Albionex (Overseas) Ltd. et al. v. Date:, 2011 MBCA 95

Citation: Albionex (Overseas) Ltd. et al. v. Date: 20111214 Conagra Ltd. et al., 2011 MBCA 95 IN THE COURT OF APPEAL OF MANITOBA Coram : Chief Justice Richard J. Scott Madam Justice Barbara M. Hamilton Mr. Justice Richard J. Chartier Docket: AI10-30-07365 ) B E T W E E N: ) ) ALBIONEX (OVERSEAS) LIMITED and ) C. R. MacArthur, Q.C. and PAGNAN S.p.A. ) C. M. Unfried ) for The Canadian Wheat Board (Plaintiffs) Respondents ) ) - and - ) G. J. Orle, Q.C., ) D. C. G. Richert and THE CANADIAN WHEAT BOARD ) C. H. Shire ) for ConAgra Limited (Defendant) Appellant ) ) - and - ) M. Newman and ) D. J.

Kroft CONAGRA LIMITED ) for Albionex (Overseas) Limited ) and Pagnan S.p.A. (Defendant) Respondent ) ) - and - ) Appeals heard: ) February 15 and 16, 2011 Docket: AI10-30-07368 ) B E T W E E N: ) ) Judgment delivered: ALBIONEX (OVERSEAS) LIMITED and ) December 14, 2011 PAGNAN S.p.A. ) ) (Plaintiffs) Respondents ) ) - and - ) ) CONAGRA LIMITED ) ) (Defendant) Appellant ) - and - ) ) THE CANADIAN WHEAT BOARD ) ) (Defendant) Respondent ) SCOTT C.J.M.

Introduction 1 In late August 1982, widespread frost damage occurred to Western Canada’s premier Canada Western Red Spring wheat (CWRS), resulting in significant degrading of the crop. The defendant The Canadian Wheat Board (the CWB), along with the Canadian Grain Commission (the CGC), elected to market the damaged wheat under the specification “Wheat – Ex.

Special Bin” (WSB) on the basis, despite its visual degradation, that it “possesses what is known as ‘fair’ milling quality and would be quite suitable for milling purposes.” 2 The plaintiff Pagnan S.p.A., an Italian corporation, purchased a large quantity of WSB from the defendant ConAgra Limited (Agro), an accredited CWB exporter. When the first cargo of wheat was delivered to Italy, it was found to be inferior and not of fair milling quality.

The plaintiffs together (Pagnan having sold, then repurchased the cargo from the other plaintiff, Albionex (Overseas) Limited) commenced action in 1985, claiming against Agro for breach of contract and against the CWB based on the representations made with respect to the characteristics and quality of WSB. Agro crossclaimed against the CWB, asserting that it too had relied upon the CWB’s representations. 3 The trial did not commence until April 2007 and continued thereafter in fits and starts until May 2008.

The trial judge delivered lengthy reasons for decision in July 2009, holding Agro liable to the plaintiffs for breach of contract and the CWB liable for negligent misrepresentation. Agro’s crossclaim against the CWB was allowed. Judgment was eventually entered in favour of the plaintiffs and against the defendants jointly and severally in the amount of $4,642,392.40, inclusive of interest to the date of judgment, plus costs.

Judgment was also entered (in favour of Agro) in a similar amount against the CWB. 4 Agro and the CWB then appealed their liability and damages, and the CWB appealed Agro’s crossclaim judgment. The plaintiffs also cross appealed, arguing that damages should be increased. 5 The principal issues on these appeals are whether the trial judge committed palpable and overriding error with respect to many of her critical factual findings, whether the CWB was rightly found liable to the plaintiffs – and Agro – for the tort of negligent misrepresentation and whether Agro was liable to the plaintiffs for breach of contract.

Facts 6 Since prior to the Second World War (but apparently not much longer), the CWB, which markets all over the world, has had a monopoly on the sale of wheat produced on the Canadian Prairies. Its mandate is to maximize the price on behalf of Canada’s farmers. The CGC governs and regulates the Canadian grain industry. In this regard, it independently assesses and analyzes the quality of crops each year. It is also responsible, pursuant to the provisions of the Canada Grain Act , for setting grades and standards.

While there is a very close level of cooperation between the two institutions, each has its own role to play. 7 In the result, Canadian wheat has an excellent reputation based on its proven consistency and reliability within the grades assigned by the CGC.

More specifically, for many years, CWRS has enjoyed a world-wide reputation as being one of the very best “hard” wheats, which are essential for bread making. 8 The plaintiff Pagnan is an Italian-based grain trader which has been in business since 1924. 9 As will be noted in more detail later, the plaintiff Albionex, a company incorporated pursuant to the laws of the Channel Islands, purchased the cargo of WSB from Pagnan; soon thereafter, the transaction was reversed. 10 Agro has been a grain trading company, headquartered in Montreal, for many years.

While an accredited exporter of the CWB, Agro was not its agent. 11 As earlier described, due to the outbreak of widespread frost in August 1982, an unusually high proportion of the 1982 CWRS crop suffered damage, degrading it below any of the three grades of CWRS to Canada Feed Wheat (CFW). CFW was described by the chief chemist of the CGC as a “bottomless pit” given the variation in its quality. 12 After many internal memoranda between the CWB and the CGC, it was decided that the frost-damaged CWRS should be marketed, not as CFW, but under a new designation, “Wheat – Ex.

Special Bin,” and in accordance with a base set of quality specifications. In effect, WSB became a segregation of CFW. 13 On November 24, 1982, a special information letter was prepared by the CWB concerning WSB, with technical input from the CGC (the information letter). It was distributed to the CWB’s accredited exporters, including Agro. It was clearly contemplated that the information letter would be provided to potential customers. 14 The information letter is a crucial document in these proceedings.

In it, the CWB indicated that while the frost-damaged wheat did not meet the visual specifications of the top three grades of CWRS, it did have certain favourable attributes. The information letter stated, in part: A “type” sample has been prepared by the Canadian Grain Commission to illustrate the average quality of this wheat. Milling and baking tests conducted by the Grain Research Laboratory of the Canadian Grain Commission shows that this wheat possesses what is known as “fair” milling quality and would be quite suitable for milling purposes.

15 It was also noted that: …. The data consist of quality analysis of “low” average and “high” average samples of this wheat. It is anticipated that the quality of individual cargo shipments of this wheat will be better than that represented by the “low” average sample and will likely be close to that represented by the “high” average sample.

The results of the tests were attached to the information letter. 16 While the purpose of the “type” sample was that it be representative of the quality of WSB, the trial judge found that the “type” sample was not representative of WSB, but was superior to the sample described as high average in the table attached to the information letter. 17 At the relevant time, Europe was a major market for CWRS given the poor quality of locally grown wheat; this meant that a local wheat had to be blended with stronger, high protein wheat, such as CWRS, if it was to be used for bread production.

In addition, there was in place a levy which was added to the cost of wheat imported into Europe. The practical effect of the levy, as intended, was to make it unprofitable to import low quality wheats. In the result, it was very unusual to import CFW into Europe. 18 After observing a small sample of a “different” type of wheat from Canada, Pagnan requested a larger sample of this wheat, which was provided by Agro on or about December 7, 1982 (the December sample).

While it was initially assumed by Pagnan and Agro that the type sample forwarded to Pagnan was WSB, the quality and specification of the wheat, in the end, remained controversial. Pagnan and Agro believed that the source of the sample was the CWB.

When the December sample was received by Pagnan, it was provided to a respected Italian milling company for inspection and analysis; the December sample was described as “perfect.” It is agreed by Pagnan that Agro did not intend to mislead it by sending a sample different than the type sample. 19 The test result convinced Pagnan that wheat of the calibre of the December sample could be marketed at a price significantly higher than CFW. Pagnan then decided to send a representative to Montreal to obtain further samples.

Shortly thereafter, it received a copy of the information letter from Agro. 20 Attilio Pugina, Pagnan’s representative, arrived in Montreal about January 4, 1983. He obtained two samples of wheat. The first came from a ship that was in the process of loading in Montreal (the Montreal sample). While it was assumed at the time by Pagnan and Agro that this wheat was WSB, it is not clear whether in fact it was. The second “type” sample (which was WSB) was described by Pugina as being delivered to Agro’s Montreal office from Winnipeg (the Winnipeg sample).

