Ultracuts v Magicuts, 2023 MBCA 71

Citation: Ultracuts v Magicuts, 2023 MBCA 71 Date: 20230907 Docket: AI22-30-09729 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Freda M. Steel Madam Justice Holly C. Beard Mr. Justice Christopher J. Mainella BETWEEN : ULTRACUTS FRANCHISES ) J. B. Kroft, K.C. INCORPORATED ) M. P. Gottlieb, ) B. C. Ross, ( Plaintiff) Respondent ) A. J. Winton and ) J. J. Stonehouse - and - ) for the Appellants ) cHRISTOPHER r. Cawston and ) BRIAN a. LUBORSKY ) ) S. Cepanec and ( Defendants ) Appellants ) P.

Halamandaris ) for the Respondent - and - ) ) MAGICUTS iNC. ) ) No appearance ( Defendant ) ) for the Defendants ) Magicuts Inc. and (by original action) ) Grant Thornton Limited ) AND BETWEEN : ) ) ULTRACUTS FRANCHISES ) Appeal heard: INCORPORATED ) November 23, 2022 ) ( Plaintiff) Respondent ) Judgment delivered: ) September 7, 2023 - and - ) cHRISTOPHER r. Cawston and ) BRIAN a. LUBORSKY ) ) ( Defendants) Appellants ) - and - ) ) MAGICUTS iNC. and GRANT THORNTON ) LIMITED, as trustee of THE ESTATES OF ) PREMIER SALONS LTD. ) ) (Defendant ) )

On appeal from 2021 MBQB 250 beard JA I. THE ISSUES [ 1 ] The defendants Magicuts Inc. (Magicuts), Christopher R. Cawston (Mr. Cawston) and Brian A. Luborsky (Mr.

Luborsky) (together, the defendants) are appealing a judgment from the Court of Queen’s Bench (as it then was) in which the trial judge found that they had intentionally harmed the plaintiff, Ultracuts Franchises Incorporated (Ultracuts), by means of an unlawful act (civil fraud) against a third party, Wal-Mart Canada Inc. (Wal-Mart), by deceiving Wal-Mart regarding assurances that Wal-Mart had given to Magicuts, thereby committing the tort of unlawful interference with economic interests (unlawful means) (see para 37 herein).

He awarded damages of $34,575,000 and costs to Ultracuts. [ 2 ] The defendants argue that the trial judge committed a number of errors: (

i) regarding the tort of unlawful means, by failing to find, or even consider, whether Magicuts intended to harm Ultracuts; (ii) regarding the tort of civil fraud, by failing to consider whether the impugned statements were statements of fact, as opposed to statements of position, opinion or future intentions of a third party; (iii) regarding the tort of civil fraud, by failing to consider whether Wal-Mart relied on the alleged misrepresentations; (iv) by finding that Mr. Cawston and Mr. Luborsky, who were directors and corporate officers of Magicuts, were personally liable without any substantive legal analysis of the basis for personal liability; (

v) by finding that Ultracuts had satisfied its obligation to mitigate damages, notwithstanding that it unreasonably rejected Wal-Mart’s offers; (vi) by determining damages based on incorrect considerations; and (vii) by failing to render an independent and impartial decision due to verbatim copying of key findings and analysis from an earlier decision issued by another judge in an uncontested motion against Magicuts, where that judge said that that decision would not affect this case. [ 3 ] In my view, the trial judge erred as set out in grounds (ii) and (iii), and it is not necessary to determine the other grounds.

I would grant the appeal and dismiss Ultracuts’ claim against the defendants. (Note: the citations for the academic authorities referred to herein are set out in the appendix to these reasons.) II. BACKGROUND [ 4 ] Ultracuts and Magicuts are competitors in the hair salon business. Each operated a chain of hair salons in Canada in 1994 and continues to do so. [ 5 ] Mr. Cawston and Mr. Luborsky were officers of Magicuts at the relevant times, Mr. Cawston being the president and in charge of Canadian operations and Mr. Luborsky being the chief executive officer (CEO) and in charge of operations in the United States.

Further, each was a director of Magicuts and indirectly held shares in it. Meril Rivard (Mr. Rivard) was, throughout the relevant period, the owner of Ultracuts. [ 6 ] This claim is one in a series of claims that began in 1994, when Wal-Mart announced its agreement with Woolworth Canada Inc. to buy out 120 of the Woolco department stores throughout Canada (the Woolco stores), with plans to convert them to Wal- Mart stores. At that time, Magicuts operated 170 hair salons across Canada, 59 of which were located in Woolco stores.

Of those, 45 were owned by franchisees and 14 were owned by Magicuts (together, the hair salons). When he learned of the announcement, Mr.

Cawston began contacting members of the Wal-Mart transition team to determine how the sale would affect the Magicuts hair salons located in Woolco stores. [ 7 ] Wal-Mart was of the view that it did not have enough space for the hair salons in the Woolco stores, so on March 22, 1994, Woolco notified Magicuts that it was terminating the licence agreements for the hair salons, and most hair salons were given a notice to vacate the Woolco stores within 30 days, that is, by April 21, 1994. The franchisees threatened legal action against Woolco, Wal-Mart and Magicuts. [ 8 ] Mr.

Cawston eventually arranged a meeting with Melvin Redman (Mr. Redman), Wal-Mart’s senior vice president in charge of the Woolco transition, to discuss the effect of the sale on the hair salons and the threatened legal action by the franchisees. Of particular concern to Magicuts was the effect of the closures on its franchisees. [ 9 ] There were three meetings between Messrs Cawston and Redman on April 12, 1994, May 13, 1994 and May 24, 1994 (the Redman meetings). The first meeting included a Woolco representative, while the others included other Magicuts representatives. [ 10 ] During those meetings, Mr.

Redman maintained that the Magicuts hair salons would have to be closed, but he gave Mr. Cawston certain assurances regarding future opportunities to open Magicuts hair salons in existing or new stores, should there be any opportunities (the Redman agreement). It is uncontested that Mr. Redman refused to put any assurances in writing, but he said that “Wal- Mart’s words [were] its bond” and he shook hands with Mr. Cawston. [ 11 ] The franchisees and Magicuts filed a class action lawsuit against Woolworth on March 14, 1995, but did not include

Wal-Mart as a defendant. Mr. Redman left Wal-Mart in June 1995. [ 12 ] Some time after the Woolco purchase was completed, Wal-Mart determined that it would put hair salons into some of its stores, and it entered into agreements with Magicuts to open hair salons in a number of stores in Eastern Canada, which were opened during the fall of 1994 and through 1995. [ 13 ] In August 1995, Ultracuts, through a real estate broker, began discussions with Brad Messer (Mr.

Messer), the international property manager with Wal-Mart, to open hair salons in some of Wal-Mart’s stores in Western Canada, which led to it opening hair salons in Wal-Mart stores in Winnipeg and Calgary in late 1995. Some of these locations were former Woolco stores in which there had been franchise Magicuts hair salons. [ 14 ] In October 1995, Magicuts became aware that Ultracuts was negotiating with Wal-Mart, and Mr. Cawston called Mr. Redman (who was then no longer with Wal-Mart) to voice his concerns about Wal-Mart not upholding its part of their bargain. In January 1996, Mr. Luborsky met with Mr.

Messer to explain Magicuts’ concerns. [ 15 ] Despite those discussions, Wal-Mart continued to offer further locations to Ultracuts, with the result that Ultracuts would have had 10 hair salons in Wal-Mart stores. [ 16 ] In April or May 1996, Magicuts became aware that Ultracuts was to open two hair salons in Edmonton later that year. [ 17 ] In March 1996, Scott Robertson (Mr. Robertson) replaced Mr. Messer. Shortly thereafter, Messrs Cawston and Luborsky called Mr. Robertson to discuss their position regarding the Ultracuts hair salons. Mr. Robertson discussed the issue with Wal- Mart’s senior management team.

Wal-Mart’s in-house counsel, Robert Wasserman (Mr. Wasserman), who was part of that team, told Mr. Robertson to get Magicuts’ position in writing. In response, Mr. Cawston sent a letter to Mr. Robertson dated May 14, 1996 (the letter). It is this letter that Ultracuts argues contains the false representations that form the basis of its claim against the defendants. [ 18 ] Mr. Robertson’s evidence was that Wal-Mart’s senior management reviewed the letter with Mr. Wasserman, and he and Mr. Wasserman undertook an investigation.

Following this investigation, Wal-Mart concluded that, while an agreement had been reached in 1994, it was not a legally binding agreement, and that there was a potential that Wal-Mart might get sued by Magicuts franchisees, should Ultracuts open further hair salons in former Woolco stores. [ 19 ] In late June 1996, Mr. Robertson told Mr. Rivard that Wal-Mart could not offer any new locations to Ultracuts due to its agreement with Magicuts. [ 20 ] Wal-Mart then entered into separate discussions with both Magicuts and Ultracuts to find a solution to the competing requests for additional hair salons.

