Hogarth v. Rocky Mountain Slate Inc., 2011 ABQB 537

Court of Queen ’ s Bench of Alberta Citation: Hogarth v.

Rocky Mountain Slate Inc., 2011 ABQB 537 Date: 20110906 Docket: 0301 08678 Registry: Calgary Between: Lance Hogarth, James Snyder Construction Ltd., James Snyder, Don Jeffers, Anthony Marquart, Dwight Miller, Sani Tech Mechanical Ltd., S & P Cattle Company Ltd., Gary Schaller, Charles Sinclair, Theresa Sinclair, Juana Tamura, Josh Holdings Inc., Freedom Enterprises Inc., 972678 Alberta Ltd., Western International Plastics (Alta.) Ltd., All Services Plumbing and Heating Ltd., Rick Adams, Millie Atkinson, Bitaco Holdings Ltd., Doug Bateman Holdings Ltd., Karl Durst, Stephanie Durst, Giusti Group Ltd., Hallmark Resources Ltd., Harvey Prang Holdings Ltd. and Barry Gould Plaintiffs - and - Rocky Mountain Slate Inc., Roger Simonson, John Powell, Eli Suhan, Charles Edward Kucera and Kucera Engineers Inc.

Defendants And Between: Rocky Mountain Slate Inc. Plaintiff by Counterclaim - and - John Pfeifer, Don Dunsmore, Millie Atkinson and Harvey Prang Defendants by Counterclaim

_______________________________________________________ Reasons for Judgment of the Honourable Madam Justice E.A. Hughes _______________________________________________________ I. Introduction [ 1 ] The Plaintiffs are all investors in Rocky Mountain Slate Inc., a company that operated a slate quarry.

They seek the return of their investment monies, alleging Rocky Mountain Slate Inc. and its principals - Roger Simonson, John Powell and Eli Suhan - made negligent misrepresentations in the written materials prepared by them for the purpose of inducing the Plaintiffs to invest in the slate quarry, and at meetings held by the principals of Rocky Mountain Slate Inc. for the same purpose.

The Plaintiffs further contend they relied on these negligent misrepresentations in making their investments in Rocky Mountain Slate Inc., which subsequently failed, causing them to lose their investment monies. [ 2 ] The Plaintiffs also allege Mr.

Powell, a Chartered Accountant, was professionally negligent in the preparation of the future- oriented financial information, one of the documents provided to the Plaintiff investors for the purpose of inducing them to invest. [ 3 ] Rocky Mountain Slate Inc. counterclaims against four of its investor directors, John Pfeifer, Don Dunsmore, Millie Atkinson and Harvey Prang, alleging various breaches of their duties as directors. [ 4 ] I find the Defendants Rocky Mountain Slate Inc., Roger Simonson, John Powell and Eli Suhan did make negligent misrepresentations which induced all of the Plaintiffs, except Dwight Miller who did not testify, to make their investment.

I also find Mr. Powell was professionally negligent in the preparation of the future oriented financial information. I dismiss the Plaintiffs’ claims against Charles Kucera and Kucera Engineers Inc. I also dismiss Rocky Mountain Slate Inc.’s counterclaim against John Pfeifer, Don Dunsmore, Millie Atkinson and Harvey Prang. II. Facts [ 5 ] The majority of the facts in this case are not in dispute. There were discrepancies amongst all the witnesses regarding such matters as dates or who was present at certain meetings.

I do not find this surprising in light of the number of years that have passed since these events occurred, and understanding memories fade with time. None of these various discrepancies are material. If a fact is in issue, or if there is a material discrepancy, I set out my finding of fact. Below are the facts I have found from the evidence of the witnesses and the exhibits, including the Agreed Statement of Facts. [ 6 ] In 1988, Phillip Pierre discovered a slate deposit on Mount Mollison, a mountain east of Golden, B.C., close to Yoho National Park.

The deposit itself is on Crown land and the elevation of the deposit is over 6000 feet above sea level. The site was staked by Mr. Pierre and testing subsequently confirmed the composition of the rock as slate. [ 7 ] In the early 1990s, Mr. Pierre approached Eli Suhan to look at the site and determine whether a road could be constructed up to the claim area. Mr. Suhan examined the site and advised a road could be constructed and, at Mr. Pierre’s request, began to upgrade a winter logging road in the area into a road that would meet provincial mining standards to the slate deposit.

[ 8 ] In 1992, Quarries G/P Inc. was incorporated. A number of years later it was renamed Rocky Mountain Slate Inc. For simplicity’s sake, I will refer to Quarries G/P as Rocky Mountain Slate Inc. or RMS Inc. [ 9 ] In 1994, Mr. Suhan became a shareholder in RMS Inc. with Mr. Pierre. That same year, the company was granted a quarry licence. Around the same time, Mr. Pierre and Mr.

Suhan obtained the assistance of an accountant, Paul Ricard, who later became a shareholder in the company. [ 10 ] In 1997, RMS Inc. hired Charles Kucera, a professional engineer, and his consulting company Kucera Engineering Inc. (“KEI”) to work with the various B.C. ministries regarding the development of the quarry. Mr. Kucera and Mr. Suhan had known each other since the mid-1970s. [ 11 ] Mr. Kucera described himself as a civil geotechnical engineer who does resource extraction work which requires no chemical treatment. Mr.

Kucera was the directing mind of KEI at all material times. [ 12 ] In 1998, KEI mapped the area of the quarry and prepared a development/mining plan for the company and preliminary development costs for the quarry operation itself. [ 13 ] In 1999, Mr. Ricard, with the assistance of Mr. Pierre and Mr. Suhan, prepared a business plan for the company. The purpose of the business plan was to raise investment monies so that the quarry could become a “successful and viable” slate operation that would produce slate products. [ 14 ] In addition, Mr. Ricard, with the assistance of Mr.

Kucera, prepared a Projected Statement of Income for the first five years of operation. This document assumed the quarry would operate under the B.C. “Bulk Sampling Regime.” The Bulk Sampling Regime allows a company to mine up to 10,000 tonnes (

T) of saleable rock in its first year of operation, and permits a 10% increase in the tonnage mined each subsequent year for a total of five years. The Projected Statement of Income did assume 10,000 T of slate would be produced in the first year of operation and the quarry would increase its production by 10% in each year of the following years. [ 15 ] I accept Mr. Kucera’s evidence and find as a fact that the quantity of slate referred to in this document was not a production forecast estimate.

Rather, the quantities referenced were the bulk sampling limits and were utilized to determine whether the quarry could be financially viable within the regulatory limits of the Bulk Sampling Regime. [ 16 ] Slate was harvested on a very small scale from the quarry prior to RMS Inc. seeking investors. Mr. Suhan, using his excavator when his other work was slow, harvested the slate. Once harvested, Mr. Suhan took it from the quarry to his yard where he split the slate into tiles by hand. This slate was used by Mr. Suhan and his family and some local Golden builders. Mr.

Suhan described the operation as a “grandma and grandpa thing.” [ 17 ] In the summer of 1999, Roger Simonson and Mr. Suhan were fishing together as the Suhans and the Simonsons had been family friends for many years. Mr. Simonson knew of Mr. Suhan’s intention to develop the quarry and asked him how it was progressing. Mr. Suhan advised Mr. Ricard had not been able to find investors; Mr. Simonson told Mr. Suhan he might be able to assist. As a result, Mr. Suhan gave Mr. Simonson a copy of the business plan prepared by Mr. Ricard. Mr. Simonson reviewed it and began to research the slate market. At some point Mr.

Simonson suggested it was necessary for RMS Inc. to have its slate in a number of locations to prove its market value, quality and sustainability. In addition, he suggested the business plan prepared by Mr. Ricard could be improved and offered to help draft a new plan. [ 18 ] Mr. Kucera sent a letter dated March 15, 2000 to Mr. Suhan regarding the “Mount Mollison slate property, preliminary quality and quantity assessment”. Mr. Kucera wrote: Further to your recent request for a preliminary evaluation of the above captioned property, please be advised as follows:

The subject property is defined by a “License of Occupation” issued by the British Columbia Ministry of Environment, Lands and Parks (MOELP). Such licenses of occupation are issued only after both the MOELP and Ministry of Mines have evaluated the application and have satisfied themselves that the industrial mineral deposit is of sufficient quality and quantity to support viable economic activity.

The issuance of a License of Occupation is in no way a warranty by the Province of BC of economic viability of the operation, only that there are sufficient volumes of the target industrial mineral (in this case, slate) to justify further development. As identified by various sources of Geological Survey of Canada mapping, the Mt. Mollison deposit is part of a massive sedimentary formation including numerous occurrances [sic] of commercial quality slate. The subject site has been intensively evaluated and access developed over approximately fifteen percent of the Licence of Occupation defined area.

