CITATION: Canadian National Railway v. The Township of Ramara, 2015 ONSC 1433

COURT FILE NO.: CV-14-10778-00CL

DATE: 20150304

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Canadian National Railway Company, Appellant

AND:

Corporation of the Township of Ramara, Respondent

BEFORE: Mr. Justice H. Wilton-Siegel

COUNSEL: Paul Cassan, for the Appellant

Kenneth R. Peel, for the Respondent

HEARD: February 3, 2015

ENDORSEMENT

[1] The appellant, Canadian National Railway Company (the “Appellant”), seeks leave to appeal an arbitration award dated October 29, 2013 (the “Award”) of Arbitrator Douglas Cunningham (the “Arbitrator”) insofar as the Arbitrator held that The Corporation of the Township of Ramara (the “Respondent”) was not liable to pay the outstanding amount claimed by the Appellant in an invoice dated December 3, 2012.

The Arbitrator’s Award

[2] The parties entered into a “Standard Funded New Crossing Warning Agreement” respecting the installation of a crossing warning system (the “work”). The Agreement was executed by the Respondent on December 17, 2008 and by the Appellant on February 5, 2009 (the “Agreement”).

[3] Section 1 of the Agreement provided that “[t]he Railway as party proposing to undertake the work will file an application pursuant to the Railway Safety Act (the “Act”) for an 80% grant in respect of the cost of this proposed railway work as defined in the Act.” Section 6 of the Agreement provided that “[t]he Railway shall prepare all accounts for work performed by the Railway for both installation and maintenance using rates stipulated in the latest Guide for Railway Charges for Crossing, Maintenance and Construction as issued by the Canadian Transportation Agency.”

[4] Notwithstanding this covenant, at the time that it executed the Agreement, the Appellant knew that Transport Canada was not prepared to fund overhead charges relating to pre-wired packages such as were involved in the work in the amounts contemplated by the Canadian Transportation Agency Guide referred to in section 6 of the Agreement (the “Guide”).

[5] The Arbitrator found as a matter of fact that: (1) the Respondent was aware that Transport Canada would fund “up to 80%” of the cost of the work contemplated by the Agreement but the amount funded could be less; (2) the Appellant never advised the Respondent that it knew that the overhead charge on a part of such work involving pre-wired packages would not be accepted by Transport Canada in its consideration of the grant request; (3) the Respondent did not know that Transport Canada was not prepared to fund such overhead charge in respect of the work; (4) the Appellant submitted an application to Transport Canada for the work in an amount that included the overhead charge at issue but, after receiving funding approval, invoiced Transport Canada an amount that excluded the overhead charge at issue; and (5) the Appellant invoiced the Respondent for the actual cost of the work including the overhead charge. There was evidence upon which the Arbitrator could reasonably make each of these findings, which in any event, are findings of fact that cannot be the subject of an appeal.

[6] The Arbitrator held that the Respondent was not liable to pay the amount at issue on two alternative grounds, in contract and tort respectively: (1) a material contractual misrepresentation that reasonably led the Respondent into making the Agreement entitling the Respondent to rescission of the portion of the Agreement requiring it to pay more than it has already paid; and (2) a negligent misrepresentation coupled with a finding of an absence of contributory negligence.

Applicable Law

[7] The appeal proceeds under s. 45(1) of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”), which provides as follows:

If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,

(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and

(b) determination of the question of law at issue will significantly affect the rights of the parties.

The Appellant’s Grounds of Appeal

[8] For each of the Arbitrator's findings of liability in contract and tort, the Appellant says that the Arbitrator erred in law in finding that the Appellant could owe a duty to the Respondent to disclose certain information in the context of an arm’s length commercial contract negotiation prior to execution of the Agreement. In short, the Appellant says that the Arbitrator erred in finding that there was a misrepresentation by silence.