Magicuts put forward a proposal to divide the Western Canadian locations between itself and Ultracuts, as set out in Mr. Robertson’s internal memo of July 10, 1996, to David Ferguson (Mr. Ferguson), then the president of Wal- Mart Canada, and others. [ 21 ] In a letter to Mr. Ferguson dated July 9, 1996, Ultracuts took the position that it had agreements with Wal-Mart regarding hair salons in Western Canada, and that allowing Magicuts hair salons into any Wal-Mart stores in Western Canada would be

an act of bad faith. Mr. Ferguson replied, asking for written confirmation of the locations for which there were legally binding agreements. Mr.

Ferguson took the position that there were four such locations, and he offered to go ahead with those agreements, together with a commitment to give Ultracuts an exclusive agreement to operate in any municipal market in which it had a hair salon in a Wal-Mart store. [ 22 ] The result, as found by the trial judge, was that Wal-Mart agreed to honour an offer to Ultracuts that would give it seven locations in Wal-Mart stores in Western Canada, with an agreement not to put a competitor in a market where it was operating a hair salon.

Ultracuts rejected this offer. [ 23 ] Other discussions followed, but there was no agreement. In a letter dated September 16, 1996, Mr. Wasserman advised Ultracuts that Wal-Mart would only honour its written agreements. On September 18, 1996, Ultracuts sued Wal-Mart in the courts in Arkansas, United States (the Arkansas proceeding), which was the location of Wal-Mart’s head office. On November 13, 1996, Ultracuts advised Wal-Mart that it would proceed with the remaining hair salons in the written agreements only if Wal-Mart would agree that it was without prejudice to its rights in the litigation.

Wal-Mart refused, so Ultracuts chose not to proceed with any further hair salons, and none were constructed. [ 24 ] There has been a significant amount of litigation arising from these events. Ultracuts’ claims against Wal-Mart in both Arkansas and Manitoba alleging breach of contract and fraud have all been dismissed or lapsed and all litigation between those parties has concluded.

Depositions taken from several people in the Arkansas proceeding have been admitted as evidence in this trial by agreement. [ 25 ] In the current action, Ultracuts’ claim alleging unlawful interference with economic relations was dismissed on

summary judgment against all defendants except for Magicuts, Mr. Cawston and Mr. Luborsky (see Ultracuts Franchises Incorporated v Magicuts Inc et al , 2005 MBQB 294 , aff’d 2010 MBCA 34 ). Ultracuts’ claim in this matter, alleging interference with contractual relations, related to two alleged contracts with Wal-Mart dated January 22, 1996, and April 11, 1996. That claim was dismissed against all defendants on

summary judgment, with the judge finding that Ultracuts had failed to establish triable issues with respect to either alleged contract. Regarding the earlier contract, he found that there had been no breach and that the later document was not a contract but only an agreement to agree (see Ultracuts Franchises Incorporated v Magicuts Inc et al , 2009 MBQB 23 at paras 3 , 26). The Redman Meetings and the Redman Agreement [ 26 ] One of the keys to this case is the Redman meetings and the resulting Redman agreement. The trial judge explained this as follows (at paras 23-26):

There were three meetings between Magicuts representatives and [Mr.] Redman during which the parties discussed an arrangement for Magicuts’ cooperation in vacating the Woolco salons and to effectively manage the impact of the transition on Magicuts and its franchisees. . . . . . . During the course of these meetings, there were essentially three key points discussed:

i) Magicuts agreed to dissuade its franchisees from litigating against Wal-Mart. ii) Wal-Mart agreed to allow Magicuts an additional two months to vacate Woolco stores. iii) Wal-Mart told Magicuts that it would have an opportunity to open salons in former Woolco stores or new Wal-Marts in Canada, if Wal-Mart were to open hair salons in these stores, provided Magicuts met Wal-Mart’s requirements.

In at least two of the three meetings, [Mr.] Redman made it clear that Wal-Mart would not enter into any formal agreement in that regard and that any relationship between Magicuts and Wal-Mart would be dependent on performance. With respect to the May 13, 1994 meeting, [Mr.] Redman did not offer any evidence in his deposition about this meeting. Both [Mr.] Cawston and [Mr.] Luborsky testified in their direct examinations that at that meeting [Mr.] Redman told them that if there were ever any opportunity to put hair salons in Wal-Mart stores in Canada, Magicuts would get the first opportunity. [ 27 ] Although Mr.

Redman did not specifically reference the May 13, 1994 date, he did, contrary to the trial judge’s finding, explain the meetings in his deposition on December 14, 1996, as follows: . . . [MR. REDMAN] In [the Redman meetings], I said, “[Mr. Cawston], [not putting Magicuts hair salons in Wal-Mart stores] has nothing to do with you operating and the way you operate. It’s a space problem, and we don’t have any space for you.” And at that time, we shook hands, and I said, “Let me tell you this.

If there’s ever an opportunity that we would consider putting a haircutting company back in, as long as you meet our requirements” -- and I said, “look, I don’t handle that, but as long as you meet our requirements, and as long as you’re competitive, you all have the right to come back in, and I’ll let you come back in.” And that was basically the verbiage that’s in the [May 14, 1996] letter, the way I recollected the conversation. And that’s exactly -- I mean, I’m very clear on what we said, and that’s exactly what we said. [COUNSEL FOR MAGICUTS] Did you say anything else?

Is that the agreement that you made with [Mr.] Cawston? [MR. REDMAN] I, in turn, called [Mr.] Messer, with [Mr. Cawston] on the phone, and said, “[Mr. Messer], let me tell you, these guys are going to lose a whole bunch of stores. And what I have agreed to with [Mr. Cawston] is that if we build a new store, or if [for ever] any reason there’s space available in existing stores, as long as they’re competitive, and as long as they meet our requirements that you set, they ought to have the right to come back in these stores.” And that was -- That’s all of that conversation. . . . [ 28 ] Mr.

Redman was also questioned about who, at Wal-Mart, was involved in or aware of the decisions made to keep or remove independent businesses from the former Woolco stores. He referenced a number of Wal-Mart executives, including David

Glass, Bobby Martin (Mr. Martin), Carl Ownbey (Mr. Ownbey) and Mr. Messer, and stated that “there [were] a lot of people involved in that.” [ 29 ] Mr. Redman was then asked the following questions and gave the following answers: . . . [COUNSEL FOR MAGICUTS] Okay. And that would include, I assume, the meeting you had with Mr. Cawston where you agreed to put him back in the stores? [MR.

REDMAN] There was no misunderstanding on anybody’s part at Wal-Mart, in my opinion -- that’s my personal opinion, based on being the guy that was in charge of the operation -- about what the intention was about removing Magicuts, and then what the agreement was when we went back in with Magicuts. [COUNSEL FOR MAGICUTS] And you told Mr. Martin that in 1994, in that early time period in 1994? [MR. REDMAN] I would have had to tell Mr. Martin that. I mean that was -- that’s a huge move. I would have had to tell Mr.

Martin that. . . . [COUNSEL FOR MAGICUTS] Is it fair to say that the only licensee type user that you, on behalf of Wal-Mart, agreed to go back in these stores, supposedly, was Magicuts? [MR. REDMAN] No, I did agree to that, and yes, that’s the one that I made an absolute commitment to, yes. . . . [COUNSEL FOR MAGICUTS] All right. Why didn’t you put this, as you’ve described, absolute commitment in writing to Mr. Cawston? [MR. REDMAN] I didn’t feel a need to, [Counsel for Magicuts]. [COUNSEL FOR MAGICUTS] Is Wal-Mart’s word its bond? [MR. REDMAN] Well -- [COUNSEL FOR MAGICUTS] Is that right? [MR.

REDMAN] In my opinion, that’s what it is. I mean, in my experience at Wal-Mart, that’s what it was. I will tell you that I shook hands with [Mr.] Cawston and told him that that’s what we would do, and that’s what my intention was. . . . [ 30 ] During the deposition, Mr. Redman testified to receiving a call from Mr. Cawston in 1995 that Wal-Mart was giving locations to someone else contrary to the agreement, so Mr. Redman called Mr. Ownbey to explain the situation to him and remind him of the agreement with Magicuts. He said that Mr. Ownbey left him a message that he had spoken to Mr. Messer. [ 31 ] Finally, Mr.

Redman confirmed that he had a conversation with Mr. Cawston about the contents of the letter: . . . [COUNSEL FOR MAGICUTS] And [Mr. Cawston] said, “I’m going to send you a letter” concerning what supposedly you and he had agreed to?

