Avco Financial Services Realty Ltd. v. Norman

[Indexed as: Avco Financial Services Realty Ltd. v. Norman]

64 O.R. (3d) 239

[2003] O.J. No. 1255

Docket No. C36836

Court of Appeal for Ontario

Morden, Weiler and Charron JJ.A.

April 16, 2003

*Application for leave to appeal to the Supreme Court of Canada dismissed with costs December 18, 2003 (Iacobucci, Binnie and Arbour JJ.).

Negligence -- Negligent misrepresentation -- Contributory negligence -- Mortgagee suing on covenant to pay -- Mortgagor counterclaiming and alleging that mortgagee had made negligent misrepresentation with respect to availability of life insurance for mortgage loan -- Trial judge finding mortgagee liable for negligent misrepresentation and mortgagor contributorily negligent -- Findings of negligent misrepresentation can be logically consistent or inconsistent depending on particular facts -- On particular facts of case, finding of contributory negligence inconsistent with finding that mortgagee liable for negligent misrepresentation -- Trial judge erring in finding mortgagee liable for negligent misrepresentation. [page240]

In 1988, Barry Norman and his wife Yvonne Norman obtained a one-year term mortgage loan from Avco Financial Services Realty Limited ("Avco"). They also obtained through Avco a creditor's life, accident and sickness insurance policy. The loan and the insurance policy were renewed in 1989. In 1990, the Normans obtained a second one-year renewal of the mortgage, but Mrs. Norman no longer qualified for insurance, having been diagnosed for cancer. In 1991, she died. The mortgage went into default, and after the mortgaged property was sold under power of sale, Avco sued Mr. Norman for a $144,202.21 deficiency. By way of defence and counterclaim, Mr. Norman sued Avco for negligent misrepresentation. At the trial, he testified that he and his wife would have obtained appropriate coverage but for Avco's negligent misrepresentation.

The trial judge held that Mr. Norman was liable for the deficiency; however, he also found Avco liable for negligent misrepresentation. The trial judge's finding included a finding that the Normans relied on Avco's representations to their detriment. The trial judge then decided that Mr. Norman was contributorily negligent and had contributed to his own loss by failing to read the insurance form and inquire about the insurance despite the fact that the renewal process in and of itself ought to have raised concerns. The trial judge apportioned the degree of fault equally between the parties and set off Mr. Norman's recovery for negligent misrepresentation against his liability under the mortgage covenant.

Mr. Norman appealed, and he submitted that the finding of negligent misrepresentation, which entailed that he had reasonably relied on the defendant's representation, precluded the finding of contributory negligence. Avco did not cross- appeal but, in responding to the appeal, it challenged the holding that it was liable for negligent misrepresentation.

Held, the appeal should be dismissed.

Findings of negligent misrepresentation and contributory negligence can logically co-exist. A finding that the tort of negligent misrepresentation in which the element of foreseeable and reasonable reliance is at the forefront of the analysis is not inherently inconsistent with a finding of contributory negligence. The tests that underlie each finding are different and their respective focus is different. For the analysis of negligent misrepresentation, the focus is on the reasonableness of the reliance in all the circumstances. For the analysis of contributory negligence, the focus is on the event that occasioned the loss. The injured party's conduct, in all the circumstances surrounding that event, must be considered to determine whether it acted reasonably in its own interest or whether it contributed to the loss by its own fault. The injured party will be found guilty of contributory negligence if it ought to have foreseen that it may harm itself by failing to act reasonably and prudently. However, because the reliance by the injured party must itself be reasonable, in many cases, it will be difficult for a defendant to prove contributory negligence once a finding of negligent misrepresentation has been made. If the allegation of contributory negligence is based on the contention that the injured party acted unreasonably in relying on the misrepresentation, the question will be determined on the main claim.

Applying these principles to the immediate case, the trial judge erred in concluding that Avco was liable for negligent misrepresentation. On the particular facts of this case, the findings of liability for negligent misrepresentation and of contributory negligence could not logically co-exist. The finding of foreseeable and [page241] reasonable reliance was inconsistent with the later finding on the issue of contributory negligence, where the trial judge's conclusion that Mr. Norman acted unreasonably in 1989 in not inquiring further into the term of the insurance was amply supported on the evidence and ought to have been determinative of the question of foreseeable and reasonable reliance in respect of the tort of negligent misrepresentation. Accordingly, the appeal should be dismissed.

APPEAL from a judgment of O'Neill J. (2001), 2001 28390 (ON SC), 19 B.L.R. (3d) 174, 45 R.P.R. (3d) 117 (S.C.J.) in an action for negligent misrepresentation. [page242]