Analysis and Conclusions

[9] In this Endorsement, I will address only the first basis on which the Arbitrator reached his decision and the corresponding ground of appeal – that the Arbitrator erred in finding that the Appellant made a material contractual misrepresentation by entering into the Agreement while failing to advise the Respondent that Transport Canada was not prepared to fund the overhead charge on a part of such work with the result that it would not be possible to obtain an 80% grant in respect of the cost of the work.

[10] I propose first to address the Arbitrator’s finding of a material contractual misrepresentation in greater detail and then to set out my conclusions regarding the motion for leave to appeal.

The Arbitrator’s Finding of Liability Based on a Contractual Misrepresentation

[11] The Arbitrator concluded that the Agreement, in particular sections 1 and 6, evidenced a representation of the Appellant that there was a possibility of reimbursement of up to 80% of the cost of the work contemplated thereunder. The Arbitrator concluded that in reality, there was no possibility of receiving a reimbursement of up to 80% of such cost, given Transport Canada’s position on the overhead charge at issue.

[12] Given his findings on the knowledge of each of the parties regarding this representation, the Arbitrator could reasonably find: (1) that the Appellant’s silence on this issue when it entered into the Agreement constituted a misrepresentation; and (2) that the Respondent relied upon this misrepresentation in entering into the Agreement. Accordingly, the Arbitrator could reasonably find that the Appellant breached a contractual representation entitling the Respondent to rescission.

[13] The fact that the Arbitrator approached his decision on the basis of a contractual misrepresentation is clear from his reference to the excerpt from S. M. Waddams, the Law of Contract, 6th ed. at paras. 419-421. While the Arbitrator did not specifically refer to any particular passage in these paragraphs, the present circumstances engage the principle, described in paragraph 421, that a statement by a promisor of a present intention to carry out a particular promise is a statement of fact that, if false, can be treated as a misrepresentation. In the present case, the Arbitrator found that the Appellant did not, in fact, intend to carry out the promise in section 6 of the Agreement, giving rise to its misrepresentation.

[14] There can be no doubt that silence can, in appropriate circumstances, give rise to a contractual misrepresentation. The Arbitrator relied upon the principle that equity will have due regard to any misrepresentations of fact inducing a contract. Moreover, in this context, the absence of any due diligence by the Respondent is irrelevant as the Arbitrator held.

Conclusion Regarding the Motion for Leave to Appeal

[15] The Appellant’s motion for leave to appeal the Award is denied for two reasons: (1) the Appellant’s ground of appeal in respect of the Arbitrator’s determination of liability based on a material contractual misrepresentation involves an alleged error of mixed fact and law; and (2) the importance to the parties of the matters at stake in the arbitration does not justify an appeal. I will address each determination in turn.

The Appeal Involves an Alleged Error of Mixed Fact and Law

[16] In the Award, the Arbitrator concluded that the Appellant’s failure to advise the Respondent that there was no possibility of reimbursement of up to 80% of the cost of the work because Transport Canada would not fund overhead charges for pre-wired packages resulted in a contractual misrepresentation. This is a question of mixed fact and law, which is predominantly a question of fact. The Appellant’s appeal of this finding of liability does not engage a pure error of law and, as such, is not permitted by the provisions of s. 45 of the Act.

[17] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 54, Rothstein J., speaking for the Supreme Court, stated that courts should be cautious in identifying extricable questions of law in disputes over contractual interpretation. He went on to state at para. 55:

… the goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific. The close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the interpretation process will be rare. In the absence of a legal error of the type described above, no appeal lies under the AA from an arbitrator's interpretation of a contract.

[18] The Appellant takes issue with the Arbitrator’s finding that its actions in the context of the language of the Agreement gave rise to a contractual misrepresentation. Essentially, the Appellant says that the Arbitrator was wrong in proceeding on the basis that the language in sections 1 and 6 of the Agreement could give rise to a contractual misrepresentation. However, it has not provided any case law that raises any issue regarding the principle upon which the Arbitrator relied.

