Virden Mainline Motor Products Limited v Date:, 2018 MBCA 82

Citation: Virden Mainline Motor Products Limited v Date: 20180831 Murray et al, 2018 MBCA 82 Docket: AI17-30-08963 IN THE COURT OF APPEAL OF MANITOBA Coram: Mr. Justice Michel A. Monnin Madam Justice Freda M. Steel Madam Justice Janice L. leMaistre BETWEEN : VIRDEN MAINLINE MOTOR PRODUCTS ) LIMITED ) D. G. Giles ) for the Appellant (Plaintiff) Respondent ) ) D. M. Cordingley - and - ) for the Respondent ) WILLIAM JOHN MURRAY ) I. B. Scarth ) on a watching brief (Defendant) Appellant ) for P. B.

Corbett and ) Meyers Norris Penny LLP - and - ) ) Appeal heard: PHILIP BRUCE CORBETT and MEYERS ) April 11, 2018 NORRIS PENNY LLP ) ) Judgment delivered: (Defendants) ) August 31, 2018 On appeal from 2017 MBQB 161 Steel JA [ 1 ] This is an appeal of a decision dismissing a motion for

summary judgment. [ 2 ] The defendant William John Murray (Murray) owned and operated a motor vehicle dealership through Bill Murray Motors Ltd. (Murray Motors) which the plaintiff Virden Mainline Motor Products Limited (Virden Mainline) acquired pursuant to a share purchase agreement (the SPA) for a purchase price of $1,028,867. [ 3 ] More than five years after the share purchase occurred, Virden Mainline discovered that Murray Motors’ controller/accountant Philip Bruce Corbett (Corbett) (who remained employed with Virden Mainline after the share purchase) had significantly misrepresented the profitability of Murray Motors.

According to an investigation and report prepared for Virden Mainline, the business income was overstated by $1,513,027. Virden Mainline sued Murray for breach of contract, negligent misrepresentation and fraudulent misrepresentation. [ 4 ] Included in the SPA were numerous warranties and representations by Murray with respect to the accuracy of the records describing the financial condition of Murray Motors. However, the SPA also provided in

article 4.1 that no “Warranty Claim”, defined in

article 1.1(mm) as “a claim made by either [Virden Mainline] or [Murray] based on or with respect to the inaccuracy or non- performance or non-fulfillment or breach of any representation or warranty”, could be brought more than five years after the closing date. An exception was made only for claims based upon intentional misrepresentation or fraud, which, pursuant to the SPA, could be brought at any time. [ 5 ] Murray brought a motion for

summary judgment on the grounds that Virden Mainline’s claims, based on an alleged breach of contract or negligence, were commenced outside of the limitation period set out in the SPA. As well, he argued that there was no evidence of fraud. The motion was dismissed by the motion judge who held that there were credibility issues that should go to trial.

[ 6 ] The appeal is allowed in part.

Summary judgment may be granted for part of a claim, as well as for the entire claim. Where possible and where it will shorten or expedite the litigation, that should be done. This Court defers to the decision of the motion judge with respect to the need to adjudicate the credibility issues in the claim for fraudulent misrepresentation. However, the motion judge did not fully deal with the limitation bar to the allegations of breach of contract and negligent misrepresentation. There is no genuine issue for trial in relation to those allegations and

summary judgment will issue for that part of the claim. Facts [ 7 ] The controller/accountant of Murray Motors was Corbett and he was responsible for the preparation and maintenance of all financial records of Murray Motors and solely responsible for providing all financial records directly to Murray Motors’ accountant, Meyers Norris Penny LLP (MNP).

The purchase price of the shares was arrived at by determining the net worth of Murray Motors as determined by a review of an engagement financial statement prepared by MNP. [ 8 ] The purchaser, Virden Mainline, continued to employ Corbett in the same capacity after it purchased the dealership. In August 2010, more than five years after the closing date of the SPA, Virden Mainline discovered some irregular transactions in the accounting records.

A report obtained later by Virden Mainline confirmed that Corbett overstated income and/or understated liabilities in Murray Motors from essentially the moment Corbett was hired in 1997 until his resignation in November 2010. The result was that the value of Murray Motors was significantly less than was contemplated in the SPA. [ 9 ] The statement of claim was filed in 2011 and includes allegations of breach of contract, negligence and intentional misrepresentation against Murray.

