Court of Appeal for Ontario
Date: July 2, 2019
Docket: C65136
Judges: Feldman, Paciocco and Fairburn JJ.A.
Between
Environs Wholesale Nursery LTD., Walter Carey Grierson and Timothy Holmes Plaintiffs (Respondents)
and
Environs Landscape Contracting LTD., Robert George Everest, Premium Business Brokers Inc. (O/A Sunbelt Business Brokers Premium) and Robert Lea Shawn Mitchell Defendants (Appellants)
AND BETWEEN
Environs Landscape Contracting LTD. and Robert George Everest Plaintiffs by Counterclaim (Appellants)
and
Environs Wholesale Nursery LTD., Walter Carey Grierson and Timothy Holmes Defendants to the Counterclaim (Respondents)
Counsel
Chris G. Paliare and Tina H. Lie, for the appellants
Gavin MacKenzie and Brooke MacKenzie, for the respondents
Heard: May 14, 2019
On Appeal
On appeal from the order of Justice James W. Sloan of the Superior Court of Justice, dated February 22, 2018, with reasons reported at 2018 ONSC 1130.
Decision
Paciocco J.A.:
Overview
[1] The appellants, Environs Landscape Contracting Ltd., and its officer and director, Robert George Everest, appeal a partial summary judgment order that they are liable for "breach of contractual warranty and/or negligent representation" to the respondents, Environs Wholesale Nursery Ltd., and its officers and directors Walter Carey Grierson and Timothy Holmes. That liability finding arose from an Asset Purchase Agreement ["the APA"] relating to the sale of tree farm assets to the respondents. Attached to the APA was a "tree inventory" produced by the appellants, which contained inaccurate facts.
[2] For the reasons that follow, I would allow the appeal and set aside the partial summary judgment on the liability issue. I would substitute an order dismissing the respondents' action for breach of contract and negligent misrepresentation.
The Material Facts
A. The Asset Purchase and the Dispute
[3] The corporate appellant operated a commercial tree farm [the "business"] in the vicinity of the Town of St. Williams in Norfolk County. Mr. Everest owned personally some of the land on which the business operated. The decision was made to sell the business assets, including the land owned by both appellants, as well as the buildings, tree inventory, equipment and goodwill.
[4] The respondents expressed interest in acquiring the business assets that the appellants were selling.
[5] On July 10, 2012, the appellants accepted a conditional offer from the respondents to purchase the business assets. The conditional offer provided for a due diligence period during which the respondents were entitled to inspect the business assets and declare the offer to be null and void if not satisfied. The parties agree that the respondents were provided with unlimited access to the business, for inspection.
[6] To assist the respondents in their inspection, the appellants provided a tree inventory, dated July 16, 2012, setting out what the appellants believed to be the type, size and location of the saleable trees.
[7] The respondents availed themselves of access to the business, attending with an arborist. The arborist could have spent as much time as he wished examining the plant stock, but only spent one and a half to two hours inspecting the trees.
[8] Ultimately, through the APA dated October 5, 2012, the parties agreed to go ahead with the business asset sale. The total purchase price was $5,500,000. An "Allocation of the Purchase Price" had been prepared on August 30, 2012. The value of the land and buildings was allocated at $4,525,000, the "Personal Property (Assets)" at $295,000, and the "Plant Inventory (In Ground)" at $680,000.
[9] The tree inventory was attached to the APA, and noted 236,341 saleable trees on the business property.
[10] The $5,500,000 purchase closed pursuant to the APA, with all but $1,000,000 being paid on closing. A promissory note was provided for the balance to be paid with four instalments, each to be made on the anniversary of the APA.
[11] When the second instalment was about to fall due in October 2014, the respondents indicated that they were not going to pay. When the respondents conducted a post-closing count of saleable trees, they concluded that there were 83,106 fewer saleable trees than were "represented" in the tree inventory. The respondents contended that this shortfall was a breach of a material representation made by the appellants in the APA. On October 3, 2014, the respondents issued a Notice of Action. A Statement of Claim followed soon after, seeking $5,000,000 in damages. The bulk of the damages related to the tree shortfall.
