply, "How would a reasonable person perceive
the assurance from the defendant and would that person act on such assurance in the
circumstances?" In my view, persons such as the Plaintiffs, who were interested in
expanding their rehabilitation business, would indeed act upon such an assurance of what
appeared to them to be a promise from a large corporate sponsor.
47
Mr. Nickerson was a senior manager with Great-West Life's head office and the
director of group life and group disability insurance in Canada. He made a representation
and encouraged Dr. Gross to open a C.A.R.E. Clinic in Toronto. He reinforced that
representation with a strong written commitment forwarded to Mr. Harrison, Dr. Gross's
bank manager. In my view it was reasonable for the Plaintiffs to rely on the
representations made by Great-West Life under those circumstances.
5. Are the Damages Claimed the Result of the Plaintiffs' Relying on the
Misrepresentation to Their Detriment?
48
The law is clear that "a plaintiff seeking damages in an action for negligent
misrepresentation is entitled to be put in the position he or she would have been in if the
misrepresentation had not been made": Rainbow Industrial Caterers Ltd. v. Canadian
National Railway, [1991] 3 S.C.R. 3 (S.C.C.).
49
In this case, the damages claimed are those financial losses which were incurred as
a result of opening the clinic in Toronto. There is no claim for any lost profits that might
have been earned from a full clinic; indeed, the bankrupt company that lost the future
opportunity of operating a full clinic is not a plaintiff in this action. The only claim is for
the actual out-of-pocket expenses resulting from the negligence of the Defendant in its
encouragement of Dr. Gross to open a Toronto clinic, promising that if he did, substantial
referrals would be made.
50
We heard from two expert witnesses with respect to the financial losses, and when
each expert's opinion is based upon the same factual framework, their calculation of the
losses is almost identical.
51
Several issues arise in the calculation of the damages. The first issue is whether or
not the Plaintiffs acted prudently by discontinuing the operation of the C.A.R.E. Clinic in
Toronto, Ontario. I do not accept Mr. Bailey's conclusion that there was "at least a
possibility that the Ontario company could have continued and been profitable." It would
have been irresponsible and imprudent for the Plaintiffs to continue with that clinic in
light of the financial projections and the number of patients that they had been able to
attract with their extensive marketing to that point in time. By closing the clinic when
they did, the Plaintiffs mitigated any further losses, as was their duty.
52
I reject Mr. Bailey's contention that C.A.R.E. Ontario suffered financial losses
because of an inappropriate financial structure. I accept that it suffered financial losses
because it had insufficient revenues which would not have been the case had the
substantial referrals been made by the Defendant as was promised by Mr. Nickerson.
53
Mr. Harrison, who was the Bank of Montreal officer assessing the risk and who
agreed to finance the Ontario clinic on the basis of his assessment, was clearly prepared
to undertake the financing of this clinic. Had the Defendant lived up to its promise, the
Bank clearly expected that the company would have ultimately been profitable. I accept
Mr. Smith's evidence that the business did have adequate financial resources. What it did
not have was patients to treat.
54
A third issue is whether there was a windfall made by Dr. Gross when he acquired
ownership of the C.A.R.E. Edmonton Clinic as a result of the financial restructuring. By
the time this came to be, the Edmonton Clinic had only nominal value because it had
incurred a large debtload as a result of its financial obligations to the Ontario Clinic.
55
Having reviewed all of the expert evidence on the assessment of damages, I accept
Mr. Smith's calculations and assess the loss at $680,333.00, which, of course, does not
include pre-judgment interest.
56
The Plaintiffs also argue that they have an action for breach of a unilateral contract.
They argue that a unilateral contract resulted when Great-West Life made an offer to the
Plaintiffs that if a C.A.R.E. Clinic were opened in Toronto, Great-West Life could refer a
substantial number of clients to the clinic. The Plaintiffs then argue that they accepted
this offer when they established the clinic and thus are entitled to damages for breach of
contract.
57
I reject this argument. In my view, the facts of this case are clearly distinguishable
from the facts in R. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R.
111 (S.C.C.). This is not a circumstance where the Plaintiffs acted upon promise of
payment. Rather, this is a case where the Plaintiffs acted upon a misrepresentation of
facts. It is clearly distinguishable from Justice Estey's analogy of "I will pay you a dollar if
you will cut my lawn." That simple statement contains all of the elements of contract
once the performance of the service has been undertaken.