Perry v. Clintar Ltd. (1996), 1996 2655 (ON CA), 41 C.B.R. (3d) 90 (Ont. C.A.), not folld Other cases referred to Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 All E.R. 492, [1977] 2 W.L.R. 1024, 75 L.G.R. 555, 141 J.P. 526, 121 Sol. Jo. 377, 5 B.L.R. 1, 243 Estates Gazette 523, [1977] J.P.L. 514 (H.L.); Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 307 (SCC), [1997] 3 S.C.R. 1210, 158 Nfld. & P.E.I.R. 269, 153 D.L.R. (4th) 385, 221 N.R. 1, 490 A.P.R. 269, 37 B.L.R. (2d) 1, 40 C.C.L.T. (2d) 235; Canada (Federal Business Development Bank) v. Morris, Burk, Luborsky, David & Kale (1988), 38 B.L.R. 1, [1988] O.J. No. 88 (Quicklaw) (H.C.J.); Fletcher v. Manitoba Public Insurance Co., 1990 59 (SCC), [1990] 3 S.C.R. 191, 71 Man. R. (2d) 81, 75 O.R. (2d) 373n, 44 O.A.C. 81, 74 D.L.R. (4th) 636, 116 N.R. 1, 5 C.C.L.T. (2d) 1, [1990] I.L.R. 1-2672, 30 M.V.R. (2d) 260; Gallant v. Central Credit Union Ltd. (1994), 1994 18283 (PE SCTD), 125 Nfld. & P.E.I.R. 66, 389 A.P.R. 66, 22 C.C.L.T. (2d) 251 (P.E.I.T.D.), supp. reasons (1995), 1995 3456 (PE SCTD), 127 Nfld. & P.E.I.R. 101, 396 A.P.R. 101 (P.E.I.T.D.); Grand Restaurants of Canada Ltd. v. City of Toronto (1982), 1982 3300 (ON CA), 39 O.R. (2d) 752, 140 D.L.R. (3d) 191n (C.A.), affg (1981), 1981 3019 (ON SC), 32 O.R. (2d) 757, 123 D.L.R. (3d) 349 (H.C.J.); Hercules Managements Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, 115 Man. R. (2d) 241, 146 D.L.R. (4th) 577, 211 N.R. 352, 139 W.A.C. 241, [1997] 8 W.W.R. 80, 31 B.L.R. (2d) 147, 35 C.C.L.T. (2d) 115; Hongkong Bank of Canada v. Royal Bank of Canada, [1992] B.C.J. No. 169 (S.C.); Kamloops (City) v. Nielsen, 1984 21 (SCC), [1984] 2 S.C.R. 2, 66 B.C.L.R. 273, 10 D.L.R. (4th) 641, 54 N.R. 1, [1984] 5 W.W.R. 1, 29 C.C.L.T. 97, 26 M.P.L.R. 81; Kripps v. Touche Ross & Co. (1998), 1998 3905 (BC SC), 56 B.C.L.R. (3d) 160, [1999] 3 W.W.R. 629, 41 B.L.R. (2d) 124 (S.C.); Leon Van Neck and Son Ltd. v. McGorman, [1998] O.J. No. 4813 (Quicklaw), 81 O.T.C. 373 (Gen. Div.); Nance v. British Columbia Electric Railway Co., 1951 374 (UK JCPC), [1951] A.C. 601, [1951] 2 All E.R. 448, [1951] 2 T.L.R. 137, 95 Sol. Jo. 543, [1951] 3 D.L.R. 705, 2 W.W.R. (N.S.) 665 (P.C.); Queen v. Cognos Inc., 1993 146 (SCC), [1993] 1 S.C.R. 87, 99 D.L.R. (4th) 626, 147 N.R. 169, 45 C.C.E.L. 153, 14 C.C.L.T. (2d) 113, 93 C.L.L.C. 14,019; Spiewak v. 251268 Ontario Ltd. (1987), 1987 4124 (ON SC), 61 O.R. (2d) 655, 43 D.L.R. (4th) 554 (H.C.J.); Wooldridge v. H.B. Nickerson & Sons Ltd. (1980), 1980 2604 (NS CA), 40 N.S.R. (2d) 388, 115 D.L.R. (3d) 97, 73 A.P.R. 388 (C.A.), revg in part (1979), 1979 4304 (NS SC), 39 N.S.R. (2d) 45, 71 A.P.R. 45 (S.C.) (sub nom. H.B. Nickerson & Sons Ltd. v. Wooldridge); Young v. Bristol Aeroplane Co. Ltd., [1944] K.B. 718, [1944] 2 All E.R. 293, 113 L.J.K.B. 513, 171 L.T. 113, 60 T.L.R. 536, 88 Sol. Jo. 332, 37 B.W.C.C. 51 (C.A.) Statutes referred to Negligence Act, R.S.O. 1990, c. N.1, s. 3 Authorities referred to Osborne, P., The Law of Torts (Toronto: Irwin Law, 2000)

Andrew R. Kerr and Joyce M. Chun, for appellant. David Kirwin, for respondent.

The judgment of the court was delivered by

[1] CHARRON J.A.: -- The central issue in this appeal is whether the question of contributory negligence is legally relevant in a case of negligent misrepresentation. The appellant Barry Raymond Norman appeals from the trial judge's finding of contributory negligence against him. Mr. Norman submits that, as a matter of law, a finding of negligent misrepresentation, which necessarily includes a finding of reasonable reliance on the part of a plaintiff, precludes a finding of contributory negligence against that same party. Alternatively, he submits that, even if the two findings can coexist at law, it was inappropriate for the trial judge, on the facts of this case, to make a finding of contributory negligence once he had made a finding of reasonable reliance.

[2] The respondent Avco Financial Services Realty Limited ("Avco") has chosen not to cross-appeal from the finding of liability for negligent misrepresentation made against it. In responding to Mr. Norman's appeal, however, Avco challenges the trial judge's holding that it was liable for negligent misrepresentation. Avco argues that Mr. Norman was not only 50 per cent responsible for his loss, but wholly responsible, by reason of his failure to act reasonably in his own interest. Alternatively, Avco submits that the trial judge's finding of contributory negligence is not only sustainable at law, but entirely supported on the evidence. In either case, Avco submits that the trial judge's assignment of liability to Mr. Norman should not be disturbed.

