



COURT OF APPEAL FOR ONTARIO

CITATION: Singh v. Trump, 2016 ONCA 747

DATE: 20161013

DOCKET: C60787

Rouleau, van Rensburg and Benotto JJ.A.

BETWEEN

Sarbjit Singh

Plaintiff (Appellant)

and

Donald John Trump Sr.
,
Trump Toronto Hotel Management Corp., Trump Marks
Toronto LP,
Talon International Inc.,
Talon International
Development Inc.,
Val Levitan
,
Alex Shnaider
and Toronto
Standard Condominium Corporation No. 2267

Defendants (Respondents)

AND BETWEEN

Se Na Lee

Plaintiff (Appellant)

and

Donald John Trump Sr.
,
Trump Toronto Hotel Management Corp., Trump Marks
Toronto LP,
Talon International Inc.,
Talon International
Development Inc.,
Val Levitan
,
Alex Shnaider
and Toronto
Standard Condominium Corporation No. 2267

Defendants (Respondents)

Mitchell Wine and Kevin D. Sherkin, for the appellants

Symon Zucker, Melvyn L. Solmon and Nancy J. Tourgis, for
    the respondents

Heard: June 23, 2016

On appeal from the orders of Justice Paul M. Perell of
    the Ontario Superior Court of Justice, dated July 10, 2015, with reasons
    reported at 2015 ONSC 4461, 47 B.L.R. (5th) 269.

Rouleau J.A.:

[1]

In the mid-2000s, Sarbjit Singh and Se Na Lee each bought a Hotel Unit
    in the Trump International Hotel, a five-star building to be built in Torontos
    financial district. Mr. Singh and Mrs. Lee were both middle-class residents of
    the Greater Toronto Area and had no intention of occupying the Hotel Units
    themselves. Instead, they bought the units as investments, expecting that they
    would profit by participating in the hotels Reservation Program.

[2]

Under the Reservation Program, owners of individual Hotel Units could
    place their units in a common pool of rooms to be rented out at luxury rates by
    the hotels operator. Their expectation was that high occupancy and rental
    rates at the one-of-a-kind Trump International Hotel would provide healthy
    returns, even after deducting monthly expenses such as property tax, mortgage
    payments and housekeeping.

[3]

Neither Mr. Singh nor Mrs. Lee were sophisticated investors, in real
    estate or otherwise. Both had to borrow heavily from family to finance their
    purchases. Both believed that buying into the Trump project would be an
    excellent investment. And in time, both came to realize that they were wrong.

[4]

In separate but similar actions, Mr. Singh and Mrs. Lee sued for
    rescission and damages, claiming they were misled by marketing materials that
    projected impressive profit margins for purchasers who participated in the
    Reservation Program. They brought motions for partial summary judgment against
    the respondents Talon International Inc. (Talon), Donald John Trump Sr.
    (Trump), Val Levitan and Alex Shnaider. The motions judge dismissed the
    motions and, in addition, dismissed the claims against Trump, Levitan and
    Shnaider in their entirety. This is an appeal from that decision.

A.

BACKGROUND

[5]

The motions judge exhaustively reviewed the factual background in his
    lengthy reasons. I will focus on the details necessary to decide the appeal.

(1)

The Trump International Hotel project

[6]

In the early 2000s, Talon International Development Inc. and its parent
    Talon launched plans to develop a luxury hotel and condominium in downtown
    Toronto. At that time, Alex Shnaider was a Director and the Chairman of Talon.
    Val Levitan was a Director and the Chief Executive Officer and President of
    Talon. Mr. Levitan had no previous experience in construction, hotel
    management, or operations.

[7]

Talon joined forces on the project with Donald J. Trump Sr., the New
    York-based developer, reality television personality and now presidential
    candidate. It entered into a licence agreement with Trump Marks Toronto LP to
    use the Trump name and trademarks for the building, which would be called Trump
    International Hotel & Tower. Talon also entered into an agreement with
    Trump Toronto Hotel Management Corp. to operate the Trump International Hotel.

[8]

The Trump International Hotel & Tower was intended to be, and was
    ultimately built as, a 70-storey mixed-use complex at the corner of Bay and
    Adelaide Streets in Torontos downtown core. The building would contain two
    condominiums, one composed of residential condominium units and the other
    composed of full-service luxury hotel guestroom condominium units. Talon
    proposed to market and sell both types of units to the general public.

[9]

Persons who bought Hotel Units would have to participate in a
    maintenance and operation program to cover expenses related to the upkeep of
    the hotel. Crucially for purposes of these actions, they would also be given
    the option of participating in the hotels Reservation Program. Under the
    Reservation Program, the hotel would rent the purchasers units out through its
    own system when the purchasers themselves or their guests were not occupying
    them. After the hotel deducted the expenses related to the Reservation Program,
    it would remit the rental income to the Hotel Unit purchasers. The Hotel Unit
    purchasers would use the profits from the room rentals to offset the carrying
    costs of the condominiums and to generate income.

(2)

The Ontario Securities Commission ruling

[10]

In 2004, Talons then-lawyers wrote to the Ontario Securities Commission
    (OSC) seeking a ruling under s. 74(1) of the
Securities Act
, R.S.O.
    1990, c. S.5, which would exempt the sale of the Hotel Units from the dealer
    registration and prospectus requirements of ss. 25 and 53 of the Act.

[11]

Talons lawyers sought this exemption because, under s. 1(1) of the
Securities
    Act
, the definition of security includes any investment contract.
    Without conceding the point, Talons lawyers explained in its application for the
    exemption that there was a risk that a Hotel Unit could be considered an
    investment contract for purposes of the Act. If so, without an exemption the
    units could not be sold or resold by real estate brokers, and any sale or
    resale would have to comply with the dealer registration and prospectus
    requirements of the Act.

[12]

In other words, Talon wanted the Hotel Units to be treated as real
    estate, not as securities.

[13]

In their application letter to the OSC, Talons lawyers correctly
    explained that the test for what constitutes an investment contractwhich
    makes it a securityis contextual. Generally, an investment contract is found
    to exist where:

(a)

a person invests his or her money;

(b)

in a common enterprise;

(c)

with the expectation of profits;

(d)

solely, primarily or significantly attributable to the efforts of
    others.

See
SEC v. W.J. Howey Co.
(1946), 328 U.S.
    293;
State Commissioner of Securities v. Hawaii Market Centre Inc.
(1971), 485P 2d 105;
Pacific Coast Coin Exchange of Canada Ltd. v. Ontario
    (Securities Commission)
, [1978] 2 S.C.R. 112.

[14]

Talons lawyers acknowledged that, upon applying these criteria, the
    Hotel Units could be considered investment contracts because they must provide
    accommodation for gain or profit by being part of a Reservation Program.
    Notwithstanding this interpretation, the lawyers went on, Talon should be
    exempt from the registration and prospectus requirements of the Act because of
    the way in which the Hotel Units will be structured.

[15]

In particular, Talons lawyers represented that the units would not be
    marketed or structured as investments for profit or gain. They would be
    marketed as luxury hotel condominium units entailing exclusive occupancy
    rights, coupled with an opportunity to defray related ownership expenses in
    connection with periods of non-occupancy through voluntary participation in the
    Reservation Program. Neither Talon nor the sales agents would make any representation
    that any Hotel Unit will be able to be rented at any particular rate, or for
    any particular period of time.

[16]

Talons lawyers explained that:

In keeping with this marketing approach of emphasizing the
    predominance of the luxury transient hotel occupancy features of Hotel Units,
    prospective purchasers of Hotel Units will not be provided with rental or cash
    flow forecasts or guarantees or any other form of financial projection or
    commitment on the part of [Talon].

[17]

In a ruling dated May 25, 2004 (the OSC Ruling), the OSC granted Talon
    the exemption it requested. The key passages state:

UPON the application of Talon International Inc. (the
    Applicant) to the Ontario Securities Commission (the Commission) for a
    ruling pursuant to s. 74(1) of the Act (the Application) that the sale by the
    Applicant of hotel condominium units within a certain building to be known as
    Trump International Hotel & Tower ... will not be subject to sections 25
    and 53 of the Act;

AND UPON considering the Application and the recommendation of
    the staff of the Commission;

AND UPON the Applicant having represented
    to the Commission as follows
:



23. Hotel Units will be marketed primarily as first-class
    luxury hotel condominium units to be used for short-term transient hotel
    occupancy or for longer term occupancy.
The Reservation
    Program is merely a secondary feature which offers participating purchasers a
    means to defray related ownership expenses, as opposed to an investment vehicle
    for making a gain or profit.