While there was some evidence that the Winnipeg sample might in fact have come from Thunder Bay, and not Winnipeg, the trial judge found otherwise. The trial judge also found that the Winnipeg sample emanated from the CWB. 21 Once Pugina had received the Winnipeg sample, he then took it and the Montreal sample back to Italy for testing. 22 Upon returning to Italy, the Winnipeg sample was subjected to a variety of tests (including a common test known as an alveogram) and was found to have the capacity to produce a good flour for baking when blended with domestic or French wheat.

The Montreal sample, on the other hand, showed physical damage and was clearly not of good quality. 23 Things moved very quickly thereafter. By contracts dated January 10, 1983, Pagnan agreed to purchase 96,000 metric tonnes of wheat from Agro. Under the designation “Quality,” the wheat was described as “Best Quality Canadian Spring Wheat – Ex Special Bin – Excluding Feed Wheat.” Concurrently, Agro purchased the same quantity of wheat from the CWB, described under the heading “Grade(s)” as “Wheat ex Special Bin(

s) minimum quality specifications as set out under special provisions below” (essentially the same as the base set of quality specifications in the information letter). 24 There is an obvious distinction between the CWB/Agro contract on the one hand and the Agro/Pagnan contract on the other. The uncontradicted evidence is that the distinction arose as a result of extensive negotiations conducted by telex between Agro and Pagnan.

Pagnan wanted a contract which made it clear that the wheat it was purchasing was up to the quality of the Winnipeg sample, which was better than the information letter table’s “high” average. Agro declined to sell wheat on a sample contract basis, and discussions continued.

Eventually, Agro offered to “select the best possible lots … on this wheat.” After further negotiations, the contract description was agreed upon as noted in the paragraph above. 25 There is no suggestion that at the material time, the CWB was aware of the differences between the contracts in the description of the wheat to be sold. 26 In March 1983, an agreement was made between Pagnan and Agro to substitute Albionex as the purchaser of the wheat, Pagnan remaining liable for its contractual obligations.

Pagnan’s explanation was that it wished to make the substitution in order to reduce the risk associated with the purchase of such a large quantity of WSB by inserting Albionex as a “screen.” Within a month or so, the parties changed their minds, and Albionex resold the wheat back to Pagnan, with Albionex being responsible for the cost of freight.

While the contract of resale dated April 15, 1983, described the wheat as “Canadian Spring Wheat,” this was quickly corrected to be identical to the original Agro/Pagnan contracts, namely, “Best Quality Canadian Spring Wheat – Ex Special Bin – Excluding Feed Wheat.” 27 On April 20, 1983, the first shipment of WSB, totalling 24,849 metric tonnes, was loaded onto the Bandar Denpasar (the cargo wheat).

The certificate final issued by the CGC certified the grade as “Wheat – Ex Special Bins.” 28 Once the cargo arrived in Italy and was inspected, Pagnan attempted to reject it on the basis that the quality of wheat was not what they had bargained for. In discussions that followed, it was Pagnan’s position that they had contracted to receive WSB of high quality only. Eventually, Pagnan refused to accept the remaining shipments of WSB.

29 During the course of the trial, Agro acknowledged that the cargo wheat on the Bandar Denpasar was not of fair milling quality, that on its own it could not produce a commercially acceptable loaf of bread, that it had to be blended with 70 per cent higher quality wheat to make a commercially acceptable loaf of bread and that it possessed qualities that were less than the high average. 30 Expert testimony played a major role during the course of the trial, including with respect to the quality of the cargo wheat. This evidence will be analyzed in more detail later.

Suffice it to say that all experts agreed that the cargo wheat was poor wheat and not of fair milling quality. Agro’s expert, Dr. Walter Bushuk, referred to it as a “terrible” wheat.

The Chief Commissioner of the CGC described it in a note made in July 1983 as the “worst cargo yet leaving Cdn. ports.” 31 Much evidence was also given at trial with respect to the genesis of the information letter, the accuracy of the “‘fair’ milling quality” representation within it and the subsequent revisions to it made in March 1983. 32 With respect to the quality of WSB generally, and, in particular, the cargo wheat, two eminent experts testified – Dr. Carl Hoseney for Pagnan and Dr. Bushuk for Agro. Both were highly qualified cereal chemists, with a professional lifetime of experience with cereal grains.

It is clear that the trial judge was impressed by both. As noted earlier, they agreed in their written reports, and while testifying in court, that WSB, and, in particular, the cargo wheat, was of poor quality and not of fair milling quality. There were, however, differences between them. 33 Dr. Hoseney interpreted the phrase “quite suitable for milling purposes” in the information letter as a statement that WSB could be economically milled to produce flour suitable to make acceptable bread products.

With respect to the cargo wheat, he was of the view that the test data with respect to that cargo showed that both milling and baking properties were severely damaged and not suitable for blending with soft wheat. He was also of the view that the “type” sample, while showing some effects of frost damage, was a reasonable sample for milling and baking, particularly for blending with other stronger wheat to produce bread. 34 Dr. Bushuk disagreed. Based on his

interpretation of the table attached to the information letter, he was of the view that the problem with WSB was caused by extremely high starch damage. The remedy, in his opinion, was to blend in some “soft” wheat. While this might improve the milling quality, he acknowledged that it would generally have a negative effect on the baking quality. He disagreed with Dr. Hoseney that the poor baking quality could be corrected by blending substantial portions of high quality CWRS. 35 Where Dr. Bushuk’s evidence departed more significantly from that of Dr.

Hoseney was his opinion that Pagnan received wheat that matched the quality specifications set out in the information letter. In his view, a proper reading of the data in the table attached to the information letter should have disclosed that neither low nor high average WSB possessed fair milling qualities.

In his view, a competent miller or baker should have been able to interpret the data in the table and conclude that neither flour from the high or low average alone would produce satisfactory bread. 36 It is clear that both the CWB and the CGC anxiously deliberated in the fall of 1982 over the extent of the information to be disclosed with respect to the very large quantity of frost-damaged CWRS. Both were intimately involved in the preparation of the “type” sample. Dr. Keith Tipples was the Director of the CGC Grain Research Laboratory during the relevant period.

When he became aware of the precise contents of the information letter, he worried that it did not provide adequate information and was troubled by the use of the phrase “‘fair’ milling quality.” He was concerned about the need to revise the information letter given the wide degree of variability that could be expected in WSB since there were no grade specifications. But this did not happen. 37 By February 1983, concerns were again being expressed by Dr.

Tipples about the adequacy and accuracy of the information letter. 38 Eventually, a revised information letter dated March 14, 1983, was adopted by the CWB (the second information letter). Even then, while modified from the original, it was still couched in optimistic terms with respect to the potential usefulness of WSB for milling and baking purposes. 39 Concern was expressed within the CWB that the contents of the second information letter not be widely circulated to the trade or competitors.

A request by Agro on March 31, 1983, to the CWB asking for any further “test results,” if available, was not responded to. Agro did not receive the second information letter. 40 The Bandar Denpasar did not leave the Canadian port with its load of cargo wheat until April 20, 1983.

The Trial Judgment 41 While there are a number of legal issues raised on these appeals, the result at trial, to a large extent, was fact-driven; that is to say, the outcome was largely dependent on the factual conclusions and inferences made by the trial judge in dealing with the complex and sometimes conflicting evidence before her. 42 The trial judge made the following specific findings of fact: • The decision to use the words “fair milling quality and quite suitable for milling purposes” in the information letter was that of the CWB. The trial judge accepted the evidence of Dr.

Tipples (who she described as “fair and straightforward” (at para. 97)) that he had advised the CWB these words could be misleading, but, despite his request that the final version of the information letter be forwarded to him for review, he did not see or approve it because he was out of the country at the time.

See paras. 31-32. • She found the evidence to be confusing as to the description of the December sample sent by Agro to Pagnan, but eventually concluded that Agro was provided a CWB sample of CFW (i.e., not WSB); nonetheless, it was of a higher quality than that referred to in the “high” average sample in the information letter. See paras. 36-37.

• Pagnan did not intend to rely only upon the information letter, including its table of data, but wanted to obtain further grain samples and, if possible, to contract on the basis of the sample. Both the CWB and Agro assumed that the samples would be inspected and tested. • With respect to the events that took place in Montreal on January 4 to 6, 1983, the wheat being loaded in Montreal was described by Agro to Pugina, Pagnan’s representative, as WSB. The Winnipeg sample was provided to Pagnan by Agro on January 5, 1983, and denoted better quality than the December sample.