Surrounding the entire License of Occupation are numerous occurrances [sic] of commercial quality slate. Extensive sampling and surficial stripping has defined a commercially viable portion of the deposit. Based upon production in the range of twenty thousand (20,000) tonnes per year, commercial reserves for a minimum of twenty years have been validated. Slate, being an industrial mineral, can exhibit a range of qualities, colours, within the deposit.

Based upon surficial examination, sampling and access development, there is sufficient volumetric surplus to insure a supply of commercial quality material in quantities described previously, above and beyond localized areas of less than commercial quality material. We trust this is the information you require. If we can be of further assistance, please contact the undersigned directly. [ 19 ] I accept Mr. Kucera’s evidence that this letter related only to the quality and quantity of slate at the quarry. I also accept Mr.

Kucera’s evidence he had no knowledge this letter would be forwarded to any investors. [ 20 ] In 2000, Mr. Simonson introduced his accountant, John Powell, to Mr. Suhan. Mr. Simonson and Mr. Suhan told Mr. Powell about the quarry and their plan to take the company from a “mom and pop operation” or “grandma and grandpa thing” that produced a limited quantity of slate using an excavator, to production at a commercially viable level using specialized equipment to harvest the slate. Mr. Powell, because of his accounting background, was asked if he wished to become a principal in RMS Inc. and he agreed.

That same year, each of Mr. Simonson and Mr. Powell invested $10,000 in RMS Inc. and became shareholders. [ 21 ] At all material times Mr. Powell was a chartered accountant and had his own accounting firm. [ 22 ] One of the reasons both Mr. Simonson and Mr. Powell were invited to join RMS Inc. is they knew possible investors in Calgary. After Mr. Powell became a principal of RMS Inc., he approached Keith McDonald, a colleague, to see if he and/or his investment group might be interested in investing in the quarry. Mr. McDonald advised he would need to first review a business plan. [ 23 ] At some point after Mr.

Simonson and Mr. Powell became shareholders in RMS Inc. but no later than the beginning of 2001, Mr. Suhan became the Chief Production Officer, Mr. Simonson became the Chief Operating Officer and Mr. Powell became the Chief Financial Officer. [ 24 ] Also in 2000, RMS Inc. obtained a contract to supply slate flooring to the Kicking Horse Ski Resort. RMS Inc. quarried 120 tonnes of slate that year by excavating. [ 25 ] After Mr. Powell joined RMS Inc., Mr. Suhan, Mr. Powell and Mr. Simonson met to develop the new business plan and required financial information in order to raise capital for the company.

From time to time, Mr. Ricard and Mr. Pierre joined the meetings. [ 26 ] By late 2000 it appears Mr. Ricard and Mr. Pierre did not participate in any further discussions regarding the development of

the new business plan for RMS Inc. and its required financial information. In addition, Mr. Ricard sold his shares in the company; Mr. Pierre remains a shareholder in RMS Inc. [ 27 ] Also in 2000, Mr. Kucera, at the request of Mr. Suhan, met with Mr. Suhan and Mr. Powell, regarding development costs. [ 28 ] By 2001, Mr. Suhan, Mr. Simonson and Mr. Powell had developed a plan to raise monies for the expansion and operation of the quarry. This plan involved issuing units in a yet-to-be-formed limited partnership, Rocky Mountain Slate Limited Partnership (“Rocky-LP”). In order to raise the necessary monies, Mr.

Powell prepared in January 2001 the first set of financial forecasts using Mr. Ricard’s projected statement of income, Mr. Kucera’s preliminary development costs, as well as discussions amongst Mr. Suhan, Mr. Simonson and Mr. Powell themselves and discussions amongst the three principals and Mr. Kucera. Mr. Simonson, with the assistance of Mr. Powell and Mr. Suhan, began to prepare two documents -- the Rocky Mountain Slate Inc. Investment Opportunity (the “Investment Opportunity”) and the Rocky Mountain Slate Inc. Business Plan (the “Business Plan”). [ 29 ] On February 19, 2001, Mr.

Kucera sent a letter to RMS Inc. providing the rationale for his preliminary development cost estimates for the expansion of the quarry. He advised: Attached is a descriptive narrative of the approach to the Preliminary Development Cost

Summary originally prepared by KEI in June of 1998, and updated on several occasions since that time. Although some items have changed in quantity since the original estimate, the logistical approach to the development has remained unchanged. This cost estimate contains preliminary figures which are based on the most recent quotations available to date. The value of the estimate is therefore subject to review, and KEI reserves the right to revise the overall estimate as updated prices become available. Final engineering designs and construction drawings have not been completed.

The extent of these designs and drawings will depend upon the level of funding available for the project. [ 30 ] The letter included three cost estimates for the quarry expansion that ranged between $3.2 million and $4.4 million. [ 31 ] I find Mr. Kucera knew RMS Inc. would utilize the cost summaries to assist in determining how much investment capital would be required by the company. [ 32 ] I find that after RMS Inc. received the 2001 updated preliminary development costs, Mr. Suhan, Mr. Powell and Mr. Simonson met on two or three occasions with Mr. Kucera to review his plan.

I find the primary purpose of these meetings was to review costs for the development of the quarry, and not to determine what quantity of slate production was feasible for the quarry. Any discussion amongst these four individuals respecting the production of slate was only in the context of the regulated limits permitted under the Bulk Sampling Regime. [ 33 ] It is clear from the evidence of Mr. Kucera, Mr. Powell and Mr. Simonson that disagreements arose between Mr. Kucera and the other three during these meetings.

For example, a disagreement arose over what equipment was necessary for the quarry in the first year of operation as opposed to what equipment could be purchased in subsequent years. [ 34 ] The disagreement that caused the breakdown in the relationship between Mr. Kucera and the three principals was whether RMS Inc. could take out more than 10,000 T of slate in the first year of the quarry’s operation as prescribed by the Bulk Sampling Regime. This disagreement took place at each of their meetings and culminated at a meeting in approximately April 2001. I accept Mr.

Powell’s description of the meeting as “a heated argument” and that “Mr. Kucera was adamant RMS Inc.’s slate production could not exceed the bulk sampling limit and Mr. Suhan was adamant they could.” Mr. Kucera left the meeting before it concluded. I find Mr. Kucera was very upset and angry because the other three would not heed his opinion on this point. As far as Mr. Kucera was concerned, any professional relationship he had with the principals of RMS Inc. was over. I also find Mr. Suhan, Mr. Powell and Mr. Simonson knew this disagreement was the reason Mr.

Kucera left during the meeting and knew the professional relationship between them and him was at an end unless something changed in the future.

[ 35 ] After this April meeting, Mr. Kucera was neither consulted nor involved with the development of RMS Inc.’s Business Plan, Investment Opportunity or the financial forecast. [ 36 ] Mr. Suhan, Mr. Simonson and Mr. Powell continued with their work preparing three documents for potential investors in RMS Inc.: the Business Plan, the Investment Opportunity and the Future-Oriented Financial Information (“FOFI”). The Investment Opportunity included Mr. Kucera’s letter to Mr. Suhan dated March 15, 2000 respecting his preliminary quality and quantity assessment of the quarry. [ 37 ] A FOFI is defined in

section 4250 of the Handbook of the Canadian Institute of Chartered Accountants (the “CICA Handbook”) as “information about prospective results of operations, financial position and/or cash flows, based on assumptions about future economic conditions and courses of action. Future-oriented financial information is presented as either a forecast or a projection.” [ 38 ] In the summer of 2001, John Pfeifer, the principal of All Services Plumbing and Heating Ltd. and Josh Holdings Inc., two of the Plaintiffs, met Mr. Simonson at Barry Gould’s place of business. Mr.

Gould is the owner of Western International Plastics (Alta.) Ltd., another of the Plaintiffs. Mr. Simonson told Mr. Pfeifer about the investment and gave him a package of the promotional materials to review. [ 39 ] In early September 2001, a group of potential investors led by Keith McDonald, along with other possible investors that included Mr. Pfeifer, were invited to an investment meeting at Mr. Powell’s office. Mr. Suhan, Mr. Powell and Mr. Simonson were all at this meeting. I find that Mr. Simonson and Mr. Powell each spoke respecting the investment and answered questions.