24. Prospective purchasers of Hotel Units
will not be provided with rental or cash flow forecasts or
    guarantees or any other form of financial projection or commitment
on
    the part of the Applicant.



29. The economic value of a luxury hotel condominium of
    this type will be attributable primarily to its real estate component because Hotel
    Units will be marketed as luxury transient occupancy hotel condominium
    properties
and will not be offered and sold with an
    emphasis on the expected economic benefits of the Reservation Program and the
    Reservation Program Agreement.
[Emphasis added.]

[18]

The ruling was clear: Talon was not to market the Hotel Units by
    emphasizing that prospective purchasers could profit through the Reservation
    Program. The Reservation Program was merely secondary to the primary
    marketing pitch that prospective purchasers could own a luxury Hotel Unit for
    their personal use. Any participation in the voluntary Reservation Program
    would simply allow purchasers to defray their expenses. And Talon was
    prohibited from providing prospective purchasers with forecasts or guarantees
    or any other form of financial projection or commitment related to the
    Reservation Program.

[19]

The OSC Ruling also required that before entering into an agreement of
    purchase and sale with a prospective purchaser, Talon would deliver an offering
    memorandum in the form of a disclosure statement required under the
Condominium
    Act, 1998
, S.O. 1998, c. 19. This Disclosure Document would include
    information about the risk factors that make the offering of Hotel Units a
    risk or speculation and explain that prospective purchasers would have a
    statutory right of action for misrepresentation in the offering memorandum
    under s. 130.1 of the
Securities Act
. Prospective purchasers would
    also be informed of their right under the
Condominium Act
to rescind
    an agreement of purchase and sale within ten days of receiving the Disclosure
    Document or a material amendment to the Disclosure Document.

(3)

Marketing of the Hotel Units and the Estimates

[20]

Following the OSC Ruling, Talon began marketing the Hotel Units. It set
    up a sales centre on the building site and put ads in newspapers, magazines and
    other media. Visitors to the sales centre and to the Trump Tower website could
    watch a PowerPoint presentation that opened with a smiling Mr. Trump
    proclaiming: Its going to be the most elegant building there is. There wont
    be a building to even compete with it. Were going to do something very special
    in Toronto.

[21]

Adina Zak was one of Talons sales representatives who met with
    prospective purchasers at the sales centre. She deposed, and the motions judge
    accepted, that the Hotel Units were sold on the basis of the hotels location,
    the fact that it was a turn-key operation, and on the strength of the Trump
    brand. The pitch was successful: of the 261 available Hotel Units, contracts
    for sale were entered into for 206 units.

[22]

Ms. Zak denied that the Hotel Units were marketed as investments but the
    motions judge rejected that evidence. He found as a fact 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 motions judge explained,
    at para. 59:

I do not accept Ms. Zak's evidence that that she never spoke to
    prospective purchasers about the subject of revenues or mortgages, nor that she
    did not ever sell the Hotel Units based upon the room rates or occupancy rates.
She said she did not discuss with the purchasers the
    income they might earn or the estimated return on investment, but I do not
    believe her. These matters were all discussed with potential purchasers.
[Emphasis added.]

[23]

The plaintiffs Mr. Singh and Mrs. Lee both visited the sales centre and
    met with Ms. Zak in December 2006 and April 2007, respectively. Mr. Singh had
    heard about the Trump project from a friend and Mrs. Lees husband Andrew had
    seen an ad for it in the newspaper.

[24]

The cornerstone of the plaintiffs claims is a document that Ms. Zak
    presented to each of them when they met with her to discuss buying a unit in
    the Trump International Hotel: the Estimated Return on Investment. I will
    refer to this document as the Estimates in the balance of these reasons.

[25]

As the motions judge explained, the Trump International Hotel marketing
    materials, including the PowerPoint presentation, showed four different
    versions of the Estimates reflecting various expenses and revenues scenarios
    from four different types of hotel suites. Ms. Zak also prepared customized
    versions of the Estimates for prospective purchasers who visited the sales
    centre based on the type of unit they were interested in purchasing.

[26]

The Estimates contained in the PowerPoint presentation set out different
    sample units. The units were described in the PowerPoint presentation with the
    following information:

·

the
    purchase price of the unit, ranging from $784,000 to $843,000;

·

monthly
    common expense fees, ranging from $1,827 to $2,081;

·

property
    taxes, estimated to be at 2% of the purchase price;

·

mortgage
    interest, estimated to be at a 6% interest rate;

·

a
    daily occupancy (housekeeping) fee of $60;

·

the
    average occupancy rate of the hotel, ranging from 55% to 75%;

·

the
    estimated daily room rental rate, ranging from $550 to $600;

·

the
    yearly return earned by an investor in the hotel unit, which, depending on the
    unit and occupancy rate range from $18,144.41 to $63,627.70;

·

a
    bottom line, bolded annual return on cash invested, ranging from 6.46% to
    21.57%; and

·

the
    percentage amount of the purchase price to be mortgaged.

[27]

The Estimates had two disclaimers. At the top of the page in capital
    letters it read: FOR DISCUSSION PURPOSES ONLY. At the bottom of the page in
    bold, it read: 
Please note: This is not a guaranteed investment
    program
.

[28]

Mr. Singhs Estimate looked like this:


[29]

When Mr. Singh asked Ms. Zak if the $550 per night room rate was high,
    she said no because the hotel was a Trump property and would be a five-star
    hotel. When he asked about the occupancy rates of between 55% and 75%, she
    replied that since the Trump Hotel would be new and the buzz about it would
    be great, the hotel would be fully occupied.

[30]

Mrs. Lees Estimate was similarly promising. Based on a unit which cost
    $857,000 and would rent out at $600, Mrs. Lees annual return on cash
    invested ranged from 7.75% at a 55% occupancy rate to 20.90% at a 75%
    occupancy rate. Her Estimate looked like this:


[31]

Ms. Zak told the Lees that the unit would carry itself even at the 55%
    occupancy rate, but that in any event 55% occupancy was a worst-case scenario
    because of the Trump name.

[32]

Both Mr. Singh and Mrs. Lee decided to buy.

[33]

Mr. Singh had been discharged from bankruptcy three years earlier and
    was earning approximately $55,000 a year as a warehouse supervisor. He did not
    have enough money for the deposit. His father, a retired welder, agreed to help
    and took out a line of credit on his own home to finance the loan.

[34]

Mrs. Lee was a homemaker and her husband worked as a mortgage
    underwriter. Mrs. Lees parents loaned her the money for the deposit. Although
    the Lees unit was put in Mrs. Lees name, her husband took the lead throughout
    the events leading to this litigation.

[35]

Mr. Singh deposed that he relied heavily on the information Ms. Zak
    gave him. He agreed in cross-examination that there was no guarantee about
    the occupancy rates reflected in the Estimates, but explained:

[S]he was telling us that this is what they have estimated, and
    this is what the monthdaily rent would be for the property through whatever
    channels that they got their information from. So to me, I relied heavily on
    this, because knowing that her words were, This is like having an extra income
    to your home, that you could actually do that. The way I looked at this is I
    took the lowest amount, 55 percent. With that yearly return, I said even if it
    did a lot less than that, I would still even break even to that point.

[36]

Mrs. Lee also deposed that she relied on the Estimates in deciding to
    buy a Hotel Unit. She said:

The Estimate was very important to me in my consideration of a
    purchase. We could not afford to purchase a unit without any income as we did
    not even [have] the money for the down payment let alone for the annual
    carrying costs. The Estimate gave me confidence that our purchase of a Hotel
    Unit would be a good investment for our children.

[37]

As it turned out, the Estimates bore no relation to financial reality.
    The motions judge found as a fact that the Estimates were deceptive documents
    and replete with misrepresentations of commission, of omission, and of
    half-truth: at para. 212.

[38]

Contrary to Mr. Singhs belief that the Estimates were based on
    whatever channels that they got their information from, the motions judge
    found that the figures in the Estimates were merely hypotheticals dreamed up by
    Talons principal Mr. Levitan who, it will be recalled, had no previous
    experience in the hotel business. The motions judge found, at para. 213:

The Estimates specifications of hotel rates and occupancy
    rates, which emanated from Mr. Levitans mind, were, at best, just opinions or
    forecasts. However, they were uninformed and ill-informed opinions, and his
    figures were essentially just pick-a-number speculation about what might be
    charged and what might happen in the marketplace.