58
If counsel are unable to agree, costs may be spoken to within 21 days of delivery of
these Reasons.
Action allowed.
END OF DOCUMENT
FOR EDUCATIONAL USE ONLY
2002 CarswellAlta 209
2002 ABCA 37, [2002] 4 W.W.R. 421, 4 W.W.R. 421, 21 B.L.R. (3d) 159, 99 Alta. L.R.
(3d) 207, 299 A.R. 142, 266 W.A.C. 142
Gross v. Great-West Life Assurance Co.
LYLE GROSS, E. LYLE GROSS PROFESSIONAL CORPORATION, E.L.G. HOLDINGS LTD.
AND
CENTRE FOR ACTIVE REHABILITATION AND EXERCISE LTD. (Respondents / Plaintiffs)
and THE GREAT-WEST LIFE ASSURANCE COMPANY (Appellant / Defendant)
Alberta Court of Appeal
Côté, Conrad, Wittmann JJ.A.
Heard: October 29, 2001
Judgment: February 20, 2002
Docket: Edmonton Appeal 0003-0259-AC
Copyright © CARSWELL,
a Division of Thomson Canada Ltd. or its Licensors. All rights reserved.
Proceedings: reversing (2000), 80 Alta. L.R. (3d) 132, [2000] 8 W.W.R. 62, 6 B.L.R. (3d)
32, 264 A.R. 134 (Alta. Q.B.)
Counsel: J.T. Neilson, W.N. Moody, for Appellant
G. Appelt, M. Castillo, for Respondents
Subject: Contracts; Corporate and Commercial; Torts
Fraud and misrepresentation --- Negligent misrepresentation (Hedley Byrne principle) -Nature and extent of duty of care -- General
Plaintiff medical specialist had interest in Edmonton clinic and was encouraged to open
Toronto clinic by official of defendant who told him that defendant would provide
significant flow of patients -- Toronto clinic was owned and operated by new company -Toronto clinic got almost no patients from defendant -- Action against defendant for
negligent misrepresentation was allowed -- Plaintiffs in action were specialist, his
professional corporation, his holding company and company running Edmonton clinic who
were liable directly or indirectly for almost every contingency of Toronto clinic -- New
company, which later went bankrupt, its receiver or its trustees were not parties to action
-- Four co-investors in Toronto clinic were not plaintiffs in action -- Trial judge found it
was reasonably foreseeable that plaintiffs would rely on defendant's representations and
put in place financing in order to open Toronto clinic -- Defendant appealed -- Appeal
allowed -- Specialist never told defendant details of banking or loan arrangements -Specialist did not solicit defendant's advice on how to set up, run or finance Toronto clinic
-- No evidence that financing arrangements and guarantees given to Toronto clinic were
reasonably foreseeable -- Financing arrangements or guarantees regarding Toronto clinic
were not inevitable or self-evident -- Action involved liability to indeterminate class and
there was no theoretical limit to number of investors and guarantors -- Trial judge did not
attempt to define class to whom defendant owed duty and never defined time period duty
was owed -- Defendant's duty and liability were indeterminate in many respects.
Fraud and misrepresentation --- Negligent misrepresentation (Hedley Byrne principle) -Detrimental reliance
Plaintiff medical specialist had interest in Edmonton clinic and was encouraged to open
Toronto clinic by official of defendant who told him that defendant would provide
significant flow of patients -- Toronto clinic was owned and operated by new company -Toronto clinic got almost no patients from defendant -- Action against defendant for
negligent misrepresentation was allowed -- Plaintiffs in action were specialist, his
professional corporation, his holding company and company running Edmonton clinic who
were liable directly or indirectly for almost every contingency of Toronto clinic -- New
company, which later went bankrupt, its receiver or its trustees were not parties to action
-- Four co-investors in Toronto clinic were not plaintiffs in action -- Trial judge found it
was reasonably foreseeable that plaintiffs would rely on defendant's representations and
put in place financing in order to open Toronto clinic -- Defendant appealed -- Appeal
allowed -- Specialist never told defendant details of banking or loan arrangements -Specialist did not solicit defendant's advice on how to set up, run or finance Toronto clinic
-- No evidence that financing arrangements and guarantees given to Toronto clinic were
reasonably foreseeable -- Financing arrangements or guarantees regarding Toronto clinic
were not inevitable or self-evident -- Action involved liability to indeterminate class and
there was no theoretical limit to number of investors and guarantors -- Trial judge did not
attempt to define class to whom defendant owed duty and never defined time period duty
was owed -- Defendant's duty and liability were indeterminate in many respects.
