



COURT OF APPEAL FOR ONTARIO

CITATION:
    Soboczynski v. Beauchamp, 2015 ONCA 282

DATE: 20150423

DOCKET: C58106

Hoy A.C.J.O., Epstein and Hourigan JJ.A.

BETWEEN

Adam Soboczynski and Olga Soboczynski

Respondents

and

Don Beauchamp and Louise Beauchamp

Appellants

Benjamin G. Blay, for the appellants

W. Scott Gallagher, for the respondents

Heard: November 4, 2014

On appeal from the order of the
    Divisional Court (Justices James C. Kent, Thea P. Herman and Alison Harvison
    Young), dated May 28, 2013, allowing the appeal from the judgment of Justice
    T.D. Little of the Superior Court of Justice, dated November 17, 2011, with
    reasons reported at 2011 ONSC 6791.

Epstein J.A.:

I.

OVERVIEW

[1]

The appellants, Don and Louise Beauchamp, sold their home to the
    respondents, Adam and Olga Soboczynski.

[2]

The issue at the centre of this appeal is the legal effect of an entire
    agreement clause in an agreement of purchase and sale. Specifically, does the
    clause preclude a purchasers action in negligent misrepresentation against a
    vendor for non-contractual representations made subsequent to entering into the
    agreement but before closing?

[3]

The appellants and respondents entered into the agreement of purchase
    and sale (the APS) on November 21, 2007. The purchase price was $290,000. Following
    the execution of the agreement, but before the transaction closed, the
    appellants, at the respondents request, completed and signed a Seller Property
    Information Statement (the SPIS). In the SPIS, the appellants stated that the
    property was not subject to flooding. They also undertook to inform the
    respondents of any important changes to the information contained in the SPIS
    based on events, if any, that took place prior to closing.

[4]

On January 9, 2008, the basement of the house flooded, causing
    relatively minor damage. The appellants fixed the damage but did not disclose
    the incident to the respondents. The transaction closed as scheduled on January
    18, 2008.

[5]

On February 6, 2008, the basement flooded again. After learning of the pre-closing
    flood, the respondents sued the appellants for damages based on negligent
    misrepresentation, arguing that the SPIS required the appellants to disclose
    the January 9 flood to them.

[6]

The trial judge concluded that the entire agreement clause in the APS
    acted as a bar to the respondents action. Notwithstanding this conclusion, the
    trial judge proceeded to assess damages. He found that if the respondents had
    been successful, they would have been entitled to $25,000 in damages for
    negligent misrepresentation.

[7]

The Divisional Court disagreed with the trial judges conclusion that the
    entire agreement clause precluded the respondents tort action. The SPIS required
    the appellants to tell the respondents about the pre-closing flood. They failed
    to do so. And the other elements of the tort of negligent misrepresentation had
    been made out. Therefore, the Court awarded damages to the respondents in the
    amount assessed by the trial judge.

[8]

The appellants appeal on two main grounds. First, the Divisional Court
    erred in finding that the entire agreement clause in the APS does not preclude
    a claim based on representations made in the SPIS. Second, the court erred in
    holding that the tort of negligent misrepresentation had been made out.

[9]

I would allow the appeal. I agree with the Divisional Court that the
    representations the appellants made in the SPIS are actionable notwithstanding
    the entire agreement clause in the APS. However, in my view, the evidence does
    not support a finding that the respondents relied on the representations that
    form the basis of their claim for negligent misrepresentation. In the absence
    of reliance, the respondents claim must fail.


II.

FACTUAL BACKGROUND

(i)

The APS and the SPIS

[10]

The
    APS was subject to two conditions  satisfactory financing, and a satisfactory
    home inspection. The APS also contained an entire agreement clause. It read:

[The APS] including any Schedule attached hereto, shall
    constitute the entire Agreement between Buyer and Seller. There is no
    representation, warranty, collateral agreement or condition, which affects [the
    APS] other than as expressed herein.

[11]

On
    November 22, 2007, the day after the APS was signed, Mr. Soboczynski gave the
    appellants the SPIS to fill out. After consulting their lawyer, the appellants
    completed and signed the SPIS. In the document, the appellants indicated that:
    (i) the property was not subject to flooding, (ii) they were not aware of any
    moisture or water problems, and (iii) they were not aware of any damage due to
    wind, fire, water, insects, termites, rodents, pets or wood rot. The SPIS
    concluded with the following statement:

Any important changes to this information known to the sellers
    will be disclosed by the sellers prior to closing.