(4)

The Disclosure Documents

[39]

Both Mr. Singh and Mrs. Lee signed agreements of purchase and sale
    within days of visiting Ms. Zak at the sales office. (Mr. Singh deposed that
    Ms. Zak had told him that the units were selling very quickly and he had
    to decide in the next day or so whether to buy.) Talon sent back a fully
    executed agreement of purchase and sale along with the Disclosure Document
    required by the OSC Ruling. Both plaintiffs deposed that the Disclosure
    Document was very thick (it was approximately 300 pages in length) and hard to
    understand. Neither read the Document in any detail. Mr. Singh handed the
    Document over to his lawyer.

(5)

The closing and the Statement of Adjustments

[40]

In November 2008, Talon wrote to its purchasers advising that the
    closing had been extended from March 2009 to November 2010. In August 2010,
    Talon wrote again, requesting a further extension of the closing from November
    2010 to as late as December 2011. Talon later requested three additional
    extensions of the closing.

[41]

The motions judge described the choice Talon set out in these letters,
    at para. 152: Talon framed the choice for purchasers as whether they wished to
    take interim occupancy earlier and pay fees but not have any offsetting hotel
    revenue (since the Trump Hotel was not to open until January 31
st
,
    2012) or to sign the amendment and align interim occupancy with the opening of
    the hotel.

[42]

Both Mr. Singh and Mrs. Lee deposed that they agreed to the extensions
    because they didnt think they had any choice. Both said that if they had known
    they could withdraw from their agreements of purchase and sale, they would
    have. They werent alone: all the purchasers agreed to the extensions.

[43]

The Trump International Hotel opened on January 31, 2012. On February
    17, 2012, Talon provided purchasers with the interim occupancy closing
    documents, for a February 24 closing.

[44]

The closing documents included an Interim Statement of Adjustments
    setting out the fees purchasers would have to pay during interim occupancy. The
    figures were markedly different from those set out in the Estimates.

[45]

Mr. Singhs monthly fee statement totalled $8,306.13, broken down as
    follows:

Estimated Total Common Expenses:                     $2,931.98

Estimated Realty Taxes:                               $2,389.75

Interest on Deferred Purchase Monies:        $2,028.83

HST on Occupancy Fee:
$955.57

Total                                                              $8,306.13

[46]

The combined common expense and realty tax numbers shown were
    $2,156.73or 68%higher than the common expense and realty tax numbers ($1,825
    and $1,340, respectively) set out in his original Estimate. Fees of $955.57 for
    HST, reflected in the Interim Statement of Adjustments, were not even listed in
    the Estimate originally given to Mr. Singh. Mrs. Lee got a similarly unpleasant
    surprise: her combined monthly fees for common expenses and realty taxes were
    $5,291.77, which is $1,785.44or 51%higher than the monthly common expenses
    and realty taxes described in her original Estimate ($2,078 and $1,428.33,
    respectively).
[1]
An amount of $947.89 for HST also appeared for the first time.

[47]

Talon also sent purchasers a Maintenance Agreement containing expenses
    that had never been disclosed before: an annual management fee of between 3% to
    3.25% of the Hotel Unit revenue; and a furniture, fixtures and equipment fund,
    which would be 2% of Hotel Unit revenue for 2013, 3% for 2014, and 4% for 2015.
    The Maintenance Agreement also listed a per use occupancy fee and, although it
    had been set out in the Estimates, the amount was now higher.

[48]

Finally, Talon revealed for the first time that Hotel Unit purchasers
    would have to pay a $48 fee for every night their units were rented out. This
    information appears in a document called Reservation Program Frequently Asked
    Questions that Talon emailed to purchasers four days before the interim
    occupancy closing.

[49]

Mr. Singh and Mrs. Lee signed all the required documents and took
    interim occupancy.

(6)

The interim occupancy period

[50]

The Reservation Program provided purchasers with quarterly operating
    statements approximately 30 days after the end of each quarter. During the
    interim occupancy period, purchasers received statements for the period of
    February 24 to September 30, 2012.

[51]

As the motions judge found, all the purchasers lost substantial amounts
    of money in all three of the start-up quarters. As an illustration, Mr. Singhs
    losses during the interim occupancy period totalled $29,113.62, an average loss
    of about $4,000 per month:


[52]

As this table shows, the occupancy rates during this period ranged from
    just under 19% to just over 45%  well below the worst-case scenario of 55%
    that was in Mr. Singhs Estimate. The room rental rates started at a promising
    $601.43 per night, but then dipped to below $400 per night before rising to
    $464.55  again, far lower than the $550 rate listed in Mr. Singhs Estimate.
    At the same time, the occupancy fees, which included common expenses, realty
    taxes, interest on deferred purchase monies and HST, were far higher than the
    amounts listed in the Estimate. The combination of much lower than expected
    revenue and much higher than expected expenses wiped out any possibility of
    profit.

[53]

Mrs. Lee fared even worse. She lost $36,288.16, an average loss of about
    $5,000 per month:


(7)

Final closing and the complaint to the OSC

[54]

On October 22, 2012, the Trump Hotel Condominium was registered in the
    Land Registry Office for the Land Titles Division of Toronto. This created
    Toronto Standard Condominium Corporation No. 2267. At the end of October 2012,
    Talon advised the purchasers that final closing would be on November 29, 2012.

[55]

By that time, the Toronto business press began reporting on the hotels
    poor performance. Messrs. Shnaider and Levitan issued a public statement
    reassuring purchasers and the public that the losses were growing pains and
    that investors had to expect it would take some time to ramp up and
    stabilize.

[56]

In November 2012, a lawyer retained by the plaintiffs wrote to the OSC and
    asked that it investigate possible breaches of the OSC Ruling. The letter
    argued that Talon had provided prospective purchasers with prohibited
    financial projections in the form of the Estimates. It also argued that Talon
    and its agents made oral representations to prospective purchasers which
    emphasized the Reservation Program as an investment vehicle. The Reservation
    Program became the principal feature of the hotel operation and investment.

[57]

The OSC asked Talon to delay final closing and asked for it to respond
    to several questions about how the Hotel Units were marketed and sold.

[58]

In its response, Talon represented that it complied with the OSC Ruling.
    It stated that while it had not had time to undertake a comprehensive
    assessment of how the Estimates were presented to prospective purchasers,
    based on the best recollection of Talons management, the information in the
    Estimates was presented to purchasers as nothing more than an illustration or
    example. The illustration was provided to prospective purchasers as simply one
    component of the materials made available to them.

[59]

In any event, Talon submitted that the Estimates did not constitute a
    rental or cash flow forecast, a guarantee, a financial projection or a
    commitment of the type prohibited by the OSC Ruling. Instead, the Estimates
    were simply illustrative of certain scenarios in respect of a particular Hotel
    Unit to assist prospective purchasers in making an informed investment
    decision.

[60]

On December 4, 2012, the OSC advised that it would not be pursuing
    regulatory action against Talon. No reasons were provided.

[61]

On December 14, 2012, the Hotel Units finally closed. Only 50 of the 206
    purchasers opted to close on the sale.

[62]

Mr. Singh was one of the 156 who backed out. His losses as of December
    2014 (which included ongoing interest on the loan to his father) totaled
    $248,064.58. He commenced his action on November 30, 2012. Mrs. Lee was one of
    the 50 who closed.

[63]

About ten months after closing, Talon convened a meeting of the owners
    and advised them that it would take approximately five years for the hotel to
    become profitable.

[64]

Mrs. Lee stuck it out and suffered substantial losses in every quarter
    from December 2012 to March 2015. Her total losses as of December 2014 were
    $991,576.92. Mrs. Lee commenced her action in February 2015.

B.

The Motions for Partial Summary Judgment

[65]

The plaintiffs motions for partial summary judgment proceeded only
    against Talon, Shnaider, Levitan and Trump and were with respect to the alleged
    breach of the OSC Ruling and the misrepresentation by Talon. There were three
    lines of attack pursued before the motions judge, all of which focused on the
    Estimates.

(1)

The claim against Shnaider, Levitan and Trump.