The CWB’s records show that the Winnipeg sample of WSB was provided to Agro by the CWB on January 5, 1983. The quality of the Montreal sample was such that no criteria could be provided on the analysis due to its poor quality. • All type samples were superior to the wheat shipped on the Bandar Denpasar , which was very poor wheat. • The contract between Pagnan and Agro was for 96,000 metric tonnes of “best quality Canadian Spring Wheat – Ex.

Special Bin, excluding Feed Wheat.” • With respect to the terms of the contract between Pagnan and Agro, the term whereby Agro agreed to select the “best possible lots on this wheat” was important to Pagnan, which was giving up its request for a sample contract and agreeing to purchase based on description. Pagnan desired to “guarantee” that it would receive a quality of wheat better than the high average sample referred to in the information letter. Notwithstanding, Pagnan knew that it was purchasing wheat of lesser quality than CWRS and decided to take that risk.

That is why Pagnan wanted “the best of the best.” • The trial judge was obviously impressed with the expert witnesses, noting (at para. 97): …. The credibility of each of these witness’s testimony was not impugned, although their opinions differed in some respects. • With respect to the evidence of Dr. Hoseney, she noted that after reviewing the relevant alveograms (from the December and Winnipeg samples), it was his opinion that they indicated a strong flour that would be suitable to blend with weaker flour. Dr.

Hoseney further testified that the phrase “quite suitable for milling purposes” in the information letter meant it could be economically milled to produce flour suitable to make acceptable bread products. The wheat on the Bandar Denpasar was severely damaged and not suitable for blending with weaker flour. The alveogram prepared by the CGC with respect to the cargo wheat suggested a poor wheat.

The type sample referred to in the information letter was suitable to be blended with weaker flour to produce a reasonable bread product, in contrast to the sample from the Bandar Denpasar , which was severely damaged and not suitable for blending. The cargo wheat was not of “fair” milling quality and was of much poorer milling and baking qualities than the high average sample in the information letter. • With respect to the evidence of Dr.

Bushuk, she noted his opinion that the cargo wheat was a “terrible wheat” and summarized his evidence as follows: the table data in the information letter with respect to both the low average and high average did not support the “fair milling quality” statement in the letter. An experienced miller or baker would interpret the table to conclude that neither the high- end nor low-end average wheat would produce satisfactory bread, and neither could be used alone or in blend to produce high quality bread.

Because of the exceptionally high starch damage in WSB, adding soft wheat to it, he testified, would slightly improve its baking quality; on the other hand, if the result of the frost damage was poor gluten properties, then hard wheat was needed. The official cargo sample was consistent with the table of data attached to the information letter and there was little difference between the low and high average. Dr. Bushuk disagreed with Dr. Hoseney and with a report subsequently obtained by the CGC (the Dexter/Martin report), which stated that starch damage was not a limiting factor.

Since WSB was not a “strong flour,” in Dr. Bushuk’s opinion, soft wheat, not hard wheat, was needed to carry it since WSB would not perform well on its own. Interestingly, if not inconsistently, he agreed with Dr. Hoseney that the alveogram results (excluding the Montreal and cargo samples) suggested that WSB would improve the French and Italian soft wheat (see para. 127). Dr.

Bushuk was also of the view that any knowledgeable person within the grain industry should clearly understand the WSB limitations from the information letter and its data. • With respect to Agro, the trial judge, in conclusion, found that although its representative confirmed that the best possible lots would be selected, no efforts were made by Agro to do so. In order to close the transaction, Agro undertook to select the best possible lots and to provide “the best quality Canadian Spring Wheat Special Bin – excluding Feed Wheat.” She wrote (at para. 160): ….

It is, therefore, reasonable to conclude that [Agro] did agree to provide Wheat Special Bin to the plaintiffs, which exceeded the specifications of the CWB as to test weight, foreign materials, and heat-damaged kernels. …. The cargo wheat was poorer in quality than the CWB’s first type sample, poorer than the Winnipeg sample, poorer than the high average referred to in the CWB’s table of data and poorer in quality than some feed wheat shipped from the Pacific seaboard (see para. 161). • She concluded that Agro failed to select the best possible lots and failed to provide wheat in accordance with the contracts.

It therefore was in breach of a fundamental term of the agreement. • With respect to the claim against the CWB, she found that it was reasonably foreseeable by the CWB that its accredited exporters, as well as potential purchasers, would rely on the representations made in the information letter and the table of data. Reliance by Pagnan and Agro on the information letter and on the type samples – which were held out to be representative of the average quality of the wheat – was reasonable and foreseeable.

This is especially so given that “[t]he CWB was aware that it was respected internationally and that its representations would carry significant weight with potential purchasers of Canadian wheat” (at para. 171).

Contrary to the opinion of Dr. Bushuk, she found that the variability in quality of WSB was not clearly explained by the table of data and had been completely omitted from the information letter. The claim of “fair milling quality” was inaccurate in respect of the cargo wheat. Furthermore, Pagnan was not a miller or baker who could have been expected to understand the baking information.

See para. 176. “Whether Wheat Special Bin could be economically milled remains undetermined, although the evidence suggested it would require more grinding, would be harder on the milling equipment, and result in more ash” (at para. 176). The CWB’s representations included not just the information letter and table of data, but the representative “type samples.” “… [T]he totality of the information is misleading” (at para. 176). 43 In the result, the plaintiffs’ action against the CWB and Agro was allowed, as was Agro’s crossclaim against the CWB.

Argument of the CWB 44 The CWB argues that many, if not all, of the critical factual findings made by the trial judge are wrong and constitute palpable and overriding error. Of particular importance are those conclusions arrived at by the trial judge that touch on the issue of “reliance,” a major component of the tort of negligent misstatement. 45 The CWB asserts that: • The type samples in issue, i.e., the December and Winnipeg samples, did not emanate from the CWB. • The finding that the December sample was CFW and of higher quality than the “high” average in the information letter is wrong.

On the other hand, the Montreal sample, which was of poor quality, was consistent with WSB. • The information letter, when combined with the data in the table, was factually correct, and the trial judge was quite wrong to conclude otherwise.

Since the information in the table and specifications to the information letter were accurate, and there is no evidence that new testing was done by or for the CWB, it was under no obligation to circulate the second information letter to customers such as Agro who had already purchased WSB. • Because the type sample, and indeed all CGC specifications or grades, were only intended to be a predictor of the average visual quality of WSB and not its intrinsic milling qualities, the trial judge was wrong to find it was superior in quality to the 1982 WSB crop and the cargo wheat. • Pagnan did not reasonably rely on the information letter or the type sample, but rather on the Italian alveograms and the representations and additional contract terms from Agro. • Again dealing with the issue of reliance, the trial judge erred when she found the variability between the high and low average was not adequately explained in the information letter and in separating the table from its first page.

The table dealt with the quality of the wheat and was the obvious foundation for the statements made in the information letter. Since the variability in WSB was clearly explained in the information letter and table, on this basis alone the claim for negligent misrepresentation must be dismissed. • Dr. Bushuk’s opinion that the table to the information letter should be able to be interpreted properly by a miller or baker of some experience should have been accepted.

The trial judge erred in finding that Pagnan could not be expected to understand the baking information in the information letter. • The trial judge was wrong in finding the issue of whether WSB could be economically milled was inconclusive, since Dr. Hoseney testified that a knowledgeable miller could produce flour and make money from it. • Dr.

Bushuk’s opinion that there was little to choose between the cargo wheat, the high average in the table in the information letter and the CWB Type III sample prepared after the fact should have been accepted. • As for Agro, WSB at the “high” average, as defined in the information letter (which Pagnan insisted it was purchasing), was in excess of the contractual obligation between the CWB and Agro. • Finally, the CWB argued that the certificate final issued for the Bandar Denpasar cargo by the CGC, which stated that the cargo was “Wheat – Ex Special Bins,” conclusively determined that the cargo was WSB in accordance with its base set of quality specifications.

Argument of Agro 46 Agro, in its argument, adroitly attempted to ride two horses. The first is that there was no misrepresentation or breach of contract and Pagnan received exactly what was bargained for.