[12]

As
    previously noted, the APS was conditional on the [r]esults of an inspection
    from an inspector of [the respondents] choice. On November 28, 2007, the
    respondents obtained a satisfactory home inspection from their chosen
    inspector. As Mr. Soboczynski testified, We received the inspection report.
    There was nothing significant there to be concerned about that we thought. My
    wife saw the inspection report as well and I took it home to her. Having
    obtained a satisfactory home inspection, the respondents waived the home
    inspection condition. They also secured financing and waived the financing
    condition. As of November 28, 2008, the APS was no longer conditional.

[13]

The
    SPIS was not incorporated into the terms of, or otherwise referenced in, the
    APS.

(ii)

The Two Floods

[14]

On
    January 9, 2008, the basement of the house flooded after a period of heavy
    rainfall and melting snow. Water entered the basement through the window wells.
    The carpet was saturated with water. The appellants repaired the damage by
    drying out the rug and replacing the under pad. The repairs cost $1,648.59.

[15]

The
    appellants consulted their lawyer about the flood but did not inform the
    respondents of the incident. The appellants evidence was that they believed
    the flood was an isolated occurrence and was not an important change
    requiring them to give notice to the respondents under the terms of the SPIS.

[16]

The
    sale closed on January 18, 2008. The respondents were unaware of the January 9
    flood. On February 6, 2008, after another period of heavy rainfall, the
    basement flooded again. The respondents repaired the damage and took steps to
    prevent further flooding. The respondents hired an expert and discovered that
    the backyard was ponding and the window wells were lower than the surrounding
    land. The remedial steps the respondents took cost $22,598.17.

[17]

The
    respondents eventually found out about the January 9 flood. By statement of
    claim dated November 17, 2009, they commenced this action against the
    appellants. The respondents sued only in tort. They claimed damages based on
    alleged fraudulent or negligent misrepresentations made in the SPIS.

III.

DECISIONS BELOW

(i)

Superior Court of Justice

[18]

The
    trial judge dismissed the respondents claim.

[19]

He
    was not satisfied that the respondents had demonstrated that the property had
    been subjected to any flooding prior to the January 9 flood. He found that the
    cause of the flood was not clearly established but reasoned that after a period
    of heavy rainfall and melting snow, water had entered through the window wells.
    He further found that the appellants made a conscious decision not to disclose
    the January 9 flood to the respondents because they thought it was a one off
    occurrence.

[20]

Citing
Krawchuk v. Scherbak
, 2011 ONCA 352, 106 O.R. (3d) 598, leave to
    appeal to S.C.C. refused, 2011 S.C.C.A. No. 319, the trial judge reasoned that
    statements in an SPIS can amount to non-contractual representations and can
    give rise to the tort of negligent misrepresentation. However, here, the SPIS
    was not part of or otherwise connected with the APS. The trial judge concluded
    that, as a result, the entire agreement clause in the APS prevails to exclude
    the representations in the SPIS. The respondents could therefore not rely on
    them.

[21]

The
    trial judge expressed some reluctance about whether the tort would be made out
    if he had reached a different conclusion about the effect of the entire
    agreement clause. At para. 62, he wrote:

[I]t is doubtful that the incident, which I find the Beauchamps
    believed to have been a one off incident, was an important change to the
    information requiring disclosure to the purchasers as per the wording of the
    S.P.I.S.

[22]

Notwithstanding
    this reluctance, the trial judge dealt with the respondents damages. He
    assessed them at $25,000  an amount that included $22,598.17 for the costs of
    fixing the damage and preventing further flooding. The balance was intended to compensate
    the respondents for mental distress and loss of enjoyment. The amount of
    damages was not in issue before the Divisional Court and is not in issue before
    this court.

[23]

The
    trial judge died shortly after releasing his decision in this matter but before
    deciding the issue of costs. The appellants suggested that costs be referred to
    another judge of the Superior Court or be determined by the Divisional Court. 
    The respondents suggested that costs be determined by the Divisional Court.

(ii)

Divisional Court

[24]

The
    Divisional Court allowed the respondents appeal.