[66]

At the outset of his reasons, the motions judge dismissed the plaintiffs
    motions as against Shnaider, Levitan and Trump. The plaintiffs were not
    attempting to pierce the corporate veil and, in the motions judges view, there
    was no conduct on the part of these defendants that was outside of their role
    in the corporations. Further, the simple fact that Trumps name was associated
    with the project did not attract personal liability.

[67]

Despite the absence of a cross-motion for summary judgment, the motions
    judge considered it appropriate to dismiss the actions in their entirety as
    against all three individual defendants.

(2)

The claim against Talon

(a)

First allegation: Talon violated the OSC Ruling

[68]

The motions judge considered and rejected the defendants submission
    that issue estoppel applied against the plaintiffs as a result of the OSCs
    public statement of December 4, 2012 that it would not be pursuing regulatory
    action against Talon. In his view, the OSCs review and public statement was
    not a binding determination as to whether the OSC Ruling had not been breached.
    Moreover, he held that the plaintiffs should not be bound by a decision made in
    a proceeding in which they did not have an opportunity to participate. That
    ruling was not challenged on appeal.

[69]

The plaintiffs argued that Talon violated the OSC Ruling in two ways.
    They claimed that the resulting agreements of purchase and sale were illegal
    contracts and that they were entitled to rescission as a private law remedy.

[70]

First, the plaintiffs submitted, Talon marketed the Hotel Units as
    investment contracts by emphasizing the Reservation Program as a vehicle for
    regular profits. This was contrary to paras. 23 and 29 of the OSC Ruling, which
    mandated that the units would be marketed primarily for the purchasers own
    use, and that the Reservation Program was merely secondary and simply offered
    a way to defray ownership expenses.

[71]

The motions judge rejected this argument. He held that Talon marketed
    the Hotel Units precisely in the way that it undertook to do in its
    application: at para. 98.

[72]

He explained, at para. 100: The Reservation Program was an integral
    part of the marketing of the Hotel Units, but it did make the selling of Hotel
    Units, the selling of an investment contract. I pause here to note that the
    respondents say that this sentence contains a typo and should read: The
    Reservation Program was an integral part of the marketing of the Hotel Units,
    but it did [not] make the selling of Hotel Units, the selling of an investment
    contract.

[73]

The motions judge continued, at paras. 100 and 104:

There is an excruciating subtle point here because the Hotel
    Units were likely investment contracts. The point, however, is not whether Talon
    had investment contracts to sell, which is a debatable point, the point being
    made by the OSC's ruling is that whatever Talon had to sell, it should not sell
    it as an investment contract.



[I]n the case at bar, it is not necessary to actually determine
    whether Talon had an investment contract to sell. The point is that whatever it
    had to sell, it could not and should not be sold as an investment contract. I
    find as a fact that Talon did not sell whatever it had to sell as an investment
    contract.

[74]

The motions judge explained that when the OSC issued its ruling in 2004,
    it knew that a purchaser was buying a hotel condominium unit and that it was
    very likely the purchaser would participate in the Reservation Program. It
    also knew that a purchaser would receive financial information and budgets with
    respect to the operation of the condominium corporation and the hotel. In
    other words, the motions judge held, the OSC knew and anticipated and even
    directed that purchasers would receive financial information about the
    operation of the Reservation Program and of the hotel. [T]he OSC would not
    have intended to prohibit a manner of sale that was inevitable: at paras.
    105-107.

[75]

Second, the plaintiffs argued that the Estimates breached para. 24 of
    the OSC Ruling, which prohibited Talon from providing rental or cash flow
    forecasts or guarantees or any other form of financial projection or
    commitment. The parties agreed that the Estimates were not rental guarantees,
    cash flow guarantees or a type of financial commitment. But the plaintiffs
    maintained that the Estimates were rental or cash flow forecasts or a form of
    financial projection. Although Talon agreed that the OSC Ruling prohibited
    providing prospective purchasers with either forecasts or projections, it argued
    that the Estimates were not forecasts or projections. They were simply
    illustrations of how the Reservation Program might function.

[76]

The motions judge took a different approach. He did not agree that para.
    24 of the ruling prevented Talon from providing forecasts or estimates. He
    interpreted para. 24 just to exclude financial commitments or guarantees by
    Talon of the financial returns of the hotel through the Reservations Program.
    He explained: Another way to approach the interpretation of the OSCs ruling
    is that the adjectives are to be read as modifying or describing one type of
    commitment: at para. 114.

[77]

The motions judge held, at para. 115: [O]nce the Plaintiffs conceded
    that the Estimate was not a guarantee or financial commitment on the part of
    Talon, which it clearly was not, it lost the debate about whether the OSCs
    ruling was breached.

(b)

Second allegation: misrepresentation in the offering
    memorandum under s. 130.1 of the
Securities Act

[78]

The plaintiffs argued that the Estimates constituted misrepresentations.
    As such, they had a statutory cause of action under s. 130.1 of the
Securities
    Act
, which provides a remedy for purchasers where there is a
    misrepresentation in an offering memorandum.

[79]

The motions judge rejected this argument. He held that, because the
    Estimates came before and [were] extraneous to the offering memorandum or
    Disclosure Documents directed by the OSC, they were outside of the scope of the
    Act.

(c)

Third allegation: misrepresentation in the Estimates

[80]

Finally, the plaintiffs claimed that Talon, Shnaider, Levitan and Trump
    were liable for the misrepresentations contained in the Estimates. Although the
    plaintiffs argued the misrepresentations could be viewed as fraudulent in
    nature, the motions judge determined that the fraudulent misrepresentation
    claim had not been pleaded. As a result, he made no findings and said little in
    respect to that ground. He then turned to the claim for negligent
    misrepresentation and agreed that two misrepresentations had been made out:

1.

Talon misrepresented that the Estimates were done based on the best
    available information to Talon to forecast potential revenue, expenses and net
    income, when in truth, the Estimates overstated revenue and understated
    expenses; and

2.

Talon misrepresented that the Hotel Units would be profitable
    immediately when the Trump Hotel opened for business.

[81]

The motions judge was satisfied the plaintiffs had established four out
    of the five elements required to prove a claim of negligent misrepresentation,
    as set out in
Queen v. Cognos
, [1993] 1 S.C.R. 87: (1) the defendants
    owed them a duty of care; (2) the defendants made an untrue, inaccurate or
    misleading representation; (3) the defendants did so negligently; and (4) the
    plaintiffs suffered damage as a result. It was in this context that the motions
    judge described the Estimates as deceptive documents that were replete with
    misrepresentations of commission, of omission, and of half-truth. He
    explained, at para. 215: Mr. Levitan had no training, experience, or
    justification from actual research to make any projections about the revenue
    streams for the new hotel in Toronto. What actually happened shows how
    inaccurate Mr. Levitans guesswork was.

[82]

Despite these strong words, the motions judge held that the plaintiffs
    failed to establish the fifth required element: that they
reasonably
relied on the misrepresentation.

[83]

The motions judge accepted the plaintiffs evidence that they had relied
    on the Estimates in making their decision to buy the Hotel Units. He went on to
    explain, however, that while the plaintiffs would not have known that the
    Estimates constituted misrepresentations:

nevertheless, they would and should have known that it would
    be unreasonable for a prospective purchaser to rely on the Estimates or to be
    induced by the Estimates to enter into their Agreements of Purchase and Sale.
    Although Mr. Singh and Mrs. Lee may have subjectively relied on the Estimates
    in deciding to purchase the Hotel Units, their subjective reliance was
    objectively unreasonable.

[84]

The motions judge noted that the Estimates were for discussion
    purposes and were not a guaranteed investment program. Mr. Singh and Mrs.
    Lee knew that all investments are risky and those risks were pointed out to
    them repeatedly in the Disclosure Documents. They knew they had a statutory
    cooling-off period under the
Condominium Act
, and they had an
    opportunity to conduct their own due diligence.

[85]

Further, the motions judge explained that around the time of the interim
    closings, the plaintiffs came to learn that the Estimates contained
    misrepresentations of commission, omission and half-truths about the quantum
    of expenses they would be liable to pay. Although the plaintiffs would not have
    known at that point about the misrepresentations regarding rental and occupancy
    rates, the motions judge considered that their going ahead with the interim
    closings suggests that they were never reasonably relying on the Estimates as
    the inducement to enter into the Agreements: at para. 229. Rather, they were
    relying on their rights and remedies associated with the documents required to
    be disclosed under the ruling of the OSC and pursuant to the provisions of the
Condominium
    Act
, 1998.