The allegations all pertain to information provided regarding the financial status of Murray Motors at and around the time the parties entered into the SPA. [ 10 ] With respect to the claim based upon intentional misrepresentation and/or fraud, Murray took the position that the evidence disclosed no genuine issue for trial. He swore two affidavits in support of the motion for

summary judgment and was cross- examined on them. His evidence was that he had no knowledge of the alleged misstatements by Corbett, was not involved in the preparation of any of the financial statements, never intentionally misrepresented any financial information to Virden Mainline and, at all times, relied upon Corbett to accurately describe the financial information to MNP. [ 11 ] Murray’s evidence was corroborated by that of Corbett, who admitted misstating the financial records of Murray Motors and indicated that all of this was done without Murray’s knowledge.

His evidence was that he had been deliberately underestimating expenditures and overestimating accounts payable from the time he was first hired in 1997, without the knowledge of Murray and with no personal benefit. He claimed that he kept it from Murray as he feared being fired. [ 12 ] The motion judge dismissed the motion on the grounds that, with respect to the claims for intentional misrepresentation and/or fraud “there truly are challenging issues regarding credibility in this case” (at para 67).

He held that these issues of credibility were best left for trial. [ 13 ] He made no clear decision with respect to the claims for breach of contract and negligent misrepresentation other than to confirm that there could be concurrent claims for contract and tort. He made no comment as to the limitation clause at

article 4.1 or the entire agreement clause at

article 9.10 in the SPA and their impact on these allegations. [ 14 ] Murray appeals, arguing that the motion judge erred in two ways. First, he says that the evidence raises no genuine issues of credibility. In determining whether there are genuine issues of credibility, the motion judge must take a “good hard look” at the evidence. The fact that a credibility issue has been raised does not, in and of itself, mean that the party has met its required burden. [ 15 ] Second, on a motion for

summary judgment, the court may dismiss all or part of the claim in the statement of claim. Murray submits that the motion judge erred by not dismissing the claims based in contract and in negligence which were commenced outside of the contractual limitation period set out in the SPA and, therefore, were barred. Decision [ 16 ] Manitoba, Court of Queen’s Bench Rules , Man Reg 553/88, r 20 governs motions for

summary judgment and provides, in part, as follows:

Summary judgment motion 20.01 A party may bring a motion, with supporting affidavit material or other evidence, for

summary judgment on all or some of the issues raised in the pleadings in the action. [ 17 ] The standard of review for a decision to grant or deny a motion for

summary judgment is well established. It is a discretionary decision and thus is reviewed by this Court on a deferential standard, which means that it can be set aside on appeal only if there is a material error as to the law, the facts or unless the decision is so clearly wrong as to be unjust. [ 18 ] The law with respect to

summary judgment in Manitoba is equally well known. It is a two-step test. The test is the same regardless of whether the moving party is the plaintiff or the defendant. The moving party must demonstrate that he has made out a prima facie case. If the moving party is the defendant, as it is here, he must prove, on a prima facie basis, that the plaintiff’s action should fail. If he does so, then the onus shifts to the responding party to show that there is a genuine issue for trial (see Homestead Properties (Canada) Ltd v Sekhri et al , 2007 MBCA 61 at paras 13-14 ; and Shachtay v Shachtay , 2013 MBCA 17 at para 7 ). 1. Are There Issues of Credibility That Need to Be Tested at Trial?

[ 19 ] A motion for

summary judgment which is based on affidavit evidence is not the forum in which a court ought to determine serious and legitimate issues of credibility. [ 20 ] That said, the court must be careful not to find issues of credibility where none exist. Proportionality requires that a trial not be ordered unless it is necessary in the circumstances. The motion judge must take a hard look at the evidence to ensure that the credibility issues are genuine. Sometimes, evidence that presents as a credibility issue is really a simple denial.

Sometimes, the evidence is so overbalanced in one direction that “the credibility issue evaporates” ( Heritage Electric Ltd et al v Sterling O & G International Corporation et al , 2017 MBCA 85 at para 16 . More recently, see Brotherston v Christiansen et al , 2018 MBCA 70 ). [ 21 ] However, once that threshold is met, genuine credibility issues should be referred to trial. Fraudulent misrepresentation may be intentional, but it may also be made out where a defendant makes false representations recklessly and without care as to whether their representations are true or false.

Findings of credibility are especially important when making determinations of fraudulent misrepresentation. The finding by the motion judge that there were “challenging issues regarding credibility” was a factual finding and entitled to significant deference unless there was a palpable and overriding error. [ 22 ] It is true that Virden Mainline has offered no evidence to contradict that of Murray that he had no knowledge of Corbett’s fraudulent activities.