Topics covered included the quantity of slate to be produced and the rate of return on the investment. In addition, the Business Plan, Investment Opportunity and FOFI were distributed to interested participants. After the meeting, a group that included Mr. McDonald and Mr. Pfeifer was taken on a tour of the quarry by Mr. Simonson and Mr. Suhan. [ 40 ] After the tour, Mr. Pfeifer told Mr. Simonson he was not interested in the investment because he did not like how it was structured with respect to Mr. McDonald’s participation. I accept Mr. Simonson’s evidence that Mr.

Pfeifer told him it was not necessary for RMS Inc. to participate with the McDonald group and that he would be able to find other investors for the project. [ 41 ] Mr. Pfeifer’s suggestion was accepted by RMS Inc. and a second investment meeting was held at Mr. Powell’s office. Again, I find that Mr. Suhan, Mr. Simonson and Mr. Powell were present at this meeting. I find that Mr. Simonson and Mr. Powell each spoke respecting the investment and answered questions. Topics covered again included the quantity of slate to be produced and the rate of return on the investment.

I also find, based on the evidence of Rick Adams whose evidence I accept, that Mr. Kucera was spoken of at the meeting. In addition, I find that the Business Plan and the Investment Opportunity, both dated June 2001, and the FOFI, dated September 2001, or portions of it, were distributed to interested participants at the meeting. The Plaintiffs or their principals at this meeting were John Pfeifer, Lance Hogarth, Don Dunsmore, Rick Adams, Harvey Prang, Karl Durst and Doug Bateman. [ 42 ] Following this second meeting, Mr. Simonson was invited by Mr.

Pfeifer to speak at the Springbank Curling Club, where he was introduced to other potential investors. Mr. Simonson visited the Springbank Curling Club to promote the investment in RMS Inc. between five and eight times. Once again, I find that Mr. Simonson distributed the Business Plan, Investment Opportunity and the FOFI, or portions of it, to those who were interested and requested the materials. Plaintiffs or their principals who met Mr.

Simonson at the Springbank Curling Club were Bill Tajcnar and Jacob Halldorson. [ 43 ] Juana Tamara, a Plaintiff, did not attend any meeting but reviewed the Business Plan, Investment Opportunity and the FOFI. [ 44 ] Dwight Miller, another Plaintiff, did not testify; therefore, there is no evidence before me as to his attendance at any meetings or receipt of any documents. [ 45 ] The balance of the Plaintiffs and/or their principals – James Snyder, Don Jeffers, Anthony Marquart, Allan Mattais, Gary Schaller, Charles Sinclair, Edward Bradish, and Barry Gould – all met with Mr.

Simonson respecting the investment on other occasions

at which Mr. Simonson explained the investment and referenced information from the Business Plan, the Investment Opportunity and the FOFI. All of these individuals, except Mr. Gould, received the Business Plan, Investment Opportunity and the FOFI or portions of it. [ 46 ] As stated above, I have found the FOFI and/or portions of it were given to each Plaintiff except for Mr. Gould (and Mr. Miller, about whom I make no finding). I make this finding knowing that some of the Plaintiffs testified at trial they were uncertain whether they had received the FOFI or portions of it, some 9 years after the fact.

With the passage of time and fading memories, this uncertainty is not surprising. However, it makes no sense to me that it was not distributed at each meeting held because it, like the Business Plan and Investment Opportunity, was a key component of the promotional materials prepared to convince investors to invest, and the principals of RMS Inc. knew their plan to take the quarry to a commercially viable level would not succeed unless the monies were raised.

Further, it was the only document that contained the production estimate of some 30,000 T of slate in the first year and the rate of return on the investment - both key pieces of information for any potential investor. [ 47 ] I also find as a fact that the majority of the Plaintiffs were very experienced and successful business people. It makes no sense to me, based on each one’s evidence, that any of them would have invested without reviewing at least some of the FOFI. In addition, all Plaintiffs except Mr. Gould and Mr.

Miller testified to at least one piece of information found only in the FOFI. [ 48 ] Between October 2001 and March 1, 2002, the Plaintiffs individually decided to invest in the quarry and purchased a total of 300 class “A” units in Rocky-LP at $5,000 per unit. Payment for the class “A” units was made by instalments that required final payment to be received by March 2002.

The Plaintiffs in this action invested $1,475,000 as follows: Plaintiff Amount Date of Original Investment 972678 Alberta Ltd. (Ed Bradish) $50,000 February 5, 2002 Adams, Rick $25,000 November 13, 2001 All Services Plumbing & Heating Ltd. (John Pfeifer) and Josh Holdings Ltd. (John Pfeifer) $60,000 $140,000 November 13, 2001 February 6, 2002 Atkinson, Millie $25,000 January 2, 2002 Bitaco Holdings Ltd. (Bill Tajcnar) $80,000 November 13, 2001 Doug Bateman Holdings Ltd. (Doug Bateman) $25,000 November 7, 2001 Durst, Karl & Stephanie $25,000 October 31, 2001 Hallmark Resources Ltd. (Jacob Halldorson) $50,000 November 12, 2001 Harvey Prang Holdings Ltd. (Harvey Prang) $80,000 November 8, 2001 Hogarth, Lance $75,000 January 8, 2002

James Snyder Construction Ltd. & James Snyder $125,000 February 5, 2002 Jeffers, Don $100,000 January 8, 2002 Freedom Enterprises Ltd. (Anthony Marquart) $25,000 February 6, 2002 Miller, Dwight $80,000 November 20, 2001 S & P Cattle Company Ltd. (Don Dunsmore) $100,000 November 13, 2001 Sani Tech Mechanical Ltd. (Alan Maltais) $50,000 February 6, 2002 Schaller, Garry $25,000 December 19, 2001 Sinclair, Charles & Theresa $110,000 December 21, 2001 Tamura, Juana $25,000 December 21, 2001 Western International Plastics Alta. Ltd. & Barry C. Gould $200,000 October 30, 2001 [ 49 ] At the time the Plaintiffs invested their monies, it was agreed that:

a) the Plaintiffs, as investors (the “Investor Unit Holder Group”), would provide $1.5 million in funding through Rocky-LP (yet to be created) that would allow direct participation in the net profits of the quarry operations;

b) the Plaintiffs, as investors, would receive a total of 300 Class “A” voting units in the yet-to-be-formed Rocky-LP at a price of $5,000 per unit;

c) provided that the Plaintiffs invested $1.5 million in the yet-to-be-formed Rocky-LP, the Defendant, RMS Inc., would roll the quarry license of operation granted by the Minister of Energy, Mines and Petroleum Resources of British Columbia, along with all related assets, into Rocky-LP in exchange for 300 Class “B” voting units in Rocky-LP, and would become the “RMS Inc. Unit Holder Group”; and

d) Rocky-LP would be formed (the limited partners being the Investor Unit Holder Group and the RMS Inc. Unit Holder Group) with a General Partner incorporated to provide production, supervision, marketing, administration and overhead services to Rocky-LP. [ 50 ] Rocky-LP and the General Partner were formed in late 2001. In February 2002, under the terms of the Unanimous Shareholders Agreement, six directors of the General Partner were elected. Three of these directors, Mr. Simonson, Mr. Suhan and Mr. Powell, were from the RMS Inc.

Unit Holder Group and three, John Pfeifer, Millie Atkinson and Don Dunsmore, were from the Investor Unit Holder Group. It was agreed that the RMS Inc. directors were to be responsible for all operations at the quarry and the investor directors were to be responsible for governance. Subsequent directors’ meetings were chaired by Mr. Simonson. The officers of Rocky- LP were: Mr. Simonson - President; Mr Suhan - Vice-President; and Mr. Powell - Treasurer.

[ 51 ] In September 2002, the Plaintiffs were advised that Rocky-LP needed further funding of $500,000. The Board of Directors proposed that 500 Class “D” units would be offered at $1,000 per unit for fundraising purposes. Class “D” units would have a higher rate of return and were to be paid out first. It was further proposed that the Class “A” and Class “B” unit holders would each be responsible as a group for a further investment of $250,000 or purchase of 250 of the Class “D” units. [ 52 ] Various Plaintiffs purchased a total of 309 Class “D” units at $1,000 per unit, resulting in another $309,000 investment.