Cases considered:
Cooper v. Hobart, 2001 SCC 79, 2001 CarswellBC 2502, 2001 CarswellBC 2503, [2002] 1
W.W.R. 221, 206 D.L.R. (4th) 193, 96 B.C.L.R. (3d) 36, (sub nom.Cooper v. Registrar of
Mortgage Brokers (B.C.)) 277 N.R. 113, [2001] S.C.J. No. 76 (S.C.C.) -- referred to
Haig v. Bamford (1976), [1977] 1 S.C.R. 466, 72 D.L.R. (3d) 68, 9 N.R. 43, 27 C.P.R.
(2d) 149, [1976] 3 W.W.R. 331, 1976 CarswellSask 116, 1976 CarswellSask 112 (S.C.C.)
-- distinguished
Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, 1997 CarswellMan
198, 211 N.R. 352, 115 Man. R. (2d) 241, 139 W.A.C. 241, (sub nom.Hercules
Managements Ltd. v. Ernst & Young) 146 D.L.R. (4th) 577, 35 C.C.L.T. (2d) 115, 31
B.L.R. (2d) 147, [1997] 8 W.W.R. 80, 1997 CarswellMan 199, [1997] S.C.J. No. 51
(S.C.C.) -- followed
Martel Building Ltd. v. R., 2000 SCC 60, 2000 CarswellNat 2678, 2000 CarswellNat 2679,
36 R.P.R. (3d) 175, (sub nom. Martel Building Ltd. v. Canada) 193 D.L.R. (4th) 1, (sub
nom. Martel Building Ltd. v. Canada) 262 N.R. 285, 3 C.C.L.T. (3d) 1, 5 C.L.R. (3d) 161,
186 F.T.R. 231 (note), (sub nom. Martel Building Ltd. v. Canada) [2000] 2 S.C.R. 860,
[2000] S.C.J. No. 60 (S.C.C.) -- considered
Winnipeg Condominium Corp. No. 36 v. Bird Construction Co., 18 C.L.R. (2d) 1, [1995] 1
S.C.R. 85, 23 C.C.L.T. (2d) 1, 43 R.P.R. (2d) 1, [1995] 3 W.W.R. 85, 100 Man. R. (2d)
241, 91 W.A.C. 241, 121 D.L.R. (4th) 193, 1995 CarswellMan 19, 176 N.R. 321, 1995
CarswellMan 249, 11 Const. L.J. 306, 74 B.L.R. 1, 50 Con. L.R. 124, [1995] S.C.J. No. 2
(S.C.C.) -- distinguished
Words and phrases considered
INDETERMINATE
The word "indeterminate" does not mean large. It means "Not fixed in extent, amount,
character, etc.; of uncertain size etc.; indefinite.": See 1 New Shorter Oxford English
Dictionary 1347 (1993).
APPEAL by defendant from judgment reported at 2000 CarswellAlta 403, 80 Alta. L.R.
(3d) 132, [2000] 8 W.W.R. 62, 6 B.L.R. (3d) 32, 264 A.R. 134 (Alta. Q.B.), allowing
action for damages for negligent misrepresentation.
The Court:
1
The issue here is the defendant's liability for investments by others influenced by the
defendant's negligent misrepresentation.
2
One of the plaintiffs is a medical specialist. An Edmonton rehabilitation clinic in which
he had an interest had produced some good results. One of its good clients was the
defendant insurance company. One of the defendant's officials encouraged the plaintiff to
open another clinic in Toronto, and stated that the defendant had a need and would
furnish a significant flow of patients. The clinic opened, but failed, getting almost no
patients from the defendant. The specialist and some companies which he controlled at
the time of trial successfully sued the defendant for negligent misrepresentation. The
defendant appeals.
