DATE: 20040629

DOCKET: C40072

COURT OF APPEAL FOR ONTARIO

ARMSTRONG, BLAIR AND JURIANSZ JJ.A.

B E T W E E N:

RED CARPET INNS LIMITED

Plaintiff (Appellant)

• and -

HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO and THE METROPOLITAN TORONTO AND REGION CONSERVATION AUTHORITY

Defendants (Respondents)

Counsel: Joseph J.M. Hoffer for the appellant Deborah Berlach for the respondent Metropolitan Toronto and Region Conservation Authority Sara Blake for the respondent Her Majesty the Queen in Right of Ontario

Heard: June 21, 2004

On appeal from the judgment granted by the Justice John C. Kennedy of the Superior Court of Justice dated April 30, 2003.

R.A. BLAIR J.A.:

Background

[1] Red Carpet Inns Limited is the owner of a motel property on Lakeshore Blvd. W. in Etobicoke. The lands, now vacant, are situated along what was at one time known as “the Motel Strip”. They abut the shores of Lake Ontario.

[2] This appeal arises out of a proposed land exchange between Red Carpet and the Crown, designed to facilitate the creation of a linear lakefront park by the Metropolitan Toronto and Region Conservation Authority and to enable Red Carpet to acquire title to certain lands it had been using but that were in fact unpatented Crown lands. The exchange was never effected. As a result, Red Carpet sued the Crown and the Conservation Authority for damages for breach of contract and negligent misrepresentation (amongst other relief claimed).

[3] Kennedy J. dismissed the claim for breach of contract, but found the Conservation Authority liable for negligent misrepresentation. He dismissed the claims against the Crown. Although he assessed the plaintiff’s damages at $30,159,744, the trial judge only awarded the plaintiff $971,111.90, representing interest lost on a related but aborted transaction (the Chertsey transaction) together with certain other out-of-pocket expenses up to October, 1989. This decision was based on the finding that Red Carpet had independently chosen not to accept a profitable $10 million settlement for the sale of the lands to Chertsey at that time, and therefore that no “further losses were foreseeable after the plaintiff had the opportunity to dispose of its entire interest in the property”.

[4] Red Carpet appeals from the trial judge’s decision that it was not entitled to its full damage claim because it purportedly breached a duty to mitigate its losses, and also from the trial judge’s failure to hold the Crown liable as principal for the Conservation Authority in respect of communicating the negligent misrepresentation. The Conservation Authority cross-appeals against the finding of negligent misrepresentation. Red Carpet and the Crown both seek to attack the trial judge’s award as to costs, Red Carpet alleging that he erred in reducing its costs to 50% of the fixed amount and the Crown asserting that he erred in failing to award it any costs at all.

[5] For the brief reasons that follow we would dismiss the appeal and allow the cross-appeal. The issue of whether the Crown acted as agent for, or is vicariously liable for, the acts of the Conservation Authority is therefore academic and need not be determined. The costs should follow the event.

Summary of Facts

[6] In the late 1960’s the Province of Ontario developed a plan to create a park system along the shores of Lake Ontario from Scarborough to Hamilton. The Metropolitan Toronto and Region Conservation Authority was designated as the implementing agency for that purpose. To meet its objectives it needed to acquire lands at various places along the shoreline to enable it to fill in the shoreline in order to create the linear parkland desired. Red Carpet’s lands were suitable for these purposes, as they projected beyond the waterline into the lake.

[7] Red Carpet, on the other hand, had its own needs. The lands had significant potential commercially. However, part of a “sliver” of land, which it occupied and used, to the immediate west of its own lots, belonged to the Crown as unpatented Crown lands. So, too, did a small parcel of land immediately to the south of the sliver and to the west of the Red Carpet lots (Part 3). Red Carpet needed clear title to these Crown lands in order to maximize their potential for sale or development.

[8] In the early 1980’s, therefore, the interests of Red Carpet and the Conservation Authority converged. The makings of an arrangement for an exchange of lands evolved. Red Carpet would give up some waterfront property plus the riparian rights thereto; the Crown would grant Red Carpet a patent to the Crown lands Red Carpet needed. This arrangement was set out in a letter from the Ministry of Natural Resources to the Conservation Authority, dated March 23, 1984. The parties refer to this letter as “the roadmap” for the exchange. The lawsuit arises because they never made it to their destination along this map.

