COMMENTS
COMMENTAIRES
Negligent Misrepresentation: A Postscript
Scant attention was paid by me, when I recently discussed this
area of the law,’ to the Saskatchewan case of Haig v. Bamford,2
which, at that time, had been decided by the provincial Court of
Appeal. Since the publication of my article, the report of the case in
the Supreme Court of Canada, where the decision of the Lower Court
was reversed, has now appeared, 3 and it merits some comment.
Similarly, the decision of the Manitoba Court of Appeal in Porky
Packers Ltd v. Town of The Pas4 which was considered at greater
length in the earlier article, has now been reversed by the Supreme
Court of Canada;5 this too deserves more than passing mention.
In effect the Supreme Court imposed liability in the Haig case,
when the provincial court had denied it, and refused to allow liability
in the Porky Packers case, where the provincial court had found it.
At a time when liability for negligent misrepresentation seems to be
extending its scope in Canada as well as England, where recent
decisions in both jurisdictions serve to underline the growing im-
portance of this comparative newcomer to the select company of
torts,” these anomalous decisions are of great interest.
In the case of Haig v. Bamford,” the defendants were account-
ants who prepared a financial statement about a company called
Scholler Furniture and Fixtures Ltd, at the request of the company.
The purpose of this statement, as the defendants knew, was to
satisfy the requirements of the’Saskatchewan Economic Development
Corporation (Sedco), which had agreed to lend the company $20,000
provided a satisfactory audited financial statement of the company
from its incorporation to the date of the agreement was produced,
1 G.H.L. Fridman, Negligent Misrepresentation (1976) 22 McGill LJ. 1.
2 [1974] 6 W.W.R. 236; (1974) 53 D.L.R. (3d) 85; reversing [1972] 6 W.W.R. 557.
3 Haig v. Bamford, Hagan, Wichen & Gibson [1976] 3 W.W.R. 331.
4 (1974) 46 D.L.R. (3d) 83.
r (1976) 7 N.R. 569.
0 In Canada: see West Coast Finance Ltd v. Gunderson, Stokes, Walton &
Co. (1975) 56 D.L.R. (3d) 460; Tormont Industrial Holdings Ltd v. Thorne
Gunn, Helliwell & Christenson (1976) 62 D.L.R. (3d) 225; in England see Esso
Petroleum Co. Ltd v. Mardon [1976] 2 All E.R. 5.
7 Supra, note 3.
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and provided also that a further $20,000 could be obtained by the
company by way of equity capital, i.e. by the discovery of another
investor. Thus the defendants knew that their statement was going
to be used by the client, the company, for these purposes. This was
the “crucial finding”8 of the trial judge that went undisturbed on
appeal, viz.,
… that the accountants knew, prior to the completion of the financial
statement… that the statement would be used by Sedco, by the bank
with whom the company was doing business and by a potential investor
in equity capital.
The statement was prepared. It was shown to the plaintiff. He was
influenced by the contents of the statement. In consequence he
bought over $20,000 worth of shares in the company and guaranteed
a bank loan to the extent of another $20,000. However, despite this
infusion of money, the company, of which the plaintiff had now
become president, was again in trouble. It then emerged that in
preparing the statement, the accountants had shown a payment of
$28,000 from a company for which the Scholler company had under-
taken to do work, as being payment for work completed, when it was
really only a prepayment and the money had not yet been earned.
That sum was in reality a liability; in the accounts it was treated
as revenue. As a result the state of the Scholler company was made
to appear better than it actually was. When fresh accounts were
made up, after the discovery of the error, the true picture was
revealed; the company had made a loss for the period in question, not
a profit. If this had been clearly stated, the plaintiff on viewing the
accounts would never have invested his money; but it was too late.
He was enmeshed in the last throes of the Scholler company and was
forced to provide further money to meet the payroll. The company
was forced to close its business, the plaintiff losing the value of the
shares, the subsequent loan and a further sum under the bank
guarantee. He proceeded against the various parties but abandoned
suits against all save the accountants.
