Southwest Construction Management Limited v. EllisDon Corporation, 2020 NSSC 99

SUPREME COURT OF Nova Scotia Citation: Southwest Construction Management Limited v. EllisDon Corporation , 2020 NSSC 99 Date: 20200428 Docket: 440897 Registry: Halifax Between: Southwest Construction Management Limited and EllisDon Corporation Plaintiffs v.

EllisDon Corporation, Southwest Properties Limited, Southwest Construction Management Limited, and Summer Wind Partners II Limited Defendants LIBRARY SHEET Judge: The Honourable Justice Peter Rosinski Heard: December 11, 2019, in Halifax, Nova Scotia Counsel: William Ryan QC and John Shanks, for the Plaintiffs Christopher Robinson and Kevin Gibson QC, for the Defendants Subject: CPR 38.05 and 83.11 – adding parties and amending pleadings in the context of s. 22 Limitation of Actions Act , SNS 2014, C. 35 (in force September 1, 2015)

Summary: The Maple commercial/residential complex was being built for Southwest Construction Limited (SWC) with EllisDon as the construction manager. SWC unilaterally terminated the contract and shortly thereafter filed a Statement of Claim alleging that EllisDon had breached its contract, and that it was negligent in the provision of its services (claims in contract and tort).

SWC sought to amend its pleadings to add a new cause of action (negligent misrepresentation) and new parties (related companies in the so-called Southwest Group of Companies) who were seeking damages for “increased financing costs” as a result of the delay in the project attributable to EllisDon’s breach of contract and negligent provision of services , arising from increases in interest rates for such financing.

Issues:

(1) Should leave to amend the pleadings be denied because:

a) bad faith on the part of SWC and its related entities? No

b) EllisDon will suffer serious non-compensable prejudice? No

c) the proposed pleading contains no material factual basis disclosing a cause of action and hence is unsustainable? No (including insofar as the claims made here are for “pure economic loss”)

(2) What are the relevant limitation periods and do the provisions of the Limitation of Actions Act ( LAA ) permit the court a discretion to grant leave to amend the pleadings vis-à-vis:

a) the new claim of negligent misrepresentation?

b) The addition of new parties specifically claiming “increased financing costs” damages? While the basic limitation periods for the addition of the new claim of negligent misrepresentation and the new parties or claimants both have expired, the Southwest Group of Companies can successfully rely on ss. 22 (

a) and 22 (

c) of the LAA to allow the court the discretion to permit the amendments sought. The court was satisfied that it was in the interests of justice to permit the amendments as proposed. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET. SUPREME COURT OF Nova Scotia Citation: Southwest Construction Management Limited v. EllisDon Corporation , 2020 NSSC 99 Date: 20200428 Docket: 440897 Registry: Halifax Between: Southwest Construction Management Limited and EllisDon Corporation Plaintiffs v. EllisDon Corporation, Southwest Properties Limited, Southwest Construction Management Limited, and Summer Wind Partners II Limited

Defendants DECISION Judge: The Honourable Justice Peter Rosinski Heard: December 11, 2019, in Halifax, Nova Scotia Counsel: William Ryan QC and John Shanks, for the Plaintiffs Christopher Robinson and Kevin Gibson QC, for the Defendants By the Court: Introduction [ 1 ] This litigation concerns the building and premises known as the “Maple”, located at 1583 Hollis St., Halifax, NS. [1] [ 2 ] Southwest Construction Management Limited (SWC) seeks leave to amend its previously amended Statement of Claim herein.

After careful consideration of the principles and circumstances here, I find it is in the interests of justice to permit the proposed amendments. Background [ 3 ] In 2013, SWC was tasked to oversee the construction of Maple. It entered into a contract with EllisDon, under which EllisDon would provide construction management services related to those premises.

The contract references SWC as “the owner” and EllisDon as “the construction manager”. [ 4 ] On July 2, 2015, SWC commenced an action for breach of contract and negligence against Elli Don (“the main action”). [ 5 ] On August 6, 2015, EllisDon filed a Statement of Defence (and Counterclaim) in the main action, and commenced an action under the Builders’ Lien Act , R.S.N.S. 1989, c. 277 , naming as defendants SWC, Southwest Properties Limited (SWP) and Summer Wind Partners II Limited (WP2) (the “builders’ lien action”). [ 6 ] On the same day, EllisDon concurrently filed a Notice of Claim as against a Third Party, Southwest Properties Limited (SWP), in the main action. [ 7 ] On September 22 and 23, 2015, respectively, SWC filed a Defence to the Counterclaim of EllisDon in the main action, and SWC, SWP, and WP2 filed a Defence to the builders’ lien action. [ 8 ] On February 28, 2017, by a Consent Order the main action and the builders’ lien action were consolidated.

At that time, the only parties to the litigation were: SWC, SWP and WP2; and EllisDon. [ 9 ] On February 26, 2019, the court issued a consent order permitting SWC to amend the existing pleadings. The amended Notice of Action, filed the same day, differed only insofar as the addition of the following paragraphs: 13) Southwest [i.e.

SWC] further states that EllisDon’s breach of contract and/or negligence in the performance of its duties under the Contract caused delay in the completion of the Project such that Southwest was prevented from finalizing its financing for the project at a time when the interest rates for such financing were lower than when this traction [sic] was actually completed. 14) The delay in completing the construction of the Project, which was caused by EllisDon, will result in increased debt servicing payments for Southwest in the amount of $5,184,000 over the initial 10-year period for financing of the Project.

This amount is in excess of the projected $9.2 million loss claimed in paragraph 12 above.

[ 10 ] Thus, no new parties were added in February 2019. [ 11 ] In March 2019, I was assigned as case management judge in this litigation. In the initial case management conference, I determined that it was appropriate to first deal with Southwest’s further motion to amend the Notice of Action and Statement of Claim, and thereafter consider EllisDon’s motion for

Summary Judgment on Evidence, filed July 5, 2019. This is the decision on the Motion to amend. The present proposed amendments to the statement of claim [ 12 ] The wording of the SWC motion to amend its Statement of Claim reads [2] : Collectively “Southwest” moves for an order to amend its pleadings in this proceeding to include a claim for increased financing costs as set out in the draft Amended Notice of Action attached to this Notice as

Schedule “A”. [3] [ 13 ] The proposed amendments include the following: 1. adding new Plaintiffs in what was the main action: namely, WP2 (presently a defendant in the Builders’ Lien Act action); Summer Wind Partners III Limited (WP3) and Summer Winds Holdings Limited (SWH), organized in partnership as SWP Maple Operating Partnership; and SWP, in addition to its present status as Third Party in the Main Action and Defendant in the Builders’ Lien Act action; 2. adding new claims, namely, amendments which, broadly speaking, may be characterized as negligent misrepresentation vis- à-vis SWC, and the existing pleadings of negligent provision of services and negligent misrepresentation vis-à-vis WP2, SWP Maple, and SWP. [4] [ 14 ] In

summary, the proposed amendments effect the following additions to the litigation: 1. SWC making a new claim of negligent misrepresentation; 2. WP2, SWP Maple, and SWP as new claimants, joining in existing claims of negligent provision of services, making a new claim of negligent misrepresentation, and substituting them for SWC regarding the claimed damages for increased debt financing costs in relation to both the existing and the new claims. [5] The positions of the parties A.

The Southwest group of entities [ 15 ] Southwest says the proposed amendments include clauses relating to “the identification and inclusion of additional Southwest companies which both own and operate the Maple and which have suffered the loss as identified in the original and in the amended Statement of Claim” Southwest then (in its brief) repeats verbatim the proposed amended paragraphs - 2, 3, 4, 5, 7,8, 9, 10, 11, 12, 15, 16, 19, 20, 30, 31, 32, 33, 34, and 35. [ 16 ] Southwest says that Civil Procedure Rules (CPR) 35 (adding new parties - see proposed paras. 2-5, 30-35) and 83 (adding new particulars to existing claims - see proposed paras. 7-12, 15-16, 19-20) govern this motion.

Regarding the addition of new parties, Southwest states in its brief: CPR 83.04 (1)… The provisions of that Rule do not apply in this situation as they are limited to circumstances in which the Amendment “makes a claim against a new party”… Southwest submits that Rule 35.06(1) has direct application to the case before your Lordship. The original pleading that was issued in July 2015… properly identified the causes of action and heads of damage claimed against the Defendant EllisDon.