[86]

The motions judge went on to hold that, in any event, the plaintiffs
    negligent misrepresentation claim was defeated by the entire agreement clause
    and the other exculpatory provisions of the Agreement of Purchase and Sale and
    the related contracts: at para. 235.

[87]

The entire agreement clause in the agreement of purchase and sale reads
    as follows:

31. The Vendor and the Purchaser agree that there is no
    representation, warranty, collateral agreement or condition affecting this
    Agreement or the Property or supported hereby other than as expressed herein in
    writing.

[88]

The Disclosure Document contained various exculpatory statements such
    as:

Purchasers are advised that no representations are made with
    respect to expected or projected rental income. There is no assurance that
    Hotel Units will be able to be rented at any particular rate or for any particular
    period of time and the rates and the total income from each Hotel Unit will be
    affected by, among other things, competitions from other luxury hotels, guest
    preferences, economic conditions

[89]

The Reservation Program agreement contained similar exculpatory
    statements as well as an entire agreement clause providing that the agreement
    supersedes and replaces all prior negotiations and/or agreements made between
    the parties hereto, whether oral or written, and contains the entire
    understanding between the parties with respect to the subject matter hereof.

[90]

The motions judge held, without further analysis, that there is no
    unconscionability or public policy reason to justify not enforcing the clause:
    at para. 239.

[91]

Finally, although it was not pleaded, the motions judge dismissed
    Mrs. Lees claim as time-barred. He held that she ought to have known
    about the misrepresentation claims around the time of interim closing in 2012,
    but she did not commence her action until 2015, which was beyond the statutory
    two-year limitation period: at para. 242.

C.

DISCUSSION

(1)

Overview

[92]

The plaintiffs appeal the motions judges decision to dismiss the
    motions as against Talon on all three grounds they raised in the court below.
    They also appeal the dismissal of the claims against Shnaider, Levitan and
    Trump.

[93]

In my view, the appeal as against Talon can be decided on the basis that
    the motions judge, having found that four of the five elements for a claim of
    negligent misrepresentation were made out, erred in holding that the plaintiffs
    failed to establish the fifth element, reasonable reliance.

[94]

I would also hold that the motions judge erred in enforcing the entire
    agreement and other exculpatory clauses to bar the plaintiffs actions. In
    light of the circumstances and context in which the clauses were entered into,
    it would be unconscionable to enforce those clauses to bar the plaintiffs claims.

[95]

In addition, I would set aside the motions judges dismissal of Mrs.
    Lees claim as time-barred. Although they raised limitation provisions in the
Securities
    Act
and the
Condominium Act
in their statement of defence, the
    defendants did not plead the
Limitations Act
, 2002, S.O.
    2002, c. 24, Sched. B.,
nor did they seek leave to amend to do so.
    Further, they failed to raise a
Limitations Act
defence in their
    written submissions on the motions for summary judgment. In these
    circumstances, it was not appropriate for the motions judge to invoke the
Limitations
    Act
to dismiss Mrs. Lees claim.

[96]

I also disagree with the motions judges conclusion that fraudulent
    misrepresentation had not been pleaded. Although the statement of claim does
    not use the words fraudulent misrepresentation, all of the elements and
    materials facts for such a claim are 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 should simply be remitted to be determined on a subsequent motion or at
    trial.

[97]

With respect to the action against Shnaider, Levitan and Trump, I agree
    that the claims that were the subject of the motions for summary judgment were
    properly dismissed. In my view, however, the motions judge erred in dismissing
    the claims against the three individual defendants that were not properly
    before him.

[98]

I will elaborate on each point below.

(2)

Reasonable reliance

[99]

As the motions judge indicated, the five elements of a claim for
    negligent misrepresentation are: (1) a duty of care based on a special
    relationship; (2) a misleading representation; (3) negligence in making the
    misrepresentation; (4)
reasonable
    reliance on the representation; and (5) damage caused by the reliance:
Queen
    v. Cognos
, at p. 110. Only the reasonable reliance factor is at issue
    here.

[100]

Whether a
    plaintiff reasonably relied on a defendants misrepresentations is a question
    of fact:
NBD Bank, Canada v. Dofasco Inc.
(1999), 46 O.R. (3d) 514
    (C.A.), at para. 81, leave to appeal refused, [2000] S.C.C.A. No. 96.

[101]

As I have just
    explained, the motions judge accepted that Mr. Singh and Mrs. Lee subjectively
    relied on the Estimates, but held that their subjective reliance was objectively
    unreasonable because:

1.

The Estimates
    were for discussion purposes only and not a guaranteed investment program.
    The plaintiffs were given various warnings, protections and rights, and as a
    result, it would not have been objectively reasonable for them to rely on the
    Estimates for what they knew was a risky financial investment; and

2.

Once the plaintiffs learned of higher than expected expenses at the time
    of interim closing, they did not try to back out of their agreements of
    purchase and sale.

[102]

On the first
    point, the fact that the Estimates were for discussion purposes only and not
    a guaranteed investment program does not inevitably lead to the conclusion
    that it would be unreasonable for the plaintiffs to rely upon them. Earlier in
    his reasons, the motions judge rejected Ms. Zaks evidence that she did not
    sell the Hotel Units based on room rates and occupancy ratesthe very
    information set out in the Estimates. Instead, he found as a fact 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: at para. 59.
    This information came directly from the Estimates.

[103]

The motions
    judge does not explain how his finding that Talon sold the Hotel Units as investments
    based on the information contained in the Estimates can be reconciled with his
    finding that the plaintiffs reliance on those Estimates was unreasonable. In
    other words, if the basis of the sale was the units value as an investment as
    expressed in the Estimates, why was reliance on that information unreasonable?

[104]

Further,
    although I agree with the motions judges finding that the plaintiffs were
    warned about the risks of their investment, it does not follow that it was
    unreasonable for the plaintiffs to rely on the Estimates. The risks
    acknowledged and accepted were the risks that market conditions could change,
    that rental rates and occupancy rates could fluctuate, and that their expenses
    might go up. Those are known, expected risks and the disclaimers in the
    documentation clearly disclose their existence. It would have been unreasonable
    for the plaintiffs to rely on representations that these risks did not exist.

[105]

The actionable
    misrepresentations, however, were not that risks such as market conditions and
    fluctuations in rental and occupancy rates did not exist. The
    misrepresentations were: (1) that the figures in the Estimates were based on
    the best available information; and (2) that the hotel would be immediately
    profitable. On the motions judges own findings, both misrepresentations were
    established. He found that the figures in the Estimates were based not on hard
    numbers but on Mr. Levitans uninformed and ill-informed opinions. Many known
    expenses were not disclosed or were grossly understated. Moreover, he found
    that when both Mr. Singh and Mr. Lee pressed Ms. Zak about the high occupancy
    and rental rates in the Estimates, she assured them that the hotel would be
    fully booked because it was new and would attract buzz.

[106]

I agree with the
    motions judge that it would have been unreasonable for the plaintiffs to rely
    on a representation that the Estimates were a guarantee that their investments
    would pan out exactly as they had hoped. They knew or ought to have known that
    the Estimates were not a guarantee that the investment would be profitable.
    They assumed the risk that room and occupancy rates would fluctuate and that
    they might earn less profit than they originally anticipated. It is
    unreasonable, however, to conclude that the plaintiffs assumed the risk that
    the Estimates upon which they decided to invest were simply made up in the
    first place and that known expenses were either not disclosed or were grossly
    understated.

[107]

On the second
    point, the fact that the plaintiffs learned in 2012 that their expenses would
    be higher does nothing to undermine the reasonableness of their reliance on the
    Estimates in 2006 and 2007. Ms. Zak sold the units as an investment using
    estimates that understated expenses and overstated revenue. She told prospective
    purchasers that the 55% occupancy rate set out in the Estimates was a
    worst-case scenario, and that even at that rate the hotel would be profitable.
    Even after it was revealed to purchasers for the first time at interim closing
    that expenses had been understated, the plaintiffs had yet to discover that
    revenue was overstated. Specifically, the room rental rates and occupancy rates
    set out in the Estimates were unrealistically high and were based on uninformed
    and ill-informed opinions. As Mr. Singh testified, he was nervous after hearing
    of the high occupancy fees but he thought he had no choice. He took comfort
    from the Estimate that indicated that his annual revenue would be more than
    enough to offset the fees.