Secondly, if there was a misrepresentation, it was by the CWB and not Agro; both Pagnan and Agro were equally deceived, as they both relied on the information letter that the quality of the wheat would “likely” be at the high end of the spectrum. 47 An alternative argument is that if Agro had been informed of the important changes made in the second information letter prior to the cargo being shipped on April 20, 1983, it could have prevented or mitigated the damages. 48 Agro relies on the evidence of Dr. Bushuk that WSB in general, and the cargo wheat in particular, could never, on its own

or blended, have made a good quality bread; Pagnan should have known this, but instead relied on the inappropriate alveogram tests, toits detriment. 49 The term “Best Quality” in its contracts with Pagnan should be understood as meaning “high” average. 50 The December sample was CFW because this is what was specifically requested by Pagnan. Neither Agro nor the CWBrepresented that this sample was WSB.

Agro takes the position that the Winnipeg sample of WSB came from the CWB, which, in turn,was provided by Agro to Pagnan’s representative, Pugina, in Montreal the next day. 51 With respect to its contracts with Pagnan, Agro says that its offer to “select the best possible lots,” made only once inresponse to Pagnan’s rejection of its original offer, was not accepted either orally or in writing and the trial judge therefore erred infinding that this was a term of the contracts.

Similarly, Pagnan’s evidence at trial that it wished to purchase “the best of the best” wasnot part of the contracts. 52 As for the claim over against the CWB, Agro notes that Pagnan negotiated with Agro, as it testified, to purchase “high”average WSB. These words have no connection other than to the table attached to the information letter. The only written informationregarding the use and qualities of WSB came from the CWB, and Agro sold WSB on this basis. There was no misrepresentation madeby Agro independent of any misrepresentation by the CWB.

It was the CWB, not Agro, that represented that the wheat was of fairmilling quality and stated that it anticipated the WSB would be closer to the high average than the low average. The CWB knew thataccredited exporters such as Agro relied upon the CWB for information with respect to export wheat. Unbeknownst to Agro, theinformation letter was inaccurate and misleading. Argument of Pagnan and Albionex 53 Little purpose would be served in repeating the plaintiffs’ submissions concerning the factual issues.

Suffice it to say thatthey strongly assert that in no instance did the trial judge commit palpable and overriding error with respect to her findings of fact or theinferences drawn from them. They provide the court with numerous documentary and evidentiary references to support the trial judge’sfindings. Their arguments are reflected, as are those of the CWB and Agro, in the statement of facts at the beginning of this judgmentand in the decision that follows.

Decision 54 With respect to the standard of review where negligent misrepresentation is claimed, the very recent decision of the OntarioCourt of Appeal in Ault et al. v. Canada (Attorney General) et al., 2011 ONCA 147, 274 O.A.C. 200, leave to appeal to S.C.C. refused,[2011] S.C.C.A. No. 206 (QL), is most relevant. There, the court noted (at para. 38): …. Whether or not a statement or implied statement is a misrepresentation is a finding of fact that depends on the trial judge’sassessment of the evidence and inferences drawn from the evidence: see Kerr et al. v.

Danier Leather Inc. et al. (2005), (ON CA), 205 O.A.C. 313; 77 O.R. (3d) 321 (C.A.), at para. 139, affd. 2007 SCC 44 , [2007] 3 S.C.R. 331; 368 N.R.204; 231 O.A.C. 348. Such a finding should not be disturbed unless there is a palpable and overriding error in the trial judge’sassessment of the evidence: see NBD Bank Canada v.

Dofasco Inc. et al. (1999), (ON CA), 127 O.A.C. 338; 46O.R. (3d) 514 (C.A.), at para. 85, leave to appeal refused, [2000] S.C.C.A. 96; 254 N.R. 400; 135 O.A.C. 195 (S.C.C.). 55 The first question that must therefore be answered is whether the trial judge committed palpable and overriding error withrespect to her factual conclusions or the inferences that she drew from her findings. 56 It is important to recall what palpable and overriding error means. In Knock v.

Dumontier et al., 2006 MBCA 99,208 Man.R. (2d) 121, Steel J.A., writing for the court, explained (at paras. 22-24): What is palpable and overriding error? In Housen [2002 SCC 33, [2002] 2 S.C.R. 235], the Supreme Court accepted the dictionarydefinitions of the word “palpable”, pointing out that “[t]he common element in each of these

definitions is that palpable is plainly seen”(at para. 6). The Ontario Court of Appeal, in Waxman et al. v. Waxman et al. (2004), (ON CA), 186 O.A.C. 201;44 B.L.R. (3d) 165 (C.A.), gave some examples of palpable error (at para. 296): Examples of “palpable” factual errors include findings made in the complete absence of evidence, findings made in conflict withaccepted evidence, findings based on a misapprehension of evidence and findings of fact drawn from primary facts that are the result ofspeculation rather than inference. Not only must the error be palpable, but it must also be overriding.

The court in Waxman went on to define an “overriding” error (atpara. 297): An “overriding” error is an error that is sufficiently significant to vitiate the challenged finding of fact. Where the challenged finding offact is based on a constellation of findings, the conclusion that one or more of those findings is founded on a “palpable” error does notautomatically mean that the error is also “overriding”. The appellant must demonstrate that the error goes to the root of the challengedfinding of fact such that the fact cannot safely stand in the face of that error: Schwartz v.

R., (SCC), [1996] 1 S.C.R.254 (S.C.C.), at 281. The New Brunswick Court of Appeal, in the case of Irving Oil Ltd. v. Executive Director of Assessment (N.B.) (2005), 2005 NBCA

39 , 282 N.B.R. (2d) 275; 738 A.P.R. 275; 9 M.P.L.R. (4th) 1; 2005 NBCA 39, adopted the comments of the Ontario Court ofAppeal in the Waxman case and summarized the test simply as follows (at para. 70): … [I]n order for this Court to reverse the application judge, the alleged “palpable and overriding error” of fact ... must be plainly seenand sufficiently significant to vitiate the challenged finding of fact. See also, H.L. v.

Canada (Attorney General), 2005 SCC 25 at para. 110, [2005] 1 S.C.R. 401, where it was held that the “functionalequivalents” of palpable and overriding error are “clearly wrong” and “unreasonable.” 57 Turning then to the facts, the critical document, when considering the application of the law of negligent misrepresentation,is the information letter of November 24, 1982. It was prepared by David Suderman, a senior CWB official, with significant input fromthe CGC.

Suderman testified that the word “fair,” when used to describe WSB’s milling quality, was only intended to be a generalindicator and not a technical term of precision. But this does not explain why the word was emphasized in quotation marks, nor indeed,as we have seen, why the word was used at all. 58 It is unfortunate, with hindsight, that the CWB did not listen to Dr.

Tipples, who recommended on November 3, 1982, thatno further data be released – with respect to what became WSB – due to the variability in the sample made up for the CWB. 59 There can be no doubt that the CWB was well aware that there was a risk in attempting to create a discrete specification forWSB. Dr. Tipples’s report of September 29, 1982, headed “Milling and Baking Quality of a Sample Representing a ‘Low Average’ ofthe Grade Canada Feed Wheat from the 1982 Crop” emphasized: A major note of caution must always be used when interpreting data for a sample such as this example of Canada Feed.

Because thereare no grade specifications, Canada Feed is a “bottomless pit” and individual samples may be very much poorer than the one concoctedto represent “low average”. …. 60 It is evident that the CWB was under great pressure to market the damaged wheat and that it was desirable, given thesignificant negative connotation attached to “feed wheat,” to seek another description.

As well, both the CWB and Agro knew thatPagnan did not deal in feed wheat because it was uneconomical to import CFW into Italy and other parts of Europe due to the impositionof trade levies on low quality wheats. 61 While the frost-damaged wheat was highly variable, the type sample was supposed to represent the average quality, but, asthe trial judge found, it did not. In fact, it was superior to the “high” average. But one example is Dr.

Tipples’s note of November 3,1982, where he refers to the fact the data “are somewhat better than for the ‘high’ quality Canada Feed sample [referring to what becameWSB].” 62 The primary audience for the information letter was accredited traders like Agro and, through them, other grain traderssuch as Pagnan. Paolo Pagnan said he expected that the representations on the first page of the information letter were consistent withthe scientific data. 63 Dr.

Bushuk contended that an experienced baker/miller should be able to interpret the table attached to the informationletter as indicative of the fact that WSB (notwithstanding the statements in the letter to the contrary) was not of “‘fair’ milling quality”and not a good wheat. He further testified that any knowledgeable person in the grain trade should also have understood WSB’slimitations from the information letter and table. But neither Pagnan nor Agro are bakers or millers, nor did they have scientists on staff.