3
Most of the Reasons for Judgment in the Court of Queen's Bench gave the
impression that the Toronto clinic was owned by the specialist, or by the specialist and
his "partners". That must refer to several other physicians who were co-shareholders with
the specialist in the company which ran the Edmonton clinic. In fact, the Toronto clinic
was owned and operated by a new company which later went into bankruptcy and
receivership. The Reasons mention that for the first time near the end (para. 49).
4
Neither that new company, nor its trustee in bankruptcy, nor its receiver, is a party
to this lawsuit. Nor are the specialist's "partners", nor any company controlled by them.
None of those people sued. The only plaintiffs are the specialist, his professional
corporation, his personal holding company, and the company which runs the Edmonton
clinic. The specialist or his holding company bought the Edmonton clinic business after
the Toronto clinic failed, but before this suit.
5
This suit is not for any expenses or losses or loss of profit incurred by the Toronto
clinic. The plaintiffs did not and could not incur any such losses in their capacity as
owners of the Toronto clinic.
6
What the plaintiffs sued for and the trial judgment awarded them is not immediately
evident upon the face of the proceedings. Yet it is critical to liability, as we will see.
Therefore one must inquire into it. The trial Reasons are very brief on the subject, and
merely adopt a figure from one of the expert witnesses. The evidence of the two
competing expert witnesses did not conflict much on these figures, and indeed one
witness testified that he reconciled their apparently differing totals. However, their
evidence needs close attention, because to some degree it uses differing scenarios, partly
to demonstrate that different courses of action would have led to similar financial results.
That is somewhat counter-intuitive, and is not self-evident, nor obvious, without
demonstration.
7
What is surprising about this evidence is that the specialist had at least four other
co-investors, all equal (with one small exception). None of the others are plaintiffs, nor
are any of their companies. The plaintiff companies are now all indirectly beneficially
owned by the specialist, though one was not at the time the Toronto clinic was opened.
Yet the trial Reasons award the specialist and his companies amounts almost equal in
total to all the investment in, and expenses of, the Toronto clinic. One co-investor went
bankrupt. Aside from that, how or why the specialist and his companies had to shoulder
almost all the burden is mysterious. Not only were there other equal "co-investors", but
they seem to have contributed no equity. No one seems to have contributed any equity;
the whole Toronto operation apparently was completely leveraged. The specialist seems
to have made himself or his companies personally liable, directly or indirectly, sooner or
later, for almost every contingency or risk of the Toronto operation. In any event, that is
the assumption by the expert whose figures were adopted by the trial Reasons as the
large damage award.
8
Three other co-investors may have paid a limited amount each to one of the banks
in respect of a loan for the Toronto clinic. Credit may have been given for that in the
expert's figures which the trial Reasons adopt, though that is not completely clear.
9
So far as we can tell, the individual sums which the plaintiffs were thus awarded,
before reconciling adjustments and pre-trial interest, were these:
Unpaid direct loan by Edmonton clinic company to Toronto clinic
413.
$197,
company
Payment by Edmonton clinic company on guarantee to Toronto landlord
7.
21,66
Capped payment by specialist on guarantee to bank on Toronto loan
00.
150,0
Payment by specialist on guarantee to bank on Toronto loan
0.
75,00
All travel expenses incurred by Edmonton clinic company
4.
51,43
All legal fees incurred by Edmonton clinic company re Toronto
0.
34,95
All accounting fees incurred by Edmonton clinic company re Toronto
6.
11,59
All former retained earnings in Edmonton clinic company; sucked out
73.
138,2
by Toronto debacle
Total
333.
$680,
(The evidence seems to show that there is also another way to calculate the same losses,
with no mention of retained earnings lost, and somewhat different figures for sums paid
on guarantees.)
10
The leading authority on the subject of liability for negligent misrepresentation is
Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, 211 N.R. 352 (S.C.C.).
It states that what would otherwise be a prima facie duty of care in making
representations may be negatived by policy considerations in certain cases. Those
considerations especially relate to the class to whom the duty is owed and the use to
which the plaintiffs put the representations. (See paras. 31-41.) That approach has been
reaffirmed (and broadened) in Cooper v. Hobart, 2001 SCC 79 (S.C.C.) (paras. 30, 37).
11
The amended statement of defence here expressly pleads that defence (para.
