COURT OF APPEAL FOR BRITISH COLUMBIA
Citation:
No. 2002 Taurus Ventures Ltd. v. Intrawest Corp.,
2007 BCCA 228
Date: （略）
Docket: CA033843
Between:
No. 2002 Taurus Ventures Ltd. and
Larry Ross Houghton
Respondents
Appellants on Cross-Appeal
(Plaintiffs)
And
Intrawest Corporation and
Whistler Mountain Resort Limited Partnership
Appellants
Respondents on Cross-Appeal
(Defendants)
Before:
The Honourable Madam Justice Prowse
The Honourable Mr. Justice Hall
The Honourable Madam Justice Levine
R.J. Sewell, Q.C. and
T. Galbraith
Counsel for the Appellants
L.C. Donaldson and
H. Wang
Counsel for the Respondents
Place and Date of Hearing:
Vancouver, British Columbia
January 17, 2007
Place and Date of Judgment:
Vancouver, British Columbia
April 24, 2007
Written Reasons by:
The Honourable Madam Justice Levine
Concurred in by:
The Honourable Madam Justice Prowse
The Honourable Mr. Justice Hall
Reasons for Judgment of the Honourable Madam Justice Levine:
Introduction
[1] This appeal addresses the question of whether pre-contractual representations may give rise to damages, where the contract entered into does not address the matters about which the representations were made, and includes an "entire agreement" clause.
[2] The contract in this case was for the purchase of a building lot on Whistler Mountain in a development called Kadenwood. The appellants, Intrawest Corporation and Whistler Mountain Resort Limited Partnership (collectively "Intrawest") marketed Kadenwood as a "premier ski-in/ski-out" residential development, with access to the lots by skiers on ski runs (designated ski routes that are part of the general operation of Whistler Mountain), and ski trails (ski routes within Kadenwood). The contract did not provide for the construction of the ski runs and ski trails. The respondents, No. 2002 Taurus Ventures Ltd. and Larry Houghton (collectively "Taurus"), claimed that Intrawest represented that it would build and pay for both the ski runs and ski trails within a reasonable period of time following their purchase of the lot, and that it failed to do so. They sued Intrawest for damages for, among other claims, breach of a collateral contract and negligent misrepresentation.
[3] The trial judge found that there was no collateral contract, but that Intrawest was liable for negligent misrepresentation. The assessment of damages was referred to a future proceeding. The trial judge's reasons for judgment are reported at (2006), 54 B.C.L.R. (4th) 173 (S.C.), and may be found at 2006 BCSC 293.
[4] Intrawest appeals from the order that it is liable for negligent misrepresentation, and Taurus cross-appeals the order that there was no collateral contract.
[5] I would allow the appeal in part. The trial judge erred in finding Intrawest liable for negligent misrepresentation because Taurus' claim in tort was barred by the entire agreement clause. I would also allow the cross-appeal. The trial judge erred in concluding that there was no evidence of intention to enter into a collateral contract, and failed to consider the entire agreement clause in relation to the contract. I would remit the matter to the Supreme Court for a trial on the question of whether Intrawest breached a collateral contract with Taurus. The stay of enforcement of the mortgage will remain in effect pending the final determination of Taurus' claim.
Background
[6] No. 2002 Taurus Ventures Ltd. purchased Lot 13 in Kadenwood for $2,850,000 in June 2002, by assignment from a numbered company which had purchased Lot 13 from Intrawest in January 2002. Intrawest financed three-quarters of the purchase price on the security of a mortgage payable one year after the completion date, or earlier if the lot was resold. Mr. Houghton, the sole director, officer, and shareholder of Taurus, guaranteed repayment of the mortgage.
[7] Taurus bought Lot 13 for resale. In October 2002, it listed Lot 13 for sale for $3,400,000. It had not been sold at the date of the hearing of the appeal.
[8] The mortgage was modified twice, in July and December 2003, to extend the time for payment of accrued interest and the principal balance. Under the second modification, accrued interest was payable on January 22, 2004, and the principal balance on April 22, 2004. None of the payments under the second modification were made, and the balance on the mortgage remains outstanding.
[9] In February 2004, Taurus sued Intrawest for rescission of the contract, or alternatively, damages for breach of contract, or negligent or fraudulent misrepresentations, and Intrawest brought foreclosure proceedings against Taurus. The parties consented to having the action and the foreclosure proceedings heard at the same time. In January 2006, Intrawest brought an application under Rules 18A and 50 for foreclosure, judgment against Taurus and Mr. Houghton, and dismissal of Taurus' action.
Issues at Trial and the Trial Judge's Reasons for Judgment
Representations Concerning Ski-In/Ski-Out Access
[10] The focus of the dispute between the parties is whether Intrawest fulfilled its representations and covenants concerning the ski-in/ski-out access to Lot 13.