[25]

First,
    I note that at the conclusion of the hearing before the Divisional Court,
    counsel were asked the following question. If the Court determined that the
    trial judge had erred by reviewing the appellants conduct on a subjective
    rather than an objective standard, were the parties content that the Court make
    findings of fact on the correct standard rather than send the matter back to
    trial? Both counsel agreed with the Divisional Courts proposal.

The Entire Agreement Clause and an Action in Tort

[26]

The
    Divisional Court held, at para. 40, that the trial judge erred in law when he
    concluded that the [respondents] could not rely on the representation in the
    SPIS because of the entire agreement clause in the [APS]. The Court reasoned
    that the entire agreement clause in the APS did not interfere with the
    respondents claim based on a negligent misrepresentation made in the SPIS, even
    though it was signed after the APS was entered into but before closing.

[27]

In
    coming to this conclusion, Herman J., writing for the Court, noted that in
Dzourelov
    v. T.B. Bryk Management & Development Ltd.
(2004), 190 O.A.C. 321
    (Div. Ct.), Dawson J. interpreted the first sentence of a comparable entire
    agreement clause as deal[ing] with the situation at the time the agreement was
    signed. It has the effect of excluding the possibility of any representation,
    warranty or collateral agreement at that time, that was not included in the
    written agreement: para. 13.
[1]
Justice Dawson concluded that the entire agreement clause did not preclude a
    claim arising out of the formation of a subsequent oral agreement.

[28]

The
    Court also pointed to several decisions in which courts have held that
    representations in an SPIS can give rise to an action in tort for negligent
    misrepresentation.
[2]
The Court noted, however, that in each case the completed SPIS was provided to
    the purchaser before the agreement of purchase and sale was entered into.

Was the Tort Made Out?

[29]

The
    Divisional Court then proceeded to determine whether the respondents had
    established a claim for negligent misrepresentation on the basis of the appellants
    failure to advise them of the pre-closing flood.

[30]

After
    concluding that the appellants owed the respondents a duty of care, the Court
    found that the January 9 flood constituted an important change and, under the
    terms of the SPIS, the appellants were required to notify the respondents of
    the occurrence. Their failure to do so constituted an untruth.

[31]

The
    Court then held that the trial judge erred in law by applying a subjective test
    to the appellants obligations under the SPIS by focusing on their honest
    belief that the incident did not amount to an important change. In keeping
    with the approach set out in
Krawchuk
, an objective standard must be
    applied. The question is whether a reasonable person in the circumstances would
    have disclosed the flood.

[32]

The
    Court found that it was not reasonable for the appellants to not advise the
    respondents of the change. Therefore, the appellants acted negligently in not
    disclosing the change in the situation: para. 59.

[33]

In
    considering the issue of reliance, the Court started with the proposition that
    purchasers are entitled to rely on representations in an SPIS. The Court then
    wrote, at para. 61:

Had the [respondents] known about the flood, they might well
    have retained their own expert to investigate the situation to determine the
    cause of the problem. If it was determined that the problem was significant and
    was more than a one-time event, the contractual options of rescission or
    abatement might have been available to them.

[34]

In
    concluding its analysis of the tort of negligent misrepresentation, the
    Divisional Court found that the respondents sustained damage as a result of the
    misrepresentation and gave judgment to the respondents in the unchallenged
    amount of $25,000.

Costs Award

[35]

After
    considering written costs submissions, the Divisional Court rejected the
    appellants argument that costs should be reduced because the respondents had
    pleaded but did not establish fraud. The Court found that the fraud allegations
    had not been actively pursued at trial. The central issue at trial was
    negligent misrepresentation.

[36]

The
    Court awarded the respondents their trial costs fixed in the amount of $15,000,
    plus $10,171.69 in disbursements. The Court also awarded the respondents costs
    of the appeal in the amount of $7,500.


IV.

ISSUES ON APPEAL

[37]

The
    appellants advance three main grounds of appeal. They submit that the
    Divisional Court erred:

1.

by finding that the entire agreement clause in the APS did not preclude
    a claim in tort based on an alleged negligent misrepresentation made in the
    SPIS;

2.

by concluding that the respondents had made out a claim for damages
    based on negligent misrepresentation; and

3.

in its trial costs award to the respondents.


V.