4(b)). The defendant also argued that point at length at the end of trial, as a transcript
on the file shows. In particular, counsel for the defendant argued that the plaintiff's
evidence might found a cause of action by the bankrupt company which had owned the
Toronto clinic, but not by anyone else.
12
The trial Reasons adverted to that argument (paras. 13, 15, 29, and 32), but did
not squarely deal with it. In places, the trial Reasons restated the argument as lack of
"foreseeability of other persons being harmed" by relying upon the representations to
their detriment (para. 15). Sometimes the Reasons restated this as an argument that the
defendant did not know that assurances were being given with respect to the opening of
the Toronto clinic or of the plaintiffs' giving security (para. 29). Sometimes the
defendant's submission was restated as an argument against liability to an indeterminate
class for an indeterminate time for an indeterminate amount (para. 33).
13
The trial Reasons rejected the defendant's arguments thus restated, on several
grounds:
(a) it was known that the specialist had partners whom he would consult, and so harm to
others was foreseeable (para. 15);
(b) the representations were made before the Toronto clinic existed (para. 30);
(c) all the steps taken were reasonably foreseeable (para. 30);
(d) the defendant should have known that the specialist would rely on the
representations in his personal capacity, and also in his capacity as principal for his
professional corporation and for the company which owned the Edmonton clinic (para.
31);
(e) it was reasonably foreseeable that the other plaintiffs, companies controlled by the
specialist, are persons covered by the special relationship and owed the same duty of
care, because of Haig v. Bamford, [1977] 1 S.C.R. 466, 9 N.R. 43 (S.C.C.) (para. 31).;
(f) the defendant knew all the class including the plaintiffs, and the amount was not
indeterminate because it was limited to expenses incurred because of the representation
(para. 33).
14
To whom did the defendant argue that it did not owe a duty?
15
We may ignore one red herring. The specialist's "partners" (co-shareholders in the
Edmonton clinic company) were not in issue. They and their companies are not plaintiffs.
Whether they or their activities were or should have been known or foreseeable has little
or no relevance.
16
Instead, the defendant argued that any duty would be owed to the owner of the
Toronto clinic, which had not sued. The defendant argued that the duty could not be
owed to anyone else. It is doubtful that the trial Reasons ever directly dealt with that
argument.
17
The defendant's related argument was that none of the plaintiffs had ever owned or
opened a Toronto clinic or incurred any of its expenses or losses. The company which
owned the Toronto clinic is not a party to this suit.
18
The trial judgment awarded to the specialist and his companies almost all the
investment in the Toronto clinic by anyone, as described in paras. 5-9 above. Does the
law, and does the evidence, support such an award here?
19
There is no evidence that the defendant or its employees knew of, or could foresee,
any of these investments or losses. All that the specialist told the defendant was that the
Bank of Montreal would probably lend some money and that the Bank wanted a letter as
to the patients to be sent (Ex. Tab 23).The covering note from the specialist to the
defendant enclosed a draft letter to the Bank. The note said that "our Bank . . . would like
to keep it for Toronto Edmonton is great and not a problem but with Toronto being new some commitments are necessary." That plainly indicated that the new financing in
question was only for the Toronto clinic, not the Edmonton clinic or its owner.
20
The specialist never told the defendant any details of any banking arrangements,
loan arrangements, what types of loans, their amounts, or what security might be given,
including whether guarantees would be given, or by whom. None of that information was
given to the defendant (AB p. 247, ll. 12- 36). Nor did the specialist solicit the
defendant's advice on how to set up or run the Edmonton or the Toronto clinic. Nor
whether it should be financed by equity from shareholders, or bank indebtedness, or
anything of that nature (AB p. 281, ll. 14-25). Nor did the specialist seek any advice from
the defendant about what sort of lease arrangements would have been appropriate (AB
p. 281, ll. 34-36). Nor about a business plan or cash flow projection, or whether he
should guarantee any bank indebtedness. Nor did the directors of the Edmonton clinic
company seek such advice from the defendant. Nor with respect to any indemnity to the
landlord.