[11] The evidence included promotional literature produced by Intrawest, and affidavit evidence of Mr. Houghton and other purchasers of lots in Kadenwood of statements made by representatives of Intrawest and realtors selling the lots, at the time lots in Kadenwood were offered for sale and Lot 13 was purchased by Taurus. The literature and statements emphasized the exclusive, premier quality of Kadenwood, and in particular, the ski-in/ski-out access. Mr. Houghton claimed that, in order to support the prices at which the lots were offered (ranging from $1,000,000 to $2,900,000), skiers should be able to ski from the doorstep of the home on the lot to a ski lift, and from a major ski run on the mountain back to the doorstep (trial judge's reasons for judgment (at para. 6); statement of claim (para. 14)). Mr. Houghton, who is an experienced real estate developer and described himself as "an active player in the Whistler real estate market for many years", deposed that the price paid for Lot 13 was the highest price ever paid at that time for a single family residential lot in Whistler. Lot 13 is zoned for a 7,500 square foot home, estimated by Mr. Houghton to cost between $9 million and $13 million to complete, including the cost of the land.
[12] The promotional literature included a brochure bound in wood and leather, a wooden model, and a map, which showed the location of the ski runs and ski trails leading to Kadenwood and Lot 13.
[13] The main ski run access to Kadenwood is by a run called "Peak-to-Creek". In 2001, when Kadenwood was first marketed, Peak-to-Creek had been cleared and was skiable by more expert skiers, but it was outside the Whistler ski area boundary, and was not groomed or patrolled. In October 2004, Intrawest "summer-groomed" Peak-to-Creek, which allowed it to be serviced by snow-grooming machines in the winter, and brought it into the ski area boundary. It then became an intermediate level run, skiable by most skiers, and provides direct access on skis, when snow conditions permit, to Kadenwood, and from Kadenwood to the bottom of Whistler Mountain. Taurus claimed that Intrawest should have completed the work on Peak-to-Creek at least one year earlier.
[14] The promotional literature, map and model also included references to ski trails on which skiers could ski from Peak-to-Creek to each of the lots in Kadenwood. The map showed trails, referred to in the map legend as "Ski In/Ski Out Trails", coloured orange, extending from Peak-to-Creek to Kadenwood. It showed a similarly coloured trail, marked "Ski Trail Easement", extending from the boundary of Kadenwood, behind adjacent lots 15 and 14, to the boundary of Lot 13.
[15] Mr. Houghton deposed that Intrawest's then director of sales, Mr. Cole, told him that Intrawest would be building the ski trails, including a ski trail running through Lot 13, to provide skiing access to and from Peak-to-Creek. The ski trail to and out of Lot 13 has not yet been built. Intrawest's position is that it never intended to build it — it is up to the Kadenwood owners to complete and pay for the ski trails (although counsel for Taurus told the Court at the hearing that Intrawest has now committed to build it). The cost of building the ski trail for Lot 13 is estimated to be between $30,000 and $120,000.
[16] The trial judge found (at para. 32) that Intrawest had represented that it "would be providing the best possible ski access to Mr. Houghton's lot in a timely fashion". He noted that neither the promotional literature nor the statements made to Mr. Houghton by representatives of Intrawest made any distinction between the responsibility for creating the ski runs, which was clearly Intrawest's, and the ski trails necessary to provide that access. The trial judge found (at para. 32) that there was no reason Mr. Houghton "should have doubted that Intrawest would provide access directly to his lot". He found further (at para. 35):
I am also satisfied that Intrawest's promotional material and other statements left Mr. Houghton with the reasonable impression that Intrawest would be moving expeditiously to build the ski run and trails.
[17] The trial judge concluded (at para. 38):
I therefore conclude that Intrawest made the representations that Mr. Houghton alleges, namely that it would provide ski-in, ski-out access to lot 13 within a reasonable amount of time. I also find that, in the absence of those representations, Mr. Houghton either would not have purchased the lot, or at least would not have purchased it without a significant discount in the purchase price.
[18] Mr. Houghton disputes that he would have bought Lot 13 at a discount. That finding of fact is not of significance to the issues on appeal, however.
[19] Taurus claims damages primarily for loss of value of Lot 13. Taurus alleges the loss of value was caused by Intrawest's failure to proceed expeditiously, following its active marketing campaign to sell lots in Kadenwood, to complete the infrastructure to make it a ski-in/ski-out property.
The Contract for Lot 13
[20] The contract of purchase and sale made reference to the Disclosure Statement provided by Intrawest, as then required by the Real Estate Act, R.S.B.C. 1996, c. 397. (The Act has since been repealed.) The Disclosure Statement described in detail the plan for the development of Kadenwood, including the location of the lots, road access, the structure of the strata corporation, and detailed construction and design guidelines. The trial judge found (at paras. 47-48) that the Disclosure Statement was part of the contract. Mr. Houghton's evidence was that he had read the contract of purchase and sale and the Disclosure Statement before purchasing Lot 13.
[21] The Disclosure Statement included site plans that showed the location of the ski trails, and on some of the site plans, the ski runs adjacent to Kadenwood. There was nothing in either the contract of purchase and sale or the Disclosure Statement, however, that dealt with the timing of completion of the ski runs or who would build and pay for the ski trails.
[22] The contract included an "entire agreement clause":
[13] Miscellaneous – This Contract is the entire agreement between the parties and there are no other terms, conditions, representations, warranties or collateral agreements, express or implied, whether made by the Vendor, any agent, employee or representative of the Vendor or any other person. All of the terms, conditions, representations, and warranties contained in this Contract will survive closing and the transfer of the Property to the Purchaser.