Those Plaintiffs and the amount each invested is set out below: Plaintiff Amount 972678 Alberta Ltd. (Ed Bradish) $8,000 Adams, Rick $4,000 Josh Holdings Ltd. (John Pfeifer) $35,000 Bitaco Holdings Ltd. (Bill Tajcnar) $20,000 Doug Bateman Holdings Ltd. (Doug Bateman) $10,000 Durst, Karl & Stephanie $4,000 Hallmark Resources Ltd. (Jacob Halldorson) $10,000 Harvey Prang Holdings Ltd. (Harvey Prang) $15,000 Hogarth, Lance $14,000 James Snyder $25,000 Jeffers, Don $20,000 Anthony Marquart $5,000 Miller, Dwight $15,000 S & P Cattle Company Ltd. (Don Dunsmore) $5,000 Schaller, Garry $5,000

Sinclair, Charles & Theresa $14,000 Western International Plastics Alta. Ltd. & Barry C. Gould $100,000 [53] These funds were deposited to the account of Rocky-LP about the end of September 2002. Those Plaintiffs who purchasedClass “D” Units were granted an additional director on the Board of Directors of the General Partner to reflect their further investment. [54] Mr. Suhan, Mr. Simonson and Mr. Powell purchased no Class “D” units in Rocky-LP. [55] Approximately 302 tons of marketable slate was produced in 2002. The total sales of slate produced from the quarry for theyear ending December 31, 2002 were $60,456.

The quarry has not operated since the fall of 2002. III. Analysis A. Does the corporate veil shield the directors from liability, or when may directors and officers be personally liable innegligence? [56] One of the most fundamental principles of corporate law is that a corporation is a separate legal entity. See Salomon v.Salomon & Co., [1897] A.C. 22 (H.L.). It is separate and distinct from its owners – the shareholders – and from the individuals whomanage and operate the company – the directors, officers and employees.

As observed in Montreal Trust Co. of Canada v.ScotiaMcLeod Inc. (1995), (ON CA), 87 O.A.C. 129 (“ScotiaMcLeod”) at para. 26: A corporation may be liable ... for representations ... [its] officers or directors have made in its name, but this is because a corporationcan only operate through human agency, that is, through its so-called “directing mind”. Considering that a corporation is an inanimatepiece of legal machinery incapable of thought or action, the court can only determine its legal liability by assessing the conduct of thosewho caused the company to act in the way that it did.

This does not mean, however, that if the actions of the directing minds are found wanting, that personal liability will flow through thecorporation to those who caused it to act as it did. To hold the directors of Peoples’ personally liable, there must be some activity ontheir part that takes them out of the role of directing minds of the corporation. In this case, there are no such allegations. [Emphasisadded.] [57] However, directors and officers may be held personally liable for torts they commit in the course of their duties, assuming thefacts giving rise to personal liability are pled.

See ScotiaMcLeod at para. 25; Blacklaws v. 470433 Alberta Ltd., 2000 ABCA 175, 84Alta. L.R. (3d) 270 (C.A.) at para. 41. [58] In their text Director and Officer Liability in Corporate Insolvency, 2d ed. (Markham, Ont.: LexisNexis 2010), Janis P. Sarraand Ronald B.

Davis write at pp. 32-3: Since 1999, another line of Canadian cases has held that directors and officers of the corporation are responsible for their tortiousconduct even though the conduct was directed in a bona fide manner in the best interests of the corporation, subject always to the Said v.Butt exception and assuming the conduct is properly pleaded. In ADGA, the Ontario Court of Appeal held that directors and officers willbe personally liable for their tortious acts even if the acts were in pursuance of a corporate purpose and genuinely undertaken in the bestinterests of the corporation.

ADGA was closely followed by five other judgments in which the Ontario Court of Appeal affirmed this reasoning; that directors andofficers can be liable for tortious conduct even when acting within the course of their duties, with the same caveat that the tortiousallegations must be specifically pleaded. There will be personal liability for tortious conduct causing physical injury, property damage ornuisance even when the actions of directors and officers are pursuant to their duties to the corporation.

The Court held that although itwill be rare that directors are held personally liable when acting in the best interests of the corporation, they are not immune frompersonal liability for economic torts such as negligent misrepresentation. Yet other courts appear not to have fully embraced thereasoning in the ADGA line of cases, or have given it a narrower reading.

This apparent conflict will not be fully resolved in theforeseeable future as the Supreme Court of Canada refused leave to appeal in these cases. [Footnotes omitted.] [59] The Alberta Court of Appeal has not elaborated on their position set out in Blacklaws in 2000. Having reviewed the analysisof the Ontario Court of Appeal in the cases subsequent to ScotiaMcLeod, including ADGA Systems International Ltd. v. Valcom Ltd.(1999), (ON CA), 43 O.R. (3d) 101 (C.A.), leave to appeal to S.C.C. dismissed [1999] S.C.C.A.

No. 124, I amfollowing that analysis and conclude that officers and directors of corporations are responsible for their tortious conduct in the course oftheir duties and as the corporation’s directing minds if that conduct is pled and the plaintiff establishes the elements of the tortiousconduct. B. The Tort of Negligent Misrepresentation [60] The elements of the tort of negligent misrepresentation were summarized by the Supreme Court of Canada in Queen v.Cognos Inc., (SCC), [1993] 1 S.C.R. 87 at para. 33. See also Sharbern Holding Inc. v. Vancouver Airport Centre, 2011SCC 23 at para. 121. These elements are: 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 the representation; 4. The representee must have relied, in a reasonable manner, on the negligent misrepresentation; and 5.

The reliance must have been detrimental to the representee in the sense that damages resulted. [61] To be successful against each defendant, each plaintiff must prove each of these five elements as against each of thosedefendants. [62] The pleadings allege that RMS Inc., Mr. Simonson, Mr. Powell and Mr. Suhan, and Mr. Kucera and KEI made negligentrepresentations on two separate occasions. The first negligent representations are found in the Business Plan, Investment Opportunityand FOFI of RMS Inc. and in the representations made by Mr. Simonson, Mr. Suhan and/or Mr.

Powell at meetings held to promoteinvestment in RMS Inc. [63] The second negligent misrepresentations were made in September 2002 when the directors called a meeting of the Investorand RMS Inc. Unit Holder Groups on September 19, 2002 to raise additional monies for the quarry. [64] I will analyze the elements of the tort of negligent misrepresentation against this factual context. In my examination of eachelement, I will analyze the issue respecting Mr. Kucera and KEI separately from that of RMS Inc. and Mr. Suhan, Mr. Powell and Mr.Simonson. I do so because Mr.

Kucera and KEI stand in a different position from the other individual defendants in that at no time wasMr. Kucera or KEI a shareholder, officer or director of RMS Inc.

1. Did the Defendants owe the Plaintiffs a Duty of Care? [65] The Canadian test to determine the existence of a duty of care is based upon Lord Wilberforce’s two stage test in Anns v.Metro London Borough Council, [1978] A.C. 728 (U.K. H.L.): 1. Is there a sufficiently close relationship between the parties (the [defendant] and the person who has suffered the damage) so that,in reasonable contemplation of the [defendant], carelessness on its part might cause damage to that person? If so, 2. Are the 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? [66] This test has been accepted in Canada in various cases, including Hercules Management Ltd. v. Ernst and Young, (SCC), [1997] 2 S.C.R. 165 at para. 20 (citing Nielsen v. Kamloops (City), (SCC), [1984] 2 S.C.R. 2 at 10-11) andCooper v. Hobart, 2001 SCC 79 , [2001] 3 S.C.R. 537. [67] Thus, “[a] prima facie duty of care will arise on the part of a defendant in a negligent misrepresentation action when it can besaid (

a) that the defendant ought reasonably to have foreseen that the plaintiff would rely on his representation and (

b) that reliance bythe plaintiff, in the circumstances, would be reasonable”: Hercules at para 41. The Supreme Court of Canada subsequently held inCooper at para. 30 that I must also consider whether there are “...reasons, notwithstanding the proximity between the parties established... that tort liability should not be recognized here”. a.

Nature of Relationship [68] The first step of the test requires that I examine the nature of the relationship between the Plaintiffs, all of whom invested inRMS Inc., and the Defendants - RMS Inc. itself and the individual Defendants who were all directors and principals of RMS Inc. - Mr.Simonson, Mr. Powell and Mr. Suhan - as well as Mr.

Kucera and Kucera Engineers Inc. - both of whom were held out to be part of themanagement team of RMS Inc. [69] In Hercules, the Court described the relationship of proximity test this way at para. 22: The first branch of the Anns/Kamloops test demands an inquiry into whether there is a sufficiently close relationship between theplaintiff and the defendant that in the reasonable contemplation of the latter, carelessness on its part may cause damage to the former.The existence of such a relationship - which has come to be known as a relationship of "neighbourhood" or "proximity" - distinguishesthose circumstances in which the defendant owes a prima facie duty of care to the plaintiff from those where no such duty exists.

In thecontext of a negligent misrepresentation action, then, deciding whether or not a prima facie duty of care exists necessitates aninvestigation into whether the defendant-representor and the plaintiff-representee can be said to be in a relationship of proximity orneighbourhood. [70] LaForest J., writing for the Court, saw it was necessary to “infuse” the term proximity with some meaning so as to make it auseful tool.