[12] The appellants defended the claim, and also counter-claimed against the respondents for breach of the promissory note for the remaining balance of $872,000. The individual respondents were sued in that counter-claim as personal guarantors of the promissory note.
[13] This litigation came before a motion judge after each party moved for summary judgment.
[14] On February 22, 2018, the motion judge granted summary judgment against the appellants on the issue of liability relating to their "breach of contractual warranty and/or negligent representation" arising from the tree shortfall. Although satisfied that there were "significantly less trees sold than the Purchasers had bargained for", because the precise shortfall could not be ascertained in the summary judgment motion the motion judge ordered that the action would proceed on the damages issue. That trial has not yet been conducted.
[15] The motion judge also granted summary judgment to the appellants for breach of the promissory note, but stayed that judgment pending final resolution of the respondents' action in the event a set-off is required.
[16] Initially in this appeal, the appellants challenged both the liability finding and the stay of the promissory note obtained through their counter-claim. The appeal of the stay has since been abandoned on consent, and only the appeal from the liability finding relating to the tree shortfall is now before us. I will therefore summarize only that part of the motion judge's decision. Before doing so, I will set out the APA provisions that were the focus of the argument, as well as the parties' arguments relating to the proper interpretation of that agreement.
B. The Material APA Provisions
[17] To begin, Article 3 contains "Representations and Warranties" provisions. The material sections from Article 3 are as follows:
3.1 Representations and Warranties of the Vendor. As a material inducement to the Purchaser's entering into this Agreement and completing the transactions contemplated by this Agreement and acknowledging that the Purchaser is entering into this Agreement in reliance upon the representations and warranties of the Vendors set out in this Section 3.1, the Vendors, jointly and severally represent and warrant to the Purchaser as follows:
(10) Personal Property. Schedule 3.1(10) lists each item of Personal Property. No Personal Property is in the possession of a third party or is on consignment. The Purchaser acknowledges and agrees that it has satisfied themselves as to each item of Personal Property being in good operating condition and repair, ordinary wear and tear excepted, and is suitable and adequate for the purpose for which it is being used.
(13) Inventories. The Purchasers acknowledge and agree that through the due diligence process they have satisfied themselves as to the quantity and quality of all plant material, which has been inspected by the Purchasers' own consultant.
(29) Full Disclosure. To the best of the Vendors' knowledge and belief (i) none of the foregoing representations and warranties and no document furnished by or on behalf of the Vendors to the Purchaser in connection with the negotiation of the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make any such statement or representation not misleading to a prospective purchaser of the Business and the Purchased Assets seeking full information as to the Business and all of the Purchased Assets; and (ii) there are no facts not disclosed in this Agreement which, if learned by the Purchaser, might reasonably be expected to materially diminish the Purchaser's evaluation of the value of the Purchased Assets or the Business or of the profitability of the Business or which, if learned by the Purchaser, might reasonably be expected to deter the Purchaser from completing the transactions contemplated by this Agreement on the terms of this Agreement.
3.2. Representations and Warranties of the Purchaser. The purchaser represents and warrants to the Vendors as follows:
(6) Due Diligence Investigation. The Purchaser has conducted and completed its investigation of the Vendors, the Business and the Purchased Assets and the Purchaser has been satisfied, in its sole discretion, in all respects with the results of such investigation and has determined, in its sole discretion, to proceed with the transactions contemplated by this Agreement.
3.4. No Waiver. Except where in this Agreement the Purchaser has expressly acknowledged and/or agreed to a limitation or qualification, no investigations, inspections, surveys or tests made by or on behalf of the Purchaser at any time shall affect, mitigate, waive, diminish the scope of or otherwise affect any representation or warranty made by the Vendors in or pursuant to this Agreement.
[18] Section 1.7 of Article 1 defines the vendor's "knowledge" as follows:
1.7 Knowledge. Where any representation, warranty or other statement in this Agreement is expressed to be made by the Vendors to its knowledge or is otherwise expressed to be limited in scope to facts or matters known to the Vendors or of which the Vendors is aware, it shall mean such knowledge as is actually known to Everest or which would have or should have come to the attention of Everest and/or the officers of Environs who have overall responsibility for or knowledge of the matters relevant to such statement.
