Burgoyne v. Royal Bank of Canada

Burgoyne v. Royal Bank of Canada Court Court of Appeal Date 1996-07-23 Citation 1996 NSCA 135 Docket CA 124261 Judge/Registrar/Adjudicator Bateman, Nancy J. (Honourable Justice) (CA); Freeman, Gerald B. (Honourable Justice) (CA); Hallett, J. Doane (Honourable Justice) (CA) Document Type Decision Decision Content C.A. No. 124261 NOVA SCOTIA COURT OF APPEAL Cite as: Burgoyne v. Royal Bank of Canada, 1996 NSCA 135 Hallett, Freeman and Bateman, JJ.A. BETWEEN: P. CLIFTON BURGOYNE ) ) Ross H. Haynes ) Suzanne Fougere ) for the Appellant Appellant ) ) - and - ) ) David Farrar ) for the Respondent ROYAL BANK OF CANADA ) ) ) Respondent ) Appeal Heard: ) June 14, 1996 ) ) ) Judgment Delivered: ) July 23, 1996 ) THE COURT: Appeal allowed with costs to the appellant per reasons for judgment of Bateman, J.A.; Hallett and Freeman, JJ.A. concurring. BATEMAN, J.A.: This is an appeal from a decision of the Supreme Court holding the appellant liable to the respondent for damages arising from negligent misrepresentation. FACTS: In February of 1990 Judith and Roy Hiltz purchased the Greensboro Inn, a motel property located in New Minas, Nova Scotia. They intended to renovate the Inn and operate it as a family business. That fall the Hiltzes applied to the Kentville branch of the respondent Bank for a loan of $200,000.00, to be secured by a second collateral mortgage charging the property. Mr. Hiltz had banked with the respondent's Lady Hammond Road branch in Halifax for both his business and personal affairs for approximately seventeen (17) years. The Federal Business Development Bank held a $400,000.00 first mortgage on the motel property, which obligation was assumed by the Hiltzes at the time of purchase. Mr. Terry Dorey, the Branch Manager of the respondent's Kentville Branch, received the mortgage application from the Hiltzes. Mr. Hiltz advised Mr. Dorey that he had purchased the property in the spring of 1990 for $600,000.00 and had since spent more than $200,000.00 on renovations and upgrading. The Bank asked the Hiltzes to obtain an appraisal of the property. They provided Mr. Dorey with an appraisal report prepared, at their request, by the appellant, P. Clifton Burgoyne, now deceased, a professional, accredited appraiser of real property. The appraisal report assessed the market value of the property, effective September 20, 1990, at $860,000.00. It contained a disclaimer clause purporting to limit the appraiser's liability. Relying, in part, upon the appraisal report, the respondent advanced the sum of $200,000.00 to the Hiltzes, secured by a second, collateral mortgage on the property. Previously, in April of 1990, Mr. Hiltz had obtained a personal line of credit from the Bank. At that time he provided Mr. Dorey with an unaudited Statement of Net Worth, as at April 3, 1990. The Hiltzes were unable to make the loan payments and FBDB foreclosed on its mortgage. In February of 1992 the property was sold at a Sheriff's sale for $372,000.00, resulting in a deficiency and consequent loss to the respondent Bank. The respondent commenced this action against the appellant claiming that the appraisal report contained material negligent misrepresentations upon which the respondent relied to its detriment in advancing the Hiltzes the $200,000.00. The trial judge found that the appraisal report was both inaccurate and misleading and that the appellant was negligent in his preparation of the report. He held, however, that the respondent was partially responsible for the loss occasioned by the negligence of the appellant, by forgetting the earlier Statement of Net Worth. That Statement noted that there was a 1989 appraisal of the Property, prepared by the same appraiser, showing a market value of $554,000.00, which would have caused the respondent to question the value on the more recent appraisal. The trial judge apportioned responsibility for the appellant's loss of $135,000.00 as two-thirds to the appellant and one-third to the respondent. The trial judge, in his decision, made the following express findings of fact: 1. On the evidence of both Mr. Hubley and Mr. Turner, it is clear Mr. Burgoyne's Report was inadequate and the stated value of the Inn was inflated. 2. Nowhere in Mr. Burgoyne's report does he limit the purpose for which the report may be used and, in addition, the letter of transmittal to Mr. Hiltz, which was not delivered to Mr. Dorey, does not suggest a limitation on the use to which the report may be made by Mr. Hiltz. 3. The disclaimer, in the report, appears to be unethical having regard to the Regulations of the Appraisal Institute of Canada, of which Mr. Burgoyne was a member, in that it purports to exempt or exclude responsibility for the entire report. 4. Mr. Dorey, if he had recollected the reference in his file to the earlier report, would have made inquiries and raised with Mr. Burgoyne questions on the extent of the increase in stated value between the August 8, 1989 report and the September 19, 1990 report. 