ANALYSIS

(i)

Did the Divisional Court err by finding that the entire agreement clause
    in the APS did not preclude a claim in tort based on an alleged negligent misrepresentation
    made in the SPIS?

[38]

The
    appellants submit that the entire agreement clause, which expressly stated that
    there are no representations affecting their agreement other than as expressed
    in the APS, precludes the respondents from advancing a claim in tort based on
    representations in the SPIS. The appellants point out that the respondents
    could have avoided the consequences of the entire agreement clause by
    incorporating the SPIS into the APS, but did not do so.

[39]

It
    is well-settled that contract and tort duties may arise concurrently. In
BG
    Checo International Ltd. v. British Columbia Hydro & Power Authority
,
    [1993] 1 S.C.R. 12, the Supreme Court wrote, at p. 26, where a given wrong
prima
    facie
supports an action in contract and in tort, the party may sue in
    either or both, except where the contract indicates that the parties intended
    to limit or negative the right to sue in tort. The Court continued, at p. 27,
    In so far as the tort duty is not contradicted by the contract, it remains
    intact and may be sued upon.

[40]

Accordingly,
    the key question is whether the entire agreement clause in the APS negatives the
    respondents right to sue in tort based on misrepresentations made in the SPIS
     a document completed after the APS was entered into.

[41]

In
    my view, the answer to the question is that, in the circumstances of this case,
    any consequences flowing from representations made in the SPIS were outside the
    reach of the entire agreement clause. The entire agreement clause in the APS
    operates retrospectively, not prospectively. In other words, the application of
    the clause is restricted to limit representations, warranties, collateral
    agreements, and conditions made
prior to or during
the negotiations leading
    up to the signing of the APS. When the appellants made representations in the
    SPIS, a document completed
after
the APS had been signed by all
    parties, the entire agreement clause was spent.

[42]

This
    conclusion is supported by the general purpose of entire agreement clauses,
    jurisprudence from this court, the plain meaning of the entire agreement clause
    at issue in this case, and the post-contractual conduct of the parties.

General Purpose of Entire Agreement Clauses

[43]

An
    entire agreement clause is generally intended to lift and distill the parties
    bargain from the muck of the negotiations. In limiting the expression of the parties
    intentions to the written form, the clause attempts to provide certainty and
    clarity.

[44]

In
Inntrepreneur Pub Co. Ltd. v. East Crown Ltd.
, [2000] 41 E.G. 209
    (U.K. Ch.), Lightman J. colourfully described the purpose of an entire
    agreement clause as follows:

The purpose of an entire agreement clause is to preclude a
    party to a written agreement threshing the undergrowth and finding
in the course of negotiations
some (chance) remark or
    statement (often long forgotten or difficult to recall or explain) on which to
    found a claim such as the present to the existence of a collateral warranty For
    such a clause constitutes a binding agreement between the parties that the full
    contractual terms are to be found in the document containing the clause and not
    elsewhere. [Emphasis added.]

[45]

Legal
    commentators appear to be united in their view that entire agreement clauses
    are, generally speaking, retrospective in nature. According to Angela Swan, An
    entire agreement clause deals only with what was done or said
before
the agreement was made and seeks to exclude those statements and acts from
    muddying the interpretation of the agreement; it is a contractual invocation of
    the parol evidence rule:
Canadian Contract Law
, 3d ed. (Markham:
    LexisNexis Canada, 2012), at p. 600 (emphasis in original); see also John D.
    McCamus,
The Law of Contracts
, 2d ed. (Toronto: Irwin Law Inc., 2012),
    at p. 733.

[46]

Justice
    P.M. Perell agrees. He says that [t]he parol evidence rule then directs that
    the written contract may not be contradicted by evidence of the oral and
    written statements made by the parties
before
the
    signing of the contract. The entire agreement clause is essentially a
    codification of the parol evidence rule: A Riddle Inside an Enigma: The
    Entire Agreement Clause (1998) The Advocates Q. 287 at 290-91 (emphasis
    added).

[47]

And
    according to Professor M.H. Ogilvie, entire agreement clauses are patently not
    applicable where the representation
postdates
the
    contract: Entire Agreement Clauses: Neither Riddle Nor Enigma (2009) 87 The
    Canadian Bar Review at 642 (emphasis added).