Rule 35.06 (1) requires the addition of a proper party to a proceeding unless the order adding the party causes ‘serious prejudice that cannot be compensated in costs or an abrogation of an enforceable limitation.’… Rule 35.08 imposes some restrictions to adding parties. In particular, Rule 35.08 (1) provides a judge with discretion to add a party to a proceeding at any stage of the proceeding subject to determinations as to whether the joinder of a new party would cause prejudice to a party in the proceeding.

Rule 35.08 (5) also raises the issue of the limitation period, providing that the joinder of a party may not occur in circumstances where the expiry of a limitation period precluding the claim, and which is able to be enforced by the opposing party, has occurred…. in both instances, the proposed amended pleading adding the additional Southwest entities as Plaintiffs in this proceeding do not violate either of these two requirements.

Consequently, the court has the discretion as contained in the Rules to allow the amendment adding these entities as parties to the proceeding. [My italicization added] [ 17 ] Regarding the issues potentially arising under the Limitation of Actions Act , SNS 2014, c. 35 (in force September 1, 2015) ( LAA ), in relation to the addition of new parties, Southwest’s position is as follows: …there is no question but that the claims advanced by the proposed new plaintiffs relate to the same circumstances as those contained in the existing pleading… The claims are not just related to the same events but are in fact the same claims only advanced by different and related corporate entities… They do not in any way alter the allegations made against EllisDon.… The allegations have only become more specific in nature in regard to what entities within the Southwest Group of Companies suffered the alleged losses.

Given that the proposed new plaintiffs are not parties to the agreement their primary allegation against EllisDon will rest in negligence, subject to issues of agency such as those raised by EllisDon in its pleadings. Once it has been determined [via s. 22 (

c) LAA ] that the new claim is related to the “conduct, transaction or events” described in the

original pleadings, the analysis shifts to whether the defendant has received within the limitation period sufficient knowledge of the added claim that they will not be prejudiced when defending against it… While it may not have been aware of the specific name of the Southwest company that would ultimately operate the project, [EllisDon] knew that the Project was being constructed for Southwest Properties and ultimately would be operated by one of its corporate entities.

In addition to the third-party claim naming Southwest Properties, EllisDon also named Summer Wind II as a defendant in its Lien action on the basis that this company was the registered owner of the lands on which the Project was constructed. In this pleading EllisDon also named Southwest Properties, again repeating its allegation that Southwest Construction acted as agent for Southwest Properties as the principal Southwest company… There can be no doubt that EllisDon was aware of the nature of the claims made against it in this proceeding.

It was specifically aware of the claims for damages relating to interest costs, lost revenue and financing costs, it was likewise aware that these claims are being advanced by members of the Southwest Group of Companies and that Southwest operated under a number of corporate entities, all of which were related. Given that

section 22 of the Limitation of Actions Act specifically addresses the situation as an exception to the usual provisions of the Act which would bar new claims following the expiry of the limitation period, this court is able to permit the addition of the new parties without violating the restrictions imposed in Rule 35.08 (5). [My italicization added] [ 18 ] As to the addition of new particulars or claims, Southwest’s position from its brief follows: The addition of new particulars to an amended pleading is governed by Rule 83.11.

This Rule allows a judge to permit an amendment even after the expiry of the limitation period, if the material facts supporting the cause have been pleaded and the amendment merely identifies or better describes the cause of action. Southwest Construction submits that this provision exactly describes the proposed amendments contained within this category of its proposed amended pleadings. This provision was considered by Justice Farrar in his decision in Automattic Inc. v Trout Point Lodge Ltd. , 2017 NSCA 52 [at paragraphs 28-32]… Justice Bodurtha also considered the impact of

section 22 of the Limitation of Actions Act and of Rule 83.11 upon proposed amendments to a pleading in the case of Altschuler v Bayswater Construction Limited , 2019 NSSC 197 [at paragraphs 22 – 23, 32 – 36, and 41].….As noted by Justice Bodurtha, once this analysis is complete the issue as to whether an amendment will be permitted under Rule 83.11 again turns in large part on the notion of prejudice.

Is there ‘serious prejudice’ to EllisDon if the amendments are allowed? … In Bayswater , Justice Bodurtha further considered the nature of prejudice which is unable to be compensated for by way of costs [at paragraphs 16 – 18].

Southwest Construction submits that EllisDon is unable to claim ‘serious prejudice’ as required by CPR 35.06 (1) in relation to the proposed amendments… The pleading set out allegations against EllisDon both in breach of contract and negligence… [and] was explicit in that the claims being advanced against EllisDon included claims for interest costs, lost revenue, costs of financing and other delay costs. In the original pleading EllisDon was explicitly put on notice that it was facing claims, in relation to alleged delay caused in the completion of the Project.

The substance of the current proposed amendments is to expand upon and provide additional particulars, both with respect to the nature of the allegations in breach of contract and in negligence against EllisDon, as well as to properly identify the parties which within the Southwest Group of Companies experienced the losses claimed… Having been well aware that the Southwest group of companies operated through multiple related corporate entities, EllisDon cannot credibly claim that it will be ‘caught unaware’ and thereby prejudiced and be unable to respond to this action should the proposed amendments be allowed. [My italicization added] [ 19 ] Regarding the limitation period, in its Reply brief Southwest argues that both parties acknowledge that the Limitation of Actions Act , and CPRs 35.06, 35.08, 83.01, and 83.04 have particular application to this motion.

They disagree, however, on the

interpretation and application of the legislation and those Rules. [ 20 ] Presuming that the court may grant such amendments unless so doing would cause serious prejudice to a party not able to be compensated by way of costs, or would breach an enforceable limitation period, Southwest notes, “it is difficult for EllisDon to maintain an argument in favour of serious prejudice when it has itself suggested that costs should be granted by the court to compensate it for the allowance of these amendments to the pleadings.” [ 21 ] Southwest argues that allowing the amendments would not violate an enforceable limitation period, as EllisDon claims pursuant to

section 22 of the Act. This is because the original pleadings and the amended pleadings of February 2019 both: …provide notice to EllisDon that claims in relation to the delay of the construction project in question were being advanced for damages related to financing and interest costs associated with the Project.

While the amount of the damages claimed were not included in the original pleading, (which amounts have been better particularized in the proposed amendment and were first introduced with respect to financing amounts in the February 2019 amendment) the claims under both breach of contract and of negligence for these heads of damages were clearly expressed in the original pleadings.

Furthermore details of the claims to be raised by the proposed new plaintiffs all of which are corporate entities within the Southwest group of companies, were also included in the supplemental document production provided to EllisDon December 2018 and formed part of the question [ing] of Joseph Spatz by counsel for EllisDon in the

March 2019 discovery examination. [My italicization added] [ 22 ] In relation to EllisDon’s suggestion that the court should infer bad faith motivations by the Plaintiff, Southwest notes that the burden is upon EllisDon, and says the reason for the proposed amendments is obvious: namely, “the effect of the amendments is to properly include in the proceeding those parties which are able to claim the already pleaded claims for loss of revenue interest cost and financing cost in relation to the Maple Project.” Southwest states in its brief: The motivation for the amendment to the pleadings is to correct deficiencies in the original pleadings regarding the identification of the corporate entities within the Southwest Group of Companies which had undertaking [sic] the mortgage financing and leasing responsibilities with respect to the project in question.

There is no evidence that Southwest Construction is acting in bad faith and no evidence has been proffered or even identified by EllisDon in support of an inference to this effect. [ 23 ] Lastly, in relation to EllisDon’s argument that the form of the proposed amendments is inadequate to identify a cause of action in negligence against it as advanced by the proposed new Plaintiffs, Southwest notes that at paragraph 35 of the proposed Amended Statement of Claim the new Plaintiffs expressly “repeat and rely” on the foregoing allegations in the Statement of Claim to support their claim for damages against EllisDon.

Moreover paragraphs 22, 23, 24, and 25 contain particulars of allegations of negligence against EllisDon in its role as Construction Manager; and paragraphs 15 and 16 also contain allegations in support of negligence allegations regarding Elli Don’s knowledge that delay in the construction, for which it was construction manager, would cause foreseeable loss to the parties owning and operating the Project. [ 24 ] Southwest Construction also requests costs of the motion.