1. The Findings at Trial

[3] Avco commenced this action to recover moneys owed pursuant to a covenant to pay under a second mortgage granted by Mr. Norman and his wife, Yvonne Norman. The mortgage loan was first obtained in 1988 for a one-year term. It was subsequently renewed in 1989, and again in 1990, for successive one-year terms. At the time the mortgage loan was obtained in 1988, Mr. and Mrs. Norman also applied for, and obtained from Avco,[^1] [page243] creditor's life, accident and sickness insurance. The term of the insurance policy was the same as the term of the mortgage, namely one year. At the time Mr. and Mrs. Norman renewed their mortgage in 1989, they reapplied for and obtained a further one-year policy of insurance. However, by the time of the second renewal in 1990, Mrs. Norman had been diagnosed with cancer and no longer qualified for the insurance coverage. Mrs. Norman died during the course of the subsequent year, and Mr. Norman was left with the full responsibility of paying the mortgage debt without the benefit of insurance on the life of his wife. He subsequently fell into arrears, and the property was sold under power of sale, leaving a deficiency in the amount of $144,202.21. Avco sued for payment of this sum and related expenses.

[4] In his statement of defence and counterclaim, Mr. Norman alleged, among other things, that Avco had misrepresented the nature of the insurance policy by failing to inform him and Mrs. Norman about the limited term of the policy and the need to reapply for insurance upon each loan renewal. There was evidence at trial that Mr. Norman relied on his wife to look after the family finances and that Mrs. Norman had had experience with insurance and money-lending issues while working as a bank employee. There was also evidence that the great majority of insurance applications from other financial institutions did not provide for a termination of insurance upon the renewing of the mortgage or loan transaction. Mr. Norman alleged at trial that, were it not for Avco's negligent misrepresentation, he and his wife would have obtained appropriate coverage with another insurer, and his wife's policy of life insurance would have paid his debt to Avco.

[5] The trial judge rejected all other defences to the claim (they are not in issue on this appeal), and found Mr. Norman liable under his covenant for the deficiency. However, the trial judge also found Avco liable to Mr. Norman for negligent misrepresentation. The trial judge held that, by reason of the relationship between the parties, Avco had a duty to provide to Mr. Norman and his wife, in a reasonably intelligible fashion, information about the salient and important provisions of the loan insurance policy. He held that Avco breached its duty of care by failing to clearly inform Mr. and Mrs. Norman, either orally or in writing, that: the term of life insurance was limited to that of the mortgage, namely one year; upon any renewal of the mortgage at the expiration of the term, they would have to reapply and re-qualify for insurance coverage; and any intervening illness or disability during the one year of coverage could disqualify either one of them from obtaining subsequent insurance coverage. Although [page244] the insurance form provided to, and signed by, Mr. and Mrs. Norman did stipulate the term of the insurance coverage, the trial judge found that the form was ambiguous and was insufficient to convey the necessary information to allow Mr. and Mrs. Norman to make an informed decision as to whether or not they should purchase the insurance in question.

[6] The trial judge held further that the insurance was important to Mr. and Mrs. Norman. He was satisfied that, if they had known that the coverage was limited to the term of the mortgage and that they would have to reapply and re-qualify for insurance upon each mortgage renewal, they would have either extended the term of the mortgage or would have attempted to make alternative mortgage or insurance arrangements. He therefore found that, in all the circumstances, Mr. and Mrs. Norman relied on Avco's representations to their detriment and that this reliance was a proximate cause of the damages sustained by Mr. Norman when no life insurance proceeds were available to pay out the balance of the mortgage loan.

[7] Based on these findings, the trial judge concluded that Avco was liable for negligent misrepresentation. It is noteworthy that the trial judge, in considering Avco's liability for negligent misrepresentation, never expressly addressed the question of whether the reliance by Mr. and Mrs. Norman on the representations made by Avco's representative was reasonable in all the circumstances. More will be said about this later.

[8] The trial judge then went on to find that Mr. Norman was contributorily negligent and that his negligence had been just as significant as Avco's negligence in contributing to his loss. Consequently, he apportioned the degree of fault equally between the parties. It is important to consider the trial judge's analysis on the question of contributory negligence. First he considered s. 3 of the Negligence Act, R.S.O. 1990, c. N.1, which reads as follows:

3. In any action for damages that is founded upon the fault or negligence of the defendant if fault or negligence is found on the part of the plaintiff that contributed to the damages, the court shall apportion the damages in proportion to the degree of fault or negligence found against the parties respectively.