[MR. REDMAN] What happened exactly was, he called me first and said, “I am contemplating writing a letter, and let me run by you what our agreement was in Canada. Let me make sure that there’s not anything that’s not accurate.” And we had a conversation, in chronological order, if you will, about me looking at him and us shaking hands and me telling him that, you know, if there’s an opportunity to ever come back in the stores, or if we open a new store, that as long as they met the criteria set up by our licensing department, that they should have the opportunity first to go in the stores.

And I agreed with that summation that he gave me on the telephone. He said, “I’m, in turn, going to write a letter, and I will forward you a copy of it.” . . . [ 32 ] Mr. Redman said that he received a copy of the letter after that, but he was busy and did not look at it closely. [ 33 ] The trial judge pointed out differences between the evidence of Mr. Redman and Mr. Cawston as to the sequence of their conversation regarding the contents of the letter and Mr. Redman receiving drafts of the letter to review, and he drew a negative inference about the accuracy of Mr.

Cawston’s evidence (see paras 119-20). [ 34 ] In my view, given that both Messrs Redman and Cawston were testifying to events that occurred more than 25 years earlier, a discrepancy as to the sequence of the conversation and letters is not material. What is important about this testimony is not whether the conversation occurred before or after Mr. Redman received or read the letter, but the fact that he was advised of the details in the letter regarding the agreement and confirmed to Mr. Cawston then, and repeated at the deposition, that they were accurate.

That confirmation is the more important credibility factor. [ 35 ] Ultracuts has not pointed to any evidence that disputes that of Mr. Redman, and the trial judge made no adverse credibility findings regarding his evidence. In fact, he accepted Mr. Redman’s evidence. III. THE LAW [ 36 ] This appeal relates to Ultracuts’ claim that the defendants unlawfully interfered with its economic relations with Wal- Mart. As I will explain, this tort is premised on the commission by the defendants of an unlawful act in relation to a third party, which Ultracuts alleges was civil fraud.

I will begin with a review of the elements of these two torts. Unlawful Means (Unlawful Interference with Economic Interests) [ 37 ] The leading Canadian decision on the tort of unlawful means is AI Enterprises Ltd v Bram Enterprises Ltd , 2014 SCC 12 ( Bram SCC ) .

In that case, Cromwell J, speaking for the Court, noted that the tort was “unsettled and need[ed] clarification” (at para 2), including that it has been referred to in a number of ways: “unlawful interference with economic relations”, “interference with a trade or business by unlawful means”, “intentional interference with economic relations” and “causing loss by unlawful means” ( ibid ).

He adopted but did not mandate the name “causing loss by unlawful means”, shortened to “unlawful means”, and he undertook an extensive review of the jurisprudence to clarify its scope and the applicable legal principles ( ibid ). [ 38 ] Cromwell J described the tort as one that applies in a three-party situation “in which the defendant commits an unlawful act against a third party and that act intentionally causes economic harm to the plaintiff” (at para 5).

He explained that it “creates a type of ‘parasitic’ liability in a three-party situation” (at para 23) because the defendant’s liability to the plaintiff is based not on any direct unlawful act against the plaintiff, but its unlawful act against a third party. He also emphasized that “this is an intentional tort; the focus of the dispute . . . is on the unlawful means element” ( ibid ; see also para 28).

He concluded that the rationale for the tort is “liability stretching” (at para 37), in that it does not create a new tort but, rather, “expand[s] the range of persons who may sue for harm intentionally caused by existing actionable wrongs to a third party” (at para 45). [ 39 ] An early example of this tort is found in Tarleton and Others v M’Gawley (1794), 170 ER 153 (UK) . In that case, the master of a trading ship (the defendant) fired its cannons at a canoe (the third party) that was attempting to trade with the trading ship’s competitor (the plaintiff) to prevent the trade.

The plaintiff recovered damages for economic loss from the defendant, based on the defendant’s wrongful conduct towards the occupants of the canoe, which conduct had been committed with the intention of inflicting economic injury on the plaintiff. [ 40 ] In Bram SCC , Cromwell J also clarified several aspects of the tort. The first issue that he addressed was the type of unlawful means or act that was required. He rejected a wide

interpretation that would include any unlawful means that was forbidden by law whatever its source and regardless of whether it was actionable, including criminal offences and breach of a statute (see paras 40, 42, 45). He also pointed out that the common law has traditionally been reluctant to develop rules about fair competition (see para 31). He opted, instead, for a narrow

interpretation that would limit the unlawful act or means to “conduct [that would] give rise to a civil cause of action by the third party or would do so if the third party [had] suffered loss as a result of that conduct” (at para 76; see also paras 5A(1), 26, 75, 86) (unlawful act). [ 41 ] Cromwell J concluded that there is no requirement that the unlawful acts be limited to those where the plaintiff has no cause of action against the defendant (see paras 82, 85) and that there is no principled exception that gives a judge discretion to address

unanticipated situations (see paras 83-86). [ 42 ] The second issue that Cromwell J addressed was that of the relationship between the plaintiff and the third party, and the defendant’s knowledge of that relationship. The Court of Appeal in Bram (see AI Enterprises Ltd and Schelew v Bram Enterprises and Jamb Enterprises , 2012 NBCA 33 ) had found that essential elements of the tort included the requirement of a valid business relationship between the plaintiff and the third party and that the defendant had knowledge of that relationship (see para 21). Cromwell J rejected both as elements of the tort.

He found that the focus was unlawful conduct that intentionally harmed the plaintiff’s economic interests, but that there did not need to have been either a contract or other formal dealings between the plaintiff and the third party, so long as the defendant’s conduct was unlawful and it intentionally harmed the plaintiff’s economic interests.

He stated that, in Bram SCC , it was sufficient to show that the defendant knew that “various persons were negotiating with the majority of investors” (at para 93) and that the allegedly wrongful acts were committed with the intention of causing economic harm to the plaintiff. [ 43 ] The third issue that Cromwell J addressed was that of the required intention on the part of the defendant. He noted, in reference to Douglas v Hello! Ltd (No 3) , [2005] EWCA Civ 595 at para 159, aff’d on other grounds OBG Ltd v Allan , [2007] UKHL 21 , that five types of intention have been identified (at para 95): (

a) an intention to cause economic harm to the plaintiff as an end in itself; (

b) an intention to cause economic harm to the plaintiff because it is a necessary means of achieving an end that serves some ulterior motive; (

c) knowledge that the course of conduct undertaken will have the inevitable consequence of causing the plaintiff economic harm; (

d) knowledge that the course of conduct will probably cause the plaintiff economic harm; and (

e) knowledge that the course of conduct undertaken may cause the plaintiff economic harm, coupled with reckless indifference as to whether it does or does not. [ 44 ] Cromwell J concluded that only the first two types of intention “represent the core intention required for the unlawful means tort” (at para 95). He explained ( ibid ): . . . It is the intentional targeting of the plaintiff by the defendant that justifies stretching the defendant’s liability so as to afford the plaintiff a cause of action.

It is not sufficient that the harm to the plaintiff be an incidental consequence of the defendant’s conduct, even where the defendant realizes that it is extremely likely that harm to the plaintiff may result. Such incidental economic harm is an accepted part of market competition. [ 45 ] While Cromwell J appears to have rejected the third type of intention, being “knowledge that the course of conduct undertaken will have the inevitable consequence of causing the [plaintiff] economic harm” (at para 95), he does not comment on how that differs from the second type of intention.

This may be problematic in practice, because direct evidence of an intention to bring about a result is often not available and resort must be had to inferences that arise where that result is the natural/inevitable consequence of what a person knew would flow from his deliberate actions. (See, for example, Grand Financial Management Inc v Solemio Transportation Inc , 2016 ONCA 175 , at para 63 , leave to appeal to SCC refused, 36982 (8 September 2016) ; see also Douglas at paras 159-60, 223-24.

This issue has also been the subject of academic comment. (See Chamberlain at p 1003 n 127, pp 1004, 1006-7; Burns at sections 4.45-4.50; and Carty at pp 83-84.) [ 46 ] In my view, for reasons that will become clear, it is not necessary for this Court to resolve this issue. That said, Cromwell J was careful in his decision to clarify that the law does not accept that the intentional harming of someone else’s economic interests is a tort, unless that harm was the result of an unlawful act. [ 47 ] In conclusion, the basic elements of this tort can best be described as follows: (

i) the defendant committed an unlawful act against a third party; (ii) the unlawful act caused economic harm to the plaintiff; and (iii) the defendant intended to cause economic harm to the plaintiff when committing the unlawful act. Civil Fraud [ 48 ] In this case, Ultracuts alleges that the unlawful act that was committed by the defendants against Wal-Mart was the tort of civil fraud.