[9] In the mid to late 1980’s the politics changed regarding plans for the Motel Strip. The City of Etobicoke began to consider a number of scenarios for the redevelopment of the lands between the Humber River and Mimico Creek. One potential plan included a road across the Crown lands which formed part of the exchange. The Ministry advised the Conservation Authority in a letter dated May 23, 1987 that the exchange proposal was postponed indefinitely and would have to be “held in abeyance” until Etobicoke had finalized its rezoning “or definitively approved the redevelopment/parkland/road configuration”. Notwithstanding this, the Conservation Authority continued its discussions with the appellant. In January 1989, the Conservation Authority was told by a special advisor to the Premier of Ontario on waterfront issues that the arrangements with Red Carpet would not be completed. The trial judge found that the Ministry’s decision not to proceed with the land exchange was not communicated to Red Carpet. Instead, the Conservation Authority held out that the project was still alive, subject to the making of certain minor modifications.

[10] In the meantime, Red Carpet entered into an agreement with Chertsey Development Inc. to sell the property, including whatever rights it had in the land exchange agreement, for $10 million. This transaction did not close because Chertsey requisitioned a deed to the unpatented Crown lands that were the subject of the proposed exchange. Chertsey knew that Red Carpet could not provide such a deed at that point and, indeed, it would appear that Chertsey was not entitled to requisition the deed, given the terms of its agreement. Nonetheless, litigation ensued. The litigation was ultimately settled on a “walk away” basis, but – significantly for these proceedings – Chertsey offered to settle in October 1989 on the basis that it would pay Red Carpet the $10 million purchase price and take its chances on completing the land exchange. Red Carpet refused this offer because it was not prepared to forego $871,000 in interest that it said it was entitled to as a result of the delay in closing.

[11] The trial judge found that there was never a binding agreement between Red Carpet and the Crown with respect to the land exchange because the parties were never ad idem on the essential terms of the transaction, particularly with respect to the issue of riparian rights. There is no appeal from this finding. He also found, however, that the failure of the Conservation Authority to advise Red Carpet of the Ministry’s decision not to complete the arrangement constituted an actionable negligent misrepresentation. That finding is the subject of the cross-appeal. Lastly, the trial judge found that, although the plaintiff’s damages should be assessed at approximately $30 million, it was only entitled to recover its lost interest and certain out-of-pocket expenses in relation to the Chertsey transaction for a total of $971,111.90. This latter finding is the subject of the appeal.

Analysis

[12] Because of the view we take of this case it is appropriate to deal with the cross-appeal first.

The Cross-Appeal

[13] The Conservation Authority raised two grounds in its cross-appeal.

[14] First, it argued that the trial judge erred in finding that it had misrepresented the status of the land exchange arrangement. There was ample evidence to support the trial judge’s finding in this regard, however, and we see no basis for interfering with it.

[15] Secondly, the Conservation Authority submitted that the trial judge erred in finding that all the constituent elements of the tort of negligent misrepresentation had been met.[^1] In particular it was argued that the elements of (a) reliance, (b) reasonable reliance, and (c) detrimental reliance, were missing on the facts.

[16] We can find no palpable or overriding error in the trial judge’s finding that Red Carpet relied on the misrepresentation of the Conservation Authority or that it was reasonable for it to continue to operate on the premise that the land exchange would be completed. There was evidence that might lead to a different conclusion on reasonableness. For example, Mr. Vona admitted he knew the deal “was stuck” in the Ministry – the difference between being “stuck” and held “in abeyance” may be a subtle one – and there is evidence he knew the planning considerations of Etobicoke were still outstanding. The trial judge’s findings on these questions are entitled to deference, however, and we can find no palpable and overriding error in his findings in this regard.

[17] Nonetheless, we agree with the cross-appellant that the trial judge’s finding of detrimental reliance in the circumstances of this case constituted a palpable and overriding error. It was based upon misapprehension of the evidence, which does not support a finding that if Red Carpet had known of the Ministry’s decision not to proceed with the land exchange it would have acted in a way that would have protected it from the detriment it allegedly suffered.