[9] The trial judge next considered the analysis of the court in Grand Restaurants of Canada Ltd. v. Toronto (City) (1981), 1981 3019 (ON SC), 32 O.R. (2d) 757, 123 D.L.R. (3d) 349 (H.C.J.), affd (1982), 1982 3300 (ON CA), 39 O.R. (2d) 752, 140 D.L.R. (3d) 191n (C.A.), where Trainor J. considered the apparent inconsistency between concurrent findings of negligent misrepresentation and contributory negligence. Trainor J. stated the following at p. 775 O.R.: [page245]

At first blush, there is perhaps some difficulty in finding that a plaintiff ought to recover damages, for negligent misrepresentation, which presupposes a reasonable reliance on the advice of the defendant, and then to have his damages reduced on account of his reliance -- a causa sine qua non of his injury -- being to some degree "unreasonable" or excessive. But as the learned authors of Clerk & Lindsell on Torts point out"it needs to be emphasized that the plaintiff's negligence is contributory to the damage he sustains" (supra, at para. 991, citing Craze v. Meyer-Dumore Bottlers' Equipment Co. Ltd., [1936] 2 All E.R. 1150 at p. 1151), and this I interpret to mean that there is a distinction at law between reasonable reliance as a necessary prerequisite to ground liability, to constitute the cause of action under Hedley Byrne, supra, and reliance in the context of contributory negligence as simply a factor going to the extent of the damages suffered. Section 4 of the Negligence Act, R.S.O. 1970, c. 296, provides:

4. In any action for damages that is founded upon the fault or negligence of the defendant if fault or negligence is found on the part of the plaintiff that contributed to the damages, the court shall apportion the damages in proportion to the degree of fault or negligence found against the parties respectively.

In Charlesworth on Negligence, 5th ed. (1971), para. 1028, the author states:

In considering "fault" what must be ascertained is the fault causing the damage: this may not necessarily be the same as the fault causing the accident which in turn caused the damage.

In the case of fault that contributes to the damage suffered, reliance that is "unreasonable" simply goes to reducing damages otherwise recoverable by the plaintiff: it does not go to cancelling the prima facie liability of the defendant.

(Emphasis in last paragraph added)

[10] I will come back to the last paragraph of this excerpt later in this judgment.

[11] Based on these principles, the trial judge considered Mr. Norman's actions during the course of the 1989 renewal process and concluded that he contributed to his own loss by failing to read the insurance form and inquire about the term of the insurance despite the fact that the renewal process itself ought to have raised concerns and questions in his mind. The trial judge stated as follows at paras. 79-81:

Although the defendant indicated that he read the November 4th, 1988 insurance application form, he asked no particular question of the plaintiff's representative with respect to the length of the insurance coverage. In 1989, he signed, but he did not read, the insurance application form.

The important time for Mr. and Mrs. Norman to secure effective life insurance coverage was in 1988 and in 1989, but not in 1990, when it was determined that Mrs. Norman was suffering with cancer. In 1989, the defendant was aware that he (and by implication Mrs. Norman) had to reapply for loan insurance as a new application had to be completed. Had Mr. Norman read the February 24th, 1989 insurance form, he might have realized that he and [page246] Mrs. Norman were required to again answer questions related to their health, for insurance coverage purposes, such that they were being required to once again re-qualify for insurance.

In my view, the 1989 loan and insurance application process ought to have raised in the defendant's mind some concerns and questions about the length and nature of life insurance coverages. This is especially so, considering that less than one year earlier, Mr. Norman had applied for loan insurance coverage when he and Mrs. Norman first dealt with the plaintiff. By failing to even read the 1989 insurance application form, before signing it, the defendant (plaintiff by counterclaim) contributed to the damages which he ultimately sustained by securing and insuring a mortgage loan which would ultimately not insure Mrs. Norman's life at the time of her death. The defendant's contributory negligence, in these circumstances, was in my opinion, as significant as the plaintiff's breach of its duty of care. For that reason, and applying the provisions of s. 3 of the Negligence Act, I would apportion the degree of fault at 50 percent against the plaintiff (defendant by counterclaim), and 50 percent against the defendant (plaintiff by counterclaim).

[12] The trial judge therefore granted judgment against Mr. Norman in respect of the mortgage covenant, but reduced the quantum by setting off as against it Avco's share of damages arising out of its breach of duty to Mr. Norman.

2. The Appellant's Position on Appeal

[13] As stated earlier, it is the appellant's contention that, as a matter of law, a finding of negligent misrepresentation precludes a finding of contributory negligence. Counsel for the appellant acknowledges that Trainor J.'s decision in Grand Restaurants, supra, upon which the trial judge relied, was confirmed on appeal to this court. In a brief endorsement, this court stated as follows:

We have listened with attention to the lengthy and complete submissions made. Sifting through those submissions it becomes apparent that, in the main, it is findings of fact that are being questioned in both the appeal and cross- appeal. The trial judge noted that there was conflict in the evidence and how he viewed the witnesses and their evidence was important to his ultimate conclusions. We are persuaded that there was admissible evidence from which the trial judge could make his findings of negligence and contributory negligence. Equally we are of the view that his assessment of damages was proper in light of the evidence before him. There is no palpable or demonstrable error in the judgment of the learned trial judge and the appeal and cross- appeal are dismissed with costs.