The elements of civil fraud, also known as deceit and fraudulent misrepresentation (see Dhillon v Dhillon , 2006 BCCA 524 at para 77 ), are settled and have been explained in a number of legal texts and decisions from all levels of court, albeit in somewhat different language. It would be fair to say that all rely, at least to some extent, on the principles set out in Herschell LJ’s decision in Derry and others v Peek (1889), [1886-90] All ER Rep 1; [1889] UKHL 1 at 374 (HL (Eng)) . I am going to list the elements and then explain the principles of each. (

a) The Elements of Civil Fraud [ 49 ] The elements of civil fraud can best be described as follows: (

i) a representation or statement of fact made by the representor that was false; (ii) the representor knew that the representation was false or was reckless as to its truth or falsity; (iii) the false representation was made with the intention that the representee would act upon it; (iv) the representee relied on the false representation, sometimes stated as the misrepresentation caused (i.e., induced) the representee to act; and

(

v) the representee’s reliance on the representation caused/resulted in a loss. (

i) There Must Be a False Representation or Statement of Fact [50] This element requires proof of both a representation of fact and the falsity of that representation. [51] A representation includes verbal and written statements, but it can also include conduct, such as a nod or activeconcealment, silence or half-truths, depending on the circumstances (see Alevizos v Nirula, 2003 MBCA 148 at paras 19-27).

As thiscase involves written statements (the representations), I will not consider other types of representations. [52] First, any statement purported to be a false representation for the purpose of civil fraud must be one of fact, which mustrelate to something in the past or present. (See, for example, Parna v G & S Properties Ltd, (SCC), [1971] SCR 306 at316; Bruno Appliance and Furniture, Inc v Hryniak, 2014 SCC 8 at para 19; and York University v Markicevic, 2018 ONCA 893 at para21, leave to appeal to SCC refused, 38607 (18 July 2019); Youyi Group Holdings (Canada) Ltd v Brentwood Lanes Canada Ltd, 2020BCCA 130 at para 83, leave to appeal to SCC refused, 39246 (21 January 2021); Chamberlain at p 860; and Burns at

section 7.17.) [53] Generally speaking, “[o]pinions, predictions as to future events and promises are all statements that, as far as theirexplicit content is concerned, are neither true nor false” (Burns at

section 7.18). [54] Second, an opinion, estimate, prediction or promise that “may convey factual information by implication, which [couldopen] up the possibility of liability in civil fraud” (Burns at

section 7.18). That is, such a statement may constitute a representation if itimplies that facts exist that are consistent with it, in which case, it would be treated as a representation of implied fact. (See, for example,KRM Construction Ltd v British Columbia Railway, 1982 CarswellBC 257 (CA); and Burns at

section 7.19.) [55] That said, an “opinion about facts that both parties know equally well will not usually be a statement of fact”(MacDougall at

section 2.148). That is, if two parties are privy to the same facts underlying the opinion, that opinion will not be basedon implied facts known only to the party giving the opinion, so there will be no representation of implied facts. (See also Williams vSaanich School District No 63, 1986 CarswellBC 699 (SC), aff’d on other grounds, 1987 CarswellBC 146 (CA).) [56] Third, the existence and meaning of a representation should be construed objectively from the perspective of areasonable recipient of that communication in all of the circumstances of the actual representee. (See Primus Telecommunications Plc vMCI Worldcom International Inc, [2004] EWCA Civ 957 at para 30; and MacDougall at

section 2.32.) [57] Fourth, as previously noted, the representation must be false. The onus to prove that falsity is on the plaintiff; there isno onus on the representor to prove that the representation is true. (See MacDougall at

section 2.65, relying on Melbourne BankingCorporation v Brougham (1882), [1881-82] 7 AC 307 (HL (Eng)), as implied in Queen v Cognos Inc, (SCC), [1993] 1SCR 87 at 109-10.) [58] Further, the test when determining whether a representation is false is an objective one, by considering the effect of thewords on a reasonable person in the circumstances of the representee. (See 2249659 Ontario Ltd v Sparkasse Siegen, 2018 ONCA 371at para 35; see also Toronto-Dominion Bank v Leigh Instruments Ltd (Trustee of) (1999), (ON CA), 178 DLR (4th)634 at para 9 (ON CA), leave to appeal to SCC refused (2000), 188 DLR (4th) vi (note) (SCC); and Burns at

section 7.32.) (ii) The Representor Knew That the Representation Was False or Was Reckless as to Its Truth or Falsity [59] It was established in Derry that the tort of deceit (and civil fraud) requires proof that the representor made therepresentation knowing that it was false, or with reckless disregard for its truth or falsity. In neither case would there be “an honest beliefin [the] truth” of the statement (at p 374).

Stated otherwise, if the representor had an honest belief in the truthfulness of the statement,then it would not be fraudulent, even if the statement was, in fact, false (see p 370). [60] Derry also established that the representor’s honest belief in the truthfulness of the statement should not be judgedobjectively, on the basis of whether it was reasonable, but subjectively, from the representor’s point of view (see pp 358, 363, 370). [61] However, a belief is a state of mind and direct evidence of a person’s beliefs is not often available, which raises thequestion of how to determine whether a belief was honestly held.

A person’s belief, like knowledge or intention, can be determined byinference from the surrounding circumstances. A court should consider the context and surrounding circumstances in which therepresentation was made. The more unreasonable the belief, when considered in the context and circumstances, the less likely it may befor a court to find that it was honestly held. (See Derry at pp 369, 375-76; Burns at

section 7.24.) However, the absence of reasonablegrounds for a belief does not establish that there was, at law, no honest belief. [62] Further, if a representation is capable of different meanings, a court must determine whether the representor honestlybelieved that the representation was true in the sense in which he or she understood it when making it, even if that understanding wasobjectively wrong. (See Burns at

section 7.24; and Hoyano at p 481.) [63] Finally, while the representor has to know that the representation is false, the motive for making the false statement isirrelevant. As stated in Derry, “if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was nointention to cheat or injure the [representee]” (at p 374).

(iii) The False Representation Was Made with the Intention That the Representee Would Act Upon It [64] It has generally been agreed that an element of civil fraud/fraudulent misrepresentation is that the representor made therepresentation with the intention that the representee would act/rely on it.

This was one of the elements set out in the early case ofPasley v Freeman (1789), 100 ER 450 (KB UK), as cited in Halsbury’s Laws of Canada (online), Misrepresentation and Fraud,“Fraudulent Misrepresentation Founded in Tort: The Tort of Fraudulent Misrepresentation: Requisite Elements of the Tort” (IV.1(2)) atHMF-28 “Requisite Elements of the Tort of Fraudulent Misrepresentation” (2019 Reissue), and was recognized as an element by theSupreme Court of Canada in Redican v Nesbitt, (SCC), [1924] SCR 135 at 147; and Parna at p 316. [65] Likewise, it has been recognized as an element of civil fraud in other Canadian secondary sources.

See MacDougall atsection 5.10; Osborne at p 336; Klar at p 803; and Burns at

section 7.1. [66] In Bruno, Karakatsanis J made no mention of this element in her

summary of the elements of civil fraud (see paras 18-21). While this omission has been noted and has caused some controversy (see Singh v Trump, 2016 ONCA 747 at para 141; and P(

P) vD(D), 2017 ONCA 180 at para 41 n 1), it seems unlikely that Karakatsanis J intended to change such long-standing law, given that sheneither discussed making this change nor provided any reason for doing so. This is the

interpretation suggested by Osborne and Klar,who have continued to recognize it as an element of the tort.

Recent decisions from the Ontario Court of Appeal have continued toinclude it as an element of civil fraud with no mention of its omission in Bruno. (See Midland Resources Holding Ltd v Shtaif, 2017ONCA 320 at para 162, leave to appeal to SCC refused, 37653 (21 December 2017); and Paulus v Fleury, 2018 ONCA 1072 at para 9.) [67] In my view, the weight of the jurisprudence and the academic commentary supports a finding that the elements of civilfraud include the requirement that the representor must have made the false representation with the intention that the representee wouldact/rely on it, and I would so find. [68] Proving intention, like proving knowledge or belief, can be difficult because it is a state of mind, and, unless therepresentor admits to having a particular state of mind, it can only be proven by inference from the surrounding circumstances.

Thisstarts with the basic legal premise that the law infers that a person intends the natural consequences of his actions, often called a commonsense inference (the common sense inference). (See Burns at

section 7.34; Hoyano at p 485; Jago v Virden Credit Union Ltd, 1990CarswellMan 392 (QB) at para 30, aff’d 1993 CarswellMan 411 at para 13 (CA).) [69] Once it is proven that a representor knowingly made a false representation to the representee about a material fact, itwould be open to the court to infer that the representor intended the natural consequences of making that statement, that is, to draw thecommon sense inference.

