August 1, 2022

By Brian Babcock

A common way to recover damages for economic loss in the absence of a contract or physical damage to property is to make a claim for negligent misrepresentation.

The test for negligent misrepresentation was conveniently recently repeated in a  2019 Superior Court decision called Doumouras v. Chander:

1. there must be 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 said misrepresentation;
4. the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and
5. the reliance must have been detrimental to the representee in the sense that damages resulted.

THE ISSUE

But what is a representation? Are all statements representations?

THE CASE

In Madison Homes Cornell Rouge Limited v. Jiang, the Ontario Court of Appeal reminds us that a prediction is not a statement of fact. This frequently overlooked distinction dates back at least to 1955 when a judge of what was then called the High Court of Justice (predecessor to the current Superior Court of Justice) stated that:

It is, of course, well settled that a representation, to be of effect in law, should be in respect of an ascertainable fact as distinguished from a mere matter of opinion. A representation which amounts merely to a statement of opinion, judgment, probability or expectation, or is vague and indefinite in its nature and terms, or is merely a loose, conjectural or exaggerated statement, goes for nothing, though it may not be true, for a man is not justified in placing reliance on it.

The Court of Appeal incorporated that quote in a 2005 decision, Hembruff v. Ontario Municipal Employees Retirement Board, in which they also described information such as a forecast as to the future, an opinion, or an expectation as not being statements of fact and therefore not representations which cannot sustain an action in negligent misrepresentation.

Madison Homes makes it clear that this remains the law in the 21^st century. That case dismisses an appeal from a summary judgment motion arising from a failed real estate deal. On the date of closing, the buyer was unable to close because of his financial position. The seller refused an extension of the closing date and the deal failed to close. The seller chose to terminate the agreement rather than seek specific performance. They then sold the property to a different buyer, at a lower sale price and sued for the shortfall and expenses.

The buyer defended on the basis that the seller’s sales representative had represented that the price for the homes in the subdivision would go up in the next phase of development, which would have indicated that the buyer’s price would be lower than the future market price. If that had been true, the buyer suggested, the seller should have been able to resell without a loss. The motions judge held that the statement by the salesperson was not a statement of fact but was a prediction and thus was not a statement upon which the buyer could reasonably rely in law.

The Court of Appeal agreed. They also pointed out that there was no evidence the statement was made negligently or that the salesperson did not honestly believe the statement, so the buyer’s defence would fail on those parts of the test as well.

THE RESULT

Judgment for the sellers, upheld on appeal. The buyer must pay.

TAKEAWAYS

This case is a useful reminder of the benefits of being clear and precise when you speak or express yourself in writing.

If you intend to give an opinion or a forecast, you should make it clear that you are not attempting to state a fact. This distinction is important not only in the law of negligent misrepresentation, but may be relevant in the law of defamation, where the defence of fair comment applies to honestly held opinions, but not to statements of fact.

When you are the listener or reader receiving the statement, you need to be careful to understand whether it is a statement of fact, a forecast, an opinion, or a comment. As the court points out, the law does not allow you to rely upon a forecast, prediction, or statement of opinion.

So why should you?

Sometimes in life you must accept risks, but in financially significant transactions like a real estate deal, you want to make sure that you understand the risk that you are accepting. You will want to fully investigate the factual basis for the comment to satisfy yourself of its truth. If you cannot be sure, at least be sure of the risk that you are taking.

It is also very common in negligent misrepresentation cases to be faced with a dispute over just what was said, particularly in cases of verbal statements. Even written statements may be subject to disagreements about interpretation. Be as precise as possible and if the statement is important to a significant decision, you should always attempt to get it in writing.

HOW WEILERS LLP CAN HELP YOU

The lawyers at Weilers LLP are highly experienced in drafting documents to clearly express your intentions. We can also help you understand the risks. If the deal still goes sideways, we also have an experienced litigation team skilled in interpreting statements and understanding their true significance. In either situation, Weilers LLP may be the right law firm to give you the advice that you need either to put your deal together properly, or to avoid wasting time. money, and energy on expensive, pointless litigation.

Although no lawyer can always correctly predict or forecast the future, the team at Weilers LLP has an excellent track record.