It is noteworthy that Agro too was taken in by the representations in the information letter of “‘fair’ milling quality” and that the qualityof the individual cargo shipment would “likely be close to that represented by the ‘high’ average sample.” 64 The CWB argued that it was unreasonable for Pagnan (and Agro) to ignore the data that was available in the table attachedto the information letter.

The trial judge therefore erred when she concluded that the variability between the high and low average wasnot adequately explained in the information letter and in separating the table from its first page. 65 I find this argument to be disingenuous.

What it amounts to is this: Pagnan (and Agro) should have known from the tabledata that the representations in the letter itself as to “‘fair’ milling quality” and the likelihood that cargoes would be close to the highaverage sample were wrong, to be treated as mere surplusage or puffery. 66 Furthermore, given the source and content of the information letter, neither Pagnan, nor Agro, could reasonably have beenexpected to verify whether the table data was consistent with the statements in the letter. 67 The CWB’s argument in this respect is untenable. 68 The trial judge committed no error when she concluded that Pagnan (and Agro) reasonably relied upon the informationletter and could not have been expected to understand the baking information in the table attached to the information letter. 69 As we have seen, the type sample, far from being close to the high average, was actually somewhat better than the highaverage, as confirmed by Dr.

Tipples’s letter of November 3, 1982. Pagnan’s rhetorical question is on point – How can one rely on thetable to the information letter when the sample is admittedly of a higher quality? 70 When considering the question of the CWB’s liability for negligent misrepresentation, it is important to understand thatPagnan not only relied on the representations in the information letter, but also on the samples that it received. This is a significant factorwhen considering the issue of reliance.

71 With respect to the Winnipeg sample, the CWB eventually acknowledged that the trial judge’s finding it came from the CWB did not constitute palpable and overriding error even though the weight of evidence, they say, pointed in another direction. This sample was of good quality. 72 There was a marked discrepancy between the Winnipeg sample, and the December sample (albeit CFW), on the one hand, and the cargo wheat on the other. In a sense, the information letter may be seen to play a secondary role. The misleading samples provide a substantial connection between the decision to purchase and the loss.

What was ultimately important for Pagnan was to receive wheat that was consistent with the samples of good wheat that it had; this it did not get. 73 In terms of the samples that emanated from the CWB, Pagnan’s reliance on the Winnipeg sample being representative of at least the average quality of wheat was eminently reasonable. It is incorrect to say, as the CWB does, that Pagnan’s witness indicated Pagnan relied exclusively on its own testing and the more favourable terms of its contracts with Agro.

In fact, what the witness for Pagnan said was that he expected that the narrative in the information letter would not be contradicted by the table and that the CWB would ship wheat similar to the samples. 74 The same reasoning applies to Agro. Pagnan desired to purchase “high” average WSB, a phrase directly lifted from the information letter. Agro sold WSB on this basis, albeit with what turned out to be more onerous contractual obligations. Agro made no representation as to quality on its own that was inconsistent with those contained in the information letter.

Agro was a direct recipient of the information letter from the CWB, with the intention that it be distributed far and wide by Agro and other accredited exporters to their potential customers. 75 Agro agrees that its contract with the CWB was simply for WSB. But its reliance, and Pagnan’s, on the first page of the information letter is important because of the representation that WSB was likely closer to the high average.

This informed all its contractual negotiations with Pagnan. 76 With respect to the trial judge’s finding that Pagnan contracted with Agro for “the best of the best,” Agro asserts that its offer was never formally accepted. The same applies, Agro says, to its offer to “select the best possible lots.” There was some argument that Agro’s undertakings would have been impossible to comply with, but the trial judge found otherwise.

In doing so, she no doubt had in mind the November 8, 1982 CWB memorandum, which records that CGC officials indicated it would be possible to special bin a “Cadillac” package of frost-damaged wheat as “Wheat – ex Special Bin” to meet much higher specifications for a specific customer. 77 The trial judge was of the view that the term “Excluding Feed Wheat” in the Agro/Pagnan contracts was ambiguous since, in effect, WSB was a subset of CFW.

This ambiguity could be resolved, she said, by looking at the negotiations, which enabled her to conclude that Agro did undertake to select the best possible lots, which it did not do. Even if not a term of the contract, it does indicate Agro’s understanding of its obligations and informs the meaning of “best quality.” In my opinion, these proposals form the context, or factual matrix, for the contractual terms eventually agreed upon between Pagnan and Agro and helps to explain them. See Moore (Geoffrey L.) Realty Inc. v. Manitoba Motor League , 2003 MBCA 71 , 173 Man.R. (2d) 300, and King v.

Operating Engineers Training Institute of Manitoba Inc. , 2011 MBCA 80 . 78 With this background in mind, the description in the contract between Pagnan and Agro makes sense. It was for CWRS (specification WSB), but not CFW. This is entirely consistent with their negotiations and is not “nonsense,” as asserted by Agro. 79 Dr. Tipples, in his reports, opined that there was very little difference between the low and the high average of WSB. Dr. Bushuk went further, stating that there was very little to choose between the samples and the cargo wheat. Dr. Hoseney testified otherwise.

The CWB does concede that there is evidence that the cargo wheat was closer to the low end than the high end.

The Dexter/Martin expert report prepared for the CWB, entitled “Quality Evaluation of Wheat-Special Bin Report No. 3” and dated September 6, 1983, noted the obvious visual differences in quality: “All Atlantic shipments [which included the cargo wheat] were ‘poor’ or ‘very poor’ whereas all Pacific shipments were ‘good’ or ‘very good.’” As well, “[t]he Wheat Board Type sample was similar in quality to Pacific W-SB samples, but decidedly superior to Atlantic W-SB cargoes.” Given the above, and the other evidence accepted by the trial judge concerning the marked discrepancies between the samples and the cargo wheat, the trial judge was clearly entitled to reject Dr.

Bushuk’s opinion. The trial judge’s acceptance of Dr. Hoseney’s opinion does not constitute palpable and overriding error. The trial judge was entirely justified in finding that the quality of the samples was superior when compared to the so-called high average WSB. 80 There is much documentation concerning the CWB’s and the CGC’s knowledge of WSB’s milling and baking quality both before and after the delivery of the cargo wheat. There can be no doubt that long before the cargo wheat left Canadian shores, both organizations knew full well about the difficulties associated with WSB.

A memorandum dated March 4, 1983, from the CGC to the Canadian International Grains Institute, copied to Dr. Tipples and the Chief Commissioner of the CWB, stressed that WSB was of poor milling quality and possessed “very different overall quality characteristics (much harder) relative to other common wheats.” The author recommended “extreme caution must be taken in discussing the quality of W-SB with potential users.” 81 Accompanying the March 4, 1983 memorandum was a proposed final version of the background material, prepared by or under the direction of Dr. Tipples, to the CWB.

This toned-down version of the information letter is the genesis of what became the second information letter. The narrative, some five pages in length, contains detailed information with respect to the effect of the frost damage. It observes that the major effect of the frost was reflected in poorer milling qualities relative to top grade wheat and that the damaged wheat was susceptible to much higher levels of starch damage.

It contains a warning – “… [F]lour starch damage levels may be so high as to cause problems in baking.” The draft states, “It is anticipated that the quality of individual cargoes will fall between these two extremes, [the “low” average and the “high” average].” 82 The CWB’s amended information letter was issued on March 14, 1983.

The second information letter referred to WSB as possessing “a number of desirable milling and baking characteristics.” In keeping with the March 4, 1983 draft, there was no reference to “‘fair’ milling quality” or that WSB “would be quite suitable for milling purposes.” There were some subtle changes to the reference to “low” and “high” average from both the information letter and the March 4, 1983 draft, which now read:

…. Some variability in the milling and baking quality of W-SB can be expected from one shipment to another but it is anticipated thatthe quality of individual cargo shipments of W-SB will be somewhat better than that represented by the “low” average sample and maybe close to that represented by the high average sample. [changes underlined] 83 Much of the explicit detail from the March 4 draft was eliminated. A warning was provided that extra grinding would berequired in the milling process.

It was recommended that WSB be blended with soft wheats. 84 In an internal note also dated March 14, 1983, the CWB stated it was “understood” that the second information letter wouldbe sent out only if a customer requested further quality information on WSB and would otherwise not be sent out with the type sample. 85 The CWB’s argument that it did not provide Pagnan and others with the second information letter of March 14, 1983, giventhe inherent risk of the grain business is not persuasive.