He stated at para. 23: “In other words, it is necessary to set out the basis upon which one may properly reach the conclusionthat proximity inheres between a representor and a representee.” [71] The Court then provided the following guidance at para. 24:

This can be done most clearly as follows. The label "proximity", as it was used by Lord Wilberforce in Anns, supra, was clearly intendedto connote that the circumstances of the relationship inhering between the plaintiff and the defendant are of such a nature that thedefendant may be said to be under an obligation to be mindful of the plaintiff's legitimate interests in conducting his or her affairs.Indeed, this idea lies at the very heart of the concept of a "duty of care", as articulated most memorably by Lord Atkin in Donoghue v.Stevenson, (FOREP), [1932] A.C. 562, at pp. 580-81.

In cases of negligent misrepresentation, the relationship betweenthe plaintiff and the defendant arises through reliance by the plaintiff on the defendant's words. Thus, if "proximity" is meant todistinguish the cases where the defendant has a responsibility to take reasonable care of the plaintiff from those where he or she has nosuch 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 besaid 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 defendant can be said to be in a "special relationship" whenever these twofactors inhere. [72] This paragraph was cited with approval in Cooper at para. 33. [73] Professor Lewis N. Klar, in his text Tort Law, 4th ed. (Toronto: Thomson Carswell, 2008) observes at footnote 51 in

chapter 7,that “Hercules Management Ltd. was decided before the Supreme Court refined the two stage test in Cooper v. Hobarts and Edwards v.Law Society of Upper Canada, ... as I will discuss below, however, I do not believe that the reformulated two-stage test will affect oralter the Hercules Management Ltd. analysis.” I agree with Professor Klar’s conclusion. [74] In determining the first element of the test, that being whether a special relationship existed between the parties, Hercules listsfive factors at para. 43 to consider. The Court, however, also said these factors “... should not be understood to be a strict ‘test’ ofreasonableness ...”. The factors are:

(1) The defendant had a direct or indirect financial interest in the transaction in respect of which the representation was made.

(2) The defendant was a professional or someone who possessed special skill, judgment, or knowledge.

(3) The advice or information was provided in the course of the defendant's business.

(4) The information or advice was given deliberately, and not on a social occasion.

(5) The information or advice was given in response to a specific enquiry or request. [75] The proximity question was an issue in Haig v. Bamford, (SCC), [1977] 1 S.C.R. 466. Financial statementswere sought by Mr. Scholler with respect to his company. The accounting firm knew the statements would be used by the company’sbank as well as by Mr. Scholler to obtain an investor for his company. The plaintiff, Mr. Haig, an experienced businessman, received thefinancial statements and reviewed them with his bank manager and a chartered accountant.

The financial statements showed the companywas profitable and its potential promising. Unfortunately, after Mr. Haig invested in the company, an error in the financial statementswas discovered; the Court noted at 471 that “instead... of buying into a thriving business... Haig bought into a distressed enterprise whichnever showed a profit.” [76] The issue before the Court was whether the relationship between the accounting firm and the investor in the company, Mr.Haig, gave rise to a duty of care.

The Supreme Court of Canada found at 483-4 that a duty of care existed because the financialstatements were prepared for the guidance of potential investors, the number of potential investors was limited, and the need forinvestment in the company, rather than the names of potential investors, was material. i. RMS Inc., Mr. Suhan, Mr.Simonson, Mr. Powell [77] As set out above, the Business Plan and Investment Opportunity were prepared by Mr. Simonson with input from Mr. Powelland Mr. Suhan. The FOFI was prepared by Mr.

Powell, who acted in his professional capacity as an accountant in its preparation, withinput from Mr. Suhan and Mr. Simonson respecting various assumptions. The very purpose of these three documents was to give them asa package to potential investors with the hope the information contained in the documents would convince these potential investors to

invest in RMS Inc. so it could raise $1.5 million. [ 78 ] The principals of RMS Inc. – Mr. Suhan, Mr. Powell and Mr. Simonson – described their background experience in each of the Business Plan and Investment Opportunity. Each was held out as an individual with years of experience relevant to his position as a director and officer. [ 79 ] Mr. Suhan was described as the Chief Production Officer with the responsibility as senior manager of all quarry operations. His resume

summary in the Investment Opportunity provided: Eli is 64 years of age, with 35 successful years of ownership of business in the forestry and construction industries that included logging operations, road construction (bridge building and rock blasting), and gravel quarry development. Eli has managed and supervised operations with crews of up to 40 men in these businesses both in the Golden area and in Alberta. Eli has extensive knowledge of the operation and management of heavy equipment.

Eli is the Chief Executive Officer and Chairman of Rocky Mountain Slate Inc. and is responsible for development of the company. Eli was instrumental in obtaining the mining lease, negotiating, obtaining the environmental approval from the related agencies and the development of the quarry. Eli brings a wealth of knowledge and experience relating to operational management, negotiation, planning and organizational skills to Rocky Mountain Slate Management Ltd. [ 80 ] Mr.

Simonson was described as the Chief Operations Officer and his responsibilities included being the senior manager of marketing and sales, co-ordinating production and sales and liaising with joint venture partners. His resume

summary in the Investment Opportunity stated: Roger is 45 years of age and has 22 years experience in human resources management with the Calgary Police Service. Roger has coordinated and supervised organized crime investigations that utilized up to 150 officers and support staff of several police agencies through out Canada. Roger has completed 11 courses in the Business Management Certificate program at the University of Calgary and completed all available courses offered by the Calgary Police Service relating to management and supervision of personal [sic] and investigations.

Roger is the Chief Operating Officer of Rocky Mountain Slate and is responsible for the marketing and sales development to date, preparing and executing a business plan for investment to further develop the quarry operations. Roger is the founder and CEO of One Eye Industries Inc. a successful Calgary based manufacturing business specializing in filtration systems. Roger brings a strong background of marketing & sales, negotiation, planning and organizational experience to Rocky Mountain Slate Management Ltd. [ 81 ] Mr.

Powell, who was identified as a “C.A.”, was described as being the Chief Financial Officer who was responsible for maintaining all financial records, managing payroll, preparing financial statements and liaising with the joint venture partners. His resume

summary in the Investment Opportunity provided: John is 46 years of age and is a practicing public accountant, consulting for over two hundred small and medium sized businesses. During his twenty-three years in public practice, he has been a partner with in a number of successful firms including the national firm of Samson Belair. In 1995, given John’s independent nature, he went out and started up his own practice. Presently, he is the president and manager of Powell Group, a highly successful accounting and consulting practice in Calgary. In addition to his accounting practice, Mr.

Powell has a major interest in a number of transportation businesses in the Banff area. He is actively involved in the financial management of the businesses and offers input into the overseeing of the strategic planning of the companies.

John also acts as a member of the management committee of the Howard Johnson Hotel in Canmore, Alberta. The committee is heavily involved in directing the operations of the hotel and controlling the allocations of profits to the unit holders. Developing the internal control systems of the company, supervising the accounting department, government reporting, arranging financing including grant applications, and regular reporting and monitoring of financial information are roles that Mr. Powell has ample experience in.

These roles will be carried through in his position as CFO for Rocky Mountain Slate Management. [ 82 ] The Business Plan specifically stated: “The officers of RMS have proven to have the experience and ability to develop this project and continue this development to fruition.” [ 83 ] All three principals of RMS Inc. had a financial interest in obtaining the investment monies sought in the promotional materials. [ 84 ] The Business Plan, Investment Opportunity and FOFI were provided to potential investors at two meetings at Mr. Powell’s office, which meetings were organized specifically for the purpose of Mr.

Simonson and Mr. Powell explaining the investment and answering questions. [ 85 ] I find when Mr. Simonson was invited to the Springbank Curling Club and other various locations to speak to potential investors, these were deliberate invitations so Mr. Simonson could explain the investment and answer questions. I find these invitations were not social occasions. [ 86 ] In addition, the three documents were provided to other investors as a result of a specific request for the materials. [ 87 ] It is important to note that this investment was not an offering to the world at large.

The materials in question were prepared for Mr. McDonald and/or his investment group. The group was expanded when Mr. Pfeifer and some of his business colleagues and friends were invited to the first meeting as well as the second meeting. [ 88 ] The evidence before me establishes all of the Plaintiffs were connected as either friends or business colleagues, or friends of friends or business colleagues of business colleagues. [ 89 ] On the facts, I conclude the individuals who attended an investment meeting, whether at Mr.