Jurisprudence From This Court

[48]

While
    there appears to be little jurisprudence on the effect of an entire agreement
    clause on representations made
after
the contract containing the
    clause is entered into, some assistance can be found in this courts decision
    in
Shelanu Inc. v. Print Three Franchising Corp.
(2003), 64 O.R. (3d)
    533 (C.A.), subsequent proceedings, (2006) 19 B.L.R. (4th) 19 (Ont. C.A.).

[49]

Shelanu
involved a contractual dispute in which the question was whether an entire
    agreement clause in a written agreement rendered unenforceable a subsequent
    oral agreement between the parties. Justice Weiler, writing for the court,
    concluded it did not.

[50]

Shelanu
clarified certain points about entire agreement clauses.

[51]

First,
    an entire agreement clause does not prevent the parties from amending the terms
    of their agreement. In other words, post-contract events can affect both the
    enforceability of the obligations in the agreement and add new obligations to
    those imposed by its terms.

[52]

Second,
    and relatedly, entire agreement clauses do not apply prospectively unless the
    wording expressly so provides. In the words of Weiler J.A., at paras. 49-50:

[A]n exception to the parol evidence rule is the existence of
    any subsequent oral agreement to rescind or modify a written contract provided
    that the agreement is not invalid under the Statute of Frauds:
Ellis v.
    Abell
(1884), 10 O.A.R. 226 (Ont. C.A.) at para. 85.

Clauses such as the entire agreement
    clause in issue here are normally used to try to exclude representations made
    prior to the signing of the written agreement
. See P.M. Perell, A
    Riddle Inside an Enigma: The Entire Agreement Clause (1998)
The Advocates
    Q
. 287. Nothing in [the entire agreement clause] suggests that an oral
    agreement to surrender the franchise several years later would be of no effect.
    It cannot be said the entire agreement clause was clearly intended to cover any
    and all future contractual relations between Shelanu and Print Three. [Emphasis
    added.]

[53]

Both
    the general purpose of entire agreement clauses set out above and the approach
    to their application evident in this courts decision in
Shelanu
support
    the conclusion that, subject to express wording to the contrary, these clauses
    do not apply to agreements or representations that post-date the contract in
    which the clause is found.

[54]

I
    now turn to the specific circumstances in this case.

Specific Words Used in the Entire Agreement Clause in the APS

[55]

A
    consideration of the precise words the parties used to record their bargain is
    central to the interpretation of the entire agreement clause in the APS. For
    convenience, I again set out the text of the entire agreement clause in issue:

This Agreement including any Schedule attached hereto, shall
    constitute the entire Agreement between Buyer and Seller. There is no
    representation, warranty, collateral agreement or condition, which affects this
    Agreement other than as expressed herein.

[56]

The
    clause is worded in the present tense  [t]here
is
no representation affecting the APS (emphasis added). On their face, the words
    of the clause do not preclude an action for negligent misrepresentation based
    on a representation made post-contract. The words that reflect the parties
    bargain are therefore consistent with the general legal principles animating
    entire agreement clauses.

[57]

This
    interpretation of the clause is also consistent with the Divisional Courts analysis
    in
Dzourelov
 a case relied upon by the Divisional Court in this
    case. In
Dzourelov
, the entire agreement clause was very similar to
    the one in this case. It read: The parties acknowledge that there
is no
representation, warranty, collateral agreement or
    condition, affecting the Agreement except as contained in this agreement. This
    agreement may not be amended other than in writing (emphasis added). In
    interpreting this clause, Dawson J. wrote:

The exclusive agreement clause in question consists of two sentences.
    I agree with the appellant's submission that the first sentence
deals with the situation at the time the agreement was signed
.
    It has the effect of excluding the possibility of any representation, warranty
    or collateral agreement
at that time
, that was not
    included in the written agreement. [Emphasis added.]

[58]

Thus,
Dzourelov
confirms that entire agreement clauses drafted in the present
    tense look backwards, not forwards.

[59]

The
    entire agreement clause in this case is saying, These are the terms of our
    agreement and nothing that was said beforehand is relevant.  You have no basis
    for relying on anything other than the terms of the agreement. The agreement
    stands on its own.