It argues that EllisDon’s request for the costs of additional discovery examinations “made necessary” by the amendments to Southwest’s pleadings, if granted, should not be granted, because: at the termination of the March 12, 2019 discovery examination of Joseph Spatz it was specifically contemplated by the parties that additional discovery would take place. Those discoveries were truncated, primarily by counsel for EllisDon in the recognition that these proposed amendments would be forthcoming in this proceeding.

Therefore EllisDon will not face duplication of efforts as the necessary discovery examinations were adjourned pending this motion coming forward. B.

Ellis Don Corporation [ 25 ] EllisDon states correctly that amendments are normally permitted unless an applicant for leave is shown to be acting in bad faith or it is shown that by allowing an amendment another party would suffer some serious prejudice that could not be compensated by costs (citing Altschuler v Bayswater Construction Limited , 2019 NSSC 197 , at paragraph 14 ). [ 26 ] EllisDon submits that the amendments are significant in effect and timing: The circumstances in which this motion is resisted are extraordinary and warrant the court’s intervention to prevent the circumvention of clear limitation periods and the presentation of claims which lack any pleaded basis in fact, are on their face unsustainable, and are intended to intimidate a party in a proceeding in which the conduct of Southwest in its dealings with EllisDon, and its failure to perform the contract in good faith and honesty, have been central issue since the commencement of action in 2015.

EllisDon submits that the moving party’s motion should fail for two reasons: 1. the claims sought to be added to the Statement of Claim of Southwest through its proposed amendments are brought out of time; and 2. the claims sought to be advanced in the amended statement of claim lack any pleaded factual basis which would warrant to the amendments sought. [ 27 ] Thus, for example, WP2 is presently not a party to the main action – it is a defendant only in the builders’ lien action by reason of its interest in the lands constituting the Project.

Yet it seeks leave to amend the pleading in the main action to which it is not a party. [ 28 ] When the matters were consolidated, the order provided that all disclosure in each of the two actions “shall be deemed to be produced in the other action and may be used by the parties in each action as permitted by the Civil Procedure Rules”; that all evidence given in oral discovery pursuant to Civil Procedure Rule 18 in either of the two actions “shall also be evidence given on oral discovery in the other action, and may be used at trial of the actions in accordance with the provisions of the Civil Procedure Rules and the rules of evidence”; and that “at the trial of these actions, evidence given in Halifax No. 440897 or Halifax No. 441961 shall be the evidence given in the other action”. [ 29 ] At paragraphs 6 - 10 of its brief EllisDon sets out numerous circumstances it says support its submission that the court should infer bad faith on the part of the Southwest parties. [ 30 ] EllisDon points out that, in response to its request that Southwest make admissions per CPR 20, Southwest proposed the new plaintiffs (on June 12, 2019 – Gibson affidavit Exhibit “G”) to whom EllisDon is not alleged to have any contractual or tort duty. [6] [ 31 ] On July 5, 2019, EllisDon provided Southwest a copy of its Notice of Motion for

summary judgment on evidence, supported by

the July 5, 2019, affidavit of Mr. C.C. Robinson, QC. In response Southwest delivered a proposed new amended pleading (Laingaffidavit Exhibit “N”; see Gibson affidavit Exhibit “I”), which did not contain the pleading now presented to the court (Laing affidavitExhibit “P”). [32] The numerous changes are summarized by EllisDon in its brief at paragraph 9. [33] EllisDon argues that there are indicia of bad faith on the part of Southwest on the bases (1) of failure to explain the purpose forseeking an amendment (National Bank Financial Ltd. v.

Potter, 2008 NSSC 135, at paras. 115 and 139, affirmed, 2008 NSCA 92); (2)that facts which could justify the proposed amendment have not been set forth (Prenor Trust Company of Canada v S.B. GuptaInvestments Ltd., (1991) 1991 NSSC 3 , 105 NSR (2d) 251 (SC)); and (3) that the timing of the application for leave to makeamendments would introduce substantial new issues requiring examination of matters not previously in issue (Hardy v.

Prince GeorgeHotel Ltd., 2004 NSSC 168, at para. 24, affirmed 2004 NSCA 120). [34] EllisDon also relies on, inter alia, CPR 35.06, 35.08, 83.04, and 83.11 in support of its argument that if a limitation period hasexpired, there is no discretion in the court to add new parties (see Automattic Inc., at para. 38). [35] The limitation period herein is rooted in the Limitation of Actions Act, (in force September 1, 2015), specifically sections 8, 9and 22.

EllisDon argues that the limitation period started to run on June 1, 2015 (the point at which Southwest terminated the contract),ran for three years (two years under the LAA, plus one year permitted for service of a Notice of Action and Statement of Claim, pursuantto CPR 4.04 (1)), and ended on June 1, 2018. EllisDon advances several arguments. [36] Insofar as “new claims” are put forward as amendments to the existing pleadings, EllisDon says that s. 22(

c) LAA, whichprovides the court a discretion to decide whether such claims should be permitted, cannot be relied upon by Southwest in thesecircumstances because the proposed new claims are not “related to the conduct, transaction or events described in the original pleadings”and EllisDon is prejudiced in defending against the added claims on the merits, because EllisDon did not have sufficient knowledge ofthe added claims before or within the limitation period, nor is the claim “necessary or desirable to ensure the effective determination orenforcement of the claims asserted or intended to be asserted in the original pleadings”. [37] Secondly, EllisDon says, the proposed new pleadings should not be allowed because they do not disclose a cause of action.

According to EllisDon, other than in the most general language (that EllisDon “through breach of contract and/or negligence in relationto the construction of the Project generally” and “negligence in relation to the construction of the Project generally”, caused theplaintiffs to suffer damages), the pleadings do not allege facts which: 1. suggest any privity of contract between the proposed new parties and EllisDon; notably, the only parties to the only contractalleged are SWC and EllisDon; and SWP Maple Operating Partnership was only registered as an entity on March 23, 2015; or which 2. place upon EllisDon any duty vis-à-vis any of the proposed new plaintiffs, nor is any breach of such duty pleaded.

Inaddition, EllisDon says the added claim for economic loss in tort is not within any category recognized by the Supreme Court of Canadafor the recovery of such loss (Winnipeg Condominium Corporation No. 36 v. Bird Construction Co. Limited, (SCC),[1995] 1 SCR 85, at 96).

Even the proposed Amended Statement of Claim (paras. 7-12) alleges that EllisDon made representations onlyto SWC, and not any of the proposed new plaintiffs, and similarly that only SWC relied upon any alleged representations. [38] EllisDon reiterated the following in oral argument: The only facts that are pleaded as the basis for a cause of action which the proposed new plaintiffs could have against EllisDon in tortare set forth in the new paragraphs 15 and 16 of the proposed amended statement of claim: 15.

At all times material hereto EllisDon was aware that the Project was to be a mixed residential and commercial development andthat the Project would be owned and operated by one or more companies related to Southwest. 16. Furthermore, EllisDon was at all material times aware, or ought to have been aware that a delay in the construction andcompletion of the Project would cause losses plus additional costs to the entities which would own and operate the Project. Even if these allegations are taken to be correct, which is denied, they do not plead facts that disclose a cause of action by the proposednew Plaintiffs.

It is important to observe that the Contract between Southwest Construction Management Limited and EllisDon was notfor the construction of the Project, but for construction management services to be provided in connection with the work carried out byindividual trade contractors employed directly by Southwest Construction Management Limited.

Any claim for damages for negligenceby the proposed new Plaintiffs would therefore depend upon an allegation that the breach of some duty owed by EllisDon, which has notbeen identified or pleaded, to the proposed new Plaintiffs, which are not alleged to have been known to EllisDon, caused a delay in theconstruction and completion of the Project constructed by others pursuant to their own contracts with Southwest ConstructionManagement Limited, which in turn resulted in loss to the proposed new Plaintiffs… Moreover, the loss claimed by the proposed newPlaintiffs in tort is purely economic, and there is no basis pleaded for the recovery of such loss in accordance with the analyticalframework established by the Supreme Court of Canada for the evaluation [of] claims for pure economic loss in tort … The proposedamended pleading does not allege facts which would place the proposed new plaintiffs claim for economic loss in tort within anycategory recognized by the Supreme Court of Canada for the recovery of such loss.