21
But all of those people did get professional advice from a law firm, an outside
accounting firm, a financial consultant, and from a marketing consultant (AB p. 282, ll. 942). None of that advice came from the defendant, and these matters were not even
discussed with the defendant (AB pp. 282-83). Indeed, the clinic's advisers said to avoid
bank debt, but that advice was ignored (AB p. 162, ll. 12-35). Moreover, the accountant
for the Edmonton clinic and the specialist (AB pp. 165-6) advised the Edmonton clinic
company and the specialist to keep the financing of the Edmonton and Toronto clinics
separate, so that the successful Edmonton clinic could never be hindered or pulled down
by the Toronto clinic, which might be slower in developing than expected (AB p. 168, ll.
11-46). Indeed the accountant advised that Edmonton clinic funds should only go to the
Toronto clinic when in excess of reasonable working capital needs, and then only to pay
down any Toronto bank loans (AB p. 169, ll. 6-22).
22
The trial Reasons seem to say (para. 30) that the financing arrangements and
guarantees actually given to the new Toronto clinic were reasonably foreseeable. We can
find no evidence whatever of that. Indeed, the defendant was told virtually nothing about
financing or business arrangements, as noted above.
23
Nor do we think that such financing arrangements or guarantees were inevitable or
self-evident. Personal guarantees of commercial leases are not rare, but they are far from
an invariable practice, and may well be exacted in a minority of cases. Personal
guarantees of bank loans are more common, but are not inevitable. They are often
limited. Where there are a number of shareholders, and the company is commercial and
not personal, large joint and several guarantees are less common.
24
Besides, such foreseeability is not always enough for liability. That is the main point
of the Hercules Management Ltd., decision. Someone who makes careless statements in
a business context is not necessarily liable for every unfortunate investment decision by
someone else at arm's length who is influenced by those statements. A very relevant
question is whether the plaintiff used the representation for precisely the purpose and
transaction for which it was prepared. See paras. 41 and 46-49 of Hercules Management
Ltd., supra. The trial Reasons here made no such finding of purpose, and instead dealt
with foreseeability: see paras. 13-15.
25
A later Supreme Court decision shows that a duty of care not to cause pure
economic loss by careless negotiation will likely not be imposed on two arm's length
commercial entities negotiating for a new contract to extend their previous contract:
Martel Building Ltd. v. R., [2002] 2 S.C.R. 860, 262 N.R. 285, 193 D.L.R. (4th) 1
(S.C.C.). That was a case of careless rejection of an offer after representations of even
treatment, not a case of misrepresentation pure and simple. But the Supreme Court
there (paras. 68, 69) speaks of somewhat similar policy considerations, and of the
dangers in commercial parties having to guard each other's interests when negotiating.
As the Supreme Court of Canada says there, generally imposing such duties on
commercial negotiations "could interject tort law as after-the-fact insurance against
failures to act with due diligence or to hedge the risk of failed negotiations through the
pursuit of alternative strategies . . . " In our view, that is equally applicable to the
investment decisions made here.
26
The relationship in the present case was also in the nature of a commercial
negotiation. The specialist went to one of his best clients, which praised his services and
said that it had similar needs in Toronto. The client later put that in writing to help its
supplier get a bank loan. Many a client or prospective client, impressed by a good
marketing pitch, has responded enthusiastically but vaguely. Presumably none thought
that they thereby incurred legal obligations. As the Supreme Court of Canada says in
Martel Building Ltd., "the retention of self-vigilance is a necessary ingredient of
commerce".
27
Another important aspect of the Hercules Management Ltd. decision is investment
decisions. Even if the defendant had some liability for some consequences of its careless
statements, that will not extend to all consequent investment decisions, says the
Supreme Court. That Court speaks of liability to an indeterminate group. The present
case admittedly does not involve liability to (say) everyone buying shares in a company
heavily traded on the Toronto or New York exchange. But it is an indeterminate class,
nevertheless. The trial Reasons say more than once that the defendant knew that the
specialist had "partners", so the liability found by those Reasons must have covered other
people.
28
Who? Was that confined to the existing shareholders in the Edmonton company, or
to anyone who might invest in the new Toronto clinic? How many? Four? Ten? Thirty?
What sort of people? Physicians? Entrepreneurs? Was it confined to Edmontonians?
Albertans? Edmontonians and Torontonians? Vancouverites? Did it extend only to those
buying shares? Or to all who gave personal guarantees? Or only to those who did both?
What if the landlord or bank had demanded personal guarantees from investors' spouses?