[23] The assignment agreement (under which Taurus purchased Lot 13) included the following:
The copy of the Purchase Contract attached as Schedule "A" constitutes the entire agreement between the Vendor and the Assignor with respect to the property described therein and has not been modified or amended in any way.
Collateral Contract
[24] The trial judge considered whether there was a collateral contract that Intrawest would build the ski runs and ski trails within a reasonable period of time. Mr. Houghton deposed that he had been told by Mr. Cole, who represented Intrawest at the time Taurus purchased Lot 13, that Intrawest would build the ski trails. At the time of trial, Mr. Cole was no longer employed by Intrawest, and did not provide an affidavit. In his affidavit filed on behalf of Intrawest in 2006, Mr. Morley denied Intrawest ever intended to build the ski trails.
[25] The trial judge concluded (at paras. 50, 53 and 54) that there was no evidence of the "necessary contractual intention" to create a collateral contract:
There is nothing in the evidence that would permit a finding that Intrawest intended to pay for the construction of the trail or that it intended to make such a promise. Intrawest denies ever having had that intention. From the contemporaneous evidence that is available, it is not possible to determine if anyone in a position of authority at Intrawest even turned his or her mind to this question at the time the contract was made. While the pre-contractual representations clearly left buyers with the impression that Intrawest would be providing those ski trails as part of the development's premier ski-in, ski-out feature, the evidence does not establish an intention on the part of Intrawest to make or be bound by a specific promise to that effect.
. . .
At the time the contract was signed, Intrawest intended to proceed with the completion of the ski runs leading to Kadenwood in the summer of 2003. However, I cannot find in the evidence any intention by Intrawest to be contractually bound by that timetable. The ski-runs were not being built solely for the benefit of Kadenwood purchasers. They were also being built as part of Intrawest's business as the operator of a much larger ski resort open to the general public. As such, the plans for them would be subject to the potentially changing demands, priorities and financial position of the entire business.
If Intrawest intended to promise the Kadenwood purchasers that it would build the new runs by a certain date, it would have been giving the project priority over any other business considerations that might arise. It may have been reasonable for purchasers to form that impression, but the issue here is contractual intention, which must be mutual. There is no evidence that Intrawest intended to make that commitment.
[26] Because the trial judge found there was no intention to enter into a collateral contract, he did not decide whether the entire agreement clause in the contract would exclude a collateral contract (paras. 50, 53).
Negligent Misrepresentation
[27] The trial judge found Intrawest liable for negligent misrepresentation, concluding that the contractual relationship did not preclude an action for negligent misrepresentation (at para. 69), and liability was not excluded by the entire agreement clause (at paras. 81, 83-84).
[28] The misrepresentation was that Intrawest “would provide ski-in, ski-out access to lot 13 in a reasonable amount of time" (para. 38). Although at the time the contract was entered into, Intrawest planned to summer-groom Peak-to-Creek in 2003, it changed its plans and only completed Peak-to-Creek in 2004. It never built the ski trails.
[29] The trial judge found (at para. 80):
Intrawest did not put any qualifications on the extent of the work it planned to do or the timing of it, and in the absence of such express qualifications, the representations were misleading. There was therefore a negligent misrepresentation.
[30] The trial judge rejected Intrawest's argument that any statements of intention made by it when Lot 13 was sold were statements of future events or intentions, and could not form the basis for a claim of negligent misrepresentation: see Queen v. Cognos Ltd., [1993] 1 S.C.R. 87 at 129; P.D. Management Ltd. v. Chemposite Inc., 2006 BCCA 489 at para. 22. He found (at para. 73):
The sales material and statements by Intrawest were not merely statements of future intention, they were representations about a specific plan that it had already prepared and was beginning to implement. As such, they are capable of attracting liability for negligent misrepresentation.
[31] The trial judge also rejected the argument that the entire agreement clause excluded liability for negligent misrepresentation. Citing Cognos and Zippy Print Enterprises Ltd. v. Pawliuk (1994), 100 B.C.L.R. (2d) 55 (C.A.), he found (at paras. 83-84) that the entire agreement clause did not expressly exclude pre-contractual negligence.
[32] The trial judge referred the assessment of damages to a further proceeding.
The Trial Judge's Order
[33] The trial judge ordered that Intrawest's application for summary dismissal of Taurus' claims be dismissed; that Taurus' claims for breach of collateral contract and rescission of the contract be dismissed; and that Taurus be granted damages for negligent misrepresentation. He ordered further that Taurus was entitled to set off those damages against the amount owing to Intrawest under the mortgage. In the foreclosure proceeding, he ordered that Intrawest was entitled to judgment on the mortgage against Taurus, but stayed enforcement of the mortgage until Taurus' damages are determined.
Issues on Appeal and Cross-Appeal
Intrawest's Appeal
[34] Intrawest claims that the trial judge erred in finding it liable for negligent misrepresentation in the following ways:
(a) He erred in finding that Intrawest made any misrepresentation. Intrawest's position is that it discharged the duties the trial judge found it had: to "provide ski-in, ski-out access within a reasonable amount of time" (at para. 38), and to "accurately and fully set out its development plan while attempting to attract purchasers" (at para. 82).
(b) He erred in finding that Taurus reasonably relied on the misrepresentation the trial judge found had been made. Intrawest says that the timing of the completion of Peak-to-Creek was reasonable as it coincided with the development of homes in Kadenwood, and construction and payment for the ski trails was not material to Taurus.