Here, the common sense inference would be that the representor intended that the representee would rely onthe representation. [70] However, as with any inference, before drawing the common sense inference, it is important to consider the specificcircumstances in which the representation was made and the relationship between the parties.

Considered in context, a judge mayconclude that reliance on the representation, although a common sense inference, was not, in fact, intended. [71] For example, circumstances that have been found to negate the common sense inference include where a representationrelated to matters of law or the construction of a contract and was made when the parties were in an adversarial legal situation, as thoseare circumstances where a representee would be expected to rely on advice from his or her own lawyer, not on legal advice from anadversarial party. (See Dorsch et al v City of Weyburn et al (1985), (SK CA), 23 DLR (4th) 379 at 389 (SK CA); andApotex Inc v Sanofi-Aventis, 2010 FC 182 at para 61.) [72] Regarding opinions in general, MacDougall stated that “[s]ome opinions do not constitute representations because theyare clearly not intended to be relied on by the other party” (at

section 2.142).

In the Law of Torts, Osborne stated that “[s]tatements ofopinion, law and prediction, and vague and boastful sales commendations (‘puffs’) are not normally sufficient [to be a misrepresentation]because the representation must be of a kind on which a reasonable person would rely” (at p 336). (iv) The Representee Relied in the False Representation, Sometimes Stated as the False Representation Caused (i.e., Induced) theRepresentee to Act [73] Reliance by the representee on the false representation, that is, that the representation caused/induced the representee toact, is a required element of civil fraud and requires proof that the representee, in fact, relied on the representation (see Parna at pp 316-17; Kelemen v El-Homeira, 1999 ABCA 315 at paras 9-10, leave to appeal to SCC refused, 2000 CarswellAlta 1156; Bruno at para 19;York at para 21; and Chamberlain at pp 851, 874-75). [74] Whether the representee relied on the representation is “a question of fact to be inferred from all the circumstances ofthe case and [the] evidence at the trial” (Fridman at p 291, as quoted in York at para 21; see LK Oil & Gas Ltd v Canalands EnergyCorporation, 1989 ABCA 153 at paras 31, 36, 38, leave to appeal to SCC refused, [1989] SCCA No 383 (QL).

Although this statementwas made in the contractual context, it applies equally to tortious misrepresentation. [75] The jurisprudence has established that an outwardly positive act by the representee, such as entering into a contract, isnot required to prove reliance; all that is required is an alteration of position, which can include acts such as forbearance. (See, generally,XY, LLC v Zhu, 2013 BCCA 352 at paras 24-27, leave to appeal to SCC refused, 35557 (20 February 2014).) [76] There is divergent jurisprudence on two aspects of this element of the tort: materiality and the onus of proof. For

reasons that will become clear, these issues do not have to be resolved in this case; however, I will provide a brief explanation of each. [77] One issue that sometimes arises when considering causation relates to the materiality of the representation, in the senseof being a positive inducement for the representee’s actions (see Burns at

section 7.36; Derry at p 361; LK Oil at para 24; Genesis TowerLtd v Cheung and Chiu, 2002 BCCA 582 at paras 16, 21-22; see also Klar at p 811; Burns at

section 7.38; MacDougall at sections 2.338,2.343, 2.345). While the representation must be material to the representee’s decision, it does not need to be the sole inducing factor (seeSidhu Estate v Bains, (BC CA), 1996 CarswellBC 1262 at para 36 (CA); and Midland at para 137). [78] The first divergence relates to the test to determine materiality—that is, whether it should be determined on a subjectiveor objective basis. If determined on a subjective basis, the question is whether the representation was material to the representee (seeKelemen at paras 9-10).

If determined on an objective basis, the question would be whether the representation would be likely to inducea person to act (see LK Oil at paras 24-25; Wang v Shao, 2019 BCCA 130 at para 48, leave to appeal to SCC refused, 38704 (14November 2019)). [79] Some jurisprudence holds that the plaintiff must prove that the representation was objectively material as an element ofthe tort, with the result that a finding that it was not would dispose of the claim, even if all of the other elements were proven. (SeeChamberlain at pp 877-78). [80] The second divergence relates to a shifting of the onus of proof of reliance.

This arises where a court finds that thedefendant made an objectively material false representation that was intended to induce the plaintiff to act to his or her detriment, that theplaintiff acted to his detriment and there was a loss.

One line of authorities holds that these findings would shift the legal onus to thedefendant to prove that the plaintiff (in this case, Wal-Mart) did not rely on the representation, while another line of authorities holds thatthese findings would lead to an inference of fact that there was reliance and put an evidentiary onus on the defendant to rebut theinference, but there would be no shift of the legal onus (see Chamberlain at p 878). [81] On these two issues, the conclusion in Chamberlain, is that “[g]iven these confusions and divergences, it cannot beauthoritatively determined how materiality interacts with the tort of deceit” (at p 878). [82] Reliance is an inference that relates to the representee’s state of mind, which must be determined by taking into accountthe context in which the representation was made and all of the surrounding circumstances (see Sidhu Estate at para 41).

Aside fromwhether it is an element of the tort, the objective materiality of the representation is one factor to consider in determining actual reliance,as a finding that the representation was objectively trivial or irrelevant would weigh against a finding that the representee actually reliedon it, i.e., that it was an inducement.

This was the finding in Genesis Tower; see also Parna at p 319. [83] There are a number of circumstances that may indicate that it is unlikely that the representee acted on the falserepresentation, such as: - where the representee made his own investigations or inquiries into the matter (see Amertek Inc et al v Canadian CommercialCorp et al (2005), (ON CA), 256 DLR (4th) 287 (ON CA), leave to appeal to SCC refused, 31141 (16 February2006); Abdossamadi v TD Insurance Direct Agency Inc, 2016 ONSC 1363; and 1348623 Alberta Ltd v Choubal, 2016 SKQB 129); - where it can be shown that the misrepresentation played no role in the representee’s decision to act (see Seaver v WinnipegRegional Health Authority Inc et al, 2014 MBCA 55 at paras 5, 13-14; and Patten v Hants Realty Ltd, 2015 NSSC 349); - where it can be shown that the representee knew that the misrepresentation was false, or it did not believe the truth of therepresentation (see Parna; and Brent v Slegg Construction Materials Ltd, 2007 BCSC 661); - where the representee, after initially believing the misrepresentation, learns the truth before actually relying on it (see Sorensen vKaye Holdings Ltd, 1979 CarswellBC 242 (CA)). (

v) The Representee’s Actions Resulted in a Loss [84] While proof that a representee suffered a loss due to relying on a misrepresentation is an element of the tort of civilfraud, it is not required to be proven for the tort of unlawful interference in economic relations (see Bram SCC at paras 5A(1), 26, 76). The relevant loss for the tort of unlawful interference in economic relations is that suffered by the plaintiff due to the unlawfulinterference. As a result, nothing need be said about this element of civil fraud. (

b) Standard of Proof [85] The standard of proof in civil cases involving particularly grave and serious allegations such as fraud, professionalmisconduct and criminal conduct was settled by the Supreme Court of Canada in FH v McDougall, 2008 SCC 53, being the samestandard of proof on a balance of probabilities that applies to all civil cases (see para 40).

Rothstein J, for the Court, stated that “in allcases, evidence must be scrutinized with care by the trial judge” (at para 45); that in all cases it “must always be sufficiently clear,convincing and cogent to satisfy the balance of probabilities test” (at para 46); and that there is “no objective standard to measuresufficiency” (ibid). He noted that it would be for the judge to determine whether the evidence was sufficient to meet the standard ofproof (ibid). IV.

STANDARD OF REVIEW [86] The applicable standards of review are those set out in Housen v Nikolaisen, 2002 SCC 33, being that questions of laware reviewed on the standard of correctness (see para 8), while questions of fact, inferences of fact and questions of mixed fact and laware reviewed on the standard of palpable and overriding error (see paras 10, 25, 32, 37). [87] However, where the alleged error can be attributed to the application of an incorrect standard, a failure to consider a

required element of a legal test or a similar error in principle, this can be characterized as an error of law, which is reviewed on the correctness standard. As stated by the majority, caution must be exercised in finding an extricable question of law because it is often difficult to extricate the legal questions from the factual ones (see para 36). [ 88 ] The classic example of an extricable question of law arises where a legal test requires a trial judge to consider A, B, C and D, but the trial judge only considers A, B and C.