[19] Section 6.2.(a) of Article 6, addressing "Indemnification", states:
6.2 Indemnity by the Vendors. The Vendors shall jointly and severally indemnify the Purchaser's Indemnified Parties and save them fully harmless against, and will reimburse or compensate them for, any Damages arising from, in connection with or related in any manner whatsoever to:
(a) any incorrectness in or breach of any representation or warranty of the Vendors contained in this Agreement or in any other agreement, certificate or instrument executed and delivered pursuant to this Agreement.
For greater certainty and without limiting the generality of the provisions of Sections 6.2(a) and (b), the indemnity provided for in Sections 6.2(b) through (h) shall extend to any Damages arising from any act, omission or state of facts that occurred or existed prior to the Closing Time, and whether or not disclosed in any Schedule to this Agreement. Except where in this Agreement the Purchaser has expressly acknowledged and/or agreed to a limitation or qualification, the rights to indemnification of the Purchaser's Indemnified Parties under this Section 6.2 shall apply notwithstanding any inspection or inquiries made by or on behalf of any of the Purchaser's Indemnified Parties, or any knowledge acquired or capable of being acquired by any of the Purchaser's Indemnified Parties or facts actually known to any of the Purchaser's Indemnified Parties (whether before or after the execution and delivery of this Agreement and whether before or after Closing). The waiver of any condition based upon the accuracy of any representation and warranty or the performance of any covenant shall not affect the right to indemnification, reimbursement or other remedy based upon such representation, warranty or covenant.
[20] Article 7 contains "Covenants" provisions. The following is of relevance:
7.1 Investigation. During the Interim Period, the Vendors shall give, or cause to be given, to the Purchaser and its Representatives including representatives of the Purchaser's lenders full access during normal business hours to the Business and the Purchased Assets, including the Books and Records, the Contracts, the Property Documents and the Real Property to conduct such investigations, inspections, surveys or tests thereof and of the financial and legal condition of the Business and the Purchased Assets as the Purchaser deems necessary or desirable to familiarize itself with the Business and the Purchased Assets. Without limiting the generality of the foregoing, the Purchaser shall be permitted complete access during normal business hours to all documents relating to information scheduled or required to be disclosed under this Agreement and to the Employees. Such investigations, inspections, surveys and tests shall be carried out during normal business hours and without undue interference with the operations of the Business and the Vendors shall co-operate fully in facilitating such investigations, inspections, surveys and tests and shall furnish copies of all such documents and materials relating to such matters as may be reasonably requested by or on behalf of the Purchaser. The Vendors shall execute and deliver any authorizations required to permit such investigations, inspections, surveys and tests.
[21] Section 10.8 of Article 10 is an "Entire Agreement" clause:
10.8 Entire Agreement. This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter of this Agreement and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, (including that letter of intent between the Parties dated July 10, 2012, as amended). There are no conditions, representations, warranties, obligations or other agreements between the Parties in connection with the subject matter of this Agreement (whether oral or written, express or implied, statutory or otherwise) except as explicitly set out in this Agreement.
[22] There are also two definitions in s. 1.1 of Article 1 that are material:
"Purchased Assets" means the following properties, assets, interests and rights of the vendors which are Related to the Business, and which, for greater certainty excludes the Excluded Assets:
(a) the Real Property;
(b) the Personal Property;
(c) the Inventories;
"Inventories" means all inventories of stock-in-trade and merchandise including materials, supplies … and including those inventories set out in Schedule 3.1(10)
[23] Finally, s. 1.10 of Article 1 provides that "the Schedules and Exhibits [are] attached to and incorporated in this Agreement by reference and deemed to be part hereof". Listed within the "Schedules" is "3.1(10) Personal Property".
[24] In fact, there are two schedules to the APA that are titled "3.1(10) Personal Property". The first is a four page list of computers and equipment, under the heading "Schedule 3.1(10) Personal Property, prepared July 9, 2012". The second is the tree inventory already introduced, titled "Schedule 3.1(10) Personal Property" and sub-titled "Environs Wholesale Nursery Plant Inventory Prepared July 16, 2012".