(c) He erred in finding that the tort of negligent misrepresentation had been made out because Taurus failed to prove any damages, thus failing to satisfy the element of detriment.
(d) He erred in staying enforcement of the mortgage because Taurus had entered into extensions of the mortgage with knowledge of all the material facts.
Taurus' Cross-Appeal
[35] Taurus cross-appeals on the ground that the trial judge erred in finding there was no collateral contract obliging Intrawest to provide direct ski-in/ski-out access to Lot 13. In that regard, it claims that the trial judge overlooked or misapprehended the evidence in stating (at para. 50) “There is nothing in the evidence that would permit a finding that Intrawest intended to pay for the construction of the [ski] trail [that was to provide ski-in/ski-out access to Lot 13] or that it intended to make such a promise".
Negligent Misrepresentation
Claims in Contract and Tort
[36] The overriding legal issue in this case is whether Taurus is entitled to maintain its claim for negligent misrepresentation in the face of the contractual relationship between the parties, including the entire agreement clause. The trial judge found that it was: (paras. 69 and 83).
[37] Taurus took the position at trial and claims on the cross-appeal, and both parties essentially conceded on the hearing of the appeal, that this is fundamentally a contract case, and that any pre-contractual representations should be considered in the context of the law of collateral contract, with proper consideration of the entire agreement clause. I agree with that view, but cannot on that basis alone reject the trial judge's finding of negligent misrepresentation as an error of law.
[38] The Supreme Court of Canada made it clear in Central Trust v. Rafuse, [1986] 2 S.C.R. 147, and, continuing the analysis, in BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12 and Cognos, that breach of pre-contractual representations may be actionable as both a breach of contract and negligent misrepresentation, with clear exceptions arising from the express terms of the contract.
[39] In BG Checo, La Forest and McLachlin, JJ., writing for the majority, said (at . 26-27):
In our view, the general rule emerging from this Court's decision in Central Trust Co. v. Rafuse (1986), 31 D.L.R. (4th) 481, [1986] 2 S.C.R. 147, 34 B.L.R. 187, is that where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, except where the contract indicates that the parties intended to limit or negative the right to sue in tort. This limitation on the general rule of concurrency arises because it is always open to parties to limit or waive the duties which the common law would impose on them for negligence. This principle is of great importance in preserving a sphere of individual liberty and commercial flexibility….
Viewed thus, the only limit on the right to choose one's action is the principle of primacy of private ordering – the right of individuals to arrange their affairs and assume risks in a different way than would be done by the law of tort. It is only to the extent that this private ordering contradicts the tort duty that the tort duty is diminished … In so far as the tort duty is not contradicted by the contract, it remains intact and may be sued upon.
[Underlining added.]
[40] They concluded (at 30):
We conclude that actions in contract and tort may be concurrently pursued unless the parties by a valid contractual provision indicate that they intended otherwise. This excludes, of course, cases where the contractual limitation is invalid, as by fraud, mistake, or unconscionability. Similarly, a contractual limitation may not apply where the tort is independent of the contract in the sense of falling outside the scope of the contract…
[41] The majority in BG Checo disagreed with Iacobucci J.'s analysis of the concurrency of claims in tort and contract. He took the position, repeated in Cognos (at 113) that the parties to a contract may preclude an action in tort where there is an express term in the contract dealing with the matter (see BG Checo, at 26, 67-8). The majority in BG Checo held (at 27):
The mere fact that the parties have dealt with a matter expressly in their contract does not mean that they intended to exclude the right to sue in tort. It all depends on how they have dealt with it.
[42] In Cognos (at 113-114), Iacobucci J., writing for himself and Sopinka J., said, with respect to the question of concurrent actions in contract and tort:
When considering the effect of the subsequent contract on the representee's tort action, everything revolves around the nature of the contractual obligations assumed by the parties and the nature of the alleged negligent misrepresentation. The first and foremost question should be whether there is a specific contractual duty created by an express term of the contract which is co-extensive with the common law duty of care which the representee alleges the representor has breached. Put another way, did the pre-contractual representation relied on by the plaintiff become an express term of the subsequent contract? If so, absent any overriding considerations arising from the context in which the transaction occurred, the plaintiff cannot bring a concurrent action in tort for negligent misrepresentation and is confined to whatever remedies are available under the law of contract. The authorities supporting this proposition, including the decision of this Court in Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147, are fully canvassed in my reasons in BG Checo. As alluded to in BG Checo, this principle is an exception to the general rule of concurrency espoused by this Court in Central Trust v. Rafuse, supra.
There lies, in my view, the fundamental difference between the present appeal and BG Checo, supra. In the latter case, the alleged pre-contractual misrepresentation had been incorporated verbatim as an express term of the subsequent contract. As such, the common law duty of care relied on by the plaintiff in its tort action was co-extensive with a duty imposed on the defendant in contract by an express term of their agreement. Thus, it was my view that the plaintiff was barred from exercising a concurrent action in tort for the alleged breach of said duty, and this view was reinforced by the commercial context in which the transaction occurred. In the case at bar, however, there is no such concurrency. The employment agreement signed by the appellant in March of 1983 does not contain any express contractual obligation co-extensive with the duty of care the respondent is alleged to have breached. The provisions most relevant to this appeal (clauses 13 and 14) contain contractual duties clearly different from, not co-extensive with, the common law duty invoked by the appellant in his tort action.