[18] The trial judge found Mr. Vona to be an “astute and sophisticated businessman with a special interest and high degree of expertise in the area of land development”. As noted, he was aware that the deal was stuck in the Ministry, that the Etobicoke planning issues affecting the exchange lands had not been resolved, and that Red Carpet had title defect problems. Red Carpet conducted itself accordingly. It knew that it could not enter into agreements for the property that called for the delivery of clear title, and Mr. Vona acknowledged that he did not entertain offers containing such a requirement. With respect to the Chertsey transaction, and an earlier offer from another prospective purchaser, Red Carpet’s solicitor protected its interests by only agreeing to convey that to which Red Carpet had clear title together with its interest in the land exchange, whatever those interests may be.

[19] More significantly, it was not open to the trial judge to find that Red Carpet had relied to its detriment on the Conservation Authority’s misrepresentation because in reality it benefited from not being aware of the Ministry’s decision. Had it known, Mr. Hoffer argued, Red Carpet would have attempted to sell only that which it was entitled to sell without adding whatever rights it may have had arising from the land exchange arrangement. The evidence is that it would have recovered less for the land than the $10 million available to it from the Chertsey transaction. Consequently, Red Carpet’s lack of knowledge of the true state of affairs and its continued reliance on the premise that the land exchange would come to fruition, worked to its advantage rather than to its detriment.

[20] In the absence of detrimental reliance the tort of negligent misrepresentation is not made out. There is no liability on the part of the Conservation Authority. The cross-appeal must be allowed.

The Main Appeal

[21] In view of the foregoing, the appeal must fail as well.

[22] The losses sustained by Red Carpet flowed not from any detrimental reliance upon the Conservation Authority’s misrepresentation but rather from the failure of the Chertsey transaction to close. Chertsey was prepared to accept the lands and take its chances on negotiating a more favourable exchange with the Crown. Its dispute with Red Carpet was founded upon its apparently dubious requisition respecting the defect in title. Although completion of the land exchange would have resolved the title defect, the misrepresentation concerning the termination of that arrangement was not the cause of the failure to close. The evidence is clear that this failure had nothing to do with the termination of the land exchange arrangement.

[23] It follows, therefore that no damages flowed from the misrepresentation.

[24] The foregoing analysis aside, there is another reason why the appeal must be dismissed.

[25] Red Carpet did not find out about the Ministry’s decision not to proceed with the land exchange until the proceedings leading up to the trial of this action. The appellant argues that the trial judge erred in failing to award it full damages on the basis that Red Carpet had a duty to mitigate its losses when, at the relevant time, Red Carpet was unaware of any wrongdoing on the part of the Conservation Authority.

[26] While the trial judge did refer to the failure of the appellant to mitigate its damages by rejecting the Chertsey settlement offer, in paragraph 168 of his reasons (as a prelude to his consideration of the damage calculations), we think in substance his decision not to award the appellant its full damages is based on a lack of causation. This is apparent from the following passage at paragraph 164:

Red Carpet determined its own independent course of action in declining the Chertsey proposal. It continued to rely upon the defendants to bargain in good faith and to negotiate [a] successful land exchange transaction. I query whether or not any further losses were foreseeable after the plaintiff had the opportunity to dispose of its entire interest in the property [emphasis added].

[27] We agree. The appeal must be dismissed.

Costs

[28] Given our disposition of the appeal and the cross-appeal, the arguments of Red Carpet and the Crown respecting the costs below need ratios not be addressed. The defendants have been wholly successful. Costs should follow the event.

Disposition

[29] The appeal is dismissed and the cross-appeal allowed.

[30] The respondents are entitled to their costs of the appeal on a partial indemnity basis, fixed for each in the amount of $15,000, inclusive of fees, disbursements and GST.

[31] The respondents are also entitled to their costs of the trial on a partial indemnity basis. In view of the complexity of the issues, the length of the trial, the amounts claimed, and the unfamiliarity of this court with the trial dynamics, we do not think we should fix the costs. The costs of the respondents at trial are therefore to be assessed rather than fixed by this court.

“R.A. Blair J.A.”

“I agree R.P. Armstrong J.A.”

“I agree R.G. Juriansz J.A.”

Released: June 29, 2004

[^1]: The elements consist of a duty of care based on a special relationship; a representation that is untrue, inaccurate, or misleading; negligent conduct on the part of the representor in making the representation; reasonable reliance on the part of the representee; and detrimental reliance on the part of the representee: see Queen v. Cognos 1993 146 (SCC), [1993] 1 S.C.R. 87.