The proposed claims for losses in tort are withoutany factual basis and unsustainable on their face. Law on Amending Pleadings [39] EllisDon cites a number of cases for the proposition that Canadian courts have dismissed motions for leave to amend pleadingsin circumstances in which proposed amendments have advanced no reasonable cause of action, and have dismissed appeals of decisionsof lower courts refusing leave to amend in such circumstances: Lehan v. St. Catharines (City), 2010 ONCA 318; Hester v. Canada, 2008

ONCA 634; Carom v Bre -X Minerals Ltd., (ON SC), [1998] OJ No. 4496 (Ct. J. Gen.

Div), per Winkler J, as hethen was; and Hunt v Carey, (SCC), [1990] 2 SCR 959, which articulated the principle that an amendment should begranted “unless it is shown that it is beyond all doubt that the claim is one that is clearly impossible of success” (para. 10). [40] Moreover, some cases have held that untenable proposed amended pleadings, if granted, would constitute prejudice that cannotbe compensated by costs: Segal v Plazavest, [2004] OJ No. 4539 (SC); Marks v Ottawa (City), 2011 ONCA 248, at para. 19; GeographicResources Integrated Data Solutions Ltd. v.

Peterson, 2015 ONSC 4658, at para. 25; and Pantaleo v. Wood, 2015 ONSC 1850 at para.24. [41] Nova Scotia courts have held that, in spite of the introduction of new Civil Procedure Rules effective January 1, 2009, thegeneral rule regarding amendments to pleadings has been maintained, subject to specific authority in the Rules. In Altschuler vBayswater Construction Limited, 2019 NSSC 197, Bodurtha J., speaking in the context of whether “new claims” should be permitted asamendments to an existing claim, said (some citations omitted): The law of amendments generally 14 Justice Rosinski in Oldford v.

Canadian Broadcasting Corp., 2011 NSSC 49, summarized the relevant law in relation to addingamendments: [4] Counsel agree on the proper legal test that the Court should use. The test is found in Stacey v.

Consolidated Fund Corp. or CanadaLtd. (1986), (NS CA), 76 N.S.R. (2d) 182 (C.A.) per Clarke, C.J.N.S.: ... the amendment should have been granted unless it was shown to the Judge that the Applicant was acting in bad faith or that byallowing the amendment, the other party would suffer serious prejudice that could not be compensated by costs." [emphasis added] ... [8] The only reported cases which have considered this issue under the new Rules are Canada Life Assurance v. Saywood et al (2010),2010 NSSC 87 , 288 N.S.R. (2d) 273 (NSSC) and M5 Marketing Communications v.

Ross 2011 NSCC 32, both decisions ofMcDougall, J. [9] As Justice McDougall concluded, I also do not believe the new Rules intended to alter, and I accept that they therefore have notaltered, the appropriate legal test regarding when leave will be granted to amend court documents. 15 In Canada Life Assurance Co. v. Saywood, 2010 NSSC 87, McDougall J. summarized the law as follows: [7] Apparently there are no written decisions regarding the new Rule 83.02. There are, however, a number of cases pertaining to thepredecessor Rule 15 (1972 Rules). In the case of Global Petroleum Corp v.

Point Tupper Terminals Co. (1998), 1998 NSCA 174, 170 N.S.R. (2d) 367, Bateman, J.A., at para. 15, stated: [15] The law regarding amendment of pleadings is not complicated: leave to amend will be granted unless the opponent to theapplication demonstrates that the applicant is acting in bad faith or that, should the amendment be allowed, the other party will sufferprejudice which cannot be compensated in costs. (Baumhour et al. v. Williams et al. (1977), (NS CA), 22 N.S.R. (2d)564; 31 A.P.R. 564 (C.A.)) [8] This same statement of the law was cited by the Honourable Justice Arthur J. LeBlanc in the case of Shea v.

Whalen (2008), 250N.S.R. (2d) 65 at para. 6. [9] In the case of Garth v. Halifax (Regional Municipality) (2006), 2006 NSCA 89 , 245 N.S.R. (2d) 108 Cromwell, J.A. (as hewas then) stated the following at para 30: [30] The discretion to amend must, of course, be exercised judicially in order to do justice between the parties. Generally, amendmentsshould be granted if they do not occasion prejudice which cannot be compensated in costs: … [10] While these cases were all decided prior to the implementation of the new rule they continue to offer guidance despite these recentchanges. 16 In Thornton v.

RBC General Insurance Company, 2014 NSSC 215, at para. 33, Justice Wood (as he then was), described prejudicethat cannot be compensated in costs: 33 ... That type of prejudice is typically evidentiary in nature, which requires a consideration of whether documents and witnesses havebeen lost due to the passage of time. 17 In 1588444 Ontario Ltd. (c.o.b. Alfredo'

s) v. State Farm Fire and Casualty Co., 2017 ONCA 42, [2017] O.J. No. 241, the OntarioCourt of Appeal said the following about non-compensable prejudice at para. 25: *There must be a causal connection between the non-compensable prejudice and the amendment. In other words, the prejudice must flowfrom the amendments and not from some other source: … *The non-compensable prejudice may be actual prejudice, i.e. evidence that the responding party has lost an opportunity in the litigationthat cannot be compensated as a consequence of the amendment.

Where such prejudice is alleged, specific details must be provided: … *Non-compensable prejudice does not include prejudice resulting from the potential success of the plea or the fact that the amended plea

may increase the length or complexity of the trial: … *At some point the delay in seeking an amendment will be so lengthy and the justification so inadequate, that prejudice to the responding party will be presumed: … *The onus to prove actual prejudice lies with the responding party: … 18 In Mitsui & Co. (Point Aconi) Ltd. v. Jones Power Co. Ltd. , 2001 NSSC 178 , the defendant asserted prejudice of a similar nature to that claimed by the defendant in this case.

Justice Wright concluded that the defendant had failed to demonstrate prejudice that could not be compensated in costs: 32 The demonstration of prejudice alone, however, does not satisfy the legal test to be applied on this application. The burden is on Mitsui to further demonstrate that the prejudice caused cannot be compensated in costs. Undoubtedly these amendments, if permitted, will necessitate further discovery and the re-instruction of experts which inevitably will result in more cost and some measure of delay.

There has not as yet been any discovery of experts, however, and although there is always a risk of fading memories, any lay witnesses who do need to be re-examined will at least have the benefit of the transcripts of their earlier discovery evidence in a situation where the factual underpinning of the case has not changed. 19 These are the principles that are applied on an ordinary motion to amend. The analysis becomes more complicated, however, where the amendment is sought after the expiry of a limitation period. [My italicization added] A.

The parameters of the general rule regarding leave of the court to make amendments [7] [ 42 ] In considering whether the court should grant leave, there are three aspects to consider: 1. Is there sufficient evidence of bad faith on the part of the Southwest Group of Companies to preclude granting leave to amend? 2. Is there serious non-compensable prejudice to EllisDon flowing from granting leave to amend? 3. Can it be said that any part of the proposed pleadings are unsustainable or untenable in law such that leave to appeal should not be granted regarding those amendments? [8] 1.

No “bad faith” established [ 43 ] I conclude that EllisDon has not established that there has been bad faith by Southwest that should disentitle it to leave to make the amendments sought. [ 44 ] EllisDon had previously argued, inter alia , [9] that Southwest failed to explain the purpose for seeking an amendment, and had not pleaded facts which could justify the proposed amendment. EllisDon also questioned the timing of the proposed amendments, including the suggestion that they were used in a tactical manner so as to provide greater bargaining power to Southwest in any settlement discussions.

They make these arguments in light of the history of the litigation, and the conclusions of the court at paragraphs 31 and 40 of Justice Gabriel’s decision, 2018 NSSC 270 . In response, Southwest stated in its brief: The motivation for the amendment to the pleadings is to correct deficiencies in the original pleadings regarding the identification of the corporate entities within the Southwest Group of Companies which had undertaking [sic] the mortgage financing and leasing responsibilities with respect to the project in question.

