Sunday, 11 December 2011

Fraudulent Misrepresentation - Presumption of Reliance


Also in Roy v. 1216393 Ontario Inc., 2011 BCCA 500, which is discussed in the previous post, the court briefly considered what is necessary to prove a fraudulent misrepresentation claim.  The trial judge dismissed the claim finding that although the plaintiffs proved a misrepresentation made with the intent to deceive them, "the evidence does not establish, on the balance of probabilities, the false statement materially induced the plaintiffs to act to their detriment”.

The court allowed the plaintiffs' appeal and sent the matter for a new trial, finding that the law in British Columbia is that "intention, materiality and causation of loss are proven, the burden of proving non-reliance shifts to the defendant":

[38]           However, it appears that in reaching his conclusion, the judge was not satisfied that the plaintiffs discharged the burden of proof because he stated that the evidence did not establish “on the balance of probabilities” that the plaintiffs were induced to act to their detriment.  The judge’s attention was not drawn to the decision of this Court in Sidhu Estate v. Bains1996 CanLII 3332 (BC CA), [1996] 10 W.W.R. 590, 25 B.C.L.R. (3d) 41 (C.A.), where, after reviewing the two lines of competing authority, Mr. Justice Finch (as he then was), on behalf of the Court, concluded:
[42]      I think the preferred view of the law in Canada is that once intention, materiality and causation of loss are proven, the burden of proving non-reliance shifts to the defendant.
[39]           Hence, the onus had shifted to Mr. Kretschmer to prove that the plaintiffs did not rely on his false statement to their detriment.  On my reading of his reasons, I am not persuaded that the judge would necessarily have reached the same conclusion if he had appreciated that the onus was on Mr. Kretschmer.
[40]           I would allow the cross appeal and direct that the new trial deal with the issue of Mr. Kretschmer’s liability as well as the Vendor’s liability.


Unconscionability in Post-Tercon Analysis of Exclusion Clauses

In Roy v. 1216393 Ontario Inc., 2011 BCCA 500, the court confirmed that, in the wake of  Tercon Contractors Ltd. v. B.C., 2010 SCC 4, the fundamental breach doctrine is dead and the following three-step approach is applicable to liability exclusion clauses:
  1. interpret the contract to determine whether, as a matter of construction, the exclusion clause applies to the situation at hand;
  2. if it does apply, determine whether the clause was unconscionable at the time the contract was made; and
  3. if it was not unconscionable, determine if there is an overriding public policy against enforcing the particular clause that outweighs the very strong public interest in the enforcement of contracts.
Perhaps more importantly, the court also explained that, with the death of the fundamental breach doctrine, proof of unconscionability at the second stage of the inquiry requires proof of two elements:
  1. "inequality in the position of the parties arising out of some factor such as ignorance, need or distress of the weaker, which leaves him or her in the power of the stronger", and
  2. "substantial unfairness in the bargain obtained by the stronger person."
The court allowed the appeal on the basis that the trial judge only found the second element - unfair bargain, but did not consider the relative position of the parties.  Accordingly, the court sent the matter back for a new trial to fully apply the above approach. 

A Contract Does Not (Necessarily) Preclude a Quantum Meruit / Unjust Enrichment Claim

It has been a busy several weeks and there are a few interesting cases to report on.

In what may be a small boon to plaintiffs in commercial cases, in Noh v. Plaza 88 Developments Ltd, 2011 BCCA 461, the Court of Appeal confirmed that existence of a contract between parties does not necessarily preclude a quantum meruit claim anchored in unjust enrichment: as long as the services for which compensation is sought fall outside of the particular agreement.