5. Mr. Dorey, in approving the loan, relied on the appraisal report. GROUNDS OF APPEAL: The appellant raises the following grounds of appeal: (a) that the learned trial judge erred in law in finding that the appellant owed a duty of care to the respondent and that it was reasonable in the circumstances to impose such a duty. (b) that the learned trial judge erred in law in finding that the respondent relied upon the appraisal prepared by the appellant. (c) that the learned trial judge erred in law in finding that the respondent's reliance upon the appraisal prepared by the appellant was reasonable. (d) that the learned trial judge erred in law in assessing the contributory negligence on the part of the respondent at only 33.3%. (e) that the learned trial judge erred in law in finding that the respondent's loss was the amount of the loan moneys advanced by the respondent, and that such loss was caused by the respondent's reliance upon the appraisal prepared by the appellant and that it was not open to the appellant to argue that the respondent's advancement of loan moneys was otherwise negligently made. (f) that the learned trial judge erred in law in awarding pre-judgment interest. POWER ON APPEAL: In Toneguzzo- Norvell (Guardian as litem of) v. Burnaby Hospital, [1994] 162 N.R 161, McLachlin said at p 167: It is by now well established that a Court of Appeal must not interfere with a trial judge's conclusions on matters of fact unless there is palpable or overriding error. In principle, a Court of Appeal will only intervene if the judge has made a manifest error, has ignored conclusive or relevant evidence, has misunderstood the evidence, or has drawn erroneous conclusions from it: see P. (D.) v. S. (C.), [1993] 4 S.C.R. 141, at pp. 188‑89 (per L'Heureux‑Dubé J.), and all cases cited therein, as well as Geffen v. Goodman Estate, [1991] 2 S.C.R. 353, at pp. 388‑89 (per Wilson J.), and Stein v. The Ship "Kathy K", [1976] 2 S.C.R. 802, at pp. 806‑8 (per Ritchie J.). A Court of Appeal is clearly not entitled to interfere merely because it takes a different view of the evidence. The finding of facts and the drawing of evidentiary conclusions from facts is the province of the trial judge, not the Court of Appeal. In Davis v. Bathtub King (Halifax) Ltd. (1991), 104 N.S.R. (2d) 98 Matthews, J.A. stated at p. 100: Our function is not to retry the case. Appeal courts in innumerable cases have applied the rule: conclusions of fact cannot be disturbed unless they are perverse, or clearly wrong, or unless the trial judge made some "palpable and overriding error" to use the words of Mr. Justice Ritchie in Stein Estate et al. v. Ship "Kathy K" et al. (1975), 6 N.R. 359 (S.C.C.), at p. 366. ANALYSIS: Justice Iacobucci in Queen v. Cognos Inc. (1993), 14 C.C.L.T. (2d) 113, restated the test for recovery for negligent misrepresentation. He said at p. 134: The required elements for a successful Hedley Byrne, supra, claim have been stated in many authorities, sometimes in varying forms. The decisions of this court cited above suggest five general requirements: (1) there must be a duty of care based on a 'special relationship' between the representor and the representee; (2) the representation in question must be untrue, inaccurate or misleading; (3) the representor must have acted negligently in making said representation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages have resulted. (Emphasis added) The appellant submits that the bank is not entitled to recovery, applying the above test, as the duty of care did not arise because (i) there was no special relationship between the parties and, alternatively, (ii) it was not reasonable for the plaintiff to have relied upon the appraisal report. In any event, the appellant submits that the disclaimer clause contained in the report should have exempted the appraiser from the duty of care. Accepting, without deciding, that the trial judge was correct in his finding that a "special relationship" existed between the Bank and the appraiser, it remains to be considered whether he erred in holding that the Bank's reliance upon the report was reasonable. The trial judge wrote: The thrust of Mr. Hubley's report, and evidence, is that Mr. Dorey could not reasonably have relied on Mr. Burgoyne's appraisal since good lending practices should have caused him to have turned down the loan application, no matter the market value of the proposed collateral security. On his analysis, Mr. Dorey should never have reached the stage of considering the value of the Inn and therefore he cannot reasonably be said to have relied on the appraisal report in making the $200,000.00 second mortgage loan in September 1990. The defendant submits any reliance by Mr. Dorey "on the appraisal alone, without having carried out adequate credit underwriting, was unreasonable and negligent." Even if the defendant is correct, the fact is, in making the loan, Mr. Dorey did rely