[14] Counsel for the appellant also acknowledges that courts, in a number of decisions, have found contributory negligence in cases of negligent misrepresentation. He notes the following decisions: Wooldridge v. H.B. Nickerson & Sons Ltd. (1980), 1980 2604 (NS CA), 40 N.S.R. (2d) 388, 115 D.L.R. (3d) 97 (C.A.); Gallant v. Central Credit Union Ltd. (1994), 1994 18283 (PE SCTD), 125 Nfld. & P.E.I.R. 66, 389 A.P.R. 66 (P.E.I.T.D.); [page247] Spiewak v. 251268 Ontario Ltd. (1987), 1987 4124 (ON SC), 61 O.R. (2d) 655, 43 D.L.R. (4th) 554 (H.C.J.); Kripps v. Touche Ross & Co. (1998), 1998 3905 (BC SC), 56 B.C.L.R. (3d) 160, 41 B.L.R. (2d) 124 (S.C.); Hongkong Bank of Canada v. Royal Bank of Canada, [1992] B.C.J. No. 169 (Quicklaw) (S.C.); Leon Van Neck and Son Ltd. v. McGorman, [1998] O.J. No. 4813 (Quicklaw), 81 O.T.C. 373 (Gen. Div.); and Canada (Federal Business Development Bank) v. Morris, Burk, Luborsky, David & Kale (1988), 38 B.L.R. 1, [1988] O.J. No. 88 (Quicklaw) (H.C.J.).

[15] Counsel submits, however, that those cases are inconsistent with the decision in Perry v. Clintar Ltd. (1996), 1996 2655 (ON CA), 41 C.B.R. (3d) 90 (Ont. C.A.), where this court found that it was inappropriate for the trial court to have made a finding of contributory negligence once it had made a finding of reasonable reliance. In a brief endorsement, the court disposed of the liability issues in that case as follows:

Counsel for Clintar argued that the conclusion reached by the trial judge was wrong because there was no finding that, if the plaintiff relied on Clintar's representations, such reliance was reasonable.

There is no such express finding in the reasons. The trial judge, however, approached the case as if pleaded only on the basis of a claim in negligence. He found that, in the circumstances, Clintar owed Perry a duty to exercise diligence in the preparation of the June financial statement. He went on to find that Clintar breached that duty by what he called "either institutional negligence or a deliberate concealment of material facts." He said that"[w]hile Clintar did not itself represent the truth of the financial statement, it prepared the statement either negligently or with the knowledge of its falsehood, knowing that it would be relied on by the plaintiff."

It is implicit in these findings that, in the circumstances of this transaction, the plaintiff's reliance on Clintar's representations was reasonable. Accordingly, the appeal cannot succeed.

[In respect of the cross-appeal] . . . Clintar pleaded that Perry had been guilty of contributory negligence. The implicit finding of reasonable reliance should have removed that issue from consideration but, because of the trial judge's approach, he did consider it and found the plaintiff one-third at fault. In our view, the case was essentially one of detrimental reliance and the finding of contributory negligence was inappropriate and should be set aside.

(Emphasis added)

[16] Counsel for the appellant contends that Perry stands for the proposition that findings of negligent misrepresentation and contributory negligence cannot logically coexist, and that this court, in effect, overruled its earlier decision in Grand Restaurants. He submits further that the rationale in Grand Restaurants has been superceded by later decisions of the Supreme [page248] Court of Canada where the court clarified the requirements of the tort of negligent misrepresentation. He relies on the following three decisions: Fletcher v. Manitoba Public Insurance Co., 1990 59 (SCC), [1990] 3 S.C.R. 191, 74 D.L.R. (4th) 636; Queen v. Cognos Inc., 1993 146 (SCC), [1993] 1 S.C.R. 87, 99 D.L.R. (4th) 626; and Hercules Managements Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, 146 D.L.R. (4th) 577.

[17] Counsel submits that, in those cases, the "reasonable reliance" requirement gained special prominence. He submits that the effect of this prominence is to require that any defence based on the plaintiff's contributory negligence be considered "up front" or, in other words"the defence is built into the cause of action." Counsel submits that, according to the test set out by the Supreme Court of Canada, the court must now consider whether the plaintiff is partly responsible for his own loss at the start of its analysis, immediately after it has determined whether the defendant could have foreseen the plaintiff's reliance. He submits that, since this inquiry is part of the analysis on negligent misrepresentation"[t]he court should not screen the plaintiff twice on this same question or it second-guesses itself and may arrive at opposite conclusions."

3. Analysis

[18] The concept of foreseeable and reasonable reliance was not new to the law on misrepresentation at the time the Supreme Court of Canada decided Fletcher, Cognos, and Hercules. Hence, I do not agree with the submission that these three cases have effectively superseded all preceding jurisprudence. However, I would agree with the contention that, in reiterating the necessary elements of the tort of negligent misrepresentation, the Supreme Court seems to have placed the concept of reliance at the forefront of the analysis. It did so in Fletcher, the first of the three decisions, and then more particularly in Hercules, by identifying foreseeable and reasonable reliance as the foundation of the duty of care. This approach can be readily discerned from a brief review of the cases in question. I will review them in chronological order.

[19] At issue in Fletcher was the question whether a public insurance corporation owed a duty to advise an insured of the availability of underinsured motorist coverage. The Supreme Court concluded that it did. Reliance formed an important part of the court's analysis on duty of care. Wilson J., in writing for the court, concluded her analysis on duty of care by stating at p. 212 S.C.R. that the insurer "will owe a duty of care to its customers if: [page249] (i) such customers rely on the information; (ii) their reliance is reasonable; and (iii) [the insurer] knew or ought to have known that they would rely on the information". After this discussion on the duty of care, the court went on to consider the scope of the duty, whether it was breached, and whether the insurer, in not fulfilling its duty, was liable for the insured's loss.