The result is that the trial judge has applied the wrong law, which is an error of law (see para 27). [ 89 ] It has been held that the determination as to whether there was causation or reliance is a factual finding (see, for example, Youyi at para 83). V. ANALYSIS–CIVIL FRAUD (

a) The Trial Judge’s Decision [ 90 ] The trial judge set out the elements of the tort of unlawful means, including the requirement to prove that the interference was by way of an unlawful act (see paras 132, 136), which he found to be civil fraud in relation to the defendants’ representations to Wal-Mart (see para 138). [ 91 ] The trial judge’s analysis regarding civil fraud was brief (at paras 136-39): The only component of the cause of action [of causing loss by unlawful means] that warrants further discussion is whether the interference by the defendants was by way of unlawful means.

In this case, pursuant to the definition set out above (at para. 134(b)), the question is whether Wal-Mart had a right of action against the defendants. With respect to this issue, the evidence establishes the following key points:

a) The defendants alleged that they had a verbal agreement with Wal-Mart for Magicuts to be its exclusive haircare provider in Canada;

b) The defendants advised Wal-Mart that if the plaintiff opened additional salons, in breach of the alleged exclusivity agreement, both Magicuts and Wal-Mart would be sued by Magicuts’ franchisees;

c) The [defendants’] allegations caused Wal-Mart to change its position relative to its ongoing business relationship with the plaintiff; and

d) The defendants were aware that Wal-Mart did not grant exclusive rights and they did not actually believe that Magicuts had a binding agreement with Wal-Mart to be its exclusive haircare provider in Canada, but made that allegation to “posture for legal reasons”. [ Ultracuts ] argued on the basis of these points that the defendants made an allegation that was not factually correct, something which they were aware of at the material time, in an attempt to gain an advantage.

Accordingly, the defendants’ actions constituted a civil fraud, the requirements of which were set out recently in [ Bruno ] as follows (at para. 21): From this jurisprudential history, I summarize the following four elements of the tort of civil fraud: (1) a false representation made by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); (3) the false representation caused the plaintiff to act; and (4) the plaintiff’s actions resulted in a loss.

I find on a balance of probabilities that the defendants made false statements to Wal-Mart, which led to Wal-Mart’s refusal to expand the scope of its business with [Ultracuts] and caused a loss. I also accept that the defendants’ conduct was actionable by Wal-Mart. (

b) Grounds of Appeal Regarding Civil Fraud There Must Be a False Representation or Statement of Fact [ 92 ] This element of the tort requires Ultracuts to prove on a balance of probabilities both that the defendants made a representation of fact and that it was false. [ 93 ] The trial judge did not clearly identify the allegedly false representations; however, he seemed to conclude that the

letter contained the following two misrepresentations (at para 137): . . .

a) the defendants alleged that they had a verbal agreement with Wal-Mart for Magicuts to be its exclusive haircare provider in Canada; [and]

b) the defendants advised Wal-Mart that if [Ultracuts] opened additional salons, in breach of the alleged exclusivity agreement, both Magicuts and Wal-Mart would be sued by Magicuts’ franchisees. . . . [ 94 ] He may also have considered the following statement from the letter to be a misrepresentation (at para 60): . . .

Our real difficulty is that [the franchisees] would, in the opinion of our counsel, easily win the action, as the factual evidence is clearly on their side; a deal was made, and now Wal-Mart has simply decided to change their minds. [ 95 ] The defendants argue that the trial judge erred by failing to set out and apply the correct legal test because he failed to identify the requirement that the representation must be one of fact, and he carried out no analysis and made no finding that any of these statements was one of fact.

They argue that this was an error of law that is reviewed on the standard of correctness. [ 96 ] Their position is that none of these statements is a representation of fact, so the tort of civil fraud has not been proven. [ 97 ] Ultracuts does not address the question of whether the trial judge erred as alleged.

It argues that this case is “about numerous false statements made to [Wal-Mart] coupled with the threat that if [Wal-Mart] did not stop its relationship with [Ultracuts] and give that opportunity to [Magicuts], [Wal-Mart] would get sued.” [ 98 ] Regarding the standard of review, Ultracuts argues that determining whether the defendants’ statements support the unlawful act requirement involves applying the facts to the law, and is a question of mixed fact and law. Error of Law [ 99 ] The trial judge summarized this element as “a false representation made by the defendant” (at para 138).

He made no mention, either here or elsewhere in his reasons, of the requirement that the representation must be one of fact and not “opinions, predictions as to future events [or] promises” (at para 53 herein). Further, he carried out no analysis and made no findings in this regard.

Thus, there is no evidence that the trial judge considered the correct legal principles when addressing this element of civil fraud. [ 100 ] While the trial judge did state that “[Ultracuts] argued on the basis of [the points in para 137] that the defendants made an allegation that was not factually correct” (at para 138), there is no indication that he actually considered whether the representations were ones of fact or even that he accepted that part of Ultracuts’ argument.

He just goes on to find “that the defendants made false statements to Wal-Mart” (at para 139). [ 101 ] In my view, the trial judge erred in law by failing to consider the correct legal principles related to this element of civil fraud. This is an error of law, and this Court need not give deference to his conclusion regarding this element. Rather, it is open to this Court to make its own determination by applying the correct legal principles. Analysis [ 102 ] I will now consider the three representations that are alleged to have been false. (

i) The Defendants Alleged That They Had a Verbal Agreement with Wal-Mart to Be Its Exclusive Haircare Provider in Canada [ 103 ] While the trial judge found that the defendants represented that there was an agreement that Magicuts would be the “exclusive haircare provider” (at paras 137(a)-137(b)), these are not the words in the letter, which refers to a guarantee that Magicuts would be the “sole haircare operator” (at para 127). [ 104 ] The distinction is important because, as the trial judge noted, both Messrs Cawston and Luborsky testified that Mr.

Redman said that Wal-Mart does not give exclusive rights (see paras 27, 61, 114). A finding that the defendants represented that there was an agreement to be the “exclusive haircare provider” amounts to a finding that they knew that the representation was false and that they intended to make a false representation. [ 105 ] However, both Messrs Cawston and Luborsky testified that Mr. Redman said that Magicuts would have the “first crack” at any haircare salons in Canada if they met Wal-Mart’s conditions. Mr.

Redman testified in his deposition that he had agreed that “as long as they met the criteria set up by [Wal-Mart’s] licensing department, that they should have the opportunity first to go in the stores” (at para 31 herein). [ 106 ] Further, Mr. Cawston explained what being the “sole haircare operator” meant to them. Mr. Cawston testified that he viewed Magicuts as being the sole haircare operator because, if Wal-Mart decided to put salons in any of their stores (which was not guaranteed in 1994) and if Magicuts performed, i.e., did a good job, Magicuts would get the “first crack” at the Canadian locations.

He said that “the reason Wal-Mart won’t give exclusivity is if [Magicuts chooses] not to start taking the sites that they’re offering, they’re not going to leave empty holes. They will, at that point, look for another operator. So in that sense, we don’t have an exclusive.” He testified that Magicuts had never turned down a store, and he told Wal-Mart that it would not, and, further, that Magicuts was performing. [ 107 ] Mr. Luborsky testified that Mr. Redman was “quite complimentary about our salons” and said that the reason Wal-Mart never gave exclusives was “they didn’t have to.” He also testified that Mr.

Redman assured them that, if they performed and if Wal- Mart added haircare salons to their stores, Magicuts “would get first crack”. [ 108 ] The trial judge did not refer to any of this evidence. In my view, his finding that the defendants represented that there was an agreement to be the “exclusive haircare provider” is not supported by the evidence and is wrong. [ 109 ] The trial judge did not raise or address the question of whether this was a representation of fact or opinion.

Reviewing the statement in context, and taking an objective view of the contents of the letter, it is difficult to understand how this could be considered a representation of fact, rather than a representation of opinion. [ 110 ] An objective review of the background reveals that Mr. Robertson requested the letter at the direction of Wal-Mart’s legal counsel, Mr. Wasserman, in response to the defendants’ concerns that Wal-Mart was not honouring the agreements that Mr. Redman, on behalf of Wal-Mart, had made. Upon receipt of the letter, Mr. Robertson forwarded it to his immediate supervisor, Mario Pilozzi (Mr.

Pilozzi), and to Mr. Wasserman and Mr. Ferguson, and the four discussed it. [ 111 ] The letter set out background details, starting from the 1994 sale of the Woolco stores to Wal-Mart and the effect on Magicuts’ franchisees. It explained the discussions with Mr. Redman, the agreements that were concluded on the part of both Magicuts and Wal-Mart, the fact that Mr. Redman assured Mr. Cawston that Wal-Mart’s “word [was] its bond”, that Wal-Mart could be relied upon to keep its promises and that Mr.