C. The Material Arguments Summarized
[25] The heart of the respondents' claim is that the tree inventory, having been attached as Schedule 3.1(10), is a s. 3.1 representation or warranty that there were 236,341 saleable trees included in the business assets. They say they relied on that representation by the appellants, as the recital in s. 3.1 confirms. Since the appellants agreed in s. 6.2 to indemnify the respondents for any "incorrectness in or breach of any representation or warranty", they are liable for the shortfall in the represented number of saleable trees.
[26] The respondents also argue that either the delivery of the inaccurate tree inventory during the due diligence period, or its inclusion as Schedule 3.1(10) in the APA, or both, constituted actionable negligent misrepresentation.
[27] The appellants argue that no representation or warranty about the number of trees was made. Schedule 3.1(10) contains no representations or warranties. It simply describes the trees that the appellants believed to be included in the asset sale, as contemplated by the s. 1.1 "purchased assets" definition. The representation or warranty that is described in s. 3.1(10) relates solely to the operating condition and repair of the equipment listed within the July 9, 2012 Schedule.
[28] The appellants argue that if the parties intended to include a representation or warranty relating to the quality and quantity of the tree inventory, that would have been done in s. 3.1(13), the provision that deals directly with the "the quantity and quality of all plant material". Yet there is no representation or warranty expressed there, and no schedule attached to this provision where such a representation or warranty could be found.
[29] The appellants further contend that to manufacture an unstated representation or warranty relating to the quantity and quality of trees would render s. 3.1(13) meaningless. This provision represents the respondents' acknowledgement and agreement that they used the due diligence process, with the assistance of their own consultant, to satisfy themselves as to the quantity and quality of all plant material. The respondents also represented in s. 3.2(6) that they conducted and completed the due diligence investigation that was agreed to, and "ha[ve] been satisfied in [their] sole discretion … to proceed with the transaction".
[30] The appellants also contend that a representation or warranty of the number of trees on the business property could not reasonably have been contemplated by the parties, because it is practically impossible to physically count all of the trees, and saleability is too subjective an evaluation to permit objectively accurate counts to be conducted.
[31] The appellants also argue that any representations or warranties in the APA are satisfied by the qualifier in s. 3.1(29): they are made "to the best of the Vendors' knowledge and belief". The appellants honestly believed that the estimate in the tree inventory was as accurate as possible. This should prevent a finding of liability for any innocent misrepresentation that may have occurred, under the authority of Beatty v. Wei, 2018 ONCA 479, 429 D.L.R. (4th) 63, at para. 55.
[32] Finally, the appellants argue that the law of negligent misrepresentation cannot properly be relied upon. Any pre-contractual representations have little role to play. The terms of the contract set out the material representations. The entire agreement clause also prevents reliance on representations not contained in the contract: Beatty, at paras 34-36.
[33] In reply, the respondents argue that s. 3.4 provides that no investigation or inspection is to be construed as a waiver of representations made in the agreement.
[34] In any event, pursuant to the authority of Golden Hill Ventures Ltd. v. Kemess Mines Inc., 2002 BCSC 1460, 7 B.C.L.R. (4th) 1, and Opron Construction Co. v. Alberta (1994), 151 A.R. 241 (Q.B.), a full investigation clause cannot be relied upon to defeat a representation where the investigation provided for is not practical or economically feasible. That was true in this case. The representation as to the number of trees could not practically or economically be fully investigated.
D. The Summary Judgment Decision
[35] The motion judge concluded that "it is difficult to see how [Schedule 3.1(10)] could not be at least a representation if not a warranty", and that the number of trees represented was inaccurate. He described a warranty as a promise to indemnify a promisee if a proposition of fact that the promisor has made is not true. A warranty therefore relieves the promisee of the duty to ascertain that fact for themselves. A representation is an express or implied statement of fact which is influential in bringing about the agreement: Anne of Green Gables Licencing Authority Inc. v. Avonlea Traditions, [2000] O.T.C. 133 (S.C.), at para. 203.
[36] Presumably since liability would follow from characterizing the tree inventory as either a warranty or representation, and a statement of fact cannot realistically be a warranty unless it amounts to a representation, the motion judge rested content with finding that this was a lesser form of factual assurance. It was "at least a representation if not a warranty."