[20] Cognos involved the application of the tort of negligent misrepresentation in respect of a pre-employment representation made by an employer to a prospective employee in the course of a hiring interview. Iacobucci J. set out at p. 110 S.C.R. the required elements of the tort in the following oft-quoted statement:

The required elements for a successful Hedley Byrne claim have been stated in many authorities, sometimes in varying forms. The decisions of this court cited above suggest five general requirements:

(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.

[21] The employer in Cognos conceded that a special relationship existed so as to give rise to a duty of care, but contended that this duty was negated by a disclaimer contained in an employment contract signed by the employee some time after the interview. In light of the employer's concession on the existence of a duty of care, it was not necessary for the court to discuss reliance as it relates to the duty of care. Iacobucci J., however, identified the existing debate on this question at p. 116 S.C.R.:

There is some debate in academic circles, fuelled by various judicial pronouncements, about the proper test that should be applied to determine when a "special relationship" exists between the representor and the representee which will give rise to a duty of care. Some have suggested that "foreseeable and reasonable reliance" on the representations is the key element to the analysis, while others speak of "voluntary assumption of responsibility" on the part of the representor.

For my part, I find it unnecessary -- and unwise in view of the respondent's concession -- to take part in this debate. Regardless of the test applied, the result which the circumstances of this case dictate would be the same. It was foreseeable that the appellant would be relying on the information given during the hiring interview in order to make his career decision. It [page250] was reasonable for the appellant to rely on said representations. There is nothing before this court that suggests that the respondent was not, at the time of the interview or shortly thereafter, assuming responsibility for what was being represented to the appellant by Mr. Johnston.

[22] In the next case, Hercules, it became necessary for the Supreme Court to determine the appropriate test to determine when a duty of care arises in a case of alleged negligent misrepresentation. The central issue was whether, and when, accountants who perform an audit of a corporation's financial statements owe a duty of care in tort to shareholders of the corporation who claim to have suffered losses in reliance on the audited statements. The court held that it was well-established that the existence of a duty of care in tort is to be determined through an application of the two-part test in Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 All E.R. 492 (H.L.) as restated in Kamloops (City) v. Nielsen, 1984 21 (SCC), [1984] 2 S.C.R. 2, 10 D.L.R. (4th) 641, at pp. 10-11 S.C.R.:

(1) is there a sufficiently close relationship between the parties (the [defendant] and the person who has suffered the damage) so that, in the reasonable contemplation of the [defendant], carelessness on its part might cause damage to that person? If so,

(2) are there any considerations which ought to negative or limit (a) the scope of the duty and (b) the class of persons to whom it is owed or (c) the damages to which a breach of it may give rise?

[23] The Supreme Court in Hercules saw no reason why the same approach should not be taken in cases of negligent misrepresentation and stated at para. 21 that "[i]ndeed, to create a 'pocket' of negligent misrepresentation cases (to use Professor Stapleton's term) in which the existence of a duty of care is determined differently from other negligence cases would, in my view, be incorrect." In discussing the first branch of the test, the existence of a relationship of proximity, the court stated the following at para. 24:

In cases of negligent misrepresentation, the relationship between the plaintiff and the defendant arises through reliance by the plaintiff on the defendant's words. Thus, if "proximity" is meant to distinguish the cases where the defendant has a responsibility to take reasonable care of the plaintiff from those where he or she has no such responsibility, then in negligent misrepresentation cases, it must pertain to some aspect of the relationship of reliance. To my mind, proximity can be seen to inhere between a defendant-representor and a plaintiff-representee when two criteria relating to reliance may be said to exist on the facts: (a) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and (b) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable. To use the term employed by my colleague, Iacobucci J., in Cognos, supra, at p. 110, the plaintiff and the [page251] defendant can be said to be in a "special relationship" whenever these two factors inhere.

[24] Hence, the concept of foreseeable and reasonable reliance was again, as it had been in Fletcher, brought to the forefront of the analysis as the very foundation for the duty of care. The question remains whether this shift in the analysis has the effect contended by the appellant of incorporating the notion of contributory negligence into the cause of action itself. In my view, it does not. I say this for the following reasons.

[25] First, the adoption of such an approach would create an unwarranted inconsistency in the law of negligence. Just as it was held in Hercules with respect to the existence of a duty of care, it would be incorrect in my view "to create a pocket of negligent misrepresentation cases" in which the question of contributory negligence would be determined differently from other negligence cases. It is my view as well that the adoption of a different approach in cases of negligent misrepresentation would be inconsistent with the provisions of the Negligence Act that provide for apportionment in cases where the plaintiff's negligence is found to have contributed to the damages.

[26] Second, it is my view that a finding that the tort of negligent misrepresentation has been made out is not inherently inconsistent with a finding of contributory negligence because the test that underlies each finding is different. I have already reviewed the test for negligent misrepresentation. The test for contributory negligence can be found in many cases. It was recently reiterated by the Supreme Court of Canada in Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 307 (SCC), [1997] 3 S.C.R. 1210, 153 D.L.R. (4th) 385 at para. 76:

The test for contributory negligence was summarized by Denning L.J. in Jones v. Livox Quarries Ld., [1952] 2 Q.B. 608 (C.A.), at p. 615:

Although contributory negligence does not depend on a duty of care, it does depend on foreseeability. Just as actionable negligence requires the foreseeability of harm to others, so contributory negligence requires the foreseeability of harm to oneself. A person is guilty of contributory negligence if he ought reasonably to have foreseen that, if he did not act as a reasonable, prudent man, he might be hurt himself; and in his reckonings he must take into account the possibility of others being careless.