on the market value set out in the appraisal. . . . Even if it was less than prudent for Mr. Dorey to have made the loan, it is uncontradicted he relied on the market value appraisal by Mr. Burgoyne and in the circumstances, and despite the inadequacy of the appraisal and the information supporting the value stated by Mr. Burgoyne, his reliance was not, on the information known and considered by Mr. Dorey, unreasonable. . . . Mr. Dorey was entitled, absent evidence of facts that would or should have caused a reasonable person to question the representation of market value contained in the report, to rely on the report. It is not open for the author of the appraisal to say the loan, for other unrelated reasons, should not have been made. The trial judge found that the loan's officer did make some errors and oversights that contributed to the loss. He thus found the bank to be contributorily negligent. In this regard he said: In assessing the degree of responsibility, as between the defendant's negligent preparation of the appraisal report and Mr. Dorey's negligence in failing, because of material available in his file, to question the stated market value, I have considered the primary negligence to be that of Mr. Burgoyne in preparing the report. Professional persons retained to provide "expert opinions" are expected to exercise a "reasonable degree of care, knowledge and skill" in fulfilling their responsibility. Clearly, Mr. Burgoyne did not do so. Although the failing by Mr. Dorey would likely have caused him to question the conclusion of Mr. Burgoyne, such an omission does not eliminate the negligence in preparation of the report as a cause, and in this case, the most significant cause, of the plaintiff's loss. I would therefore apportion responsibility for the loss occasioned to the plaintiff as two thirds to Mr. Burgoyne and one third to Mr. Dorey. At trial the appellant had called an expert in banking practice, L. Douglas Hubley, who opined that a reasonable loan's officer would not have approved this loan, despite the appraisal value, as the other factors to support the loan were not present. In addition, the appellant submitted that the appraisal report was so obviously deficient that it was unreasonable for the bank to rely upon it. There was, however, substantial evidence on behalf of the Bank supporting the loaning of the funds on the facts known at the time. The issue is not whether Mr. Dorey acted reasonably in making the loan, but whether his reliance on the report was reasonable. The evidence of the appellant's expert was not sufficient to persuade the trial judge that the Bank's reliance on the report was unreasonable. The reasonableness of the reliance, in this context, involves considerations such as the skill or knowledge of the person providing the advice; whether the person is in the business of giving advice; and the circumstances in which the advice was given, for example, whether casually or in a business context. In assessing the reasonableness of the reliance it is necessary, however, in addition to the above, to consider the disclaimer clause. If, in the face of a disclaimer clause, it would be unreasonable to rely on the information, then a duty of care does not arise (see Hedley Byrne, [1964] A.C. 465 (H.L.)) or, alternatively, using the Cognos statement of the test, the fourth requirement is not satisfied. The appraisal report contained the following disclaimer clause: Contingent and Limiting Conditions The legal description of the subject property, as stated herein, is that which is recorded at the Registry of Deeds and is assumed to be correct. No opinion is expressed as to title and the property is appraised as though free and clear of all encumbrances. In order to arrive at a supportable opinion of value, it was found necessary to utilize both documented and heresay (sic) evidence of market transactions. A concentrated effort has been put forth to verify the accuracy of the information herein contained. Accordingly, the information is believed to be reliable and correct, and has been gathered according to recognized procedures. Sketches, drawings, diagrams, photographs, etc., presented in this report, are included for sole purpose of illustration. No legal survey or soil test has been provided. Accordingly, no responsibility is assumed concerning these matters, or other technical or engineering techniques that would be required to discover any inherent or hidden condition of the subject property. The distribution of values in this report, between land and improvements, apply only under the program of utilization as identified in this appraisal. The separate evaluation, as estimated herein, must not be used in conjunction with any other appraisals, and may be invalid if so used. The client to whom this report is addressed may use it in deliberations affecting the subject property only, and in so doing, this report should not be extracted, but used in its entirety. The property