The theory was set by a case called the Queen v. Cognos Inc. decided by the Supreme Court of Canada while reviewing the law relating to negligent misrepresentation. In this decision, Mr. Justice Iacobucci summarized the jurisprudence and outlined five general requirements for imposing liability for negligent misrepresentations:
1. There must be a duty of care based on a special relationship between the representor and the representee;
2. The representation in question must be untrue, inaccurate or misleading;
3. The representor must have acted negligently in making said representation;
4. The representee must have relied, in a reasonable manner, on said negligent misrepresentation;
5. The reliance must have been detrimental to the representee in the sense that damages resulted.”
What is a Special Relationship?
A duty of care for negligent misrepresentation will arise only where the Courts can find a special relationship between the Plaintiff and Defendant. It is obvious that something more than foreseeability is required for there to be a special relationship. A factor that could lead the Court to infer the existence of a special relationship is if the parties were either in, or contemplating, an employment relationship. In such a case, the Courts are right to quickly infer a special relationship because of the formality and significance the relation normally implies, whether such relation be present or intended for the future.
What does the Court consider to be an Untrue and Inaccurate or Misleading Statement?
The second Cognos criterion is that the Defendant must have made an untrue, inaccurate or misleading statement. In Cognos, Justice Iacobucci noted that, “there is considerable authority for the more flexible view that in appropriate circumstances, implied misrepresentations can, and often do, give rise to actionable negligence. In my opinion, a flexible approach to this issue is preferable.”
In Spinks v. Canada, the Federal Court of Appeal held a Defendant liable for not fully disclosing information pertinent to the Plaintiff’s pension rights. The Court in that case noted that a person may be mislead by a failure to divulge as much as by advice that is inaccurate or untrue. Missing information can be just as harmful as mistaken information.
In Fletcher v. Manitoba Public Insurance Company, the failure of an agent for the government to inform the Plaintiff properly about the availability of underinsured motorist coverage that led to economic loss. Liability was imposed for failure to properly advise.
In Hopkins v. Butts, a real estate agent who erroneously informed a purchaser that a piece of land was an apartment site was held responsible for not checking this fact, even where the owner had fraudulently mislead him.
In Osman v. J. Ralph Moss Ltd An insurance broker who recommended that insurance be purchased through a financially shaky company was required to reimburse the client for both civil damages and criminal penalties after the client was forced to pay as a result of not being insured.
What is the Standard of Care in a negligent misrepresentation case?
The third requirement of Cognos simply requires that the Defendant must have acted negligently in making the representation. Stated otherwise, the Defendant must have breached the standard of care. The standard of care applicable to negligent misrepresentation cases was discussed by Iacobucci in Cognos where he stated:
“The applicable standard of care should be one used in every negligence case, namely the universally accepted, albeit hypothetical “reasonable person”. The standard of care required by persons making representations is an objective one.”
The nature of the test was stated by the Court as follows:
“Although the representor’s subjective belief in the accurancy of the representations and his moral blameworthiness or lack thereof, are highly relevant when considering whether or not misrepresentation was fraudulently made, they serve little, if any, purpose into an inquiry into negligence. As noted above, the applicable standard of care is that of the objective reasonable person. The representor’s belief in the truth of his or her representations is irrelevant to the standard of care.
Therefore, the standard of care is simply the objective one of the reasonable person and it does not matter whether or not the Defendant’s belief in the truth of his or her representations is relevant.
The standard must be assessed by reference to all circumstances relevant to whether the Plaintiff was reasonably mislead.”
Finally…what is Reasonable Reliance?
Justice Linden notes in his book Canadian Tort Law that the Plaintiff must have reasonably relied upon the representation. This requirement has given rise to a measure of confusion because it actually involves two requirements, each requiring independent application. It first states a factual test of causation. Causation is a universal requirement that must be proved in all negligence cases. In this context, causation is normally proven by showing that the Plaintiff relied on the statement. Thus, where a Plaintiff in a negligence action fails to provide he relied on a statement, the action will fail.
Remember…Reliance not only must be proven in fact, but must be demonstrated to be reasonable. The second part of the fourth requirement, therefore, means that those injuries or damages resulting from reliance reasonably placed on the Defendant will be compensable.
If you have had problems concerning negligent misrepresentation, wither as the person or company that been accused of or has received the misrepresentations please email matt.lalande@haber-lawyer.com to further discuss legal possibilities.