Redman and Wal-Mart frequently did business on the basis of trust and a handshake. [ 112 ] The “sole haircare operator” representation in the letter must also be considered in light of the fact that it is found in the same letter where it is opined that the franchisees will sue and easily win if Wal-Mart continues to disregard the agreement. This suggests that the representations in the letter are tied together and should be read together. This results in the letter being objectively seen as a single opinion in which Magicuts is opining that it reached an agreement with Mr.

Redman, which was shared with the franchisees, and that the franchisees will sue and easily win if Wal-Mart continues to disregard the agreement. [ 113 ] The context of the representations includes: - Wal-Mart’s apparent disregard of the agreement, in that Mr. Messer, who had been involved by speakerphone in one of the Redman meetings in 1994, refused to acknowledge the agreement when dealing with Ultracuts in 1995, and Mr. Robertson’s response in 1996, which was to propose a sharing of the locations; - the varied and imprecise language that Mr.

Cawston used in the letter to describe the agreement—“guarantee”, “personal assurances”, “promises”, “deal”, “bargain”; and - how the agreement was reached–lawyerless, trust and a handshake, assurances that Wal-Mart’s “word [was] its bond”. [ 114 ] In my view, a reasonable person in Wal-Mart’s circumstances, reading the details in the letter in the above context, would not objectively conclude that the representation that there was an agreement for Magicuts to be Wal-Mart’s “sole haircare operator” was one of fact.

A reasonable person would be much more likely to judge that representation as an opinion, rather than a fact. [ 115 ] Further, the representations in the letter were all known to Wal-Mart, as explained above. First, they were either made by, or explained to, several members of Wal-Mart’s senior management in 1994. Second, they were all based on the facts shared with Wal-Mart in the letter, so Wal-Mart was made aware of the facts underlying these representations in the letter.

As a result, Wal-Mart could come to its own conclusion as to whether there had been a legally binding agreement, i.e., a contract, or an agreement that was not legally binding. [ 116 ] In my view, this representation was an expression of opinion, not one of fact.

(ii) The Defendants Advised Wal-Mart That if Ultracuts Opened Additional Salons, in Breach of the Alleged Exclusivity Agreement, Both Magicuts and Wal-Mart Would Be Sued by Magicuts’ Franchisees [ 117 ] The words “if [Ultracuts] opened additional salons . . . both Magicuts and Wal-Mart would be sued by Magicuts’ franchisees” (at para 137 (b)), in the context of the letter, strongly suggest that Mr. Cawston was providing an opinion or advice about the future acts of third parties.

As noted earlier, the law generally does not treat opinions and predictions about future acts as factual representations unless they imply underlying factual information that is otherwise unknown. [ 118 ] In this case, the opinion that some of the franchisees “will sue” was supplemented with the factual information that some of the franchisees had been threatening to sue and that one of them had already done so, so the factual implication in the statement and the factual statement, itself, were one and the same—there are no unknown implied facts. [ 119 ] Further, Ultracuts had the burden of proving that the representation was false, that is, that the franchisees were not threatening to sue; the defendants did not have to prove that it was true.

While Ultracuts argues that the “statement was knowingly false as not one of the 17 franchisees testified at trial that they were threatening litigation”, it was Ultracuts’ responsibility to call the franchisees to establish that none of them had threatened litigation.

It was not for the defendants to produce evidence that the franchisees were threatening to do so. [ 120 ] In my view, this representation was an expression of opinion, not one of fact, and, further, Ultracuts has not proven that the representation was false. (iii) Our Real Difficulty Is That the Franchisees Would, in the Opinion of Our Counsel, Easily Win the Action, as the Factual Evidence Is Clearly on Their Side; A Deal Was Made and Now Wal-Mart Has Simply Decided to Change Their Minds [ 121 ] This statement was clearly an expression forecasting the outcome of future litigation, which the law does not treat as a factual representation (see Williams at para 32).

In Williams , the Court held that “[t]he statement [by an employer] about the [outcome of a future] grievance procedure was one of opinion and not fact. It related to a future event” (at para 33). [ 122 ] Ultracuts argues that this statement was knowingly false because “[g]iven the conflicting evidence of Gordon [Luborsky], [Mr.] Cawston and [Mr.] Luborsky, it cannot be concluded that a verbal legal opinion was given.” Gordon Luborsky is Mr. Luborsky’s brother. He is a lawyer and was Magicuts’ general counsel and a vice president from January 1994 to October 1995. He also acted as Mr.

Luborsky’s counsel for his Arkansas deposition. [ 123 ] As the trial judge found, Gordon’s testimony about seeing a draft of the letter was inconsistent (see paras 63, 123). The trial judge stated that, in his deposition, Gordon testified that the letter was written on the advice of counsel, with counsel “assisting” with the wording, while, at trial, Gordon said that he did not recall reviewing it (at para 123). However, Gordon did not deny seeing the letter. Mr. Luborsky’s evidence was also inconsistent.

In his examination for discovery, he said that he did not recall discussing the letter with Gordon, while he testified at the trial that he did, in fact, have some discussions with Gordon (see para 65). Mr. Cawston’s evidence was that he “believe[d]” that Gordon saw a draft of the letter.

While the evidence was inconsistent, there was no evidence that Gordon did not see the letter. [ 124 ] However, whether Gordon saw the letter is not important; what is important is that all three were in agreement that Gordon had given a legal opinion that the Redman agreement was legally binding and that the franchisees could win if they sued Wal- Mart (second legal opinion) (see para 164 herein).

There was no evidence to suggest that he did not give this opinion. [ 125 ] As noted, Ultracuts has the burden of proving the elements of civil fraud, including whether a representation was false, by clear, convincing and cogent evidence, albeit on a balance of probabilities; the defendants do not have to prove that it was true.

All of the evidence indicates that that opinion was given, and there is no evidence to the contrary. [ 126 ] In my view, this representation was an expression of opinion, not one of fact, and, further, Ultracuts has not proven that the representation was false in the manner argued by Ultracuts. Conclusion–Representations of Fact [ 127 ] Taking an objective view of the letter in its entirety, as well as the background and context, in my view, it is clear that the three representations were merely opinions, incapable of being judged as true or false. They were not representations of fact.

Therefore, Ultracuts has not proven an essential element of civil fraud, being that the defendants’ impugned representations were representations of fact. [ 128 ] This also means that an essential element of the unlawful means tort, being proof of an unlawful act (civil fraud), has not been proven. The Representee Must Have Relied on the Representation [ 129 ] The law requires that the representation caused the representee to act, in the sense that the representee actually relied on the representation.

The fact of reliance can be inferred from the circumstances and the evidence at trial, keeping in mind that, if there is nothing else but the representation that could have induced the representee to act, then it can be inferred, as a fact, that the representation induced the action. However, where the circumstances suggest other factors could have induced the representee to act, that evidence

must be considered. [ 130 ] Whether there was reliance is a finding of fact that must be determined on a subjective assessment of the representee’s state of mind, in this case, Wal-Mart. [ 131 ] The trial judge simply concluded that “[t]he defendants’ allegations caused Wal-Mart to change its position relative to its ongoing business relationship with [Ultracuts]” (at para 137 (c)) and that “the defendants made false statements to Wal-Mart, which led to Wal-Mart’s refusal to expand the scope of its business with [Ultracuts] and caused a loss” (at para 139). [ 132 ] The defendants argue that the trial judge erred in law by failing to set out and apply the correct legal test for causation, in that he failed to mention or consider whether Ultracuts had proven that Wal-Mart relied on, or was induced by, the representation and acted on it to change its position regarding its business relations with Ultracuts.

They argue that this was an error of law that is reviewed on the standard of correctness. [ 133 ] Ultracuts’ position is that there was ample evidence to establish that Wal-Mart relied on the defendants’ false statements and acted on them. Error of Law [ 134 ] The trial judge described this element as “the false representation caused [Ultracuts] to act” (at para 138 ), and he made no mention, here or elsewhere, that causation requires proof that the representee relied on the representation.

Further, he carried out no analysis and made no findings regarding reliance; he appears to have jumped to an inference of causation from the finding of a false representation to Wal-Mart without considering key evidence relevant to reliance. [ 135 ] In my view, in failing to turn his mind to the legal requirements for causation, the trial judge failed to consider the correct legal principles related to this element of civil fraud, which is an error of law.

This Court need not give deference to the trial judge’s conclusions regarding this element; rather, it is open to this Court to conduct its own analysis of causation and reliance. Analysis [ 136 ] The question of whether there was reliance on the representation is one of fact, so it is necessary to determine what the facts were. [ 137 ] The letter was sent to Mr. Robertson. Mr. Robertson’s evidence was admitted by way of an affidavit, a cross- examination on that affidavit and the 1996 deposition that he gave in the Arkansas proceeding. [ 138 ] In his deposition, Mr.