rights appraised exclude mineral rights, if any. The compensation for services rendered in preparing this report does not include a fee for court preparation or court appearance. Should a court appearance be required in connection with this report, additional fees must be agreed upon. In preparing the foregoing Appraisal Report, the undersigned appraiser has employed the usual methods and procedures used by Appraisers in Nova Scotia, and the result is the product of his careful and considered opinion, however this Appraisal Report is the opinion of the appraiser only - and under no circumstances whatsoever shall the Appraiser personally, be held liable for any loss or damage that may occur to any person or persons by reason of their reliance upon this Appraisal Report. CERTIFICATION I, P. Clifton Burgoyne to hereby certify that I have personally inspected the property covered by this report and have considered all the factors affecting its value. To the best of my knowledge and belief, the statements contained in this report and upon which my estimate of value has been based, are correct. I have no interest, present nor contemplated, in the subject property and the fee for this appraisal is in no way contingent on the estimate of value. Dated: September 10, 1990. P. Clifton Burgoyne, A.A.C.I. Appraiser (Emphasis added) While the case law has recognized that a party may disclaim from a duty of care, (see Hedley Bryne, supra), the trial judge held that this disclaimer clause was not adequate to relieve the appellant from liability for negligent misstatement. He said: Clearly, the report, on its face, contains no limitation on its use by the client, other than it must be in respect to "deliberations affecting the subject property" and must be "used in its entirety". As stated in Haig, the fact Mr. Burgoyne may not have been aware of the particular financial institution that would be presented with the report is irrelevant. A finding the Bank is one of a limited group he could reasonably foresee as using and relying on the statements contained in his report means the plaintiff is one of a "limited class" to whom it was reasonably foreseeable the report might be given. If, as author of the report, Mr. Burgoyne wished or intended to limit or exclude persons, who would otherwise be reasonably foreseeable as being in a limited group that might use and rely on the report, then the responsibility is on him, as the author, to set out any such limitation or exclusion. Absent such a provision, and in view of the general authority on the addressee to use the report "in deliberations affecting the subject property" the plaintiff was entitled to receive and rely on the statement of market value contained in the report for the purpose of considering the market value of the collateral security being offered as part of the loan application by Mr. Hiltz. (Emphasis added) The trial judge concluded that the Limiting Conditions were ambiguous and resolved that ambiguity against the appraiser. I take no issue with the finding of the trial judge that the disclaimer clause was ambiguous. The clause gave the appraiser's client free reign to use the appraisal "in deliberations concerning the subject property", which surely would include matters of financing. The disclaimer clause would, thus, not have sufficed to shield the appraiser from a claim for negligence by the clients, Mr. and Mrs. Hiltz. That broad authority to use the report was directed explicitly to the client, however, not to third parties. In the face of a clear provision that the appraiser disclaimed liability to any person, was it reasonable that the Bank rely upon the appraisal, without obtaining express authorization from the appraiser? Mr. Burgoyne was deceased by the time of trial thus his discovery evidence was tendered. He testified at discovery that he did not know that the appraisal report was to be used for financing purposes. Mr. Hiltz had told him that he needed the report to review the feasibility of expanding the motel with architects and engineers. Mr. Burgoyne further testified that he would not have authorized the Bank to use the report, if asked. In Hedley Byrne, supra, the appellants sought advice from their bankers about the creditworthiness of a client. Those bankers contacted the respondent bank for information about the client, on the understanding that the bank would have no responsibility for the information provided. That there would be no responsibility was again confirmed when the advice was provided by one bank to the other. When the appellants subsequently sued the respondent bank alleging negligent misrepresentation, the court held that the disclaimer was effective to prevent a duty of care from arising. Lord Devlin said at p. 533: A man cannot be said voluntarily to be undertaking a responsibility if at the very moment when he is said to be accepting it he declares that in fact he is not. The problem of reconciling words of exemption with the