Powell’s office, at the Springbank Curling Club or some other location, and individuals who specifically requested the materials, had a real interest in the investment. [ 90 ] Therefore, RMS Inc., Mr. Suhan, Mr. Simonson and Mr.

Powell ought reasonably to have foreseen that the Plaintiffs would rely on the statements made in the Business Plan, the Investment Opportunity and the FOFI and on the statements of the three principals themselves. [ 91 ] Based on these facts and the fact that “proximity” as defined at this stage of the test has recognized liability for negligent misrepresentation (see Cooper at para. 36 ), I find the first part of the duty of care test has been proven respecting RMS Inc., Mr. Suhan, Mr. Powell and Mr. Simonson. ii. Mr. Kucera/KEI [ 92 ] Mr.

Kucera and KEI provided professional engineering services to RMS Inc. between 1997 and 2001 for the development of

the quarry. A

summary of these services is: i. 1998 – mapping of the quarry site. ii. 1998 – preparation of a development/mining plan. iii. 1998 – preliminary development costs for the quarry operation. These three items were prepared for Mr. Suhan and Mr. Pierre, before the involvement of Mr. Simonson and Mr. Powell in RMS Inc. [ 93 ] At around the time Mr. Simonson and Mr. Powell became shareholders and officers in RMS Inc., Mr. Kucera and KEI provided to Mr. Suhan and RMS Inc. a preliminary quantity and quality assessment of the slate at the quarry site. [ 94 ] After Mr. Simonson and Mr.

Powell were shareholders and officers, Mr. Kucera and KEI provided two updates to the original preliminary development costs in December 2000 and again in early 2001. [ 95 ] All the above information provided by Mr. Kucera and KEI was provided in the course of their business, was deliberately given and was in response to a request for the information. Both parties had a direct financial interest in the transaction in that Mr. Kucera intended, through KEI, to charge for each service. I find it was foreseeable that RMS Inc. would rely on this information. [ 96 ] From the evidence it is also clear that Mr.

Kucera and KEI knew that at least some of the information would be used by RMS Inc. and Mr. Suhan, Mr. Simonson and Mr. Powell in the preparation of the materials for potential investors. For example, Mr. Kucera met with the principals of RMS Inc. to review the preliminary development costs to determine how much money was needed to take the quarry operation to the next level. [ 97 ] Based on my findings of the nature of the relationship between Mr. Kucera and KEI and RMS Inc., Mr. Suhan, Mr. Simonson and Mr.

Powell, and the fact that “proximity” as defined at this stage of the test has recognized liability for negligent misrepresentation, I find the first part of the duty of care test has been proven respecting Mr. Kucera and KEI. b. Limiting Considerations [ 98 ] The underlying residual policy consideration in negligent misrepresentation cases is indeterminate liability. Thus, the second part of the test “... centres around the possibility that the defendant might be exposed to ‘liability in an indeterminate amount for an indeterminate time to an indeterminate class’”: Hercule s at para. 31.

However, “... in cases where the defendant knows the identity of the plaintiff (or of a class of plaintiffs) and where the defendant’s statements are used for specific purpose or transaction for which they were made, policy considerations surrounding indeterminate liability will not be of concern since the scope of liability can be presently circumscribed”: Hercules at para. 37. See also Hercules at para. 46 and Cooper at paras. 37- 39 . i. RMS Inc., Mr. Suhan, Mr.Simonson, Mr.

Powell [ 99 ] In assessing the second step of the test, I observe the duty of care asserted by the Plaintiffs falls within a recognized category of recovery. Further, the facts here establish the materials were prepared for a limited class of persons, that being the investors in RMS Inc. RMS Inc., Mr. Simonson, Mr. Powell and Mr. Suhan knew the materials were intended to assist the Plaintiffs to make their investment decision in RMS Inc. and had no other purpose. [ 100 ] In these circumstances, I find no policy considerations of indeterminate liability arise.

Therefore, I find the Plaintiffs have proven this first element of the test respecting the Defendants RMS Inc., Mr. Suhan, Mr. Powell and Mr. Simonson.

ii. Mr. Kucera/KEI [ 101 ] I again observe the duty of care asserted by the Plaintiffs falls within a recognized category of recovery. Further, the facts here establish the materials were prepared for a limited class of persons, that being for RMS Inc. and its principals. Mr. Kucera and KEI knew at least some of the materials were intended to assist RMS Inc. and its principals in the preparation of their materials for investors. [ 102 ] In these circumstances, I again find no policy considerations of indeterminate liability arise.

Therefore, I find the Plaintiffs have proven this first element of the test respecting the Defendants Mr. Kucera and KEI. 2. The representation in question must be untrue, inaccurate, or misleading [ 103 ] In assessing whether any of the representations were untrue, inaccurate or misleading, I must assess the representations at the time they were made. I may also, in appropriate circumstances, find that an implied representation can give rise to actionable negligence; see Cognos at 131-2. [ 104 ] Further, it is my view that the representation(

s) in issue must have been material in that an untrue, inaccurate or misleading representation with respect to an immaterial matter should not be actionable. [ 105 ] The test for materialty was defined by the Supreme Court of Canada in Sharbern. That test was articulated in a different context, but for the purposes of this case, I find it to be applicable. The Court stated at para. 61: In sum, the important aspects of the test for materiality are: i. Materiality is a question of mixed law and fact, determined objectively, from the perspective of a reasonable investor; ii.

An omitted fact is material if there is a substantial likelihood that it would have been considered important by a reasonable investor in making his or her decision, rather than if the fact merely might have been considered important. In other words, an omitted fact is material if there is a substantial likelihood that its disclosure would have been viewed by the reasonable investor as having significantly altered the total mix of information made available; iii.

The proof required is not that the material fact would have changed the decision, but that there was a substantial likelihood it would have assumed actual significance in a reasonable investor’s deliberations; iv. Materiality involves the application of a legal standard to particular facts. It is a fact-specific inquiry, to be determined on a case- by-case basis in light of all of the relevant considerations and from the surrounding circumstances forming the total mix of information made available to investors; and v.

The materiality of a fact, statement or omission must be proven through evidence by the party alleging materiality, except in those cases where common sense inferences are sufficient. A court must first look at the disclosed information and the omitted information. A court may also consider contextual evidence which helps to explain, interpret, or place the omitted information in a broader factual setting, provided it is viewed in the context of the disclosed information.

As well, evidence of concurrent or subsequent conduct or events that would shed light on potential or actual behaviour of persons in the same or similar situations is relevant to the materiality assessment. However, the predominant focus must be on a contextual consideration of what information was disclosed, and what facts or information were omitted from the disclosure documents provided by the issuer.

See also Kripps v. Touche Ross & Co. (1997), (BC CA), 89 B.C.A.C. 288 at paras. 82-86. [106] If I find any of the representations to be untrue, inaccurate or misleading, I must determine whether the representations relate toa future occurrence or whether they relate to existing facts. [107] The Defendants submit that only representations of existing facts are actionable, relying on paras. 72 and 73 of Cognos: Obviously, some aspects of misrepresentations made to the appellant about the employment opportunity were, by their very nature,matters in futuro.

Statements about the appellant’s involvement with the respondent and his responsibilities should he be offered aposition are representations that relate to future conduct and events. There are authorities supporting the view that only representations ofexisting facts, and not those relating to future occurrences, can give rise to actionable negligence: see, for example, Williams v. SaanichSchool District No. 63 (Saanich) (B.C.S.C.), supra; Datile Financial Corp. v. Royal Trust Corp. Of Canada (1991), (ON SC), 5 O.R. (3d) 358 (Gen. Div.); Foster Advertising Ltd. v.

Keenberg (1987), (MB CA), 38 C.C.L.T. 309 (Man.C.A.); and Andronyk v. Williams (1985), (MB CA), 35 C.C.L.T. 38 (Man. C.A.). However, assuming without deciding that this view of the law is correct, the representations most relevant to the appellant’s action arenot those relating to his future involvement and responsibilities with Cognos, but those relating to the very existence of the job for whichhe had applied. That is a matter of existing fact. It was implicitly represented that the job applied for did in fact, at the time of theinterview, exist in the manner described by Mr. Johnston.

As found by the trial judge, however, such was not the case. The employmentopportunity described to the appellant was not, at the time of the interview, a fait accompli for the respondent. Clearly, thismisrepresentation relates to facts presumed to have existed at the time of the interview: the respondent’s financial commitment to thedevelopment of Multiview and the existence of the employment opportunity offered. It is not a “remark by a defendant concerning theoutcome of a future event” (Williams v.