[37] Technically, his order finding the appellants liable for "breach of contractual warranty" is not supported by his findings, as he did not make a breach of warranty finding, only that there was "at least a representation". But this is of no moment. As I say, the same outcome would have followed had he worded the order to base liability on the breach of the representation he found.
[38] The motion judge's reasoning supporting this contractual liability conclusion is simple. He offered six reasons that led him there:
(1) The appellants' position that the plant inventory is not a representation would render Schedule 3.1(10) essentially meaningless;
(2) Since Schedule 3.1(10) is part of the APA, "it is difficult to see how it could not be at least a representation";
(3) The "most important information for the Purchasers to receive, before deciding whether or not to purchase the nursery, would have been the number of saleable trees contained on the farms";
(4) "The only reason that the information with respect to the number of trees and their in-ground value were given to the Purchasers by the Vendors, was to induce the Purchasers to buy the nursery";
(5) The respondents were not put on notice of two material facts, contrary to s. 3.1(29), that "it was difficult and likely practically impossible to get an accurate number" of trees, and that they should "spend the time and/or money to do a much more thorough assessment"; and
(6) A full investigation would not be practical or economically feasible, making it inappropriate to rely on the full investigation clause in s. 3.2(6).
[39] On this basis, the motion judge granted summary judgment against the appellants on the issue of liability for "breach of contractual warranty and/or negligent representation".
Issues
[40] The appellants raise three grounds of appeal:
A. The motion judge erred in finding that the APA contained at least a representation respecting the number of saleable trees;
B. The motion judge erred in finding liability despite the qualifier in s. 3.1(29) that any representations or warranties are to the "best of [the appellants'] knowledge and belief"; and
C. The motion judge erred in finding liability for negligent misrepresentation.
Analysis
A. The Motion Judge Erred in Finding That the APA Contained a Representation Respecting the Number of Saleable Trees
[41] In my view, the motion judge's conclusion that the APA contained a representation as to the number of saleable trees cannot stand, notwithstanding the principles in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, and the reticence that is called for in finding extricable errors of law on appeal. With respect, the motion judge's finding is predicated on an extricable legal error, and is tainted by palpable and overriding error. This makes it inappropriate to accept the respondents' invitation to defer to the motion judge's interpretation of the APA.
[42] As I will explain, the motion judge committed an extricable error of law by failing to apply the principles of contractual interpretation to s. 3.1(13). I will reproduce that provision here to assist in that explanation:
3.1(13) Inventories. The Purchasers acknowledge and agree that through the due diligence process they have satisfied themselves as to the quantity and quality of all plant material, which has been inspected by the Purchasers' own consultant.
[43] It is apparent that, on its face, the sole subject that s. 3.1(13) addresses is the "quantity and quality of all plant material". In other words, s. 3.1(13) pertains to the tree inventory – the very dispute at issue. It was the centrepiece of the appellants' submissions. Although the motion judge recognized that s. 3.1(13) was the subject of argument, nowhere did he address those arguments. He should have done so.
[44] To be clear, I do not rest my conclusion that the motion judge committed extricable legal error on the inadequacy of his reasons per se. As I say, the extricable legal error arising from the failure to contend with s. 3.1(13) is that the motion judge failed to apply the principles of contractual interpretation. He did not determine what this material provision meant in the contract as a whole, and assigned it no meaning. In discharging the responsibility to interpret a contract, a judge must interpret a contract "as a whole and … accord an interpretation to the contested provisions that assigns meaning to each and avoids rendering one or more of them ineffective": Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2016 ONCA 246, 130 O.R. (3d) 418, at para. 54, leave to appeal refused, [2016] S.C.C.A. No. 249; Trade Finance Solutions Inc. v Equinox Global Ltd., 2018 ONCA 12, 420 D.L.R. (4th) 273, at paras. 34-49; Actuate Canada Corp. v. Symcor Services Inc., 2016 ONCA 217, 347 O.A.C. 155, at para. 51. Here, the motion judge did not do so.
[45] The respondents submit that the APA is inherently contradictory, requiring some provisions to prevail over others. In my view, this is no answer to the motion judge's failure to assign s. 3.1(13) meaning. The motion judge should have grappled with the meaning of s. 3.1(13). Had he done so, it may have become apparent to him that there is an available and sensible way to read the provisions together, while giving meaning to the tree inventory as well as meaning to all other terms.