Agro argues, and I agree, that its letter of March 31, 1983, asking for furtherinformation (test results) cried out for an answer if anything had, in fact, changed, which of course it had. Yet there was no response. 86 In my opinion, the trial judge was entirely correct when she concluded (at para. 176): …. The CWB’s representations are not limited to the information letter and Table of Data, but include the representative “type samples”forwarded to potential purchasers.

When the statements in the letter are considered in conjunction with the Winnipeg “type sample”received by Pagnan in early January of 1983, which I have concluded originated from the CWB, a “type sample” which was superior tothe “high average”, the totality of the information is misleading. 87 Conclusions reached by the application of the law to the facts, in the context of a civil trial, raise questions of mixed law andfact and are to be reviewed on the standard of palpable and overriding error.

There was no palpable and overriding error in the trialjudge’s fact-based conclusions or the inferences that she drew from her findings.

This being so, the finding of liability in contract infavour of the plaintiffs and against Agro is unassailable. 88 Given this result, arguments presented on the question whether a collateral or string contract was in existence need not beconsidered. 89 But what of the conclusions that the CWB is directly liable to Pagnan with respect to their purchase of WSB, and that Agrois able to obtain indemnity from the CWB with respect to its contractual liability to the plaintiffs? 90 The answer to this question requires a review of the tort of negligent misrepresentation. 91 Following the modern definition and acceptance of the tort of negligent misrepresentation by the decision of the House ofLords in Hedley Byrne & Co.

Ltd. v. Heller & Partners Ltd., [1964] A.C. 465, the foundational elements of the tort have become wellknown. Usually they will involve a direct relationship between the representor and representee; but these are not the facts here. Therepresentations in the information letter and attached table of data were not provided directly by the CWB to Pagnan. A furthercomplication, as we have seen, is that the “type” samples received from the CWB were also a contributing factor to Pagnan’s decision topurchase WSB from Agro.

The plaintiffs’ reliance on the information letter and the samples is the key factor when considering the issueof reliance, a critical element in the tort of negligent misrepresentation. 92 In the seminal decision in Queen v.

Cognos Inc., (SCC), [1993] 1 S.C.R. 87, Iacobucci J. identified thefive elements that must be satisfied in a claim of negligent misrepresentation: (1) there must be a duty of care based on a “special relationship” between the representor and the representee; (2) the representation in question must be untrue, inaccurate or misleading; (3) the representor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted. 93 Whether there is a duty of care then requires that there be a “special relationship.” Subsequent authority has confirmed thatwhether there is a duty of care is to be determined through the application of a two-part test.

This process was explained by La Forest J.in Hercules Managements Ltd. v. Ernst & Young, (SCC), [1997] 2 S.C.R. 165. The first part of the test (at para. 22): … demands an inquiry into whether there is a sufficiently close relationship between the plaintiff and the defendant that in thereasonable 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” – distinguishes those circumstances in which thedefendant owes a prima facie duty of care to the plaintiff from those where no such duty exists. In the context of a negligentmisrepresentation action, then, deciding whether or not a prima facie duty of care exists necessitates an investigation into whether thedefendant-representor and the plaintiff-representee can be said to be in a relationship of proximity or neighbourhood. 94 La Forest J. further explained (at para. 24):

…. In cases of negligent misrepresentation, the relationship between the plaintiff and the defendant arises through reliance by theplaintiff on the defendant’s words. …. To my mind, proximity can be seen to inhere between a defendant-representor and a plaintiff-representee when two criteria relating to reliance may be said to exist on the facts: (

a) the defendant ought reasonably to foresee that theplaintiff will rely on his or her representation; and (

b) reliance by the plaintiff would, in the particular circumstances of the case, bereasonable. …. 95 As succinctly summarized by Lewis N. Klar, Q.C., Tort Law, 4th ed. (Toronto: Thomson Canada Limited, 2008) (at p.237): First, the court has to ask itself whether a prima facie duty of care arises between the parties. This prima facie duty is based on theconcept of the special relationship.

A special relationship will exist when the advisor ought to have reasonably foreseen that the adviseewould rely on the advice and where that reliance would be reasonable. 96 For a more recent reference to the essential elements of the test, see British Columbia v. Imperial Tobacco Canada Ltd.;Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42, 335 D.L.R. (4th) 513, where McLachlin C.J.C., for the court, noted (atpara. 41): Proximity and foreseeability are two aspects of one inquiry – the inquiry into whether the facts disclose a relationship that gives rise to aprima facie duty of care at common law.

Foreseeability is the touchstone of negligence law. However, not every foreseeable outcomewill attract a commensurate duty of care. Foreseeability must be grounded in a relationship of sufficient closeness, or proximity, to makeit just and reasonable to impose an obligation on one party to take reasonable care not to injure the other. 97 The second part of the test to determine whether a duty of care exists is explained by Klar as follows (at p. 237): … [T]he court has to consider policy reasons that might negate or reduce the duty.

In the context of negligent statement cases thesepolicy reasons generally relate to the problem of indeterminate liability, should a duty be imposed on the facts of the particular case. 98 In light of the fact that the CWB intended the contents of the information letter to be provided to potential purchasers suchas Pagnan as part of its marketing plan, it is difficult to see how, in such circumstances, there could be an “indeterminate” class ofplaintiffs.

Was There a Duty of Care Based on a Special Relationship? 99 For convenience, I will rely on the list of five factors developed by Klar in addressing this critical question: (1) skill of the advisor; (2) skill of the advisee; (3) nature of the occasion; (4) request; and (5) nature of advice. 100 There are other similar lists of factors. See, for example, Linda D.

Rainaldi, ed., Remedies in Tort, looseleaf (Toronto: Thomson Reuters Canada Limited, 1987) vol. 2, ch. 16.IV at para. 11.2. 101 These indicia are, of course, not a closed list or strict test of reasonable reliance, but as noted by Finch C.J.B.C. in Smith v.Landstar Properties Inc., 2011 BCCA 44, 299 B.C.A.C. 106, “they help distinguish cases where reliance is reasonable from those whereit is not” (at para. 30).

(1) Skill of the Advisor 102 It is important to note at the outset that, as Iacobucci J. explained in Cognos at pp. 117-18, the duty of care is not limited torepresentations by those involved in traditional advice-giving professions. Numerous authorities have considered the position of theperson or organization giving advice in determining whether or not a special relationship exists. One very recent example from this courtis North American Life Assurance Co. v.

Pitblado & Hoskin et al., 2009 MBCA 83, 245 Man.R. (2d) 111, where Hamilton J.A. affirmedthat the status and skill of the advisor is relevant in determining whether a special relationship exists. See, as well, Deraps v. Cola et al.(1999), (ON CA), 124 O.A.C. 73, and Klar at pp. 238-40. 103 In this instance, in my opinion, it is necessary to review the expertise and special knowledge of the CWB in conjunction withthat of the CGC and the Grain Research Laboratory. Firstly, the evidence and findings by the trial judge make it clear that a close,

symbiotic relationship existed between the CWB, the CGC and the laboratory. Secondly, the information letter, while prepared by theCWB, refers to a “type” sample prepared by the CGC and to milling and baking tests conducted by the laboratory.

Clearly, both theCGC and the laboratory took their responsibility to provide a skilled assessment of grains very seriously. 104 This being so, the specific question to be asked is whether the CWB should reasonably have foreseen that purchasers such asthe plaintiffs would rely on the representations made in the information letter and table of data and on the type samples, and was suchreliance reasonable.

As we know, the trial judge answered both questions “Yes,” no doubt taking into account that the CWB’s expertiseincluded actual experience in the past with frost-damaged wheat. 105 In my opinion, the skill and expertise of the CWB in marketing grain, along with their reliance on and reference to millingand baking tests conducted by the CGC and the laboratory, support a finding of a prima facie duty of care.

(2) Skill of the Advisee 106 This second factor identified by Klar relates to the apparent skill and knowledge of the person to whom the representation ismade. As G.H.L. Fridman, Q.C., The Law of Torts in Canada, 3d ed. (Toronto: Thomson Reuters Canada Limited, 2010) notes (at p.339): …. … [I]f the plaintiff is knowledgeable in the subject matter involved, it may not be reasonable for him or her to rely on advice orinformation received from the defendant without making independent inquiries. …. See, for example, The Pas (Town of) v. Porky Packers Ltd. et al., (SCC), [1977] 1 S.C.R. 51.