Saanich School District No. 63 (Saanich) (B.C.S.C.), supra, at p. 240), a “representation ... as tofuture occurrences” (Datile Financial Corp. v. Royal Trust, supra, at p. 379), a “statement of intention or forecast of the future” (FosterAdvertising Ltd. v. Keenberg, supra, at p. 325), or ”forecasting” (Andronyk v.

Williams, supra, at p. 57). [108] While Justice Iacobucci assumed for the purpose of the Cognos decision that only representations of existing facts wereactionable, it is fair to say the Supreme Court of Canada did not resolve this legal issue. [109] The Plaintiffs submit the Defendants interpret the existing case law too narrowly, pointing to Esso Petroleum Co. Ltd. v.Mardon, [1976] 2 All E.R. 5 (C.A.), Hayes v. Schimpf, 2005 BCCA 568, upholding 2004 BCSC 1408 and the writings of Professor Klarand Professor Philip Osborne.

Professor Klar writes at 244-5: The issue as to whether opinions or statements relating to future events or expectations can form the basis of a Hedley Byrne claim wasalso discussed, without resolution, by Iacobucci J. in Queen v. Cognos. It was unnecessary to decide the point because the relevantmisrepresentations in the case dealt with existing facts. I would suggest that it would be unwise to state categorically that opinions or statements about future events cannot form the basis of aHedley Byrne claim.

Opinions or speculations about the future generally are based upon one’s assertion or implication about existingfacts, which, of course, can form the bases of a claim. It would seem that any effort to clearly distinguish between statements that qualifyas fact, as contrasted with opinion, would be so fraught with difficulty that it would best be avoided. The distinction has not been raisedin the vast majority of Hedley Byrne cases, and it is well to recall that the judgment in Hedley Byrne itself dealt with statements ofinformation or advice about the credit worthiness of a third party.

The cases illustrate the difficulty inherent in such a distinction. Some, relying on the principle that speculation or opinion on futureevents cannot form the basis of a negligent statement claim, have dismissed the action. Others, however, have recognized that merelybecause the representation relates to the future does not automatically exclude a Hedley Byrne claim. Nevertheless, the point raised bythe Manitoba Court of Appeal in Andronyk has validity if seen as simply an additional factor in determining the existence of a duty.

Onecan agree that the more arguable or speculative a statement is, and the less it is based on an assessment of ascertainable facts, the lessreasonable reliance on this statement will be, to the point that any reliance at all might legitimately be considered as unreasonable.[Footnotes omitted.]

[110] Professor Klar at footnote 99 refers expressly to the Alberta Court of Appeal’s judgment in Kelly v. Lundgard, 2001 ABCA 185, 202 D.L.R. (4th) 385 (C.A.), in which he says “the point is made that merely because a medical-legal report makes a prognosticationabout a patient’s future medical condition does not mean that it is not subject to an action for negligent statement. The prognosis is madebased upon an assessment of existing facts, which can be done negligently.

As stated by Conrad J.A.: ‘a prediction which misstates orimplies an existing fact can be a misrepresentation’.” In the same footnote, he says “Also see Hayes v. Schimpf (2005), 36 C.C.L.T. (3d) 203 (B.C. C.A.), affirming (2004), 2004 BCSC 1408 , 24 R.P.R. (4th) 235 (B.C. S.C.), where a vendor’s inaccurate projectionsmade about the profitability of an Echinacea farm led to a successful negligent misrepresentation claim. The court’s judgment seems tobe based on the inaccurate representations as to the knowledge and experience of the vendor, rather than on the mere fact that theprojections were inaccurate.

A similar point is made in Ismail v. Treats Inc. (2004), 2004 NSSC 16 , 21 C.C.L.T. (3d) 279 (N.S.S.C.).” [111] Professor Osborne in his text The Law of Torts, 3d ed., (Toronto: Irwin Law Inc., 2007) discusses this legal question at p. 173: ee. The Nature of the Statement There is some difference in opinion about the importance of the nature of the statement on which the plaintiff relied. At one extreme, it issaid that liability for a negligent statement is restricted to erroneous statements of fact, and that statements of prediction, opinion,forecast, and advice are never actionable under Hedley Byrne.

The alternative view is that reliance upon facts may be more foreseeableand reasonable than reliance on more subjective and speculative statements but there is no hard and fast rule about it. This is an issue thatdoes seem to call for a flexible approach. First, it is not easy to categorize representations. Many communications are an amalgam offact, opinion, and conclusions. The credit report in Hedley Byrne, for example, would appear to contain as much opinion and predictionas fact. Second, many professionals and other experts are not relied on primarily to collect and communicate facts.

Their essential task isto analyse facts and, on the basis of their expert skill and knowledge, provide advice, opinion, and projections to assist people andbusinesses to make informed decisions that are in their financial interests. This is the work of investment advisers, lawyers, accountants,real estate appraisers, and many more. To restrict the duty of care to factual statements unduly restricts the scope of responsibility. Theissue is better resolved by a determination of whether or not the reliance was, in the circumstances, foreseeable and reasonable.

Thecourts then discriminate between, on the one hand, the responsibility of an investment adviser who recommends the purchase of shares ina corporation that he has not investigated and knows nothing about and, on the other, the responsibility of a fortune-teller informing theplaintiff of his financial destiny in the second millennium. [Footnote omitted.] [112] The Alberta Court of Appeal has addressed this issue most recently in three decisions: Kelly v. Lundgard, S. Maclise EnterprisesInc. v. Union Securities Ltd., 2009 ABCA 424 and Motkoski Holdings Ltd. v. Yellowhead (County), 2010 ABCA 72.

On this point, theCourt of Appeal in Maclise said, at paras. 21-22: 21 The trial judge also found that the respondents made three misrepresentations to Maclise Enterprises: (

a) that the cease trade order would not affect the issuance of the shares; (

b) that all the money invested was to go to working capital, and not to pay existing debt; and (

c) that the total amount of debt of Cenpro was half of the true figure: Reasons, para. 53. The trial judge found that Maclise Enterprises relied on these representations, that the reliance was reasonable, and that "but for" theserepresentations the investment would not have been made. 22 The second of the misrepresentations is not a representation as to an existing fact, but rather a representation respecting futureintentions.

Representations or opinions about future conduct are generally only actionable if they become covenants between the parties.However, the record supports the finding of the trial judge with respect to the other two representations. This is a sufficient basis tosupport the finding of liability of Ferguson and Hochhausen. [Emphasis added.] [113] In Motkoski, the Court, while not referring to the Maclise decision, said at paras. 43-44: 43 Actions for negligent misrepresentation usually rest on misrepresentations of fact: Queen v. Cognos Inc., (SCC), [1993] 1 S.C.R. 87 at pp. 128-9; PD Management Ltd. v.

Chemposite Inc., 2006 BCCA 489, 58 B.C.L.R. (4th) 197 at para. 14.

Sometimes representations are made about the future that depend on the facts as they exist at the time of the representation. If thoseexisting facts are inaccurately and negligently stated, the words may be actionable, as in Cognos. Sometimes people are retained to giveopinions about the future, and if those predictions are negligent (having due regard that perfection in future projections cannot beexpected) they may be actionable, as in Kelly v. Lundgard, 2001 ABCA 185, 95 Alta.

L.R. (3d) 11, 286 A.R. 1. 44 There is therefore some room for an action for negligent misrepresentation about the future, although it is more difficult to provethat predictions about the future are "inaccurate". However, an action for misrepresentation generally cannot be based on arepresentation about how the speaker intends to act in the future, unless the representation amounts to a covenant that the speaker willact in that way. As it was stated in Arrow Construction Products Ltd. v. Nova Scotia (Attorney General) (1996), 1996 NSCA 88, 150 N.S.R. (2d) 241, 27 C.L.R. (2d) 1 (C.A.): ...

The Hedley Byrne Principle deals with representations, not promises. It is important to distinguish between a representation and apromise. A representation is a statement relating to some existing fact or past event. A promise is a statement of intention to dosomething in the future. ... a. RMS Inc., Mr. Suhan, Mr. Simonson, Mr. Powell [114] The Plaintiffs submit the Business Plan, Investment Opportunity and FOFI contained representations that were untrue,inaccurate or misleading. I have summarized the primary allegations of the Plaintiffs below. i.

Misrepresentation No. 1 [115] These Defendants represented that the officers and their management team possessed the requisite knowledge, expertise andcompetence to take the existing quarry to a commercially operating quarry.

They stated that the challenge “... to ensure a highly efficientquarry operation that will allow production to answer demands for product” had been met. [116] The relevant sections of the Business Plan with respect to this alleged misrepresentation are as follows: THE CHALLENGE The most important challenge is to ensure a highly efficient quarry operation that will allow production to answer the demand forproduct. To date, sales projections derived from presentations to potential customers are exceeding initial projections and will requireincreased production at an accelerated rate when orders come to fruition.