(Emphasis added)

[27] Admittedly, because the reliance by the injured party on the statement must itself be reasonable, in many cases it will be difficult for a defendant to prove contributory negligence once a finding of negligent misrepresentation has been made against it. Indeed, if the allegation of contributory negligence is based on the contention that the injured party acted unreasonably in [page252] relying on the misstatement, the question will already have been determined on the main claim, and the plea of contributory negligence will not succeed. On this point, I wish to comment on the following words of the trial judge in Grand Restaurants, as quoted earlier [at p. 775 O.R.]:

In the case of fault that contributes to the damage suffered, reliance that is 'unreasonable' simply goes to reducing damages otherwise recoverable by the plaintiff; it does not go to cancelling the prima facie liability of the defendant.

[28] Obviously, these words, considered in and of themselves, cannot be reconciled with the test set out in Hercules. Of course, Grand Restaurants was decided long before the decision in Hercules. When the trial judge's words are considered in context, however, it is apparent that his finding of contributory negligence was properly based on a consideration of the plaintiff's own negligent conduct and how it contributed to its loss. I will briefly review the facts in Grand Restaurants because they exemplify the application of the principles under review in this case.

[29] The plaintiff in Grand Restaurants entered into a contract for the purchase of a restaurant. In deciding to purchase the restaurant, the plaintiff had relied in part on a letter from the defendant city, sent in response to the plaintiff's inquiry, stating that it had no current file on the property in respect of outstanding work orders and building violations. As it turned out, this letter was inaccurate. The trial judge found that the failure of the defendant to respond accurately to the plaintiff was a breach of a duty owed to the plaintiff and that this breach contributed to the plaintiff's loss. However, the trial judge found that the plaintiff did not rely solely on the city. The facts disclosed that the plaintiff had become aware of a prior work order against the property, stemming from a liquor licence application that had then been withdrawn. The trial judge found that this knowledge, combined with the plaintiff's special knowledge of the business to be purchased, should have alerted the plaintiff to the economic risks of closing the transaction. He therefore found the plaintiff 50 per cent contributorily negligent.

[30] In my view, the findings of negligent misrepresentation and contributory negligence were not inconsistent on these facts. While the injured party's own conduct must be considered under both tests, the focus is different. With respect to the analysis on negligent misrepresentation, the focus is on the reasonableness of the reliance (and, of course, its foreseeability from the perspective of the representor). In this respect, the circumstances [page253] surrounding the misrepresentation in question are of paramount importance. Whether or not it was reasonable to rely on the representation will depend on an array of factors. Professor Philip Osborne, in The Law of Torts (Toronto: Irwin Law, 2000) at pp. 162-65, lists a number of factors that may be relevant on this question including the expertise and knowledge of the representor; the seriousness of the occasion; whether the information was requested; whether the representor received any direct or indirect financial benefit; the nature of the statement; and the presence of any disclaimers.

[31] In Grand Restaurants, it was reasonable for the plaintiff in all the circumstances to expect that the response from the city would be accurate and to rely on its representation that it had no current file involving outstanding work orders and building violations. It was also foreseeable to the city that the plaintiff would rely on its representation. The plaintiff's detrimental reliance on the misrepresentation contributed to its loss.

[32] On the question of contributory negligence, the focus is on the event that occasioned the loss. The injured party's conduct, in all the circumstances surrounding that event, must be considered in order to determine whether it acted reasonably in its own interest or whether it contributed to the loss by its own fault. The circumstances surrounding the event that occasioned the loss, depending on the particular facts of the case, may be much wider in scope than the circumstances surrounding the negligent misrepresentation. Hence, at this stage of the inquiry, the reasonableness of the injured party's reliance on the misrepresentation must be assessed in the context of the event that occasioned the loss. According to the test for contributory negligence set out earlier at para. 26, the injured party will be found guilty of contributory negligence if it ought to have foreseen that it may harm itself by failing to act reasonably and prudently. In this context, the injured party's failure to act as a reasonable and prudent person may include a failure to guard against the foreseeable carelessness of others.

[33] For example, in Grand Restaurants, the event that occasioned the loss was not the misstatement by the city, it was the fact that the plaintiff closed the transaction. Hence, in looking at the entire circumstances surrounding the transaction, it remained open for the trial judge to find, on the question of contributory negligence, that the plaintiff's own negligence in failing to act on its own knowledge about the property instead of relying totally on the city's response contributed to its loss.

[34] A similar result was reached in Spiewak, supra. A real estate agent was found liable in negligent misrepresentation in [page254] respect of incomplete and misleading information provided to prospective purchasers of an apartment building about the building's likely rental income. The plaintiffs relied on this information and entered into an agreement to purchase the building, as a result of which they sustained a loss. The plaintiffs, however, were found contributorily negligent because of their failure to consult a lawyer in respect of the transaction and their damages were accordingly reduced by 20 per cent.