But the most that can besaid of Pagnan is that they were very experienced in buying and selling bulk grain. The trial judge rejected the CWB’s assertion thatthey were millers or had the ability to independently understand the details of the information letter and attached table. (Similarly, Agrowas a licensed broker and there is nothing to suggest that it had any particular experience with the milling and baking qualities of frost-damaged wheat.) 107 The skill, or rather lack thereof, of Pagnan supports the finding of a prima facie duty of care.

(3) Nature of the Occasion Where the Representation Was Made 108 Here there can be no doubt that the representations were made in a business as opposed to a social context.

(4) Request 109 The CWB distributed the information letter as part of its marketing strategy for WSB. While there is no evidence to suggestthat Pagnan, on its own, sought such information from the CWB, there is authority for the view that when a representor desires potentialrepresentees to rely on information it provides, that fact will help support a finding of a prima facie duty of care. See, for example,Dixon v. National Business Systems Inc. et al. (1993), 28 B.C.A.C. 15, and Sirois and Therrien v.

New Brunswick Teachers Federation(N.B.T.F.) and L’Association des Enseignants Francophones du Nouveau-Brunswick (A.E.F.N.-B.) (1984), (NB KB),56 N.B.R. (2d) 50 (Q.B.). 110 I agree with Klar’s conclusion that where the reasonable person knows or ought to know that advice will be relied upon, thefact that the advice was not specifically requested is of no importance (at p. 242).

(5) The Information or Advice was Provided in the Course of the CWB’s Business 111 In my opinion, the question whether the CWB could reasonably have foreseen that Pagnan would rely on its representationsmade directly to accredited exporters and end-buyers can only be answered in the affirmative. That is to say, the fact that therepresentations were not made directly to the plaintiffs should not provide a defence to the establishment of a prima facie case. Indeed,there is no shortage of decisions where a prima facie case has been made out in a fact situation involving an indirect businessrelationship.

In the oft-cited decision of Haig v. Bamford et al., (SCC), [1977] 1 S.C.R. 466, the defendant accountantsprepared financial statements for a company which were relied upon by an investor. Dickson J., as he then was, concluded that theaccountants owed a duty of care to the investors in the company, noting (at pp. 478-79): 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. ….

What was important was the nature of the transaction ortransactions for which the statements were intended, for that is what delineated the limits of potential liability. …. 112 Similarly, in North American Life Assurance Co., Hamilton J.A. found a prima facie duty of care even though there was onlyan “indirect relationship” in that instance. A compelling example is Lakefield (Village) v. Black (1998), (ON CA), 41O.R. (3d) 741 (C.A.). There, the plaintiff wanted to purchase certain property from the government for development.

The defendantmunicipality advised the overseeing government ministry that it was not premature to subdivide the property. The ministry then

approved the plan of subdivision and the plaintiff took steps to buy the property. The representations made by the municipality turnedout to be negligent and false.

Goudge J.A., for the court, concluded that the municipality ought reasonably to have foreseen that theplaintiff would rely on its representation and that the plaintiff’s reliance was entirely reasonable. 113 Here the facts are even more definitive since the CWB prepared the information letter and type samples for the expresspurpose of informing potential purchasers around the world of the availability and quality of WSB. 114 I conclude that the trial judge did not err when she found that there was a prima facie duty of care based on a specialrelationship between the CWB and potential purchasers such as the plaintiffs.

This being so, and there being no policy reasons to negatea duty of care (see paras. 97-98 above), consideration of the other elements identified in Cognos is appropriate. The Representation in Question Must Be Untrue, Inaccurate or Misleading 115 As Klar notes at p. 246 of his text, this element is often not in issue in the case law.

In this instance, given the trial judge’sstrong factual findings, nothing more need be said with respect to this element from Cognos, except to observe that when determiningwhether a representation is untrue, inaccurate or misleading, there is no real difference between an inaccurate representation and a failureto inform. See Allison v. Noranda Inc. et al., 2001 NBCA 67, 239 N.B.R. (2d) 211, and Spinks v. Canada, (FCA),[1996] 2 F.C. 563 (C.A.).

The Representor Must Have Acted Negligently in Making the Representation 116 Simply stated, the third Cognos requirement means that the defendant must have breached the standard of care. Thestandard of care required by anyone making representations where a duty of care exists is an objective one, namely, to exercisereasonable care to ensure that representations are made accurately and are not misleading (see p. 121). It extends beyond honestintentions (see Krawchuk v. Scherbak, 2011 ONCA 352 at para. 79, 106 O.R. (3d) 598, leave to appeal to S.C.C. refused, [2011]S.C.C.A. No. 319 (QL)).

Whether this standard has been met will vary depending on the facts of the particular case (see Cognos at pp.121-22). The standard of care and the objective test were most recently affirmed by the Supreme Court in Sharbern Holding Inc. v.Vancouver Airport Centre Ltd., 2011 SCC 23 at para. 124, [2011] 2 S.C.R. 175. 117 As we have seen, the trial judge made strong and entirely supportable findings that the CWB failed in this duty. Even if theCWB’s actions could be described as deliberate, as opposed to a careless misstatement, this would have no impact on the objective test ofnegligence.

This is because “[i]njustice would result if defendants were absolved of liability because their actions were deliberate ratherthan careless” (Smith at para. 33). Thus, even if the regrettable circumstances surrounding dissemination of the second information lettersupported the conclusion that highly relevant information was deliberately misstated, such a finding could not bar a claim fornegligence. Having said this, the deliberate failure to divulge such information can, of course, be an important consideration indetermining whether the representor acted negligently. See, for example, Lesage v.

Canadian Forest Products Ltd., 2011 BCCA 259,307 B.C.A.C. 19. 118 The CWB argues that it never represented that WSB could improve lower quality European wheats. But whatever thepurpose for which Pagnan wanted to resell the wheat, the CWB should have recognized that their representation of WSB as having “fair”milling quality, that “would be quite suitable for milling purposes,” along with the Winnipeg sample, was a misrepresentation of wheatthat turned out to be “terrible.” I remain unconvinced that the trial judge erred in her conclusion that the CWB’s representations werenegligently made.

The Representee Must Have Relied, in a Reasonable Manner, on the Negligent Misrepresentation 119 The CWB argues that Pagnan only relied upon the representations made by Agro when purchasing WSB or that any suchrepresentations were a small part of the information that Pagnan considered. The authorities do not assist the CWB. A particularlyhelpful case in this regard is Kripps et al. v. Touche Ross & Co. et al. (1997), (BC CA), 89 B.C.A.C. 288 at para. 103,leave to appeal to S.C.C. refused, [1997] S.C.C.A.

No. 380 (QL), where Finch J.A., as he then was, observed that reliance can beestablished where the representation is but one factor relied on by a plaintiff. This wholly sensible conclusion finds support insubsequent appellate decisions and in academic commentary. In Redmond v. Densmore and French (1997), (NLCA), 153 Nfld. & P.E.I.R. 181 (Nfld. C.A.), Cameron J.A. wrote (at para. 33): …. The negligent misstatement need not be the only factor. It is sufficient if it has a real and substantial effect …. 120 Similarly, Rosenberg J.A. concluded in NBD Bank, Canada v.

Dofasco Inc. (1999), (ON CA), 46 O.R.(3d) 514 (C.A.) (at para. 81): …. … [I]t was not necessary for the respondent to prove that the statements by Mr. Nicholas were the only factors that induced therespondent to act to its detriment …. …. 121 See as well, Hub Excavating Ltd. v. Orca Estates Ltd. et al., 2009 BCCA 167, 269 B.C.A.C. 186, where Neilson J.A. wrote(at para. 54):

…. Where a misrepresentation was calculated or would naturally tend to induce the plaintiff to act on it, reliance may be inferred. Theonus of rebutting that inference lies with the representor …. As Klar succinctly notes (at p. 249): Although the burden of proving reliance falls upon the plaintiff, the court can infer reliance from facts of the case where appropriate. …. 122 Other academic commentary goes even further. As Peter T.