Post-Contractual Conduct of the Parties

[60]

Finally,
    Canadian courts often look to the post-contractual conduct of the parties to
    shed light on what they intended the words enshrined in their written agreement
    to mean. The trend in Canada toward analyzing the subsequent actions of the
    parties is captured by G.H.L. Fridman in
The Law of Contract in Canada
,
    6th ed. (Toronto: Carswell, 2011), at pp. 450-51:

Canadian courts have adopted the view that subsequent conduct
    can be a useful guide to the interpretation of a written contract In one case,
    concerned with whether a restrictive covenant in a contract was personal to the
    parties or went with the land, Thomson J. of the Supreme Court of Saskatchewan,
    said that in cases involving an ambiguity in an agreement, there is no better
    way of determining what the parties intended than to look to what they did
    under it [
Bank of Montreal v. Univ. of Saskatchewan
(1953), 9 W.W.R.
    (N.S.) 193 (Sask. Q.B.), at 199]. There is much to be said for this approach,
    as many Canadian judges since 1970, have declared. In Canada it seems clear
    that the subsequent actions of the parties may be admissible to explain the
    true meaning and intent of their agreement. [Citations omitted.]

[61]

An
    examination of the conduct of the parties to the APS after they entered into
    their agreement supports the conclusion that they intended that the appellants
    obligations under the SPIS would be enforceable.

[62]

It
    was not necessary for the appellants to complete the SPIS. If one contracting
    party asks, post contract, for a representation or warranty, the other does not
    have to give it: he or she can say, No, the contract expresses the limit of my
    obligations. But that is not what transpired in this case. The fact that the
    appellants completed the SPIS, after consulting their lawyer, provides insight
    into their intentions in relation to the entire agreement clause. It reveals
    that the appellants considered the SPIS seriously.

[63]

Moreover,
    in the SPIS, the appellants undertook to inform the respondents of any
    important changes to the information they provided in the document. This
    ongoing obligation to which the appellants committed themselves indicates that
    all parties considered the SPIS as affecting their relationship.

[64]

For
    these reasons, I agree with the Divisional Court that the entire agreement
    clause, properly interpreted, does not preclude the respondents claim for
    damages based on negligent misrepresentation. In my view, the appellants should
    be held to any consequences that flow, in law, from the representations they
    made in the SPIS. To conclude otherwise would render the entire SPIS exchange
    meaningless.

The Doctrine of Caveat Emptor

[65]

Before
    proceeding, I pause to briefly address the doctrine of
caveat emptor
(let
    the buyer beware).

[66]

The
    appellants submit that circumventing the parties intentions as expressed by
    the entire agreement clause in the APS erodes the doctrine of
caveat emptor
.
    I disagree with the premise of this submission. Having concluded that the
    entire agreement clause in this case operates retrospectively, not
    prospectively, it cannot be said that the respondents claim for negligent
    misrepresentation has the effect of circumventing the parties intentions or
    the entire agreement clause.

[67]

At
    para. 38 of its reasons, the Divisional Court quoted from Killeen J.s decision
    in
Kaufmann
, at para. 119, for the proposition that, once a vendor
    "breaks his silence" by signing the SPIS, the doctrine of
caveat
    emptor
falls away as a defence mechanism and the vendor must speak
    truthfully and completely about the matters raised in the unambiguous questions
    at issue. Although the SPIS at issue in
Kaufmann
was expressly
    incorporated into the agreement of purchase and sale, I agree with the thrust
    of Killeen J.s remarks. So long as a purchasers action is not precluded by
    the agreement of purchase and sale, the vendor cannot hide behind the doctrine
    of
caveat emptor
if he or she breaks the silence by signing a SPIS.

[68]

I
    would not give effect to this argument.

(ii)

Did the Divisional Court err by concluding that the respondents had made
    out a claim for damages based on negligent misrepresentation?

[69]

Despite
    my conclusion that the entire agreement clause does not prevent the respondents
    from advancing a claim in negligent misrepresentation, in my view, their claim
    still fails because they have not established the fourth element of negligent
    misrepresentation  reasonable reliance.

[70]

The
    tort of negligent misrepresentation has five elements:
Hedley Byrne &
    Co. v. Heller & Partners Ltd.
(1963), [1964] A.C. 465 (U.K. H.L.);
Queen
    v. Cognos Inc.
, [1993] 1 S.C.R. 87, at p. 110. These elements are: (1) a
    duty of care based upon a special relationship between the plaintiff and
    defendant; (2) an untrue, inaccurate or misleading statement by the defendant;
    (3) negligence on the part of the defendant in making the statement; (4)
    reasonable reliance by the plaintiff on the statement; and (5) damage suffered
    by the plaintiff as a result.