Would they have been in the class who could sue? There is no theoretical limit to the
number of such investors and guarantors. In practice, one would not expect tiny
investments, but $20,000. is not tiny. It would take 34 such investors to raise the
$680,000. awarded at trial. Even the number who chanced ultimately to invest is not
really found by the trial Reasons, and it is not as big as the number who could have.
29
Such questions are not academic, for the Edmonton and Toronto clinics involved
different investors, though the two lists overlapped. The reference to Vancouver is not
fanciful, for the negligent representation found was that the specialist should shelve plans
for a new clinic in Vancouver, and build it in Toronto instead. So one would expect that
some of the "partners" would be from Vancouver.
30
The danger of liability to an indeterminate class is real. If someone realizes that he
or she has inadvertently given inaccurate advice or information, he or she should have
some chance to circulate a retraction or correction. And beforehand, someone going into
the business of giving advice should be able to calculate the risks and price out possible
insurance. That requires some idea of the parameters.
31
The trial Reasons stress that the company which was to own the Toronto clinic did
not exist at the time of the representations. But that makes the class to whom the duty
would be owed still less determinate. It could have been an existing company, or a new
one. It could have been a company with other existing businesses or debts. Any
guarantee of its debts might in effect have covered other debts.
32
The trial Reasons never attempted to define the class to whom the duty postulated
was owed.
33
Was the duty owed only in respect of initial investments? What if the banker or
landlord had not initially demanded guarantees, but asked for them later when financial
troubles loomed? Would those new securities be too late for the defendant to underwrite?
The trial Reasons never defined the time period. What if the landlord and the bank had
let the situation go on for a long time? These shareholders shut the clinic down quickly
after four months; but a typical business failure takes at least a year, sometimes several.
What if two years' rent, expenses and interest had been put onto the guarantors'
shoulders? The trial Reasons did not say where that would end either.
34
One of the main dangers of joint and several guarantees of others' debts is
precisely the indeterminate nature of the liability.
35
What is more, the specialist seems to have bought out his co-investors in the
Edmonton clinic company after the Toronto debacle. They do not sue; he does. Why
should the defendant owe a duty of care to the specialist respecting his later investment
in the pre-existing Edmonton clinic and its company? Plainly the defendant was told that
the loans were not for Edmonton. The purpose (policy) test cannot be met.
36
Points (e) and (f) in para. 13 above summarize parts of the trial Reasons. Those
Reasons rely upon the specialist's control of the Edmonton clinic company. But that
control did not exist at the time of the defendant's representations or the opening of the
Toronto clinic. It arose only after the Toronto clinic failed.
37
No one tries to explain that, and we cannot imagine any reason for it. The factum
of the respondent plaintiffs does not deal with this point, and indeed says little about the
matters discussed above.
38
The word "indeterminate" does not mean large. It means "Not fixed in extent,
amount, character, etc.; of uncertain size etc.; indefinite.": See 1 New Shorter Oxford
English Dictionary 1347 (1993). In our view, the duty and liability found here were
indeterminate in many respects. As the Hercules Management Ltd. decision, supra, points
out, one must not encourage suits by indeterminate groups, even if most of their
members might ultimately be weeded out by later judges or juries (para. 35).
39
The respondents cite Winnipeg Condominium Corp. No. 36 v. Bird Construction Co.,
[1995] 1 S.C.R. 85, [1995] 3 W.W.R. 85, 176 N.R. 321 (S.C.C.), but we do not find it
applicable. The Supreme Court of Canada stressed that it involved a builder's liability for
work not merely shoddy, but actually dangerous to life and limb.
40
In summary, the trial Reasons here did not really deal with the centre of this issue,
the grounds given by them respecting this issue were not satisfying, and the policy
dangers described in Hercules Management Ltd., supra are present here. The trial
Reasons also relied briefly upon Haig v. Bamford, supra, but the Hercules Management
Ltd. case has significantly contracted the law since the decision was given. And the facts
in Haig, supra were very different. There accountants were in the business of giving
representations and were paid a fee for the one given there.
41
That makes it unnecessary to deal with the other arguments by the appellant
defendant.
42
The appeal is allowed and the suit dismissed, with costs in both courts. We do not
allow a fee for second counsel on appeal.
Appeal allowed.
END OF DOCUMENT