Moreover, Virden Mainline retained Corbett as its controller/accountant for more than five years following its purchase of the shares and, during this time, Corbett performed the very same functions as those he had previously, and his fraudulent activities went undetected by Virden Mainline as well. [ 23 ] However, the motion judge found that the evidence by itself gave rise to credibility issues that ought to be resolved by the test of direct and cross-examination.

In particular, the evidence indicated that, despite Murray’s denials that he was not aware of the fraud, there were a number of facts that were inconsistent with this denial, including the admissions by Murray that he was a hands-on manager, that he knew of and approved every sale, that he kept close tabs on the inventory level and sales side of the business and that he would open every piece of mail and keep track of all cheques going in and coming out of the business.

In addition, Murray admitted that he kept a record of the cash coming in and going out of the dealership and had been doing so since he had started operating the dealership. [ 24 ] Given the above, as well as a number of other admissions made by Murray, the motion judge held that the inconsistency between these statements and the bald denials by Corbett and Murray, that Murray knew nothing of the $1,513,027 overstatement of value, was a genuine issue of credibility that needed to be tested at trial. [ 25 ] It was within the motion judge’s discretion to conclude on these facts that there was a genuine credibility issue.

Such a discretionary determination ought to be afforded significant deference on appeal. I would dismiss this ground of appeal. 2.

Interpretation of the SPA [ 26 ] I take a different view of Murray’s second ground of appeal. [ 27 ] Murray says that the motion judge erred by failing to recognise that, on a motion for

summary judgment, the court may dismiss all or part of the claims in the statement of claim. Had he so recognised, the inevitable result would have been a dismissal of the claims for breach of contract and negligent misrepresentation, since

article 4.1 of the SPA operates as a complete bar to any claim for breach of contract or negligence commenced more than five years after the closing date specified in the SPA (June 1, 2005). The statement of claim filed in 2011 was over five years after the closing date of the SPA. [ 28 ] Virden Mainline argues that the other claims could not be coherently separated from the broader credibility issues concerning intentional or fraudulent misrepresentation. [ 29 ] The SPA is a complex legal document. It is 46 pages long, not including numerous schedules.

However, the pertinent provisions for our purposes are the following: 1.1 DEFINED TERMS In this Agreement and in the Schedules hereto, unless there is something in the subject matter or context inconsistent therewith, the following terms and expressions will have the following meanings: . . . (mm) “Warranty Claim” means a claim made by either [Virden Mainline] or [Murray] based on or with respect to the inaccuracy or non-performance or non-fulfilment or breach of any representation or warranty made by the other party contained in this Agreement or contained in any document or certificate given in order to carry out the transactions contemplated hereby. . . . 4.1 SURVIVAL OF WARRANTIES BY THE VENDOR

The representations and warranties made by [Murray] contained in this Agreement, or contained in any document or certificate given inorder to carry out the transactions contemplated hereby, will survive the closing of the purchase of the Purchased Shares and thePurchased Loan Account provided for herein and, notwithstanding such closing or any investigation made by or on behalf of thePurchaser or any other Person or any knowledge of [Virden Mainline], or any other Person, shall continue in full force and effect for thebenefit of [Virden Mainline], and for the benefit of [Murray Motors], subject to the following provisions of this

Article 4.1. (

a) Except as provided in Paragraphs 4.1, (

c) and 4.1(

d) of this

Article 4.1, no Warranty Claim may be made or brought by [VirdenMainline] after the date which is five (5) years following the Closing Date; . . . (

d) Any Warranty Claim which is based upon or relates to [Murray]’s title to the Purchased Shares or the Purchased Loan Account, or to[Murray Motors’] title to the assets of [Murray Motors], or which is based upon intentional misrepresentation or fraud by [Murray] maybe made or brought by [Virden Mainline] at any time. After the expiration of the period of time referred to in Paragraph 4.1(

a) of this

Article 4.1, [Murray] shall be released from allobligations and liabilities in respect of the representations and warranties made by [Murray] and contained in this Agreement or in anydocument or certificate given in order to carry out the transactions contemplated hereby, except with respect to any Warranty Claimsmade by [Virden Mainline] in writing prior to the expiration of such period and subject to the rights of [Virden Mainline] to make anyclaim permitted by Paragraphs 4.1(c) [re tax issues] and/or 4.1(

d) of this

Article 4.1. . . . 9.10 ENTIRE AGREEMENT This Agreement and the Schedules referred to herein constitute the entire agreement between the parties hereto and supersede TheMemorandum of Understanding made February 7, 2005, as is referenced in paragraph 1.1(dd) of

Article 1.1 of this Agreement, and allprior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral orwritten, express or implied, with respect to the subject matter hereof. None of the parties hereto shall be bound or charged with any oralor written agreements, representations, warranties, statements, promises, information, arrangements or understandings not specifically setforth in this Agreement or in the Schedules, documents and instruments to be delivered on or before the Closing Date pursuant to thisAgreement.