[19] To the contrary, in my opinion, the circumstances in this case are similar to the facts in Shoppers Drug Mart Inc. v. 6470360 Canada Inc., 2014 ONCA 85. In that decision, at para. 57, dealing with a transition agreement between the parties, Pepall J.A. held that the defendant's failure to disclose its misappropriation of $970,000 shortly before entering into the transition agreement rendered the parties' agreement that the plaintiff had overpaid $47,000 untrue i.e. rendered the statement a misrepresentation. Likewise, in this case, the withholding of the facts that Transport Canada would not fund the overhead charge, and that the Appellant would not prepare its invoice for Transport Canada using the rate stipulated in the Guide for the overhead charge at issue and therefore would not invoice for the full 80% of the cost of the work, rendered the statement in section 6 of the Agreement untrue.

[20] The Appellant may be correct that the Arbitrator’s finding of liability based on negligent misrepresentation in the context of pre-contractual negotiations raises a pure error of law. However, there is no reason why the Arbitrator’s finding of liability based on a contractual misrepresentation should give rise to a pure error of law merely because the pre-contractual negotiations formed part of the factual matrix upon which the Arbitrator based his finding of liability. To find an error of law in respect of the finding of liability based on a contractual misrepresentation, the Court would have to treat the mere assertion of the Appellant that its actions in entering into the Agreement in the present circumstances gave rise to a contractual misrepresentation as sufficient to establish an alleged error of law. Given the direction of the Supreme Court in Sattva Capital, which also pertained to the appeal of an arbitration award, I conclude that, in the present circumstances, the Court should not approach the Arbitrator’s conclusion as raising a question of law.

The Importance of the Issues involved to the Parties

[21] Insofar as it may be argued that the foregoing finding was predominantly a question of law, however, I am also not persuaded that the importance of the matters at stake in the arbitration justifies the granting of leave to appeal for three reasons.

[22] First, the amount at issue is $70,166.97 plus pre and post-judgment interest. This is hardly material to the Appellant.

[23] Second, the Appellant seeks to elevate the importance of the issue by stating that the issue of crossing protection and negotiation of crossing agreements with municipalities is very important to it, suggesting 30 – 40 similar agreements might be negotiated annually. Even so, the facts in this case are very specific. There is no suggestion that the Appellant has other similar cases at the present time. Moreover, the Appellant did not dispute the Respondent’s submission that a recent legislative amendment to the Railway Safety Act has removed the possibility of similar issues arising in the future.

[24] Third, the Appellant suggests that the issue raised is significant for all entities negotiating at arm’s length with adverse interests to advance in commercial transactions. I do not agree. There is no novel principle of law articulated in the Award. It is well established in the case law that silence by a contracting party can give rise to a misrepresentation upon the entering into of a contract which will entitle the party relying on the misrepresentation to rescission of the contract. As mentioned, the Court of Appeal applied the principle recently in Shoppers Drug Mart Inc.

[25] The Appellant has provided a number of cases which he says support his position that there is no duty to disclose in the context of pre-contractual negotiations, apart from specific limited exceptions that are not applicable in the present context. While this may be an accurate statement of the law in a non-contractual, tortious context, the cases upon which the Appellant relies do not address the contractual context upon which the Arbitrator found liability. Accordingly, for the reasons set out below, I do not consider that the authorities relied upon by the Appellant demonstrate that the Arbitrator applied a novel principle of law that is of significance to the parties as well as more generally.

[26] In Martel Building Ltd. v. R., 2000 SCC 60 at para. 64, Iacobucci J. and Major J., speaking for the Supreme Court, in effect expressed the view that a duty of care did not arise in pre-contractual commercial negotiations. In that case, the plaintiff had asserted that, in the context of a tender process, the defendant was negligent in failing to provide it with adequate information concerning the defendant’s bargaining position or its readiness to conclude a renewal of a release with the plaintiff. Martel therefore addresses a tortious duty of care. That was not the basis of the Arbitrator’s finding of liability which is addressed in this Endorsement, which to repeat, was a contractual misrepresentation by the Appellant.