[46] Specifically, the tree inventory is included in the APA to serve the "Inventories" and "Purchased Assets" definitions in s. 1.1. The latter offers a list of purchased assets including "the Inventories"; the former is defined as "including those inventories set out in Schedule 3.1(10)". The tree inventory therefore has meaning in further defining the Inventories and Purchased Assets, whether or not it amounts to a representation or warranty.
[47] Although the tree inventory is specific as to the number, location and species of trees that are listed as purchased assets, when the tree inventory is read with the APA as a whole, it is clear that it is not a representation or warranty. Instead, the mechanism contemplated to protect the respondents' expectations regarding the number of trees is the due diligence inspection.
[48] The plain language of s. 3.1(13) drives this conclusion. It communicates without ambiguity the agreement of the respondents that they are satisfied with the quantity and quality of all plant material. It reconfirms that the respondents used the due diligence process they represented in s. 3.2(6) to having conducted and completed, and that they had the assistance of their own consultant. In my view, this leaves the respondents no room for subsequent claims, such as the one advanced here, that they relied on or were influenced into entering the agreement by the details of the tree inventory.
[49] Indeed, in the face of the ordinary and clear meaning of s. 3.1(13), it is not possible, in my view, to divine an implied representation from either s. 3.1(10) itself, or from the listing of trees found in Schedule 3.1(10). Such an implied representation would hopelessly conflict with s. 3.1(13).
[50] I do not accept the respondents' argument that s. 3.4 removes any potential conflict, by stating that no investigation or inspection is to be construed as a waiver of representations made in the agreement. This argument begs the question of whether there was a representation in the first place. There was not.
[51] Moreover, s. 3.4 opens with the phrase, "Except where in this Agreement the Purchaser has expressly acknowledged and or agreed to a limitation or qualification". In s. 3.1(13), the respondents expressly agreed that they had satisfied themselves as to the quantity and quality of all plant material. This would take s. 3.1(13) out of s. 3.4, in any event.
[52] The only way to arrive at the conclusion reached by the motion judge is to ignore s. 3.1(13) and fail to give it meaning. In my view, in doing so the motion judge committed an extricable legal error.
[53] The appellants also submit that the motion judge again erred in law in relying upon Golden Hill and Opron to hold that the inspection provisions - ss. 3.1(10) and 3.1(13) - could not be relied upon, because "there was no practical or economically feasible means for the Purchasers to conduct an independent examination." I agree that the motion judge erred in relying on this line of authority.
[54] These decisions hold that full investigation clauses in construction contracts – including terms acknowledging that full inspection has been done – cannot be relied upon against a tenderer to defeat a representation, unless there is a practical reality to the independent investigation that is contemplated. These cases do not purport to hold that full investigation clauses must be treated the same way in simple agreements of purchase and sale.
[55] However, we need not consider whether the same principles nonetheless apply to simple agreements of purchase and sale, because the motion judge committed palpable and overriding error in finding inspection to be impractical or economically unfeasible in this case.
[56] The only evidence presented by the respondents relating to the practicality of conducting an inspection was the singular statement in Mr. Grierson's and Mr. Holmes' affidavit: "[i]t was not practical to investigate all 500 acres of farm land or perform a count of the individual trees for the purpose of performing our due diligence." Even assuming it to be true that it is not possible to count all of the individual trees, this does not establish that it was not practical or economically feasible for the respondents to conduct their inspection. The independent examination contemplated by the parties was the respondents' entitlement to investigate the quantity and quality of all plant material, and walk away from the transaction if not satisfied. There was no evidence that the respondents could not use means other than an individual tree count to determine this.
[57] Indeed, the conclusion that an inability to count the trees makes it impractical and economically unfeasible to conduct an independent examination creates an intolerable paradox in the logic of the decision. The respondents' entire action was predicated upon their claim that the tree inventory in Schedule 3.1(10) is a literal representation of the number of saleable trees. A finding that it is not practical to achieve such a count is inconsistent with the integrity of this claim, and supports the appellants' argument that a warranty or representation of the number of saleable trees could not reasonably have been intended.
