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Contracts - Misrepresentation - What constitutes - Negligent misrepresentation

Thursday, November 10, 2016 @ 7:00 PM  

Appeal by the plaintiffs from orders dismissing their motions for partial summary judgment in their actions for rescission and damages and dismissing their claims against the respondents Talon International (Talon), Trump, Levitan and Shnaider. The appellants purchased Hotel Units as investments, expecting that they would profit by participating in the hotel’s “Reservation Program” pursuant to which the units would be rented out by the hotel’s operator. Talon was the developer. Shnaider was a Director and Chairman of Talon. Levitan was a Director and the Chief Executive Officer and President of Talon and had no previous experience in construction, hotel management or operations. Pursuant to a licence agreement, Talon used the Trump name and trademarks for the building. Prior to construction, Talon obtained a decision from the Securities Commission exempting the sale of the Hotel Units from the dealer registration and prospectus requirements on the basis that the Hotel Units would not be marketed or structured as investments for profit or gain and that prospective purchasers would not be provided with rental or cash flow forecasts or guarantees by Talon. The motions judge found that the Hotel Units were sold as an investment with a potential for capital gain and with ongoing income gains that would more than cover expenses. The marketing materials included Estimates that showed various expenses and revenue scenarios from different hotel suites. The motions judge found that the Estimates were deceptive and replete with misrepresentations. The actual maintenance fees and monthly costs were significantly higher than those set out in the Estimates and the rental income was significantly lower than set out in the estimates. All the purchasers lost substantial amounts of money in all three of the start-up quarters. The appellants’ motions for partial summary judgment proceeded against Talon, Shnaider, Levitan and Trump and were with respect to the alleged breach of the Commission’s ruling and the misrepresentation by Talon. The motions judge rejected the appellants’ claim that Talon breached the Commission’s ruling by marketing the Hotel Units as investment contracts and held that the Estimates did not constitute misrepresentation. The motions judge held that the appellants had made out negligent misrepresentation, but failed to establish reasonable reliance. The motions judge also held that the negligent misrepresentation claim was defeated by the entire agreement clause and the other exculpatory provisions of the contracts.

HELD: Appeal allowed in part. The motions judge, having found that four of the five elements for negligent misrepresentation against Talon were made out, erred in holding that the appellants failed to establish that they reasonably relied on the misrepresentations. It was unreasonable to conclude that the appellants assumed the risk that the Estimates upon which they decided to invest were simply made up and that known expenses were either not disclosed or were grossly understated. The motions judge erred in enforcing the entire agreement and other exculpatory clauses to bar the actions. In light of the circumstances and context in which the clauses were entered into, it would be unconscionable to enforce those clauses that would operate to negate a negligent misrepresentation claim. The motions judge’s dismissal of the appellant Lee’s claim as time-barred was set aside since the defendants did not plead a limitations defence. The motions judge also erred in finding that fraudulent misrepresentation had not been pleaded. Although the statement of claim did not use the words fraudulent misrepresentation, all of the elements and material facts for such a claim were pleaded and the claim was brought to the respondents’ attention in the factum filed on the summary judgment motions. Because the motions judge did not make the necessary factual findings, this claim was remitted to be determined on a subsequent motion or at trial. The claims against Shnaider, Levitan and Trump that were the subject of the motions for summary judgment were properly dismissed, but the motions judge erred in dismissing the claims against the three individual defendants that were not properly before him.