[71]

On
    appeal, the parties made no written or oral submissions on the first element,
    the duty of care. My analysis proceeds on the assumption that the appellants
    owed the respondents a duty of care in these circumstances. I accept the
    Divisional Courts finding that the appellants were negligent in failing to advise
    the respondents of the pre-closing flood.

[72]

Reasonable
    reliance is fundamental to the tort of negligent misrepresentation. The
    reasonable reliance element states a factual test for causation: Allen Linden
    and Bruce Feldthusen,
Canadian Tort Law
, 9th ed. (Canada: LexisNexis
    Canada Inc., 2011), at p. 473.

[73]

In
Farmer v. H.H. Chambers Ltd.
, [1973] 1 O.R. 355 (C.A.), McGillvary
    J.A. wrote, at p. 357: To recover under the rationale of the
Hedley Byrne
case, representation must not only be made but it has to be such as to cause
    the plaintiff, as a result, to do some act to his detriment. Although reliance
    can be inferred in certain circumstances, such an inference must be supported
    by the facts and evidence:
Strand v. Emerging Equities Inc.
, 2008 ABCA
    23, 37 B.L.R. (4th) 44, at para. 6

[74]

The
    problem here is that it is far from clear that the respondents would have had a
    remedy even if the January 9 water incident had been disclosed prior to
    closing. Put another way, the misrepresentation did not cause the respondents
    to do some act to [their] detriment:
Farmer
, at p. 357.

[75]

As
    noted above, the respondents sued in tort. They claim damages for negligent
    misrepresentation. However, there is no allegation of reliance in their
    statement of claim.

[76]

Notwithstanding
    the state of the respondents pleading, in their closing submissions at trial,
    the respondents advanced two arguments on the reliance issue. They argued that
    they relied on the misrepresentation in the SPIS because they waived the home
    inspection condition after receiving the SPIS. The respondents also argued that
    they relied on the misrepresentation in the SPIS because they were deprived of
    the opportunity to seek remedies available to them under the APS.

[77]

I
    address each submission in turn.

[78]

There
    are two difficulties with the respondents submission that they relied on the
    SPIS in waiving the home inspection condition in the APS. First, when the
    respondents waived the home inspection condition, there was nothing for the
    appellants to disclose. They waived the condition prior to the January 9 water
    incident. Second, and more significantly, there is no evidence that the
    inspector who performed the home inspection on behalf of the respondents relied
    on the SPIS in conducting his home inspection or even knew that it existed. Further,
    the trial judge rejected Mr. Soboczynskis testimony that the SPIS was part of
    the property inspection process. He also expressly found, at para. 30, that
    the SPIS was unrelated to the results of an inspection. In the light of these
    findings, I would not give effect to this submission.

[79]

This
    takes me to the respondents argument that had the appellants advised them of
    the January 9 flood they would have taken advantage of remedies available to
    them under the APS. In terms of the available remedies, the respondents turn to
    s. 14 of the APS, which provided:

INSURANCE
: All buildings on the property and
    all other things being purchased shall be and remain until completion at the
    risk of Seller. Pending completion, Seller shall hold all insurance policies,
    if any, and the proceeds thereof in trust for the parties as their interests
    may appear and
in the event of substantial damage
,
    Buyer may either terminate this Agreement and have all monies paid returned
    without interest or deduction or else take the proceeds of any insurance and
    complete the purchase. No insurance shall be transferred on completion. If
    Seller is taking back a Charge/Mortgage, or Buyer is assuming a
    Charge/Mortgage, Buyer shall supply Seller with reasonable evidence of adequate
    insurance to protect Sellers or other mortgagees interest on completion.
    [Emphasis added.]

[80]

The
    APS does not define substantial damage.

[81]

The
    respondents argument is problematic as it is unclear what rights would have
    been available to them under this provision. And the Divisional Courts
    somewhat conclusory statement, at para. 61, that the contractual options of
    rescission and abatement might have been available to [the respondents] does
    little to clarify the situation.