[58] The respondents also came to the motion judge with a tree count of their own, purporting to identify the specific number of trees actually on the property, which they were clearly representing to be accurate enough to ground the damages award they were seeking. Although no satisfactory evidence was presented as to how this was achieved, it did not lie in the respondents' mouths to contend that there was no practical way to conduct the very investigation they ultimately claimed to have conducted.
[59] The motion judge therefore committed palpable error in finding that there was "no practical or economically feasible means for the Purchasers to conduct an independent examination." There was no evidence to support that finding, and this holding is inconsistent with the case the respondents presented. This error was clearly overriding, since it was the motion judge's only available explanation for disregarding the inspection provisions of the APA.
[60] In my view, the motion judge's additional finding, that the appellants should have told the respondents it was impossible to generate an accurate number of saleable trees, is also problematic. The respondents agreed in the APA to satisfy themselves with respect to the tree inventory, and represented in the APA that they had investigated and were prepared to close. Indeed, the respondents acknowledge that they knew before closing that it was impractical for them to count all of the individual trees during the three month due diligence period. If the risk of a discrepancy between the precise number of trees and the tree inventory mattered to the respondents, their remedy was to walk way, not to close and then seek damages for misrepresentation.
[61] I am also troubled by the motion judge's conclusion that the quality and quantity of saleable trees would be the most important information for the respondents to have received. That conclusion may find some abstract, intuitive support in the fact that this was the purchase of a working tree farm. However, I have significant reservations about whether that conclusion can reasonably be squared with the fact that in the agreed upon Allocation of the Purchase Price, the trees were valued at only $680,000, and the fact that the respondents' arborist was only on site for a single afternoon of the protracted due diligence period. Since it is unnecessary to the resolution of this case, I need not decide whether this finding is a palpable and overriding error.
[62] In sum, the motion judge committed an extricable error of law and palpable and overriding error in finding that the appellants breached a representation made in the tree inventory. There was no such representation.
B. The Motion Judge Erred in Finding Liability Despite the "Best of [the Appellants'] Knowledge and Belief" Clause
[63] The appellants submit that s. 3.1(29) and the definition of "Knowledge" in s. 1.7 make clear that a contractual breach cannot be based on an inaccurate representation made "to the best of [the appellants'] knowledge and belief". The respondents argue, to the contrary, that s. 6.2(a) provides a right of indemnification for any incorrect representation, even if innocently made. Given the findings I have just made, it is unnecessary to resolve this issue.
C. The Motion Judge Erred in Finding a Negligent Misrepresentation
[64] The respondents did not resist the appeal of the motion judge's alternate finding of liability based on negligent misrepresentation. This was appropriate. With respect, it is clear that the motion judge erred.
[65] First, the motion judge's negligent misrepresentation finding is accompanied by no analysis. It is not clear whether that finding is premised on pre-contractual representations made during the negotiations, or arises from a belief that breach of a contractual representation automatically sustains a negligent misrepresentation tort claim.
[66] Second, neither theory of liability can succeed. The respondents cannot do an end run around a finding that the tree inventory is not a contractual representation by contending that the tree inventory contained in the contract is nonetheless a tortious misrepresentation. The entire agreement clause in s. 10.8 ensures that the same is true of any pre-contractual misrepresentations that may have been made.
[67] I would therefore set aside the finding of negligent misrepresentation.
Holding
[68] In my view, the motion judge's summary judgment that the appellants are liable for "breach of contractual warranty and/or negligent representation" must be set aside. I would allow the appeal from that order.
[69] I would substitute an order dismissing the respondents' action. In my view, we are equipped to make that determination, and it is the only proper outcome.
[70] I would award combined costs on the appeal to the appellants in the agreed upon amount of $18,000, inclusive of HST and disbursements.
[71] I would also reverse the March 16, 2018 costs order made by the motion judge, and award combined costs in the summary judgment motion to Landscape and Everest in the amount of $81,469.10 inclusive of HST and disbursements.
Released: July 2, 2019
David M. Paciocco J.A.
"I agree. K. Feldman J.A."
"I agree. Fairburn J.A."