The parties hereto further acknowledge and agree that, in entering into this Agreement and in delivering the Schedules,documents and instruments to be delivered on or before the Closing Date, they have not in any way relied, and will not in any way rely,upon any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings,express or implied, not specifically set forth in this Agreement or in such Schedules, documents or instruments. [30] The closing procedures contemplated by the SPA were carried out and the inventory and financial records were allverified.

All required financial information and documentation was provided to Virden Mainline in accordance with the SPA andaccounts receivable were reviewed and verified. [31] There is nothing in the reasons of the motion judge dealing with

article 4.1 and the claims made in contract and in tort. He does say that concurrent claims in negligence and contract are possible. He also acknowledges that Murray must satisfy him that theSPA precludes bringing an action for either breach of contract or negligence pursuant to

article 4.1 of the SPA. But, he goes no further. [32] Although concurrent claims in negligence and contract are possible, the parties may, by a valid contractual provision,exclude claims in both. The motion judge did not explain why the combination of articles 4.1 and 9.10 would not constitute such acontractual provision indicating that the parties intended to exclude claims in both contract and tort (see BG Checo International Ltd vBritish Columbia Hydro and Power Authority, (SCC), [1993] 1 SCR 12 at 30-31).

Instead, he moves on to adiscussion of how credibility findings are often decisive when making determinations of alleged fraudulent or intentionalmisrepresentations. The motion judge seemed to treat the motion for

summary judgment as an “all or nothing” proposition. [33] Although the matter will go to trial on the issue of credibility as to the presence of fraud, the length and complexity ofthe trial could be shortened considerably if the applicability of the limitation clause at

article 4.1 had been addressed. The question ofwhether a genuine issue for trial exists in respect of Virden Mainline’s allegations of fraud is unrelated to the issue of whether, by virtueof articles 4.1 and 9.10 of the SPA, an action for breach of contract or negligence is barred by the passage of time. [34] The ability of Virden Mainline to advance claims for breach of contract and negligence subsequent to the closing of the

transaction was a matter that the parties specifically addressed in the SPA. They did so by including

article 1.1(mm) stating that,although the warranties contained in the SPA survive closing, no claim “based on or with respect to the inaccuracy or non-performanceor non-fulfillment or breach of any representation or warranty” would be brought after the passage of five years following June 1, 2005.

The only relevant exception is that the five-year limitation period does not apply to claims based on intentional misrepresentation orfraud. [35] Neither party nor the motion judge took issue with the fact that each of the claims advanced by Virden Mainline was a“Warranty Claim” as that term was defined in the SPA, inasmuch as the allegations pertain to inaccuracy, non-performance, non-fulfilment or breach of representations and warranties made by Murray in the SPA or in the documents given to carry out the transaction. [36] While there seems to be no defence against the claims of breach of contract being barred by the limitations clause atarticle 4.1, Virden Mainline submits that concurrent claims can exist in both contract and tort and that

article 4.1 operates only to prohibitclaims in contract and not those framed in tort. [37] However, the law is clear that parties to an agreement may limit or waive the duties the common law otherwise wouldimpose on them for negligence. It is a question of contractual

interpretation as to whether the parties have included in the contract aprovision meant to limit the right to sue in tort or contract (see BG Checo; No 2002 Taurus Ventures Ltd v Intrawest Corp, 2007BCCA 228; and Higgins Cohn Brand Management v Kinnikinnick Foods Inc, 2016 ONSC 1345 at paras 173-77). [38] The way that is often done is through an exclusion clause such as the entire agreement clause in

article 9.10 of theSPA. By limiting the expression of the parties’ intentions to the written form, the clause attempts to provide certainty and clarity (seeSoboczynski v Beauchamp, 2015 ONCA 282 at para 43, leave to appeal to SCC refused, 36489 (19 November 2015)). [39] It is not necessary for the parties to specifically refer to negligence in the agreement in order for the exclusion clause tooperate to bar such claims. There does not need to be an express exclusion of negligence, provided the clause is comprehensive ofnegligence in its meaning.