existence of a duty arises only when a party is claiming exemption from a responsibility which he had already undertaken or which he is contracting to undertake. In Wolverine Tube (Canada) Inc. v. Noranda Metal Industries Ltd. (1995), 26 O.R. (3d) 577 (Ont. C.A.), the defendant Noranda retained a company, A.D.L., to prepare environmental assessment reports on three properties owned by Noranda, in contemplation of sale of the properties. It was a term of the agreement between Noranda and A.D.L. that the reports were not to be used outside Noranda's organization without prior permission. A.D.L. had no knowledge of a sale to Wolverine. The reports negligently failed to mention areas of contamination and violations of environmental laws. Without the permission of A.D.L., Noranda provided the reports to Wolverine, prior to its purchase of the three properties. Wolverine initiated action for damages against Noranda and, in negligence, against A.D.L.. The suit against A.D.L. was dismissed as disclosing no cause of action. The court held that a disclaimer clause in the environmental assessment agreements was sufficient to avoid liability. The clause read: This report was prepared by Arthur D. Little of Canada, Limited for the account of Noranda, Inc. The material in it reflects Arthur D. Little's best judgment in light of the information available to it at the time of preparation. Any use which a third party makes of this report, or any reliance on or decisions to be made based on it, are the responsibility of such third parties. Arthur D. Little accepts no responsibility for damages, if any, suffered by any third party as a result of decisions made or actions based on this report. (Emphasis added) The trial decision was upheld on appeal. Writing for the court, Finlayson, J.A. said at p. 581: "The language of the disclaimer clause in the reports is broad enough to prevent the assumption of a duty of care to Wolverine . . . ". I see little material distinction between this wording and the analogous clause contained in Mr. Burgoyne's report. In finding that the disclaimer clause failed because it was not sufficiently precise, the trial judge, with respect, erred by applying a more onerous test than the decisions in Wolverine and Hedley Byrne support. It is important to distinguish between a disclaimer, as here, made contemporaneous with the provision of the negligent information or advice, and one made subsequently. In Queen v. Cognos, supra, an employee was induced to accept employment on the basis of a negligent statement, made at the interview, about the security of the position offered. Iacobucci, J. held that a disclaimer clause, contained in an employment agreement signed two weeks after an interview, was insufficient to negate liability, there being no indication at the interview or shortly thereafter that the employer was not assuming responsibility for the representation. Mr. Dorey was aware of the disclaimer clause. He had, in the past, relied upon reports prepared by Mr. Burgoyne and containing the same provision. Indeed, on one occasion, concerned about the disclaimer, he had contacted Mr. Burgoyne and sought and received permission to use a report, notwithstanding the disclaimer clause. He did not do so here. The appraiser is not seeking to shield himself from a claim by the client who commissioned the report, but from a claim by a third party. The respondent relies upon the decision of the Ontario Supreme Court in Browne v. Core Rentals (1983), 23 B.L.R. 291. There the court adopted a three-point test, previously laid down in Can. S.S. Lines v. R., [1952] A.C. 192 (P.C.), to determine whether a contractual exclusionary clause is sufficient to exculpate against a claim in negligence. That test, however, is concerned with the breadth of a disclaimer clause, in particular, whether it is sufficiently worded to apply to negligence in addition to contractual breaches. As there is no contractual relationship here between the appraiser and the Bank, the test is unhelpful. It was open to the Bank to contact the appraiser for permission to use the report, or, alternatively, to require that the client provide an unqualified report. In choosing to do neither, the Bank assumed the risk that the report was not worthy of reliance. It cannot now turn to the appraiser for recovery. Applying the Cognos test, the Bank's reliance on the report was unreasonable. Using the Hedley Byrne analysis, the duty of care does not arise, the appraiser not having assumed the risk. The Bank's claim against the appraiser must fail. Disposition: Accordingly, I would allow the appeal, and award costs to the appellant for the trial and on the appeal. The costs of the appeal will be 40% of those at trial. Bateman, J.A. Concurred in: Hallett, J.A. Freeman, J.A. C.A. No. 124261 NOVA SCOTIA COURT OF APPEAL BETWEEN: P. CLIFTON BURGOYNE ) Appellant ) - and - ) REASONS FOR ) JUDGMENT BY: ROYAL BANK OF CANADA ) ) BATEMAN, ) J.A. Respondent ) ) ) ) ) ) )