[82]

The
    respondents access to the remedies available under s. 14 depended on a finding
    of substantial damage. The difficulty the respondents face is that no finding
    was made as to whether the property sustained substantial damage as a result of
    the January 9 flood. In my view, on this record, the trial judge would likely
    have concluded that the January 9 flood did not constitute substantial damage
    in the light of the observation he made, at para. 62 of his reasons reproduced
    above, that it is doubtful the January 9 flood was an important change as
    contemplated by the SPIS. The point is, however, that no finding was made.

[83]

In
    any event, at the time the property changed hands on January 18, 2008, the
    $1,648.59 worth of damage caused by the January 9 flood had been repaired.
    There was no damage to speak of, substantial or otherwise.

[84]

A
    consideration of the role damages play in tort cases illuminates why the
    respondents did not rely on the appellants negligent misrepresentations. In
Rainbow
    Industrial Caterers Ltd. v. Canadian National Railway
, [1991] 3 S.C.R. 3, at
    p. 14, the Supreme Court outlined how to assess damages in a negligent
    misrepresentation action: The plaintiff seeking damages in an action for
    negligent misrepresentation is entitled to be put in the position he or she
    would have been in if the misrepresentation had not been made.

[85]

Here,
    had the appellants told the respondents of the January 9 flood, the respondents
    position in relation to their obligations under the APS would not have changed.
    The respondents would have been obliged to complete the transaction under the terms
    of the APS. The fact that the respondents did not suffer any damage compensable
    in tort solidifies their inability to prove reliance.

[86]

To
    prove reasonable reliance, it was incumbent on the respondents to adduce
    evidence sufficient for the court to conclude that the misrepresentation
    somehow caused them to act to their detriment. This they did not do. Although
    reasonable reliance can be inferred from the circumstances, there is not, in my
    view, sufficient evidence upon which to base such an inference.

[87]

I
    conclude the respondents have not established the fourth element of negligent
    misrepresentation. Their tort claim must therefore fail.

(iii)

Did the Divisional Court err in its trial costs award?

[88]

The
    appellants argue that the Divisional Court erred in assessing the trial costs
    instead of referring them to the Superior Court. They say that proceeding in
    this fashion deprived them of a right of appeal.

[89]

They
    also contend that the Court erred in assessing costs on the basis that the
    respondents allegation against them in fraud was not actively pursued. They
    say the unsuccessful allegation of fraud was pursued through to the end of
    trial and that the costs award should reflect the extent to which these
    allegations increased trial costs.

[90]

The
    appellants seek costs payable by the respondents on a substantial indemnity
    basis. The appellants argue that even if they are unsuccessful in this appeal,
    they should still be entitled to substantial indemnity costs of the action
    because the respondents made completely unsubstantiated accusations of fraud
    against them. Unproven allegations of fraud attract this kind of costs award
    because they go to the root of a persons integrity.

[91]

In
    my view, in the light of the trial judges death, and the parties submissions
    set out above, the Divisional Court was fully entitled to assess costs. The
    Divisional Court found as a fact that the plaintiffs did not actively pursue
    the fraud allegation at trial. The trial was about negligence, not fraud. The
    appellants were not entitled to substantial indemnity costs.

[92]

I
    see no reason to interfere with the Courts decision regarding the costs of the
    trial. The Courts assessment of the trial costs is entitled to deference.

VI.

DISPOSITION

[93]

For
    these reasons, I would allow the appeal, set aside the decision of the
    Divisional Court, and restore the decision of the trial judge dismissing the
    action.

[94]

I
    would award the appellants their costs of this appeal in the agreed-upon amount
    of $5,000, including disbursements and applicable taxes.

Released: April 23, 2015 (A.H.)

Gloria
    Epstein J.A.

I
    agree Alexandra Hoy A.C.J.O.

I
    agree C.W. Hourigan J.A.





[1]
The entire agreement clause at issue in
Dzourelov
stated: The parties acknowledge that there is no representation,
    warranty, collateral agreement or condition, affecting the Agreement except as
    contained in this agreement. This agreement may not be amended other than in
    writing.



[2]
The Divisional Court cited the following three cases for this proposition:
Krawchuk
;
Kaufmann v. Gibson
(2007), 59 R.P.R. (4th) 293 (Ont. S.C.); and
Usenik
    v. Sidorowicz
, [2008] O.J. No. 1049 (S.C.).