See ITO—Int’l Terminal Operators v Miida Electronics, (SCC), [1986] 1 SCR 752; BowValley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd, (SCC), [1997] 3 SCR 1210; and more recently, MacMillanv Kaiser Equipment Ltd, 2004 BCCA 270, where the British Columbia Court of Appeal confirmed that it was appropriate to grantsummary judgment enforcing an entire agreement clause in the written agreement. [40] In some cases, the courts will not give effect to the exclusion clause.

In Tercon Contractors Ltd v British Columbia(Transportation and Highways), 2010 SCC 4, the Supreme Court of Canada set out a new approach to exclusion clauses. Terconrequires that the court first examine whether the exclusion clause applies to the circumstances. If it does apply, the court must go on todetermine if the clause is unconscionable or whether there are public policy considerations that would cause a court to declineenforcement.

Recent cases have demonstrated a more moderate approach to entire agreement clauses where misrepresentation is alleged(see Diana Edmonds, “Misrepresentation in a Contractual Matrix: The Evolving Approach to Exclusion Clauses”, 2017 Archibald-AnnRevCivil [G]).

The factors that a court might take into consideration in deciding whether or not to give effect to an entire agreementclause include whether the misrepresentation relates to a matter that is independent of the contract, whether it is a standard form contract,whether the party was induced to enter into the contract by the misrepresentation, and whether there is an inequality of negotiatingpower or substantial unfairness.

See, for example, Queen v Cognos Inc, (SCC), [1993] 1 SCR 87, where the Court heldthat liability was not limited by an exclusion clause in the contract since the tort was found to be independent of the contract. [41] In particular, in cases of negligent misrepresentation, the courts distinguish between commercial parties and non-commercial parties.

Where the parties are experienced commercial parties, often negotiating with legal advisers and relying onindependent financial advisors, the presumption in the case law is that the written agreement reflects the entire agreement of the partiesand the entire agreement clause serves as confirmation of that presumption (see MH Ogilvie, “Entire Agreement Clauses: Neither Riddlenor Enigma” (2008) 87 Can Bar Rev 625 at 634, 646).

Otherwise, if contractual terms are read too easily “to let the tort liabilitythrough, claims in negligent misstatement can only multiply and the usefulness of the negotiated terms as a way of achieving certainty asto the parties’ rights will be devalued” (Joost Blom, “Contract and Tort—Negligent Misstatement Inducing Contract—ConcurrentLiability—Effect of Contractual Terms: BG Checo International Ltd v British Columbia Hydro & Power Authority; Queen v CognosInc”, Case Comment, (1994) 73:2 Can Bar Rev 243 at 257). [42] Indeed, there are many cases which have held that the claim of negligent misrepresentation could not succeed in thepresence of an entire agreement clause and

summary judgment has been granted. In Haliburton Forest & Wildlife Reserve Ltd vToromont Industries Ltd et al, 2016 ONSC 3767 at paras 66-67, Gilmore J granted

summary judgment (except with respect to a narrowargument based on the Sale of Goods Act, RSO 1990, c S1), rejecting the assertion that the law in this area is “unsettled” (at para 67). See also TDL Group Ltd v Zabco Holdings Inc et al, 2008 MBQB 239, where Joyal J (as he then was) found that the defendant’s claimfor negligent misrepresentation was precluded by the entire agreement and non-reliance clauses contained in the agreement (seepara 242). [43] In the case at bar, it is important to note that the SPA was negotiated between knowledgeable, sophisticatedbusinesspersons with experience in the industry.

Both parties were represented by legal counsel. There is no suggestion that the partiesto the agreement were unequal in any sense. The SPA is a carefully drafted agreement, quite different than a standard-form contract ofadhesion. The limitation clause at

article 4.1, together with

article 9.10 of the SPA, makes it clear that there are no representations orwarranties outside those contained in the SPA and that a claim beyond the specified five-year period is not available to Virden Mainline.

As was stated by the British Columbia Court of Appeal in No 2002 Taurus, “In these circumstances, where the contract was clearlyintended to govern the relationship between the parties, it would not accord with commercial reality to give no effect to the entireagreement clause in determining whether Taurus can claim a tort remedy” (at para 59). [44] Virden Mainline’s claims against Murray for breach of contract and negligence are barred by the wording of the SPAand the failure to dismiss them outright constitutes a palpable and overriding error. The appeal is allowed with respect to that ground ofappeal.

[ 45 ] As success is divided, there will be no award of costs to either party. JA I agree: JA I agree: JA