[Underlining added.]
[43] In Cognos, the majority of the Supreme Court of Canada again disagreed with Iacobucci J.'s analysis of the principles of concurrency, although they unanimously agreed that Cognos Inc. was liable for negligent misrepresentation. Mr. Justice La Forest, for himself, L'Heureux-Dubé and Gonthier JJ., said (at 93): "…the present case is not one of concurrency at all. It is sufficient for me to say that the tort here was independent of the contract and the liability was not limited by an exclusion clause in the contract". Madam Justice McLachlin (as she then was) wrote separate reasons, concurring in the result, but stated (at 142) "for reasons which are obvious from my reasons in [BG Checo], I do not concur in all aspects of [Iacobucci J.'s] reasons". She agreed that the pre-contractual representation was different in scope and effect from the contractual obligation, and "turned out to have been negligently made and false" (at 144).
[44] In this case, the trial judge quoted (at para. 69) Iacobucci J.'s reasons for judgment in Cognos at 113 (quoted above) in support of his conclusion that Taurus was not precluded from bringing an action for negligent misrepresentation despite having entered into a contract. He concluded that because there was no express provision in the contract dealing with completion of the ski runs and ski trails, Taurus was entitled to maintain an action for negligent misrepresentation.
[45] The trial judge also cited Cognos (at para. 83) in support of his conclusion that the entire agreement clause did not preclude Taurus' claim in negligent misrepresentation, although the contract in question in Cognos did not include a limitation, exclusion or entire agreement clause.
[46] In my opinion, by relying on Cognos on the questions of concurrency and the effect of the entire agreement clause, the trial judge failed to give proper consideration to the entire agreement clause. It is the inclusion of such a clause in a contract which was the basis on which the majority in BG Checo held that a tort action could be excluded where the parties had entered into a contract.
Does the Entire Agreement Clause Exclude Negligent Misrepresentation?
[47] Thus, whether the claim of negligent misrepresentation is available to Taurus turns on whether the entire agreement clause excludes the claim for negligent misrepresentation.
[48] This issue was considered in Antorisa Investments Ltd. v. 172965 Canada Ltd., [2006] O.J. No. 3427 (Ont. S.C.J.) at paras. 39-55. The Court noted (at para. 41):
It is now settled that the fact that parties have dealt with matters in a contract does not mean that they intend to exclude the right to sue in tort ("It all depends on how they have dealt with it" [BG Checo at 27]). Commercial parties may order their affairs and allocate risks as they like. However, if they arrange their rights and duties in a different way than would be done by the law of tort, the tort duty must give way.
[Underlining in original.]
[49] The parties have not cited, and I have found only one case (Corfax Benefit Systems Ltd. v. Fiducie Desjardins Inc. (1997), 37 O.R. (3d) 50 (Ont. Ct. J.) (Gen. Div.)) where an entire agreement clause such as that included in the contract in this case was applied to exclude a claim for negligent misrepresentation. With the exception of Zippy Print, where the entire agreement clause was considered and found not to exclude either the tort or the contract claim, and Corfax, which is not binding on this Court, the cases in which an entire agreement clause has been considered are concerned with whether there is a binding collateral contract: see MacMillan v. Kaiser Equipment (2004), 33 B.C.L.R. (4th) 44, 2004 BCCA 270, Turner v. Visscher Holdings Inc. (1996), 23 B.C.L.R. (3d) 304 (C.A.). The tort cases generally consider more specific exclusion or disclaimer clauses: see Carman Construction Ltd. v. Canadian Pacific Railway Co., [1982] 1 S.C.R. 958; BG Checo.
[50] The trial judge cited (at paras. 83 and 84) Zippy Print and Cognos in support of his conclusion that the entire agreement clause did not exclude negligent misrepresentation.
[51] In Zippy Print, the respondents were licensees under a licence agreement for the operation of a franchise. The contract included an entire agreement clause similar to the clause in this case. It also contained an "Acknowledgements" clause, in which the licensees acknowledged that they had conducted an independent investigation of the business and recognized the risks. In the contract, the licensor disclaimed making, and the licensees acknowledged that they had not received, any representation as to the potential volume, profits, or success of the business. However, the licensor made misrepresentations respecting the estimated gross sales, expenses, and profits of a franchise. The licensees could not make the payments required by the agreement, the licensor sued, and the licensees counterclaimed for negligent misrepresentation. The trial judge dismissed the licensor's action and allowed the counterclaim. On appeal, the licensor relied on the entire agreement and acknowledgments ("exclusion") clauses to exclude its liability for misrepresentation.
[52] This Court stated (at para. 34):
The usual rule in relation to clauses excluding liability is that if liability can be based on negligence or on some other ground, and if the clause does not specifically state that liability for negligence is excluded, then liability for negligence is not excluded.
[53] In considering whether the exclusion clauses applied to exclude liability in contract, Lambert J.A., for the Court, referred (at paras. 40-41) to the particular circumstances in that case, which involved a commercial enterprise inducing a customer to enter into a standard form contract of adhesion by making an intentional oral representation that turns out to be untrue. He held (at para. 45):
A general exclusion clause will not override a specific representation on a point of substance which was intended to induce the making of the agreement unless the intended effect of the exclusion clause can be shown to have been brought home to the party to whom the representation was made by being specifically drawn to the attention of that party, or by being specially acknowledged by that party, or in some other way.