There is no evidence that Southwest Construction is acting in bad faith, and no evidence has been proffered or even identified by EllisDon in support of an inference to this effect. [ 45 ] The basic facts alleged here are that EllisDon presented itself as capable of being, and agreed to be, construction manager to the Maple Project, but did not reasonably diligently provide its services, thereby causing a delay in the project and losses to the various entities within the Southwest Group of Companies. [ 46 ] In the circumstances, EllisDon says, the Southwest Group of Companies, better than anyone else would know, or did know, the actual or reasonably expected financial impacts of the delay, and upon which of its entities those impacts would fall.

Yet not only do the Southwest Plaintiffs (existing and proposed) argue that the court should find that they are all “related” entities, but they also argue that EllisDon knew or ought to have known that one or more of them, regardless of specifically which ones, would suffer the damages they now claim in their proposed Amended Statement of Claim. [ 47 ] Moreover, that argument, which suggests a close working relationship between all of the companies, is at odds with the presentation of yet another substantial group of proposed amendments by the Southwest Group of Companies some four years after the initial Statement of Claim was filed, particularly in light of the frequency and timing of Southwest’s repeated proposed amendments to date. [ 48 ] While there is some merit to EllisDon’s arguments, which do trouble the court, I remind myself that an allegation of bad faith is a serious one, and courts from their isolated position should not lightly come to that conclusion.

I conclude that the evidence presented does not rise to a level which would allow me on a balance of probabilities to infer bad faith on the part of Southwest. 2. No non-compensable prejudice

[ 49 ] As to whether adding the proposed “new claimants” SWC (in relation to the newly claimed negligent misrepresentation) and WP2, SWP Maple, and SWP (in relation to the newly-claimed negligent misrepresentation and existing claim of negligent provision of services, and the claim for increased debt interest financing) would cause prejudice that could not be compensated for in costs, I find there is no such prejudice here. [ 50 ] The law respecting non-compensable prejudice was helpfully summarized by the Ontario Court of Appeal in 1588444 Ontario Ltd. v State Farm Fire and Casualty Co. , 2017 ONCA 42 (some citations omitted): 1. Motion to amend (

a) Legal principles [24] Motions for leave to amend a pleading are governed by rule 26.01 of the Rules of Civil Procedure, – R.R.O. 1990, Reg. 194 , which provides: 26.01 On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment. [25] The law regarding leave to amend motions is well developed and the general principles may be summarized as follows: • The rule requires the court to grant leave to amend unless the responding party would suffer non-compensable prejudice; the amended pleadings are scandalous, frivolous, vexatious or an abuse of the court's process; or the pleading discloses no reasonable cause of action : … • The amendment may be permitted at any stage of the action : … • There must be a causal connection between the non-compensable prejudice and the amendment.

In other words, the prejudice must flow from the amendments and not from some other source : … • The non-compensable prejudice may be actual prejudice, i.e ., evidence that the responding party has lost an opportunity in the litigation that cannot be compensated as a consequence of the amendment.

Where such prejudice is alleged, specific details must be provided : … • Non-compensable prejudice does not include prejudice resulting from the potential success of the plea or the fact that the amended plea may increase the length or complexity of the trial : … • At some point, the delay in seeking an amendment will be so lengthy, and the justification so inadequate, that prejudice to the responding party will be presumed : … • The onus to prove actual prejudice lies with the responding party : … • The onus to rebut presumed prejudice lies with the moving party : … [26] Bearing in mind these principles, I turn to a consideration of the actual and presumed prejudice in the present case. [page689] (

b) Actual prejudice … [31] To meet their onus, the respondents were obliged to adduce specific evidence of actual prejudice. For example, such evidence could include details of witnesses who were available previously but are no longer available. Noting that witnesses' memories may have faded is really just a generalized description of presumed prejudice. Such evidence lacks the required degree of specificity to qualify as evidence of actual prejudice. [32] I agree with the observation of William J. Poulos in his

article Prejudice: Taking a Hard Look at the Merits (1999), 22 C.P.C. (4th) 366 , at p. 379, that when it comes to alleging actual prejudice in response to a motion to amend, The specific allegation of prejudice should be detailed in sufficient particularity in evidence to allow the opposing party to respond to the allegation and to allow the court to take a hard look at the merits of the allegation. … (c)Presumed prejudice [36] The seminal case in Ontario considering the concept of presumed prejudice in the context of a rule 26.01 motion is the Family Delicatessen decision.

In that case, this court observed that at a certain point after an exceptional delay, non-compensable prejudice will be presumed absent evidence to the contrary. In other words, after inordinate delay, the presumption in favour of granting leave shifts to a presumption that non-compensable prejudice will result if leave is granted. This makes sense as a matter of fairness. It would be very difficult for a responding party to prove, for example, the generalized prejudice that witnesses' memories will be diminished after a lengthy passage of time. [37] The presumption of prejudice is rebuttable.

Where the moving party provides an adequate explanation for the delay or tenders evidence that there is no non-compensable prejudice, the presumption will be rebutted. [38] The court in Family Delicatessen did not elaborate on when the shift in onus takes place, i.e ., the point at which the delay will be so

lengthy that prejudice will be presumed. It also did not explain what evidence would need to be led by the moving party to rebut theonus. [39] The Divisional Court elaborated on the concept of presumed prejudice in Ontario Securities Commission v. McLaughlin, [2009]O.J. No. 1993, 2009 CarswellOnt 2694 (Div. Ct.).

There the court stated, at para. 6, that to rebut the presumption of prejudice, a movingparty needs to provide "some explanation of the delay in seeking the amendments and the presence or absence of prejudice to theopposite party and the need to show a nexus between the proposed amendments and the facts or evidence said to be recently discovered". [40] The respondents submit that the OSC case provides a framework to determine whether the presumption has been rebutted. Theyurge the court to adopt a three-part test that the moving party must satisfy as follows: (

i) an explanation for the delay; (ii) the absence ofnon-compensable prejudice to the responding party; and (iii) a nexus between newly discovered information and the proposed pleading.The respondents submit that unless a moving party can adduce compelling evidence on all three parts of the test, then they have notrebutted the presumption. [41] I would not adopt the rigid test urged upon us by the respondents. In my view, the Divisional Court in OSC did not purport toestablish a stringent test for rebutting the presumption.

Rather, they were simply referencing the types of evidence that might be adducedby a moving party to rebut the operation of the presumption. [42] In any event, such a rigid test is contrary to the fairness considerations that underlie the court's recognition of the concept ofpresumed prejudice in Family Delicatessen. It would be inequitable to require a moving party to satisfy all three parts of the proposedtest in all cases.

For example, if a moving party were able to establish that the responding party would suffer no non-compensableprejudice by reason of the amendment, then it would be an odd result if the presumption was not rebutted simply because an adequateexplanation for the delay had not been established. [My bolding added] [51] The combination of proposed amendments which would see “new claimants” and “new claims”[10] simultaneously added atthis stage in the litigation could naturally lead one to suspect that there is likely serious “prejudice” to the responding party.

However,ultimately I do not find that to be the case in the circumstances here. [52] I have evidence that the Southwest Group of Companies are “related”. No significant specific elaboration to that conclusorystatement was provided.

However, the drawing of reasonable inferences leads to the conclusion that, without piercing the corporate veil,all the relevant entities of the Southwest Group of Companies should be considered as imbued with like knowledge of each of their parts,and as working “hand in glove” together regarding the Maple Project. [53] On the other hand, while EllisDon argues generally that it was unaware of which Southwest entities were tasked with theoperation of the Project post-construction, no evidence was presented in support of the assertion that EllisDon was unaware that one ormore of the Southwest Group of Companies would be tasked with the operation of the Project post-construction.[11] [54] An examination of the record reveals no compelling evidence of serious non-compensable actual prejudice to EllisDon if theamendments were permitted.

No serious non-compensable prejudice of the kind referenced by Justice Bodurtha in Bayswater has beenestablished here: namely, prejudice of an evidentiary nature, such as documents and witnesses that have been lost due to the passage oftime; lost opportunity in the litigation that cannot be compensated as a consequence of the proposed amendments, etc. [55] In relation to presumed prejudice due to excessive delay, that is not a persuasive argument in this case where the basic factsinvolve a contractual relationship between the parties, and the acts or omissions that caused the alleged damages were generallyknowable by all parties on or before June 1, 2015, based on their intimate involvement in managing the construction flowing from theconstruction management services contract. [56] Both breach of contract and negligent provision of services are already pleaded by SWC. [57] To be clear, there is no evidence of serious non-compensable presumed prejudice herein. 3.