[27] Similarly, the Appellant relies on the dicta of Perell J. in Arora v. Whirlpool Canada LP, 2012 ONSC 4642 at paras. 195 and 196. However, it is clear from paras. 195 and 197 that Perell J. is addressing silence or a failure to disclose material facts in the context of a claim for breach of a tortious duty of care, a statutory duty to disclose or a fiduciary duty to speak or disclose, rather than a contractual misrepresentation arising upon entering into a contract.

[28] The Appellant also relies on dicta of Dickson J. in Scotsburn Co-operative Services Ltd. v. W.T. Goodwin Ltd., 1985 57 (SCC), [1985] 1 S.C.R. 54 at para. 30. to the effect that silence or inaction will only constitute a misrepresentation where the representor owes a legal duty to the representee to make the disclosure in question. However, the circumstances in Scotsburn were very different. The issue in Scotsburn was whether a contract had been formed between the plaintiff and the defendant real estate company. The plaintiff alleged that the defendant was estopped from denying the existence of a contract based on an unspecified representation by the defendant that was rendered incorrect by its silence. There is no issue of the application of the doctrine of estoppel in the present circumstances. Instead, the present proceeding involves a misrepresentation of a contractual nature that is based on specific language in an existing contract.

[29] The Appellant also relies on the statements of Donohue J. in Tribar Holdings Ltd. (in Trust) v. Lambton (County), (2007) R.P.R. (4th) 264 at paras. 28-30. However, this decision does not involve any allegation of an untrue contractual representation. In such circumstances, it is correct to say, as the trial judge noted at para. 31 after referring to Scotsburn in para. 30, that “silence is not misrepresentation in the absence of a duty to disclose”. In the present case, however, the existence of the contractual representation gave rise to a need to disclose facts known to the Appellant that rendered the representation incorrect.

[30] Lastly, in respect of the alleged significance of the principle applied by the Arbitrator, negotiating parties can avoid liability for misrepresentations in a contractual context, including misrepresentations based on silence, by giving proper attention to the wording, and legal effect, of representations and covenants made in the agreement reached between them. In addition, the Appellant’s representatives would have had no difficulty in this case in identifying the basis on which the Respondent was entering into the Agreement and they were well aware of the extent to which the Respondent was looking to the Agreement as contractual comfort regarding the availability of a reimbursement of its costs in order to avoid an action for recission.

Conclusion

[31] Based on the foregoing, I conclude that the Appellant has not established the grounds for leave to appeal the Arbitrator’s finding of liability based on the existence of a contractual misrepresentation. There is, therefore, no need to address the Appellant’s second ground of appeal pertaining to the Arbitrator’s finding of liability based on negligent misrepresentation. Even if leave to appeal would otherwise be granted in respect of such finding of liability, the Award would stand, given the absence of any basis for appealing the Arbitrator's finding of liability based on a contractual misrepresentation. I therefore decline to address the Appellant’s second ground of appeal. The Respondent is entitled to an order that the Appellant’s motion for leave to appeal the Award is denied.

Costs

[32] The Respondent was successful and is therefore entitled to its costs. However, I do not see any basis in the history of this proceeding for an award of costs on a substantial indemnity basis. The Respondent seeks costs in the amount of approximately $22,750 on a partial indemnity basis. While high in proportion to the amount at issue in the Award, I think the amount is justified. These costs are within the Appellant’s reasonable expectations, given that its own costs outline provided for a higher figure on the same scale of costs. The Respondent’s costs reflect the relative complexity of the legal issues raised by the Appellant’s leave motion to which the Respondent necessarily had to respond. They also reflect the more extensive procedural history of this appeal than would normally be expected. Accordingly, costs in the amount of $22,500 are awarded in favour of the Respondent payable forthwith.

Wilton-Siegel J.

Date: March 4, 2015