[54] Like the entire agreement clause in Zippy Print, the entire agreement clause in this case does not expressly exclude liability for negligent misrepresentations. However, in Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210, the Supreme Court of Canada held that exclusion clauses in the contract, none of which referred expressly to negligence, nonetheless applied to exclude liability for negligent failure to warn: see Air-Nova v. Messier-Dowty Ltd. (2000), 128 O.A.C. 11 (C.A.) at para. 33, Antorisa at paras 39-40. Furthermore, Zippy Print is distinguishable from this case on its facts. This case does not involve an enterprise inducing a customer to enter into a standard form contract of adhesion. Mr. Houghton was a sophisticated dealer in real estate, and acknowledged that he read and understood the contract, including the entire agreement clause.
[55] In Cognos, there was no entire agreement clause in the contract. Cognos Inc. argued that its liability for pre-contractual representations was excluded by clauses in the contract that it claimed were inconsistent with the representations. Those clauses were not exclusion, disclaimer, or entire agreement clauses at all. They were clauses that set out the specific terms of Mr. Queen's employment, and the Supreme Court found they did not to relate to the pre-contractual representations about the existence of the project which induced him to accept the employment contract.
[56] In Carman, a disclaimer clause was applied to exclude a claim for negligent misrepresentation. Carman was cited by the trial judge on the collateral contract issue (at para. 42) and on the question of negligent misrepresentation (at para. 76), where he noted that the Supreme Court of Canada held "that the entire contract clause also excluded any duty of care". The clause in the contract in Carman, however, was not an entire agreement clause similar to the clause in issue in this case. The contractor claimed he relied on a railway employee's representation of the amount of excavation required in bidding for the work, when much more work was required. The clause was described by Martland J. as a "non-reliance provision". It provided that the contractor entered into the contract based upon his own knowledge respecting the nature of the work to be done, and did not rely on any information given it by the railway. The Supreme Court held that the clause prevented liability arising on the part of the railway in respect of statements made or information given by its employees.
[57] In BG Checo, the exclusion clauses did not preclude a claim for negligent misrepresentation. Checo submitted a tender to erect transmission lines. Both the tender documents and the contract provided that the right-of-way would be cleared by others, and was not the responsibility of Checo. The contract included provisions requiring Checo to inform itself of all aspects of the work, and to obtain clarification if there were any errors in, or any conditions conflicting with the tender documents. The contract also provided that Checo would satisfy itself of all site conditions. There was no entire agreement clause such as that in this case. The right-of-way was not adequately cleared, causing Checo to incur additional costs in completing the work. The majority of the Supreme Court of Canada held that Checo's claim in tort for negligent misrepresentation was not limited or excluded by the "exclusion" clauses.
[58] Thus, whether the entire agreement clause excludes Intrawest from liability for negligent misrepresentation is not easily answered. The principles of concurrency, as expressed in BG Checo, support the entitlement of a plaintiff to choose either, or both, contract and tort remedies. It is also clear, however, that parties may arrange their affairs to exclude liability in tort by including valid exclusion clauses in their contract.
[59] It is my view that, in the circumstances of this case, the entire agreement clause excludes Taurus from claiming in tort for negligent misrepresentation. The Supreme Court of Canada has stated that negligence need not be expressly referred to in an exclusion clause in order to exclude an action in negligence. The parties were both sophisticated, commercial entities. Mr. Houghton had extensive experience in real estate development, was a "player" in the Whistler real estate market, and had dealt extensively with Intrawest. The contract was not a "standard adhesion contract". It included, in the Disclosure Statement, a detailed description of not only Lot 13, but the Kadenwood development, and the responsibilities and obligations of the various parties involved in the development, including Intrawest, the owners of the lots in the development, and the strata corporation. Mr. Houghton read the Disclosure Statement before Taurus entered into the contract. He had personal contact with Intrawest representatives both before and after he purchased Lot 13. He had ample opportunity to ask questions and seek answers to any concerns he had about the details of the development of Kadenwood. In these circumstances, where the contract was clearly intended to govern the relationship between the parties, it would not accord with commercial reality to give no effect to the entire agreement clause in determining whether Taurus can claim a tort remedy.
[60] My comments regarding the applicability of the entire agreement clause to negligent misrepresentation should not be taken to necessarily apply to any collateral contract that may be found to exist when that question is addressed at a full trial.
Trials Judge's Findings re: Negligent Misrepresentation
[61] Even if an action in negligent misrepresentation could be maintained in the face of the entire agreement clause, there are other matters that undermine the finding of negligent misrepresentation in this case, some legal and some factual.
[62] In determining that the contractual relationship did not preclude an action for negligent misrepresentation, the trial judge found (at para. 82) that the completion of the ski runs was outside of the scope of the contract, because it was not specific to Lot 13. In my opinion, in so concluding, the trial judge made both a factual and a legal error.