[108]

The motions
    judges conclusion that the plaintiffs reliance on the Estimates was
    objectively unreasonable is clearly in error and cannot stand. The plaintiffs
    reliance on the Estimates was objectively reasonable.

(3)

The entire agreement and other exclusionary clauses

[109]

As noted
    earlier, the agreement of purchase and sale, the Disclosure Document and the
    Reservation Program agreement contained various entire agreement and
    exclusionary provisions. Those clauses, examples of which I have quoted
    earlier, advised purchasers that they should only rely on the agreements
    expressed in writing, that no representations were being made as to the
    projected income from the rental of the Hotel Units and that there were risks
    that income would not be as projected.

[110]

Unless
    inapplicable, unenforceable, or otherwise invalid, contractual provisions such
    as entire agreement clauses may limit a partys right to sue in tort:
BG
    Checo International Ltd. v. British Colombia Hydro & Power Authority
,
    [1993] 1 S.C.R. 12, at p. 30. That is because duties based in tort must yield
    to the parties superior right to arrange their rights and duties in a
    different way:
BG Checo
, at p. 27.

[111]

In
Tercon
    Contractors Ltd v. British Colombia
(Transportation and Highways), 2010
    SCC 4, [2010] 1 S.C.R. 69, Binnie J. (dissenting but supported by a unanimous
    court on this point) set out the following analytic approach to be used in
    deciding whether to enforce such clauses, at paras. 122-23:

The first issue, of course, is whether as a matter of
    interpretation the exclusion clause even
applies
to the circumstances
    established in evidence. This will depend on the Courts assessment of the
    intention of the parties as expressed in the contract. If the exclusion clause
    does not apply, there is obviously no need to proceed further with this
    analysis. If the exclusion clause applies, the second issue is whether the
    exclusion clause was unconscionable at the time the contract was made, as
    might arise from situations of unequal bargaining power between the parties (
Hunter
,
    at p. 462). This second issue has to do with contract formation, not breach.

If the exclusion clause is held to be valid and applicable, the
    Court may undertake a third enquiry, namely whether the Court should
    nevertheless refuse to enforce the valid exclusion clause because of the
    existence of an overriding public policy, proof of which lies on the party
    seeking to avoid enforcement of the clause, that outweighs the very strong
    public interest in the enforcement of contracts.

[112]

In his reasons
    the motions judge referenced
Tercon
and the analytical approach
    described therein. His analysis and application to the facts of this case,
    however, are contained in their entirety in para. 239 of his reasons:

[T]he entire agreement and other exculpatory provisions
    included in the Disclosure Documents or Statements apply and stands in the way
    of the success of the Plaintiffs misrepresentation claims. As a matter of
    interpretation the clauses apply, and there is no unconscionability or public
    policy reason to justify not enforcing the exculpatory provisions.

[113]

In my view, the
    motions judge erred in concluding, without analysis, that it was not
    unconscionable to enforce the exculpatory provisions. Unconscionability
    provides that despite the general principle that parties should be held to the
    bargains that they have made, there are some parties that must be protected and
    some bargains that should not be enforced: see A. Swan and J. Adamski,
Canadian
    Contract Law
, 3d ed. (Markham, Ont.: Lexis Nexis, 2012) at para. 9.99.

[114]

In
ABB Inc.
    v. Domtar Inc.
, 2007 SCC 50, [2007] 3 S.C.R. 461, at para. 82, LeBel and
    Deschamps JJ. described the doctrine of unconscionability in the context of
    limitation clauses, a type of clause similar in nature to exclusion or entire
    agreement clauses:

Under the doctrine of unconscionability, a
    limitation of liability clause will be unenforceable where one party to the
    contract has abused its negotiating power to take undue advantage of the other.
    This doctrine is generally applied in the context of a consumer contract or
    contract of adhesion.

[115]

In
Zippy
    Print Enterprises Ltd. v. Pawliuk
(1994), 100 B.C.L.R. (3d) 55, the
    British Columbia Court of Appeal declined to enforce an entire agreement clause
    to preclude a claim based on a misrepresentation made to a franchisee. The
    franchisor had made misleading statements about estimated gross sales,
    expenses, and profits to induce the franchisee to enter an agreement. In
    rejecting the enforcement of these clauses, Lambert J.A. expressed the
    following view, at para. 45:

A general exclusion clause will not override a
    specific representation on a point of substance which was intended to induce
    the making of the agreement unless the intended effect of the exclusion clause
    can be shown to have been brought home to the party to whom the representation
    was made by being specifically drawn to the attention of that party, or by
    being specifically acknowledged by that party, or in some other way.

[116]

In the present
    case, the entire agreement clause functioned as a trap to these unsurprisingly
    unwary purchasers. Neither the Singhs nor the Lees had anything more than
    minimal investing experience. Their real estate experience was limited to the
    purchase of their family homes, although Mr. Lee worked as a mortgage agent (as
    did Ms. Singh beginning in 2008). They would have known little or nothing
    regarding luxury hotel rental rates and occupancy. And both the Singhs and the
    Lees signed the agreements of purchase and sale without consulting with a
    lawyer.

[117]

The entire
    agreement clause was well hidden within the agreement of purchase and sale. The
    agreement of purchase and sale is almost 17 pages long including schedules,
    with 49 articles that often include sub-clauses of their own. The entire
    agreement clause is found on page seven, the third of twelve articles under the
    heading General. Nothing distinguishes this article from the other rectangles
    of dense black ink nearby. Ms. Zak, the sales representative for both the
    Singhs and the Lees, acknowledged in her evidence that she never reviewed the
    entire agreement clause with the plaintiffs.

[118]

The relevant
    portion of the entire agreement clause simply states: The Vendor and the
    Purchaser agree that there is no representation  affecting this Agreement or
    the Property or supported hereby other than as expressed herein in writing.
    Such a clause would mean nothing to the Singhs or Lees. They gave evidence
    accordingly. They could not have reasonably been expected to have understood
    that this meant that the respondents were exempting themselves from any
    liability flowing from their misrepresentations that induced the Singhs and
    Lees to sign the contract in the first place.

[119]

The Disclosure Document
    stands on even more unstable ground. Notably, it was not provided to either the
    Singhs or the Lees until
after
they had signed the
    agreements of purchase and sale.

[120]

Even if the
    exculpatory provisions in the Disclosure Documents should be considered, many
    of the same factors supporting a finding of unconscionability apply. Although
    bolded in all-caps, the main exculpatory provision was found about ten pages
    into a roughly 300-page document. Other than the capitalization and bolding,
    nothing was done to draw the Singhs or Lees attention to the significance of
    such a clause.

[121]

Moreover, such a
    disclaimer comes too late to be of any assistance to the purchaser who has
    already been induced to enter into an agreement. As Professor McCamus explains
    with respect to such subsequent disclaimers, [t]he trap has already been set
    and triggered. If the contract contains a disclaimer clause, it is simply a
    better trap: John D. McCamus,
The Law of Contracts
, 2nd ed. (Toronto:
    Irwin Law, 2012), at p. 365.

[122]

It would be
    grossly unfair to enforce these clauses to deny Talons tort duty not to make
    negligent misrepresentations to the plaintiffs.

[123]

Although the
    above considerations should be sufficient to found a decision declining
    enforcement of those clauses, further support can be found when the context of
    the contract formation is considered. As I will explain, I would find that
    Talon breached and evaded the protections of
Securities Act
by both
    the marketing of the Hotel Units as investment contracts with emphasis on the
    Reservation Program as a vehicle for regular profits and the providing of
    rental and cash flow forecasts or projections that were contrary to the OSC
    Ruling.

[124]

In my view, the
    motions judge erred in concluding otherwise.

[125]

With respect to
    the marketing of the Hotel Units, it is to be recalled that Talons lawyers
    represented that the Units would not be marketed or structured as investments
    for profit or gain but would rather be marketed as luxury hotel condominium
    units entailing exclusive occupancy rights, coupled with an opportunity to
    defray related ownership expenses in connection with periods of non-occupancy
    through voluntary participation in the Reservation Program. The motions judge
    found that Talon marketed the Hotel Units precisely in the way that it
    undertook to do in its application to the OSC (at para. 98) and that Talon
    did not sell whatever it had to sell as an investment contract (at para. 104).
    He does not explain how this is to be reconciled with his earlier findings.
    Those findings were that the Hotel Units were sold as an investment with a
    potential for capital gain and with ongoing income that would more than cover
    expenses, and that Ms. Zak discuss[ed] with the purchasers the income they
    might earn or the estimated return on investment: at para. 59.