Burns, Q.C. & Joost Blom, Q.C., wrote in Economic Interests inCanadian Tort Law (Markham: LexisNexis Canada Inc., 2009) (at p. 371): …. … [R]eliance is established by proving that the defendant’s statement materially contributed to the plaintiff’s decision, that is, it wasa cause of the decision even if it was not the sole, or even the predominant, one. …. 123 Reliance, of course, must be reasonable, based on an objective standard (see Grant v. Oracle Corp.

Canada Inc. (1995), (MB CA), 100 Man.R. (2d) 28 (C.A.)). 124 Here, as we have seen, not only were the misrepresentations or omissions of the CWB likely to influence the conduct ofpurchasers such as Pagnan, there is evidence (and findings) of actual reliance (see para. 73 above). 125 There is ample evidence to support the trial judge’s conclusion that the plaintiffs and Agro relied in a reasonable manner onthe information letter and attached table and that the representation of the CWB played a major role in the decision to purchase WSB.

The Reliance Must Have Been Detrimental to the Representee in the Sense that Damages Resulted 126 Finally, as with any other action based on negligence, the plaintiff must prove that it suffered damage. In North AmericanLife Assurance Co., Hamilton J.A. wrote (at para. 121): A plaintiff must suffer damage as a result of its reliance on a negligent misrepresentation. The loss suffered may be economic loss orphysical injury. The requirement for damage is the same as in other kinds of negligence actions. In this case, it is the well-known “butfor” test. See Hanke v.

Resurfice Corp. et al., 2007 SCC 7 , [2007] 1 S.C.R. 333; 357 N.R. 175; 404 A.R. 333; 394 W.A.C.333; 2007 SCC 7. 127 As we have seen, Pagnan suffered damages as a consequence of its reliance on the information letter from the CWB. Although there were also certain representations made by Agro and its own experts, the decision in Ault provides a complete answer tothe CWB’s argument that the plaintiffs’ damages were not substantially connected to its misrepresentations. The court wrote (at para.53): ….

It is not the law that a particular defendant’s negligent misrepresentation must be the sole cause of the plaintiff’s loss. There can bemore than one substantial cause. It is sufficient that the plaintiff relied on the defendant’s statements to his or her detriment …. …. I have not been persuaded that I should interfere with the trial judge’s conclusion on this question. Conclusion 128 In my opinion, all the elements of negligent misrepresentation by the CWB towards Pagnan have been met and liability intort has been established.

In light of this finding, I need not consider the CWB’s argument that the description “Wheat – Ex SpecialBins” in the CGC’s certificate final for the cargo wheat bars the plaintiffs’ action because it conclusively establishes the grade. In anyevent, I agree with the trial judge that the description WSB was not a grade. 129 While I have concentrated in my analysis on the indirect relationship between Pagnan and the CWB, the foundational legalprinciples and the result are exactly the same when I consider the claim of Agro against the CWB.

Agro too was deceived by themisrepresentations of the CWB in the information letter, particularly the representation that the quality of the wheat would “likely” be atthe high end of the spectrum. While Agro went, as found by the trial judge, beyond the four corners of the representations made by theCWB in its contractual undertakings to Pagnan, this does not relieve the CWB from its direct obligation to provide Agro with the typeand quality of WSB represented by it, knowing that Agro, as the “middle man,” would be selling the product on to internationalcustomers.

As I have earlier concluded (see para. 74 above), the information letter informed all of Agro’s negotiations with Pagnan. 130 Even if there were impediments to a direct claim by Pagnan against the CWB, and I have concluded that there are none, theultimate liability would still rest with the CWB on Agro’s crossclaim.

Damages 131 As earlier noted, the plaintiffs ended up with a judgment against the CWB and Agro (and Agro over against the CWB) in the amount of $4,642,392.40, plus costs. 132 The breakdown of the award is as follows: $1,299,584.86 US (loss of profit) 326,935.70 US (additional expenses) 189,245.67 (currency conversion) $1,815,766.23 CDN 2,826,626.17 (prejudgment interest) $4,642,392.40 CDN 133 In its cross appeal, Pagnan alleges that the trial judge made errors in principle with respect to the calculation of damages in four areas: (

a) In calculating damages for loss of profit, the trial judge “overlooked” a separate, additional claim on behalf of Albionex in the amount of $108,124.24 US. (

b) Pagnan’s claim for additional expenses was improperly reduced by one-third. (

c) The award of prejudgment interest unfairly penalizes Pagnan. (

d) The date selected for the conversion of the judgment award from American to Canadian dollars should be the date of the breach of contract rather than the date of the judgment. 134 The CWB also argues that the trial judge erred in awarding damages based on an expected profit of $30 US per metric tonne and generally that Pagnan failed to mitigate its damages. (

a) Loss of Profit 135 The CWB takes exception to the trial judge’s calculation on the basis that she erred in accepting, in isolation, evidence from Pagnan’s representative that its expected profit was approximately $20 US to $30 US per metric tonne. The simple answer to this is that the trial judge, in endeavouring to weigh and evaluate the complex evidence before her, in the absence of any expert evidence with respect to the expected loss of profit, chose to rely on evidence given by Pagnan’s witness and read in from his examination for discovery.

In so doing she did not commit palpable and overriding error. 136 Albionex has a separate claim for loss of profit in the amount of $108,124.24 US, which, it is argued, should be added into the joint judgment. It is asserted the trial judge simply forgot about this uncontested claim. But Agro suggests that close scrutiny of the trial judgment indicates that the claim of Albionex is, in fact, included within the overall judgment award for loss of profit. I agree. (

b) Additional Expenses 137 The next issue relates to the trial judge’s decision to restrict the plaintiffs’ claim for additional expenses to a 12-month as opposed to an 18-month period. It is argued that in doing so, she effectively reversed the onus and required the plaintiffs to show that their mitigation efforts were adequate. The plaintiffs point to the reasons of the trial judge, where she notes (at para. 188): …. Except for the opinion of Paolo, there was no supporting or convincing evidence establishing the necessity of an 18-month period to dispose of the grain.

In the absence of any specific evidence, I have allowed a period of 12 months from receipt of the shipment for its disposal. …. 138 The trial judge did not, in my opinion, reverse the onus; rather, she made her finding because Pagnan failed to substantiate all that it was claiming. This does not constitute palpable and overriding error. The award of additional damages by way of expenses in favour of Pagnan in the amount of $326,935.70 US should stand. (

c) Prejudgment Interest 139 With respect to prejudgment interest, the trial judge was acutely aware of the long delays experienced in bringing the claim to trial, noting (at para. 218): I agree with counsel for the CWB that this is an exceptional case where the delay of 25 years in bringing the matter to trial should result

in a diminished award of interest. …. 140 In the exercise of her discretion, she awarded interest at the rate specified in the Court of Queen’s Bench Prejudgment Interest Table at nine per cent from September 10, 1985, to October 1, 1997, the mid-point in the proceedings, and four per cent thereafter. Looking at all of the facts and circumstances of the case, I do not think she erred in principle in doing so given the unique circumstances before her. (

d) Conversion Date 141 Finally, there is the timing of conversion to Canadian funds. This court dealt specifically with the issue in Brown & Root Services Corp. v. Aerotech Herman Nelson Inc. et al. , 2004 MBCA 63 , 184 Man.R. (2d) 188, where it was acknowledged that while the general rule is that the date of the breach should be the applicable date, nonetheless, the court has a discretion (at para. 103): …. … [I]n matters of breach of contract, Canadian courts have flexibility in their choice of conversion date, the underlying objective being to achieve equity in the particular circumstances of the case. ….

In that case, as here, the court chose the date of judgment for the calculation of the conversation rate. 142 After referring to other authorities (see para. 221), the trial judge determined, being well aware of the rise and fall of the Canadian dollar between the date of the breach and the date of judgment, that “selecting the date of judgment as the conversion date would be fair and equitable” (at para. 223). There is much to be said for this perspective given the extreme delay.

In any event, no error has been demonstrated in the trial judge’s exercise of her discretion. 143 In this case, the errors identified on the appeal and cross appeal were not errors of law and were therefore reviewed on the standard of palpable and overriding error. I am of the view that not only has the CWB been unable to overcome this deferential hurdle, the trial judge’s major findings and inferences were supported by the overwhelming weight of the evidence. 144 The appeal by the CWB is dismissed. The appeal by Agro is also dismissed, as is the cross appeal by Pagnan and Albionex.

There will be one set of costs in favour of Pagnan and Albionex against the CWB, and one set of costs to Agro against the CWB. _________________

[…]