[63] Factually, the scope of the contract was not as narrow as the trial judge concluded. In the part of the Disclosure Statement describing "The Lots", under the heading "Road Access and Road Commencement and Completion", there is a detailed description of the public access road to the Kadenwood development and the "Common Property Road" within the development, including the expected completion date of the roads, the responsibility for construction, upkeep, maintenance, and repair, and the anticipated cost to the strata corporation. Thus, the contract expressly dealt with matters of access that relate to the Kadenwood development as a whole, and not just to Lot 13.
[64] Legally, the focus of the trial judge on the scope of the contract, by reference to Cognos, was misplaced. The Supreme Court of Canada unanimously agreed that the scope of the contract was determinative of liability in Cognos, where there was no entire agreement or other exclusion clause. In this case, the contract included matters of access, but it was silent with respect to the ski runs. In addition, it included the entire agreement clause.
[65] Another matter that undermines a finding of negligent misrepresentation is that the statements regarding construction of the ski runs were not inaccurate when they were made.
[66] The trial judge rejected Intrawest's argument that its statements concerning the timing of the completion of Peak-to-Creek were representations of future intention, and not actionable as negligent misrepresentations. He held that the statements were of existing facts — plans that Intrawest was intending to implement. He stated (at paras. 23, 53 and 60), that when Intrawest made the statements, it intended to proceed with completion of Peak-to-Creek in the summer of 2003, which the trial judge considered to have been a reasonable time. Since the statements were not false or inaccurate when they were made, they are not actionable: see Galaxy Sports Inc. v. Umbro Holdings Limited et al., 2005 BCSC 278 at paras. 77-78.
[67] Intrawest's negligence, according to the trial judge, was its failure to disclose that its plans could change. This is not a negligent misrepresentation. In Cognos, McLachlin J. pointed out (at 143) that the representation in issue concerned the level of risk Mr. Queen was taking in deciding to leave his employment to take a position with Cognos Inc. Cognos Inc. was found to have negligently misrepresented that it had made a financial commitment to the project on which he was hired to work, when it had not. Madam Justice McLachlin outlined (at 144) a number of situations in which Cognos Inc. may have decided to terminate Mr. Queen's employment, including, after financially committing to the project on which he was hired to work, scaling back or terminating it. By implication, had the financial commitment been made when Mr. Queen was hired, changing the scope of the project after that time would not have made the earlier statement misleading, and therefore actionable as negligent misrepresentation.
[68] Similarly, in this case, Intrawest's decision, after accurately representing that it intended to complete Peak-to-Creek in 2003, to delay completion until 2004 for business reasons, did not make the pre-contractual statements misleading and actionable. Indeed, the trial judge recognized (at para. 53) that Intrawest's plans "would be subject to the potentially changing demands, priorities and financial position of the entire business".
[69] In finding that 2003 was a reasonable time to complete Peak-to-Creek, the trial judge found (at paras. 36-37) that the one-year term of the mortgage was significant. He reasoned that the one-year term indicated that Intrawest expected purchasers to proceed quickly to develop homes on their lots, and that purchasers would reasonably expect Intrawest to proceed to complete the ski-in/ski-out aspects of the development in a similar time frame.
[70] In my opinion, the one-year term of the mortgage is of no relevance to Taurus' claims. It was clearly intended as interim financing, to encourage and assist purchasers to buy a lot in Kadenwood. Purchasers who built a home would obtain construction financing, and purchasers, like Taurus, who intended to sell the lot, would either repay the mortgage or obtain alternate financing.
[71] For all of these reasons, I conclude that the trial judge erred in finding that Intrawest was liable for negligent misrepresentation, and I would allow the appeal.
Collateral Contract
[72] On the cross-appeal, Taurus seeks an order that there be a trial on the issue of whether Intrawest breached a collateral contract with Taurus in relation to the ski access to Lot 13.
[73] Taurus takes issue with the trial judge's conclusion, in dismissing its claim that there was a collateral contract relating to construction of the ski trails, that "there is no evidence of the necessary contractual intention". In so concluding, the trial judge accepted (at para. 24) the evidence of John Morley, a representative of Intrawest, who deposed in 2006 that Intrawest never intended to build the ski trails.
[74] Mr. Morley's evidence of Intrawest's intention, however, is inadmissible extrinsic evidence of its subjective state of mind at the time of the contract: see Kingsway General Insurance Co. v. Lougheed Enterprises Ltd., 2004 BCCA 421 at para. 8; Hammerton v. MGM Ford-Lincoln Sales Ltd., 2007 BCCA 188 at paras. 23-24. Whether there was a mutual contractual intention that Intrawest would build the ski trails must be determined based on the objective evidence at the time the contract was made: the promotional literature, the statements of Intrawest's representatives, the reasonable expectations of the parties at that time, and the conduct of the parties.
[75] All of that evidence contradicts the trial judge's statement that there was "no evidence" of a contractual intention on Intrawest's part. The trial judge's apparent failure to consider and weigh all of the evidence (indicated by his conclusion that there was "no evidence") is an error of law.
[76] Taurus claims that the question of whether there was a contractual intention on Intrawest's part with respect to the timing of completion of Peak-to-Creek and to build the ski trails should be resolved at a full trial, where the various witnesses to the circumstances surrounding the making of the contract can be cross-examined.
[77] As already noted in these reasons, the parties and I share the view that this is fundamentally a contract case. It requires a full analysis of the evidence to determine whether Intrawest breached a collateral contract regarding the ski access to Lot 13, including the effect of the entire agreement clause.