[126]

Similarly, the
    motions judges description of the Reservation Program as an integral part of
    the marketing of the Hotel Units appears on its face to acknowledge that Talon
    breached the OSC Ruling, which provided in para. 23 that the Reservation
    Program would be marketed as merely a secondary feature to defray ownership
    expenses, as opposed to an investment vehicle.

[127]

With respect to
    the Estimates, the motions judge found that providing financial projections and
    rental or cash flow forecasts to prospective purchasers of Hotel Units did not
    contravene the OSCs prohibition against providing rental or cash flow
    forecasts or guarantees or any other form of financial projection or
    commitment. In my view the motions judges interpretation is simply
    unreasonable and cannot stand (
H.L. v. Canada (Attorney General)
, 2005
    SCC 25, [2005] 1 S.C.R. 401, at paras. 55-56, 110). The reasonable reading of
    this provision is that it prevents both the giving of guarantees and
    commitments and the giving of financial projections and rental or cash flow
    forecasts. The motions judges reading of the provision effectively reads out
    key terms and renders their inclusion meaningless.

[128]

As to the
    motions judges suggestion that the Estimates do no more than give effect to
    the OSCs implicit assumption that Talon would explain how the Reservation
    Program functioned, it is apparent from even a cursory review of the Estimates
    provided to the plaintiffs that they went well beyond such a purpose. The
    carrying costs of the units as set out in the Estimates have nothing to do with
    the operation of the Reservation Program. The title estimated return on
    investment, the layout of the document and the setting out of annualized rates
    of return on cash invested all show the document to be much more than what the
    motions judge characterized as information about the operation of the
    Reservation Program and of the hotel.

[129]

In my view, it
    would be unconscionable and would shock the conscience to allow a party to use
    an entire agreement or other exculpatory clause to escape liability for
    misrepresentations made in breach of the OSCs terms for granting an exemption
    from the
Securities Act
requirements. The entire agreement and other
    exculpatory clauses would operate to negate a negligent misrepresentation claim
    and the misrepresentation itself was only possible in this case because Talon
    evaded protective requirements under the
Securities Act
by obtaining
    the exemption and then breaching that exemption.

(4)

The limitations issue

[130]

The motions
    judge found that Mrs. Lees negligent misrepresentation claim was barred by the
Limitations Act
. He did so despite the fact that the defendants had
    not pled the
Limitations Act
and had not sought to amend their
    pleading to include such a plea. Although they raised the issue in oral
    submissions, the defendants had not raised it in the factum filed on the
    summary judgment motions.

[131]

In his reasons
    the motions judge neither refers to the fact that it was not pleaded nor does
    he explain why, in the absence of such a plea, he should nonetheless invoke the
    Act.

[132]

This court has
    consistently held that [t]
he expiry of a limitation period is
    a defence to an action that must be pleaded in a statement of defence:
Collins
    v.

Cortez
, 2014 ONCA 685, [2014] O.J. No. 4753, at para. 10, per van
    Rensburg J.A. (citing
S. (W.E.) v. P. (M.M.)
(2000),
    50 O.R. (3d) 70 (C.A.), at paras. 37-38, leave to appeal to S.C.C. refused, [2001]
    149 O.A.C. 397)
. This requirement is embodied in rule 25.07(4) of the
Rules
    of Civil Procedure
, which Ontario courts have consistently held applies
    to pleadings relating to limitations that might bar an action:
S. (W.E.)
    v. P. (M.M.)
, at para. 37
.
Rule 25.07(4) provides as follows:

In a defence, a party shall plead any matter on which the party
    intends to rely to defeat the claim of the opposite party and which, if not
    specifically pleaded, might take the opposite party by surprise or raise an
    issue that has not been raised in the opposite partys pleading.

[133]

Justice Cronk
    explained the rationale behind the requirement that a party specifically plead
    a limitation period defence in
Hav-A-Kar Leasing Ltd. v. Vekselshtein
,
    2012 ONCA 826, 225 A.C.W.S. (3d) 237, at para. 69:

The failure to raise substantive responses to a plaintiff's
    claims until trial or, worse, until the close of trial, is contrary to the
    spirit and requirements of the Rules of Civil Procedure and the goal of fair
    contest that underlies those Rules. Such a failure also undermines the
    important principle that the parties to a civil lawsuit are entitled to have
    their differences resolved on the basis of the issues joined in the pleadings.

[134]

In
S. (W.E.)
    v. P. (M.M.),
MacPherson J.A. confirmed that Ontario courts have
    consistently held that rule 25.07(4) applies to pleadings relating to
    limitations that might bar an action: at para. 37. He went on to explain that
    even though in that case the trial judge had given counsel time to prepare
    submissions on the issue after he raised it during closing arguments, it did
    not remove the potential prejudice to P:

If S had raised the issue in his pleadings, P might have tried
    to settle, or even have abandoned, her counterclaim. Either decision might have
    had costs consequences. Another potential source of prejudice arises from the
    fact that counsel for P might have adopted different tactics at trial. In
    particular, counsel might have called different or additional evidence to
    support an argument that the discoverability principle applied (at para. 38).

[135]

MacPherson J.A.
    also noted that at no time during trial, including during closing arguments when
    the trial judge raised the limitation issue, did S seek to amend his pleadings.
    Nor did he seek such an amendment during the appeal hearing.

[136]

In my view, the
    defendants failure, in this case, to plead a
Limitations Act
defence
    or even to seek an amendment to their pleading to do so is, as it was in
S.
    (W.E.) v. P. (M.M.)
, fatal.

(5)

The fraudulent misrepresentation pleading

[137]

The motions
    judge stated at para. 201 that because the fraudulent misrepresentation claim
    was not pleaded I shall say little about it. The reasons, however, contain no
    analysis of the statements of claim nor an explanation of how he reached this
    conclusion.

[138]

While the factum
    filed by the plaintiffs on the summary judgment motions focused principally on
    negligent misrepresentation, it did refer to fraud. For example, the factum
    stated as follows at para. 351:

If this Court determines (particularly in the case of Levitan)
    that the misrepresentation can be characterized as fraudulent then the
    individual liability of the employee is easier to establish since his actions
    take on the character of an individual and separate tort. [Footnote omitted.]

[139]

In response, the
    defendants summary judgment factum acknowledged that the plaintiffs claimed
    Levitans actions met the test for fraudulent misrepresentation, but then
    simply stated that the plaintiffs did not specifically plead fraudulent
    misrepresentation. No specific deficiency in the pleadings was identified, nor was
    any prejudice claimed.

[140]

On appeal the
    respondents again maintain that the pleadings were deficient and, specifically,
    they argue that the appellants pleadings do not assert that the defendants
    knew that the statements were false or were indifferent to their truth or
    falsity. They further argue that there was no pleading that there was an
    intention that the appellants would act on the false representations.

[141]

Although it is
    not clear from the case law that an intention that the false representation be
    acted on is a necessary element of a fraudulent misrepresentation claim (see
Bruno
    Appliance and Furniture, Inc. v. Hryniak
, 2014 SCC 8, [2014] 1 S.C.R. 126,
    at para. 21, and
Bhasin v. Hrynew
, 2014 SCC 71, [2014] 3 S.C.R. 494,
    at para. 88), the pleadings of both Mrs. Lee and Mr. Singh assert that the
    defendants knew the statements were false (Mrs. Lees statement of claim at
    para. 76; Mr. Singhs at paras. 114-116) and that there was an intention that
    they would be acted upon (Mrs. Lees statement of claim paras. 97-98; Mr.
    Singhs at para. 112).

[142]

The pleadings
    could certainly have been clearer and the absence of a specific statement that
    a fraudulent misrepresentation claim was being advanced is of concern. This
    having been said, the respondents do not argue that they have been taken by
    surprise or prejudiced. Provided that the particulars and material facts relied
    upon for a fraudulent misrepresentation claim are pleaded it is not essential
    that the word fraud or fraudulent be used: see
Shoppers Drug Mart Inc.
    v. 6470360 Canada Inc.
, 2014 ONCA 85, 372 D.L.R. (4th) 90, at para. 54.