[35] It is my view that an approach that allows for the apportionment of fault in cases of negligent misrepresentation is not only consistent with the approach in other negligence cases, it is also consistent with the principle underlying the very concept of contributory negligence. This principle is rooted in a concern to do justice as between the parties; it was reiterated in Bow Valley, supra, where the court quoted with approval at para. 73 the words of Viscount Simon in Nance v. British Columbia Electric Railway Co., 1951 374 (UK JCPC), [1951] A.C. 601, [1951] 2 All E.R. 448 (P.C.) at p. 611 A.C.:

But when contributory negligence is set up as a defence, its existence does not depend on any duty owed by the injured party to the party sued, and all that is necessary to establish such a defence is to prove to the satisfaction of the jury that the injured party did not in his own interest take reasonable care of himself and contributed, by this want of care, to his own injury. For when contributory negligence is set up as a shield against the obligation to satisfy the whole of the plaintiff's claim, the principle involved is that, where a man is part author of his own injury, he cannot call on the other party to compensate him in full.

(Emphasis added)

[36] I now deal with the appellant's submission that this court's decision in Perry, supra, has effectively overruled the decision in Grand Restaurants. I note firstly that Grand Restaurants was not referred to in the brief endorsement in Perry. It is not apparent that the issue raised on this appeal was addressed by the parties on that appeal. It is also difficult to determine the precise basis for this court's decision in Perry, given the brevity of the reasons. Admittedly, I am unable to reconcile the foregoing analysis with the result on the appeal in Perry, given the particular facts of that case and the findings made by the trial judge. Therefore, I must consider the principle of stare decisis and its requirement in the circumstances.

[37] The English Court of Appeal provides guidance on the application of the doctrine of stare decisis in Young v. Bristol Aeroplane Co. Ltd., [1944] K.B. 718, [1944] All E.R. 293 (C.A.). In Young, the court held that it was bound by its own previous decisions and that only the House of Lords had the power to hold that [page255] a decision that was binding on it was not good law. This principle, however, is subject to three exceptions, the first of which is that the court is entitled and bound to decide which of two conflicting decisions of its own it will follow. It is my view, for the reasons that I have already expressed, that this court should follow Grand Restaurants.

[38] Hence, for these reasons, it is my view that findings of negligent misrepresentation and contributory negligence can co- exist at law. Both parties, however, submit that the findings of negligent misrepresentation and contributory negligence cannot co-exist on the facts of this case.

[39] The appellant takes the position that, given the trial judge's conclusion that the tort of negligent misrepresentation was made out, it must be taken as implicit that he found Mr. Norman's reliance on Avco's misrepresentation both foreseeable and reasonable. He then submits that the trial judge's later finding on the issue of contributory negligence that Mr. Norman acted unreasonably in relying on Avco's misrepresentation is inconsistent with this finding.

[40] The appellant takes the further position that the trial judge's conclusion on negligent misrepresentation is not in issue on this appeal and must therefore be taken as correct. Hence, he submits that the finding of contributory negligence must necessarily be set aside. I do not agree with this further contention. Given Avco's decision not to cross-appeal, the appellant is correct in saying that the judgment in his favour is not open to review on this appeal. Nonetheless, it is open to Avco to challenge the trial judge's conclusion on negligent misrepresentation in response to the appeal, as it has done.

[41] I agree with the contention, which was in effect advanced by both parties, that, on the particular facts of this case, a finding of foreseeable and reasonable reliance is inconsistent with the trial judge's later finding on the issue of contributory negligence. I say this because the circumstances surrounding the alleged misrepresentation (the inquiry on negligent misrepresentation) are the same as the circumstances surrounding the event that occasioned the loss (the inquiry on contributory negligence). In these circumstances, it is difficult to see how two different conclusions could be arrived at on an assessment of the reasonableness of Mr. Norman's conduct.

[42] As noted earlier, the trial judge did not specifically address the question of foreseeable and reasonable reliance in his analysis of Avco's duty of care, or at any other point in his reasons for judgment. In my view, the failure to analyze the evidence on the question of foreseeable and reasonable reliance led [page256] him into error in concluding that the negligent misrepresentation by omission made in 1988 continued in 1989. Had the trial judge analyzed the reasonableness of Mr. Norman's conduct in considering the elements of negligent misrepresentation, it is my view that he would have arrived at the same conclusion that he did on his analysis in respect of the question of contributory negligence.

[43] In my view, the trial judge's conclusion that Mr. Norman acted unreasonably in relying solely on what Avco's representative expressly said in words about the terms of the policy when he purchased a second one-year term of insurance in 1989 is unassailable on this record. The fact that the alleged misrepresentation was in the form of an omission becomes important in this context. Of particular importance is the trial judge's express finding that the 1989 loan and insurance application process in itself ought to have raised in Mr. Norman's mind some concerns and questions about the insurance coverage. Indeed, by its actions in 1989 in requiring that the Normans reapply for insurance, Avco was in effect "making a statement" that the previous policy had expired with the term of the 1988 loan. It can hardly be said that, at the same time, by its silence, Avco was misrepresenting that the insurance did not need to be renewed on each renewal of the mortgage loan.

[44] Hence, in my view, the trial judge's finding that Mr. Norman acted unreasonably in 1989 in not inquiring further into the term of the insurance is amply supported on the evidence and ought to have been determinative on the question of foreseeable and reasonable reliance in respect of the tort of negligent misrepresentation.

[45] For these reasons, I would dismiss the appeal with costs, fixed at $7,000 in accordance with counsel's agreement.

Appeal dismissed with costs. [page257]

Notes

[^1]: The insurers were the Patriot Life Insurance Company and the London and Midland General Insurance Company, subsidiaries of Avoc. Avco representatives took applications for insurance and forwarded them to the insurers for review and acceptance.