[78] I would therefore allow the cross-appeal, and order that the matter be remitted to the Supreme Court for a trial on the issue of whether Intrawest breached a collateral contract with Taurus.
Stay of Enforcement of the Mortgage
[79] Intrawest argues that it was inappropriate for the trial judge to find that Taurus was entitled to set-off the damages for negligent misrepresentation against the amount owing to Intrawest under the mortgage, and stay enforcement of the mortgage until damages are determined.
[80] Taurus seeks an order that the stay of enforcement of the mortgage remain in effect pending the final determination of the collateral contract claim.
[81] It is my opinion that this is an appropriate case for equitable set-off, and that the stay of the enforcement of the mortgage should remain in effect.
[82] In Cobra (Coba) Industries Ltd. v. Millie's Holdings (Canada) Ltd. (1985), 65 B.C.L.R. 31, [1985] B.C.J. No. 1994 (C.A.) (QL), this Court considered the principles applicable to ordering equitable set-off of obligations. In his reasons for the Court, Macfarlane J.A. summarized the principles (at para. 23 (QL)):
From that review of the law, which I accept as accurate, can be extracted the following principles.
1. The party relying on a set-off must show some equitable ground for being protected against his adversary's demands - Rawson v. Samuel (1841), 41 E.R. 451.
2. The equitable ground must go to the very root of the plaintiff's claim before a set-off will be allowed – British Anzani [British Anzani (Felixstowe) Ltd. v. International Marine Management (U.K.) Ltd., [1979] 2 All E.R. 1063 (Q.B.)].
3. A cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross-claim – Federal Commerce and Navigation Ltd. [Fed. Commerce & Navigation Ltd. v. Molena Alpha Inc. et al., [1978] 3 All E.R. 1066 (C.A.)].
4. The plaintiff's claim and the cross-claim need not arise out of the same contract - Bankes v. Jarvis, [1903] 1 K.B. 549; British Anzani.
5. Unliquidated claims are on the same footing as liquidated claims - the Newfoundland case [The Government of Newfoundland v. The Newfoundland Railway Company and Others (1888), 13 A.C. 199 (P.C.)].
[83] The chambers judge had applied the test articulated by Lord Hobhouse in The Government of Newfoundland case (at 213). Mr. Justice Macfarlane said (at para. 24 (QL)):
I do not think the Chambers judge erred in applying the test stated by Lord Hobhouse in the Newfoundland case. With respect, I think it recognizes the need to ascertain if the cross-claim flows out of and is inseparably connected with the dealings and transactions that give rise to the claim, and if the cross-claim goes to the very root of the claim in such a way that it would be manifestly unjust to allow the plaintiff to enforce his claim without taking into account the cross-claim.
[84] In Cobra Industries, the respondents in a mortgage foreclosure proceeding sought and obtained a declaration that they were entitled to an equitable set-off of monies payable under and damages arising out of a breach of a lease, against monies owing under the mortgage. The mortgage was granted by the respondent, Millie's Holdings (Canada) Ltd., and guaranteed by its principal, the respondent Patrick Tsang, on the purchase of real property from the vendor, Henry Polacco, who entered into a lease of the property. The lease payments were calculated to satisfy the mortgage payments. The mortgage was assigned by Polacco to Cobra Industries. Polacco defaulted on the lease payments, and Millie's stopped making mortgage payments. Cobra Industries brought foreclosure proceedings, and Millie's accepted the repudiation of the lease and terminated it.
[85] The Court found (at para. 30 (QL)) that the requirements for equitable set-off were satisfied. There was "a fundamental connection between the lease payments and the mortgage payments", and "…it was at the heart of any liability on the part of Millie's that Polacco provide and assure payments under the leases sufficient to satisfy payments from time to time under both mortgages" (at para. 31 (QL)).
[86] Similarly, in this case, the mortgage and the contract were fundamentally connected. Both arose out of the same transaction — the purchase of Lot 13. The representations concerning ski-in/ski-out access were at the heart of the purchase, which gave rise to the mortgage liability. If Intrawest is found to be liable to Taurus for breach of a collateral contract, it goes to the root of Intrawest's claim on the mortgage, and it would be "manifestly unjust" for Intrawest to enforce the mortage without taking into account Taurus' cross-claim.
[87] I would not accede to this ground of Intrawest's appeal, and would order that the stay of the enforcement of the mortgage remain in effect pending the final determination of Taurus' claim.
Summary and Conclusion
[88] The trial judge erred in finding Intrawest liable for negligent misrepresentation, because Taurus' claim in tort was barred by the entire agreement clause.
[89] The trial judge erred in concluding that there was no evidence of intention to enter into a collateral contract, and in failing to consider the entire agreement clause in relation to the contract. I would remit the matter to the Supreme Court for a trial on the question of whether Intrawest breached a collateral contract with Taurus.
[90] The stay of enforcement of the mortgage will remain in effect pending the final determination of Taurus' claim.
[91] In the result, I would allow the appeal in part, and I would allow the cross-appeal.
“The Honourable Madam Justice Levine”
I AGREE:
“The Honourable Madam Justice Prowse”
I AGREE:
“The Honourable Mr. Justice Hall”