Leave to amend should not be precluded on the basis of the argued untenability of the amendments [58] EllisDon says the claims sought to be advanced in the proposed Amended Statement of Claim lack any pleaded material factualbasis which would support the relevant allegations of breach of contract and negligence asserted by the various Southwest entities.

Theircomplaint may be put as follows: There are two basic routes for the Southwest Group of Companies to recover as against EllisDon: breach of contract and the tort ofnegligence (whether that be negligent misrepresentation or negligent provision of services, claiming pure economic loss). [59] None of the proposed “new claimants” (WP2, SWP Maple, and SWP) are parties to the contract between SWC and EllisDon.Generally speaking, without being privy to the contract, the new claimants have no recourse thereunder.[12] [60] While the new claimants argue that they have claims against EllisDon in both negligent misrepresentation and negligentprovision of services, EllisDon says it did not have a duty to any of the proposed new plaintiffs, nor is a such a duty, or a breach of suchduty, pleaded.

Moreover, EllisDon says, claims for pure economic loss in tort must be within a category recognized by the SupremeCourt of Canada for such recovery of loss, and Southwest’s claims do not have that character: see Winnipeg Condominium CorporationNo. 36 v Bird Construction Co. (SCC), [1995] 1 SCR 85. [61] A determination of this issue requires an examination of the constituent elements and restraints upon these two forms of

negligence. [62] EllisDon’s argument that the proposed pleadings are unsustainable or untenable approximates a motion for

summary judgmenton pleadings pursuant to CPR 13.03. That Rule requires a judge to set aside a statement of claim that “discloses no cause of action” (CPR13.03(1)(a)) or which makes a claim “that is clearly unsustainable when the pleadings is read on its own” (CPR 13.03(1)(c)). [63] In the case at Bar, affidavit evidence has been filed, and the comparison with

summary judgment on pleadings is limited.Nevertheless, from the perspective of the unsustainability of pleadings, I find helpful, as a succinct statement of the applicable principles,Justice Keith’s reasons at para. 44 in Keleher v Nova Scotia (Atty. Gen.), 2019 NSSC 375: 44 Four key principles govern motions for

summary judgment on the pleadings: a. For the purposes of the motion to strike, the facts contained in the challenged pleading must be taken as being proven and true(Homburg Canada Inc v Halifax (Regional Municipality) (2003), N.S.J. No. 194, (2003), 2003 NSCA 61 , 216 NSR (2d) 67(NSCA), at para 7). b. Although the pleaded facts are deemed to be true, a plaintiff cannot simply stand on the mere possibility that the material factsnecessary to sustain a cause of action might eventually pop up.

A plaintiff "must plead fact material to the causes of action they assert"(Canada (Attorney General) v Walsh Estate, 2016 NSCA 60, [2016] N.S.J. No. 298, at para 18); c. It must be "plain and obvious" that the claims as pleaded cannot succeed because, for example, "the pleading, on its face, discloses noreasonable cause of action; or ... the claim is absolutely unsustainable; or ... it is certain to fail because of a radical defect" (Hunt v CareyCanada Inc, (SCC), [1990] 2 SCR 959, at paras 30-34; Homburg Canada Inc. v Halifax (Regional Municipality), supra,at para 7) d.

The power to strike should be used with care. The law evolves. The court should be generous and err on the side of permitting novel,but arguable, claims to proceed" (Canada (Attorney General) v Walsh Estate, supra, at para 18). [64] Next let me briefly state the constituent elements of claims for negligent misrepresentation and negligent provision of services,as well as the limitations on claims thereunder for pure economic loss.[13] [65] Regarding the categories of recoverable pure economic loss, I also find it helpful to cite from the recent decision in ClarkBuilders: (

b) Categories of Recoverable Economic Loss 144 The common law has only reluctantly and grudgingly extended liability in negligence for causing pure economic loss. As doctrinehas evolved, the recoverable economic loss cases have fallen into five main categories, outlined by Justice La Forest in BirdConstruction at para 12: 12 This case gives this Court the opportunity once again to address the question of recoverability in tort for economic loss. In Norsk,supra, at p. 1049, I made reference to an

article by Professor Feldthusen in which he outlined five different categories of cases where thequestion of recoverability in tort for economic loss has arisen ("Economic Loss in the Supreme Court of Canada: Yesterday andTomorrow" (1990-91), 17 Can. Bus. L.J. 356, at pp. 357-58), namely: 1. The Independent Liability of Statutory Public Authorities; 2. Negligent Misrepresentation; 3. Negligent Performance of a Service; 4. Negligent Supply of Shoddy Goods or Structures; 5. Relational Economic Loss ...

See also D'Amato v Badger at para 30; Design Services at para 31; Brown, Pure Economic Loss at 5, 47-54; Osborne, Law of Torts at182. 145 While a categorical approach might seem out-moded given the Supreme Court's abstract "principled" approaches in a variety oflegal areas, a categorical approach in the economic loss area is appropriate. First, as Professor Feldthusen has warned, the differentcategories of economic loss doctrine have evolved in particular contexts as solutions for particular problems.

The categories are notexamples or instances of general doctrinal principles (as if a single Hegelian idea were being made manifest through concreteinstances), but were distinct doctrinal solutions concerning distinct types of interactions (the individual doctrinal areas have some broad"family resemblances" but serve different purposes and functions). The categories do share some elements, since all come under thewing of the tort of negligence. The common elements, though, should not be over-emphasized to impose uniformity.

Second, from thestandpoint of litigation methodology, the categorical approach gives analysis a starting point. An economic loss problem emerging fromparticular circumstances should be assessed under the categories, to determine whether the jurisprudence accommodates a response tothat problem in those circumstances: Livent at paras 28-19. The law, though, is not static. If the problem is not amenable to categoricalresolution, it may be that the law should be extended to provide a remedy in a new set of circumstances.

To determine whether anextension is warranted, tort principles, particularly those governing the recognition of a duty of care would come into play: see, e.g.,Livent at para 29; Bow Valley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd, (SCC), [1997] 3 SCR 1210,McLachlin J, as she then was, at para 47; Brown, Pure Economic Loss at 14-17.”

[My italicization added] [66] It is also worth noting that a tort duty of care may exist with a duty in contract. As noted by Justice LaForest, in BirdConstruction: 23 Turning to the first of these reasons, I observe that it is now well-established in Canada that a duty of care in tort may arisecoextensively with a contractual duty. In Central Trust Co. v. Rafuse, (SCC), [1986] 2 S.C.R. 147, Le Dain J. explainedthe relationship between tort and contractual duties as follows, at pp. 204-5: 1.

The common law duty of care that is created by a relationship of sufficient proximity, in accordance with the general principleaffirmed by Lord Wilberforce in Anns v. Merton London Borough Council, is not confined to relationships that arise apart from contract.Although the relationships in Donoghue v.

Stevenson, Hedley Byrne and Anns were all of a non-contractual nature and there wasnecessarily reference in the judgments to a duty of care that exists apart from or independently of contract, I find nothing in thestatements of general principle in those cases to suggest that the principle was intended to be confined to relationships that arise apartfrom contract. . . . [T]he question is whether there is a relationship of sufficient proximity, not how it arose. The principle of tortiousliability is for reasons of public policy a general one.

This is not to say, of course, that a duty in tort arises out of a duty in contract. In Rafuse, Le Dain J. made it clear that, although duties intort and contract may arise concurrently, the duty in tort must arise independently of the contractual duty. He stated, at p. 205: 2. What is undertaken by the contract will indicate the nature of the relationship that gives rise to the common law duty of care, but thenature and scope of the duty of care that is asserted as the foundation of the tortious liability must not depend on specific obligations orduties created by the express terms of the contract.

It is in that sense that the common law duty of care must be independent of thecontract. [My italicization added]

i) Negligent misrepresentation [67] The Supreme Court of Canada authoritatively determined the parameters of this civil claim in R v Cognos Inc., (SCC), [1993] 1 SCR 87, and BG Checo International Ltd. v.

British Columbia Hydro and Power Authority, (SCC),[1993] 1 SCR 12.[14] [68] In Cognos the court set out the constituent elements of negligent misrepresentation (some citations omitted): 30 … Though a relatively recent feature of the common law, the tort of negligent misrepresentation relied on by the appellant and firstrecognized by the House of Lords in Hedley Byrne, supra, is now an established principle of Canadian tort law.