Robertson stated that, on receiving the letter, he provided a copy to Messrs Ferguson, Pilozzi and Wasserman and they and he (the senior management team) first discussed it on or about June 21, 1996. He said in his cross-examination in 2005 that “[t]here was nothing in [the] letter that was contrary [to] or seemed to be inconsistent with what [Wal-Mart] felt took place in 1994.” [ 139 ] Mr. Ferguson testified at his deposition that he only became aware of Magicuts’ claim when he received a copy of the letter. He told Mr.

Robertson to look “for documentation that showed our position; where we are; what’s the status”; he did the same when advised of Ultracuts’ claim to have a legally binding agreement. He also testified that, in addition to discussing the letter with Messrs Robertson, Pilozzi and Wasserman, he also discussed it with two other Wal-Mart lawyers, Jon Comstock and Charles Wuest, who worked in Wal-Mart’s Arkansas office. [ 140 ] Around the time of the letter, Mr. Robertson also received a letter from Mr. Rivard dated May 27,1996, alleging that Ultracuts had an agreement with Mr.

Messer regarding the opening of Ultracuts hair salons in all Wal-Mart stores in Western Canada, although he said that he did not appreciate Ultracuts’ position until early July. [ 141 ] Over the next weeks, Mr. Robertson had a number of meetings, discussions and written communications with both Mr. Rivard and Mr. Cawston regarding their competing claims, as well discussions with the management team, and both Ultracuts and Magicuts were approached to resolve their claims by splitting the cities between them.

Magicuts put forward a proposal, but, as the correspondence discloses, Ultracuts refused to negotiate and, eventually, sued Wal-Mart. [ 142 ] In his July 1, 2004 affidavit, Mr. Robertson stated: . . . Wal-Mart made its own decision in 1996 not to open any other Ultracuts stores other than those covered by certain written agreements with Ultracuts. It [was] also decided for the time being not to open any Magicuts salons in Western Canadian stores. . . .

Wal-Mart had access to its own legal advice and did not rely upon legal advice from any of the Defendants in this action as to the legal effect of the 1994 discussions between Wal-Mart and Magicuts or its legal obligations to either Magicuts or Ultracuts. [ 143 ] In the cross-examination on his affidavit, Mr. Robertson stated as follows:

. . . [COUNSEL FOR ULTRACUTS] . . . But what [Mr. Cawston] was saying to you was that he had a legally enforceable agreement with Wal-Mart which you were in breach of. That’s how you read his letter? [MR. ROBERTSON] I did not read his letter that way. . . . [ 144 ] Mr. Robertson testified as follows on redirect: . . . [COUNSEL FOR MAGICUTS] . . . During the period of time following May 14, 1996 did Wal-Mart believe it had a legally binding agreement with Magicuts in respect of providing stores in Western Canada to Magicuts? . . . [MR.

ROBERTSON] No, we did not. . . . [COUNSEL FOR MAGICUTS] You also testified that a Mr. Wasserman was at certain meetings? [MR. ROBERTSON] [Mr.] Wasserman is our general counsel and he was [at] all our meetings that we had as a senior management team. [COUNSEL FOR MAGICUTS] When you used the word agreement in the various depositions and conversations, was it your intention to refer to a legally binding agreement? [MR. ROBERTSON] No, they were discussions that we had, they were not legally binding.

They were not written agreements that we had. . . . [ 145 ] The trial judge did not refer to any of this evidence in his decision, and he made no credibility findings about it or about Mr. Robertson’s testimony in general. While a trial judge does not have to refer to every piece of evidence, he is required to refer to the important or key evidence and to explain how he resolved important inconsistencies in that evidence. (See Brown at

section 13:48.) [ 146 ] Mr. Robertson’s evidence was key evidence on the element of reliance and causation, but the trial judge failed to either refer to it or to resolve the inconsistency between Mr. Robertson’s evidence and his own factual finding of causation. [ 147 ] There is other evidence that supports that of Mr. Robertson. There is evidence that Wal-Mart’s management team did not act in a manner consistent with a belief that Wal-Mart had a binding exclusivity agreement with Magicuts. Mr. Redman testified that he refused to enter into a binding agreement with Magicuts. He was clear that Mr.

Messer was aware of the terms of the Redman agreement in May 1994, yet, just over a year later, Mr. Messer was discussing leasing space for hair salons with Ultracuts. When the real estate broker advised him that Magicuts was asserting an exclusivity agreement in Canada, Mr.

Messer replied that he would be meeting with Magicuts and if they did not like it, he would “cut them off totally” (at para 54). [ 148 ] Further, after the management team had received the letter, it still offered Ultracuts the locations that had been discussed with it, together with exclusivity in those markets, which would have breached an exclusivity contract with Magicuts. [ 149 ] As well, Mr. Rivard’s letters to Wal-Mart do not indicate that Wal-Mart expressed the view that it had a binding agreement with Magicuts. In a letter to Mr. Robertson dated June 27, 1996, Mr.

Rivard refers to “Wal-Mart’s concern that it may have some liability” to Magicuts (emphasis added). In his letter to Mr. Ferguson of July 10, 1996, Mr. Rivard refers to being told at a meeting the day before that senior management had just recently been told of an “ alleged agreement ” with Magicuts (emphasis added). [ 150 ] All of this evidence is relevant to the issue of reliance, as it goes to establish the subjective views of Wal-Mart’s senior management team regarding the letter.

[ 151 ] Ultracuts’ position, as set out in its statement of claim, was that “the defendants . . . represented to Wal-Mart that they had a contract with Wal-Mart to put Magicuts . . . [hair] salons in all of the Wal-Mart stores in Western Canada” (emphasis added) and that Wal-Mart relied on that representation in deciding not to continue its relationship with Ultracuts. [ 152 ] However, Mr. Robertson’s evidence, as noted earlier, was clear that Wal-Mart did not accept that the Redman agreement was legally binding—that is, that it was a contract. [ 153 ] Likewise, the correspondence between Mr. Ferguson and Mr.

Rivard shows that, contrary to Ultracuts’ position, Wal- Mart did not accept that it had any contract with Ultracuts beyond the four locations for which there were written agreements. [ 154 ] Wal-Mart attempted to resolve the competing claims of Ultracuts and the defendants by negotiating an agreement. The defendants made a proposal to divide the store locations between them and Ultracuts, but Ultracuts refused to discuss a settlement. [ 155 ] As Mr.

Robertson explained, the senior management team had a “business discussion” based on the information that they had, and in consultation with their legal counsel, and made a “business decision” that they would only open the four Ultracuts hair salons, and that they would not open any additional ones. [ 156 ] The bottom line is that the senior management team made up their own minds regarding the nature of the agreement between Magicuts and Wal-Mart, relying on their own legal counsel to advise them whether the Redman agreement was a contract. They came to the conclusion that it was not.

Their decision to limit their relationship with Ultracuts to the four salons in the written agreements was a business decision, made for business reasons, and not because they were relying on the defendants’ representations of an exclusivity contract. [ 157 ] Mr. Robertson’s explanation accords with common sense. The context of Wal-Mart’s actions is that Wal-Mart was, and is, one of the largest corporations in the world, with its own legal departments, including in Canada and Arkansas.

The response to the competing claims of the defendants and Ultracuts was not a hasty decision, but one that involved many meetings and conversations and the exchange of many letters to determine how to respond to those claims. Common sense dictates that, before the senior management team made a decision, it would consult with and obtain advice from its own legal department, rather than relying on the representations of those companies and their executives. This is more so given that one of Wal-Mart’s own lawyers was directly involved in the decisions. Conclusion–Reliance [ 158 ] Mr.

Robertson’s evidence was admitted and there were no adverse credibility findings. In my view, that evidence answers and rebuts any inference of reliance; it certainly cannot be said that there is clear, convincing and cogent evidence of reliance or causation. [ 159 ] Thus, in my view, Ultracuts has not proven on a balance of probabilities that Wal-Mart relied on the representation or that the representation caused Wal-Mart to act.

Thus, Ultracuts has not proven this element of civil fraud. [ 160 ] This also means that an essential element of the unlawful means tort, being proof of an unlawful act (civil fraud), has not been proven. VI. OTHER ISSUES The Remaining Grounds of Appeal [ 161 ] Ultracuts argues that the defendants have used a shotgun approach in this appeal and are simply attempting to reargue the case by challenging almost every finding that the trial judge made.

While that is sometimes the case, in my view, that is not so in this matter. [ 162 ] As the appeal and the claim can be determined by analyzing the two grounds of appeal dealt with above, it is not necessary, in my view, to address the remaining five grounds. That is not to be taken as an indica

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