[143]

As a result, I
    would set aside the motions judges dismissal of the fraudulent
    misrepresentation claim. In setting aside the dismissal I should not be taken
    as finding that the claim has merit. I am simply not prepared to rule on the
    merits of the claim. Contrary to the appellants contention, I do not consider
    the motions judges findings, such as the finding at para. 213 that some of the
    information contained in the Estimates emanated from Mr. Levitans mind, to
    be dispositive. While the motions judge was clearly unimpressed with Mr.
    Levitans process for coming up with the projections, he never concluded that
    the misrepresentations were made with knowledge of their falsity or with
    recklessness as to whether they were true.

[144]

As a result,
    because necessary factual findings regarding this claim were not made, I would
    remit the issue to be decided on a further motion for summary judgment or at
    trial. In light of the disposition of the appeal, the appellants may well
    decide not to proceed with the fraudulent misrepresentation claim. Should the
    appellants choose to proceed with that claim, however, and should they succeed
    in proving fraudulent misrepresentation, different or additional remedies may
    be available to them.

(6)

The dismissal of the actions against Shnaider, Levitan and Trump

[145]

The appellants
    argue that the motions judge erred in dismissing the actions against Shnaider,
    Levitan and Trump. They contend that, although it was open to the motions judge
    to dismiss those claims that were the subject of the summary judgment motions,
    it was unfair for him to have dismissed the causes of action pled but not
    encompassed in the motions before him.

[146]

I agree.

[147]

The motions
    judge correctly noted that on a motion for summary judgment the judge may grant
    judgment in favour of a responding party, even in the absence of a cross-motion
    for such relief:
Baig v. Meridian Credit Union
, 2016 ONCA 150, 394
    D.L.R. (4th) 601, at para. 17;
King Lofts Toronto I Ltd. v. Emmons
,
    2014 ONCA 215, 40 R.P.R. (5th) 26, at paras. 14-16;
Kassburg v. Sun Life
    Assurance Co. of Canada
, 2014 ONCA 922, 124 O.R. (3d) 171, at paras.
    50-52.

[148]

However, a
    motion judge may not grant or dismiss a claim on a motion for summary judgment
    that is not within the scope of the motion before him or her. Doing so would
    deny procedural fairness and natural justice.

[149]

A fair hearing
    requires that a party have notice of the matters that will be at issue at the
    hearing and of how that party may be affected by the hearings outcome: see
Québec
    (Commission des relations ouvrières) v. Alliance des professeurs catholiques de
    Montréal
, [1953] 2 S.C.R. 140.

[150]

In the present
    case, the grounds set out in the notices of motion are that the plaintiffs were
    seeking damages from Talon and the other Defendants for breaches set out in
    [the] Statement of Claim and
mov[ing] for summary
    judgment on the basis of the following claims
 (emphasis added). The
    claims that follow in the notices of motion are those concerning the OSC Ruling
    and misrepresentations by Talon. They did not include any of the plaintiffs
    other claims, such as those based on oppression, collusion, or breach of
    fiduciary duties.

[151]

The parties
    summary judgment factums were consistent with motions for partial summary
    judgment limited to the OSC Ruling claims and claims of misrepresentation. The
    plaintiffs factum stated that [t]he legal issues to be determined are as
    follows: a) Did Talon breach the terms of the Ruling and, if so, what remedy is
    available to the Plaintiffs; and b) Did these Defendants make any actionable
    misrepresentations and, if so, what remedy is available to the Plaintiffs.

[152]

The defendants
    summary judgment factum suggested that they understood the limited scope of the
    motions for summary judgment. Their law and argument section addressed two
    categories of claims: those arising out of the OSC Ruling and the
    misrepresentation claims. The response of Trump, Levitan, and Shnaider was
    limited to arguing that no misrepresentations were made or that, in any event,
    they were not misrepresentations that would attract personal liability.

[153]

In their factum
    the respondents submitted that, if they were successful on the OSC or
    misrepresentation claims,
those
causes of action
    should be dismissed. Their requested order was for the Motion for Summary
    Judgment [to] be dismissed, and
that the causes of action
    based upon the breach of the OSC Ruling and misrepresentation be dismissed
,
    with costs (emphasis added).

[154]

For these
    reasons, I would set aside the motions judges dismissal of the causes of
    action against Shnaider, Levitan and Trump that fall outside the scope of the
    motions for partial summary judgment.

(7)

Remedy

[155]

The appellants
    argue that the appropriate remedy is to order rescission or, in the
    alternative, damages.

[156]

I agree that Mr.
    Singh, as a party to an executory agreement that never closed, is entitled to
    rescission. This court has long held that [r]escission is available in the
    case of an executory contract where a material misrepresentation that was an
    inducement to enter into the contract is established:
Panzer v. Zeifman
(1978), 20 O.R. (2d) 502. Elaborating on this point, the motions judge
    correctly stated that rescission may be obtained on the basis of a
    non-fraudulent misrepresentation where the defendant has made a false statement
    that was material and that induced the plaintiff to enter the contract, and
    where the innocent party has sought rescission before the closing of the
    transaction. Having determined that the elements of negligent misrepresentation
    are made out, and that these misrepresentations were material and induced Mr.
    Singh to enter the agreement of purchase and sale that he refused to close in 2012,
    I find that Mr. Singh is entitled to rescission.

[157]

The same,
    however, cannot be said for Mrs. Lee who completed the purchase of the unit. Absent
    a finding of fraud, in the context of real estate transactions induced by
    misrepresentation, execution of the agreement has typically been held to
    constitute a barrier to rescission:
Redican v. Nesbitt
, [1924] S.C.R.
    135;
Shortt v. MacLennan
, [1959] S.C.R. 3;
Kingu v. Walmar
    Ventures Ltd.
(1986), 10 B.C.L.R. (2d) 15 (C.A.). The appellants have
    referred the court to more recent judicial support for the view that execution
    is a relevant but not decisive factor in determining whether rescission is
    available, at least in some limited contexts:
S-244 Holdings Ltd. v.
    Seymour Building Systems Ltd.
, [1994] B.C.J. No. 598 (C.A.); see also McCamus,
    at pp. 354-355, and S.M. Waddams,
The Law of Contracts
, 6th ed.
    (Toronto: Canada Law Book, 2010), at para. 424.

[158]

Even assuming
    without deciding that rescission could be a remedy available to Mrs. Lee after
    having executed her transaction, I would nevertheless not grant rescission in
    the circumstances of this case. It is not apparent from the record what effect
    rescission would have on innocent third parties such as Mrs. Lees
    mortgagor, who was not made a party to these proceedings. Further, the claim
    was issued more than two years after she closed the transaction. In these
    circumstances I view the award of damages as constituting the appropriate
    remedy for Mrs. Lee.

D.

DISPOSITION

[159]

For these
    reasons I would set aside the motions judges order and substitute an order:

1.

rescinding Mr.
    Singhs agreement of purchase and sale;

2.

awarding damages to Mrs. Lee as against Talon for negligent
    misrepresentation;

3.

as against Shnaider, Levitan and Trump, dismissing only those of the
    appellants claims that were advanced for breach of the OSC Ruling and for
    misrepresentations;

4.

remitting the claim for fraudulent misrepresentation to be decided on a further
    motion for summary judgment or at trial before the Superior Court;

5.

awarding pre and post-judgment interest on the damage awards; and

6.

for costs of the appeal on a partial indemnity basis to the appellants
    as against Talon fixed in the amount of $35,000, inclusive of disbursements and
    applicable taxes.

[160]

As the matter is
    continuing in the Superior Court, I leave that court to decide how Mrs. Lees
    damages are to be calculated and fixed as well as to determine what is
    necessary to implement the order rescinding Mr. Singhs agreement of purchase
    and sale.

[161]

If the parties
    are unable to agree on the costs of the original motions, the appellants shall
    provide brief written submissions not to exceed three pages within 21 days of
    the release of these reasons and the respondents are to provide their response
    not to exceed three pages within 14 days thereafter.

Released: P.R. October 13, 2016

Paul Rouleau J.A.

I agree K. van
    Rensburg J.A.

I agree M.L. Benotto
    J.A.





[1]
The motions judges reasons show Mrs. Lees increase to be $2,156.73 or 62% (at
    para. 165). Those figures appear to be in error and I have used the correct
    figures.