There are many slate deposits in the Rocky Mountains but development is not normally a viable business venture due to many factors.Applying and obtaining a License of Occupation (quarry lease) is an enormous undertaking. The costs of building a suitable access roadand maintaining the road for transport trucks are often cost prohibitive. Environmental issues, power & water availability, the size of theslate deposit and the companies ability to efficiently quarry quantities to meet the market demand will determine if the operation will beviable.

MEETING THE CHALLENGE RMS has successfully dealt with all these challenges. We have secured road rights to the transport truck class road up to the quarry lease.As such yearly road maintenance is a minimal cost. The RMS access road is connected to an all season Forestry road with convenientaccess to the Trans-Canada Highway and the Canadian Pacific Railroad. The RMS deposit is estimated to provide slate production for two hundred plus years. Water access has been secured for the rock saws,

drills and building site requirements. Water volume is adequate and will be utilised for power generation as the development of the quarry progresses. The quarry is located close the Columbia valley, offering a large resource of general labour and trained equipment operators moving from the continued downsizing of the forestry industry. This is working in our favour with regard to manpower. The officers of RMS have proven to have the experience and ability to develop this project and continue the development to fruition .[Emphasis added.]

SUMMARY The quality, quantity and viability of mining have been proven and with additional investment this business will succeed. This is a great opportunity for RMS, its investors, the community and the economy to benefit from this venture. It will bring a stable long-term business to the Columbia valley that will offer new job security for its residents. [ 117 ] The representation found in the Investment Opportunity is: With the marketing completed to date and the interest and sales generated it will be reasonable to achieve our goal of 22,000 tons [1] of production and sales for the year 2002.

If the investment funds are in place in September, work will begin in October and continue until the weather forces shutdown of operations. A window of 6 weeks is believed to be available from October 1 st to November 15 allowing the completion of two pits now partially open and produce up to 2000 tons which will be sold over the winter months in the US. This will also allow an early start for 2002 and promote additional sales in the US for 2002. [ 118 ] The representations in the FOFI are set out below: Rocky Mountain Slate Financial

Summary 2001 2002 2003 Production in tonnes 2056 32222 32222 Sales in tonnes 1215 24121 32222 Gross sales $ 436,500 $ 8,821,100 $ 11,277,700 Net income (loss) $ (117,419) $ 3,888,628 $ 5,561,914 Cash flow from operations $ (325,542) $ 2,831,054 $ 5,929,374 Contributions $ 600,000 $ 900,000 $ - Distributions $ - $ 1,500,000 $ 4,500,000 Ending Balances Cash $ 48,058 $ 1,534,422 $ 570,667

Accounts receivable $ 121,101 $ 585,183 $ 447,548 Inventory $ 99,770 $ 1,741,627 $ 517,502 ii. Misrepresentation No. 2 [ 119 ] RMS. Inc., Mr. Suhan, Mr. Simonson and Mr. Powell represented that Mr. Kucera , a professional engineer, and his consulting company KEI, who had prepared the quarry mine and reclamation program and who had quarrying experience, was a member of the management team and would be one of the quarry operation managers in his capacity as project engineer. Further, the references to Mr. Kucera and KEI and Mr. Kucera's prior involvement in the project led to the implied representation Mr.

Kucera either provided or supported the production quantities set out in the promotional materials. [ 120 ] The representation in the Business Plan relating to Mr. Kucera and KEI is: Mining Development of the site and quarry operations will begin in July 2001 with Eli Suhan as the project Superintendent. The construction of the water supply, electrical generation, settling ponds, processing & packaging stage area and the tram system for slate transport from the various pits will be engineered and constructed by Kucera Engineers Inc.

All phases of the construction will be conducted as per the rules and regulations set out by the Minister of Energy, Mines and Petroleum Resources. Prior to April 2001 management will visit numerous quarry sites and equipment suppliers to gain additional information associated to the mining of slate. [ 121 ] The representations respecting Mr. Kucera and KEI in the Investment Opportunity were: Quarry Operation Managers PROJECT ENGINEER: Chuck Kucera P.Eng. Implement production engineering of quarry pits, site plan for production facilities, settling ponds, electrical and water systems.

Ensure compliance with the Minister of Energy, Mines and Petroleum Resources. MANAGEMENT RESUME SUMMARIES Chuck E. Kucera P.Eng. Kucera Engineers Inc. and its predecessor company C.E. Kucera Inc. have been involved in the development of minerals and mineral processing in Western Canada since 1976. The following is a partial listing of projects delineating this experience: C.E. Kucera Co. Inc. 1. 1978 - Complete development of the Hunt Metallurgical Silica properties at Horse Creek near Golden, BC.

This is currently a 100,000 tonne per year metallurgical silica mining/quarrying operation in operation since 1978. 2. C.E. Kucera Co. Inc. operated a ready-mix concrete and aggregate processing operation in the Columbia Valley between 1976 and 1987. This organization produced CSA specification aggregates for the CP Rail Mount McDonald Tunnel Project from 1981 through

1987. The plant designed, owned, and operated by CEKCI produced 700 net tonnes per hour of CSA specification concrete aggregates 24/7/180 from 1982 through 1987. Total production for the operation was 2.3 million tonnes. In addition, CEKCI evaluated sources of aggregates and quarry able rock for CP Rail between the Alberta Border and near Salmon Arm along the mainline. 3. CEKCI produced and placed the initial rip rap for the CP Rail Car Shop Project, approximately 50,000 tonnes in 16 weeks. 4.

CEKCI has provided engineering and development consulting to Mountain Minerals Ltd. owner/operators of a Silica Sand property at Moberly, BC. This silica sand, metallurgical silica, and quarried stone operation produces in the range of 55K tonnes to 120K tonnes annually. Kucera Engineers Inc. 1. The same principals of CEKCI are the technical group, owners and managers of Kucera Engineers Inc. 2.

Kucera Engineers Inc. has installed and designed small hydro systems for .1 457085 BC Ltd. - 250Kw hydrosystem very similar in size and capacity to the Rocky Mountain Slate Inc. site. .2 Canadian Mountain Holidays - KEI is currently engaged in the development of three small hydro installations up to 0.5 Mw in size. 3. KEI developed a quarrying plan and technique for the production of 20 to 25 tonnes solid block of granite from an island quarry for use as riprap for the US Army Corps of Engineers on the Pacific coast of the US from Bellingham, WA. to Eureka, CA. 4.

KEI has extensive experience in the demolition of heavy concrete structures employing wire and concrete sawing. 5. KEI hand quarried 700 cubic meters of quartzite grit stone in the Jasper National Park in 2000. 6. KEI has opened and developed numerous rip rap quarries for BC Ministry of Transportation and Highways. 7. KEI is currently developing another metallurgical silica property at Dart Creek, BC. Kucera Engineers Inc. has been instrumental in the engineering and preparation of the quarry plan .

They will be onsite for the development of the quarry and act as a liaison with the Minister of Energy, Mines and Petroleum Resources. [Emphasis added.] [ 122 ] In addition, the FOFI included a line item for engineering costs. iii. Misrepresentation No. 3 [ 123 ] These Defendants represented that all activities at the quarry would be undertaken within the existing regulatory regimes. The representations respecting this allegation are found in the Investment Opportunity and the FOFI.

[ 124 ] The Investment Opportunity representations are: ENVIRONMENTAL STRATEGY All activities at the RMS quarry will be undertaken in accordance with the applicable regulations and legislation having jurisdiction over the site (i.e. access, development, power generation, bulk sample extraction, site reclamation, water treatment and management). A “Reclamation Plan”, as defined in the “ Mines Act of British Columbia ”, will be filed with the British Columbia Minister of Energy, Mines and Petroleum Resources prior to the commencement of the 2001 calendar year bulk sample extraction.

Slate is a clay material resulting in a minimal environmental impact on the surrounding area when dealing with debris and wastewater treatment. Sales Assumptions 2002 With the projected 150 working days of full production the quarry will have to produce 6.6 truckloads or 145 tons per day.

Three pits at full production with a 75% efficiency rate are projected to produce 202 tons per day. [ 125 ] The FOFI representations are below: Sales Forecast For the Year Ended December 31, 2001 Month May June July August September October November Total Random Slate Days Production 0 0 0 0 0 20 15 Number of 10 hour shifts 2 2 4 4 6 1.5 2 Optimal tonnes mined per shift 48 48 48 48 48 48 48 Efficiency rating for learning curve 65% 75%

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