This Court has confirmedon many occasions, sometimes tacitly, that an action in tort may lie, in appropriate circumstances, for damages caused by amisrepresentation made in a negligent manner: … 31 While the doctrine of Hedley Byrne, supra, is well established in Canada, the exact breadth of its applicability is, like any commonlaw principle, subject to debate and to continuous development. … Without question, the present factual situation is a novel one for thisCourt. … 33 The required elements for a successful Hedley Byrne claim have been stated in many authorities, sometimes in varying forms.

Thedecisions of this Court cited above suggest five general requirements: (1) there must be a duty of care based on a "special relationship"between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) therepresentor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonable manner,on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damagesresulted. [My italicization added] [69] It is not contested that the damages claimed in the case at bar are in the nature of “pure economic loss”.

In spite of the SupremeCourt of Canada’s articulation of the parameters of “negligent misrepresentation” in 1993, we find the following remarks in PureEconomic Loss in Canadian Negligence Law (Markham, Ontario: Lexis-Nexis Canada, 2011) at pp. 232-235, per Prof.

Russell Brown(as he then was – now of the Supreme Court of Canada): While negligent misrepresentations have engendered the largest body of case authorities among the different forms of judiciallyrecognized pure economic loss in Canada, a pithy encapsulation of just what a negligent misrepresentation constitutes for the purposesof negligence law does not appear in any of the leading Canadian authorities.

This is unsurprising since, as will be shown in thischapter, the fundamental prerequisites for imposing liability for a negligent misrepresentation – after nearly 50 years of judicialrecognition – remain unsettled at the Supreme Court of Canada. … For the present purpose of introducing the concept of a negligent misrepresentation, however, the elements which a plaintiff must show

in order to support the imposition of a duty of care upon the maker of negligent misrepresentation will be taken as: 1. a statement by the defendant to the plaintiff that is untrue (or otherwise inaccurate or misleading); 2. the accuracy for which the defendant assumed or undertook responsibility to the plaintiff; and 3. upon which the plaintiff reasonably relied.

Perhaps because it was the first form of pure economic loss to be recognized as recoverable in Canadian and Commonwealth negligencelaw, negligent misrepresentation has occasionally been spoken of as if it were its own nominate “tort of negligent misrepresentation”,even at the Supreme Court of Canada. Certainly, those duty elements enumerated above do not apply to claims for negligencesimpliciter. As was explained in

Chapter 1, however, the better way of understanding them is that, taken together, they comprise aspecific instance of ‘proximity’ within the general duty of care test in negligence law, tailored to cases where the defendants negligentconduct was in making a misrepresentation. Negligent misrepresentation therefore occupies a subset within the tort of negligence, in thesame way as other kinds of negligent conduct for which the elements of proximity have been similarly specified….Despite the different(or rather, specified) duty of care elements, the cause of action remains that of negligence.

Plaintiffs must therefore still prove a breachof the common law standard of care of the ‘reasonable person’, the content of which might be informed by custom, trade practice,expertise are statute, as well as by the degree of risk, the scope of the potential harm, and sometimes the cost to the defendant of harm-avoidance. [My italicization added] [70] Prof.

Brown goes on to note that the Supreme Court of Canada expounded upon the line between indeterminate and determinateliability in economic loss cases in Haig v Bamford, (SCC), [1977] 1 SCR 466, where the issue was the liability of anaccountant to parties other than his employer for negligent statements, and specifically whether there was sufficient proximity for a dutyof care to arise. The claim related to the potential damage to economic interests relating to financial statements, and the scopes ofliability arriving from accountants’ professional activities.

Dickson J. (as he then was) said: … The complexities of modern industry combined with the effects of specialization, the impact of taxation, urbanization, the separationof ownership from management, the rise of professional corporate managers, and a host of other factors, have led to marked changes inthe role and responsibilities of the accountant, and in the reliance which the public must place upon his work. The financial statements ofthe corporations upon which he reports can affect the economic interests of the general public as well as of shareholders and potentialshareholders.

With the added prestige and value of his services has come, as the leaders of the profession have recognized, a concomitant andcommensurately increased responsibility to the public. It seems unrealistic to be oblivious to these developments. It does not necessarilyfollow that the doors must be thrown open and recovery permitted whenever someone's economic interest suffers as the result of anegligent act on the part of an accountant.

Compensation to the injured party is a relevant consideration but it may not be the onlyrelevant consideration. … In the case at bar, the accounts were prepared for the guidance of a "specific class of persons", potential investors, in a "specific class oftransactions", the investment of $20,000 of equity capital. The number of potential investors would, of necessity, be limited because thecompany, as a private company, was prohibited by s. 3(o) (iii) of The Companies Act of Saskatchewan (R.S.S. 1965, c. 131) fromextending any invitation to the public to subscribe for shares or debentures of the company.

One comes then to the Hedley Byrne case. The argument was raised in that case that the relationship between the parties was notsufficiently close to give rise to any duty. Lord Reid dealt with that argument in these words (p. 580): ... It is said that the respondents did not know the precise purpose of the inquiries and did not even know whether National ProvincialBank, Ltd. wanted the information for its own use or for the use of a customer: they knew nothing of the appellants. I would reject thatargument.

They knew that the inquiry was in connection with an advertising contract, and it was at least probable that the informationwas wanted by the advertising contractors. It seems to me quite immaterial that they did not know who these contractors were: there isno suggestion of any speciality which could have influenced them in deciding whether to give information or in what form to give it.

Ishall therefore treat this as if it were a case where a negligent misrepresentation is made directly to the person seeking information,opinion or advice, and I shall not attempt to decide what kind of degree of proximity is necessary before there can be a duty owed by thedefendant to the plaintiff. In the present case the accountants knew that the financial statements were being prepared for the very purpose of influencing, inaddition to the bank and Sedco, a limited number of potential investors. The names of the potential investors were not material to theaccountants.

What was important was the nature of the transaction or transactions for which the statements were intended, for that iswhat delineated the limits of potential liability. The speech of Lord Morris in Hedley Byrne included this observation, p. 588: It is, I think, a reasonable and proper inference that the bank must have known that the National Provincial were making their inquirybecause some customer of theirs was or might be entering into some advertising contract in respect of which Easipower, Ltd., mightbecome under a liability to such customer to the extent of the figures mentioned.

The inquiries were from one bank to another. The nameof the customer (Hedleys) was not mentioned by the inquiring bank (National Provincial) to the answering bank (the bank): nor did theinquiring bank (National Provincial) give to the customer (Hedleys) the name of the answering bank (the bank). These circumstances donot seem to me to be material. The bank must have known that the inquiry was being made by someone who was contemplating doingbusiness with Easipower Ltd. and that their answer or the substance of it would in fact be passed on to such person.

Lord Devlin stood on narrow ground, content with the proposition that wherever there is a relationship equivalent to contract, there is a duty of care and such relationship may be either general, such as that of solicitor and client and of banker and customer, or particular, created ad hoc , in which case it becomes necessary to examine the particular facts to see whether there is an express or implied undertaking of responsibility. This reference to "assumption of responsibility" is crucial in cases involving economic loss, according to C. Harvey, "Economic Losses & Negligence" (1972), 50 Can. Bar Rev. 580.

Harvey devises a test for imposing a duty of care in cases of economic loss which he phrases as follows (p. 600): a, person should be bound by a legal duty of care to avoid causing economic loss to another in circumstances where a reasonable man in the position of the defendant would foresee that kind of loss and would assume responsibility for it. This "assumption of responsibility" test is an interesting one, although it is no more objective than a foreseeability test.

It would allow the Court to narrow the scope of liability from that resulting from a foreseeability test, but it would still require scope of liability. As Lord Pearce stated in Hedley Byrne (p. 615): How wide the sphere of the duty of care in negligence is to be laid depends ultimately on the courts' assessment of the demands of society for protection from the carelessness of others.

Lord Pearce in Hedley Byrne adopted Lord Denning's dissent in Candlers case , to which I have already referred, noting that the result produced was somewhat similar to the American Restatement of the Law of Torts. [My italicization added] [ 71 ] Justice Dickson went on to review a line of English and American authorities addressing the scope of the duty of care in economic loss cases, including two decisions of Cardozo J.: The American authorities: Judgment in the two leading cases was written by Mr. Justice Cardozo. In Glanzer v.

Shepard [(1922), 233 N.Y. 236 .] the defendants, public weighers, at the request of a seller of beans, made a return of the weight and furnished the plaintiff buyer with a copy. The buyer paid the seller on the faith of the certificate which turned out to be erroneous. The buyers were entitled to recover from the weighers. The certificate was held to be the very "end and aim" of the transaction and not something issued in the expectation that the seller would use it thereafter in the operations of his business as occasion might require.

The question whether third parties were protected from the negligence of accountants came before the New York Courts in Ultramares Corp. v. Touche, supra . The breach made in the wall of privity by Glanzer's case was narrowed in Ultramares . In that case, a company showed a balance sheet prepared by the defendants to a factor who advanced money to the company. The factor was unknown to the defendants, and Cardozo J. held that the defendants owed the factor no duty of care.

Although the Ultramares decision has been followed widely in the United States, it has also been criticized. (See Prosser, Law of Torts, 4th ed., pp. 706 to 709; Hawkins, "Professional Negligence Liability of Public Accountants" (1959), 12 Vand. Law Rev. 797; Note, "Accountants' Liability for False and Misleading Statements" (1967), 67 Colum. L. Rev. 1437 .) Ultramares has also been distinguished in a case similar to the one at bar, Rusch Factors, Inc. v. Levin [ (1968), 284 F. Supp. 85 (Dist. Ct., R.I.).].

In Rusch , the Court held that the plaintiff investor, who had relied on the financial statement prepared by the defendant, was actually foreseen by the defendant. Pettine J. distinguished Ultramares in these words (p. 91): ... There, the plaintiff was a member of an undefined, unlimited class of remote lenders and potential equity holders not actually foreseen but only foreseeable. The Rusch case was followed by the U.S. Court of Appeals (4th Circuit) in Rhode Island Hospital Trust National Bank v. Swartz [ (1972), 455 F. 847 .].

That case mentions that Rusch has been followed in Iowa and Minnesota. [My italicization added] [ 72 ] Justice Dickson continued: The case before us is closer to Glanzer than to Ultramares. The very end and aim of the financial statements prepared by the accountants in the present case was to secure additional financing for the company from Sedco and an equity investor; the statements were required primarily for these third parties and only incidentally for use by the company .

In the Ultramares case, Touche would know that the statements were primarily for company use although they might be read in the ordinary course of business by shareholders, investors, banks and countless others. Prosser, Law of Torts, 4th ed., notes at p. 707 that a duty of reasonable care has been found where a representation is made to a third person with knowledge that he intends to communicate it to the specific individual plaintiff for the purpose of inducing him to act, and that most of the courts have drawn the line there .

The following question is posed, however, (p. 708): But what if the defendant is informed that his representation is to be passed on to some more limited group, as a basis for action on the part of some one or more of them? and the answer is in these words, (p. 709): ... where the group affected is a sufficiently small one, and particularly, as in the case of the successful bidder, only one person can be expected to suffer loss, the guess may be hazarded that the recovery will be allowed.

Certificates of expert examination are intended to be exhibited, not hidden under a bushel; and a rule which denies recovery because the defendant who has provided one for such a

purpose does not know the plaintiff's name, or the particulars of the transaction, has a very artificial aspect. The approach taken in the American Restatement of Torts (2d) SS 552 is to permit recovery for loss suffered by the person or one of thepersons for whose benefit or guidance the professional person intends to supply the information or knows that the recipient intends tosupply it. A duty of care arises if the defendant accountant knows that a third party will receive his statements.

This knowledge is notwith regard to the specific individual, but to a limited class of which he forms a part. … [My italicization added] [73] Justice Dickson went on to consider the Canadian authorities relevant to the issues, and concluded that liability had beenestablished: The Canadian authorities: The Hedley Byrne case has been considered by this Court in Well-bridge Holdings Ltd. v. Metropolitan Corp.of Greater Winnipeg [ (SCC), [1971] S.C.R. 957]. Recovery for economic loss caused by negligence has been allowed inRivtow Marine Ltd. v. Washington Iron Works [ (SCC), [1974] S.C.R. 1189.], where Mr.

Justice Ritchie said, p. 1213: ... I am of opinion that the case of Hedley Byrne represents the considered opinion of five members of the House of Lords to the effectthat a negligent misrepresentation may give rise to an action for damages for economic loss occasioned thereby without any physicalinjury to person or property and apart from any contract or fiduciary relationship... (See also J. Nunes Diamonds Ltd. v. Dominion Electric Protection Co. [ (SCC), [1972] S.C.R. 769.]) In

summary, Haig placed justifiable reliance upon a financial statement which the accountants stated presented fairly the financialposition of the company as at March 31, 1965. The accountants prepared such statements for reward in the course of their professionalduties. The statements were for benefit and guidance in a business transaction, the nature of which was known to the accountants. Theaccountants were aware that the company intended to supply the statements to members of a very limited class. Haig was a member ofthe class.

It is true the accountants did not know his name but, as I have indicated earlier, I do not think that is of importance. I can see nogood reason for distinguishing between the case in which a defendant accountant delivers information directly to the plaintiff at therequest of his employer, (Candler's case and Glanzer's case) and the case in which the information is handed to the employer who, to theknowledge of the accountant, passes it to members of a limited class (whose identity is unknown to the accountant) in furtherance of atransaction the nature of which is known to the accountant.

I would accordingly hold that the accountants owed Haig a duty to usereasonable care in the preparation of the accounts. [My italicization added] [74] In Haig, a duty of care was extended for a known (rather than foreseeable) class of potential plaintiffs in the case of negligentmisrepresentation.[15] [75] Prof. Brown concludes at page 307[16] that the question of indeterminate liability was one to be addressed at the stage ofdetermination of prima facie duty of care, at the first stage of the Anns test, as indicated by Fullowka v.

Pinkerton’s of Canada Ltd., 2010SCC 5 , [2010] 1 SCR 132: In short, Cromwell J’s approach in Fullowka [ v Pinkerton’s of Canada Ltd., 2010 SCC 5 , [2010] 1 SCR 132] is correct inviewing concerns of indeterminate liability as pertaining to the determination of the prima facie duty of care. Such concerns are ‘directlyrelevant to ascertaining the existence and the extent of an invitation to rely in given circumstances’. As such, they belong to the firststage of the Anns/Cooper v Hobart duty of care test. ii) Negligent provision of services [76] In relation to this tort, Prof.

Brown states at page 52 – 54 in Pure Economic Loss in Canadian Negligence Law: Claims for negligent performance of a service are also resolved with reference to the reliance loss basis for a duty of care. As

Chapter 5discusses, the scope of claims covered by this form of pure economic loss is not yet clearly agreed upon. It is, however, fair to say thatCanadian courts have recognized that it covers claims arising from the defendant’s negligent performance of a business or professionalservice undertaken for the plaintiff’s benefit. The case authorities are typically divided by commentators into two categories. First, thereare cases where the defendant undertook directly to the plaintiff to perform a service to the plaintiff’s benefit.

And, secondly, there arecases where the defendant undertook indirectly – typically by way of a contract with a third party – to perform a service to the plaintiff’sbenefit. Despite this general agreement upon the taxonomy of claims for negligent performance of a service, there remains a dispute (both amongcommentators and in the courts) about the necessary elements for successfully bringing such a claim.

The issue is whether the plaintiffmust prove that he or she reasonably relied on the undertaking to provide the service, or whether instead the mere fact of the defendant’sundertaking is sufficient to ground liability. The argument against a reliance requirement is that the plaintiff’s reliance goes only toproving the causal sequence that led to the loss, and not to the duty of care. If that causal sequence can be proven in some other way, theargument goes, then a reliance requirement would be superfluous. As will be shown in

Chapter 5, however, the bulk of Canadianappellate authority affirms that reasonable reliance is a necessary precondition to liability for the negligent performance of a service,just as it is in the claims for negligent misrepresentation. Whether, therefore, the presence or absence of reasonable reliance is beingconsidered from the standpoint of a principled view of negligence law or from the standpoint of Canadian case authoritie

[…]