The trial judge found that the accountants had been negligent
and gave judgment for the plaintiff. The Court of Appeal, by a
majority, reversed this decision and held that the accountants were
not liable. The Supreme Court restored the original judgment and
held in favour of the plaintiff. Perhaps the most puzzling feature
of this case is the decision of the Saskatchewan Court of Appeal.
Why did the majority of that court find for the defendants, at a
time when there has been much extension of the notion of liability
8 Ibid., 333.
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COMMENTS – COMMENTAIRES
for negligent conduct? The decision of the Saskatchewan Court of
Appeal seems to be a throwback to the days of Candler v. Crane,
Christmas & Co.9 where the majority of the Court of Appeal,
Denning L.I. dissenting, arrived at precisely the same conclusion on
facts closely resembling those before the Saskatchewan court,’0 The
role of the Supreme Court of Canada in this case is analogous to that
of the House of Lords in Hedley Byrne v. Heller,”l decided some
dozen years after the Candler case. The English decisions were at
least understandable: the House of Lords -did revolutionize the law.
How could the Saskatchewan Court, in the 1970’s, in the light of
English and Canadian authorities (all of which were canvassed by
the Supreme Court in the judgment of Dickson J.) have reached a
decision which appeared to be contrary to the existing state of the
law?
The majority of the Court of Appeal decided the case on the
ground that there was no duty of care owed by the accountants to
the plaintiff. Although the accountants knew, or may have known
that the accounts were going to be distributed and shown to poten-
tial investors in the company; they did not know the identity of any
individual potential investor. In particular, they did not know that
the accounts were going to be shown to, and relied on by the plaintiff
himself. To Hal and Maguire JJ.A. of the Saskatchewan Court of
Appeal, before any duty of care could be owed in such circumstan-
ces (i.e. with respect to the contents of a financial statement) the
potential defendant, the person alleged to be under the duty, had
to be aware of the identity of the potential plaintiff, the person to
whom the duty was alleged to be owed. Failing that, the only res-
ponsibility of the accountants was to be honest and since their
mistake was an “honest blunder”, they could not be held liable.
The trial judge, Woods J.A. (dissenting in the Court of Appeal)
and the Supreme Court of Canada disagreed. It was sufficient “that
the accountants knew that the information was intended to be
disseminated among a specific group or class”, as Dickson J. put it. 2
It was sufficient, in the words of Martland J.,13 with whom Judson
and de Grandpr6 I5. agreed, that the accountants knew, prior to the
completion of the statement, that it would be used by Sedco, by the
bank with which the company was doing business “and by a
9 [19513 2 K.B. 164.
10 See G.H.L. Fridman, Negligence by Words (1954) 32 C.B.R. 638 in which the
judgments in this case are analyzed.
“1 [1964] A.C. 465.
12 Supra, note 3, 337.
13 Ibid., 345-346.
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potential investor in equity capital”. The language of these judges,
it will be seen, seems closer to the original finding of fact by the
language of Dickson J. (Laskin C.J.C., Ritchie,
trial judge. The
Spence, Pigeon and Beetz JJ. concurring), is broader and will per-
haps, be a source of difficulty in the future. In his judgment,
Dickson J. considers the role of accountants in modern business
life, the particular English and American cases dealing with accoun-
tants, the law of negligent misstatement or misrepresentation in
general, and the leading Canadian cases, 4 Wellbridge,1 Rivtow,0
and Nunes Diamonds..7 Some attention should therefore be paid to
the words and reasoning of Dickson J.
The new corporate role in society has resulted in increased res-
ponsibility for the accounting profession; statements by accountants
can affect the general public as well as actual and potential share-
holders. The issue became where to draw the line between indis-
criminate liability for financial loss, and liability consistent with
general legal principles of negligence. There were three major tests:
(i) liability based on foresight of use of the financial statement,
and reliance thereon, by the plaintiff; (ii) liability based on actual
knowledge of the limited class that would rely on the- statement;
(iii) liability founded on actual knowledge of the precise person,
the plaintiff, who was going to use and rely on such statement.’ 8
Each of these tests of liability, it may be said, recognizes in a different
way the concept of liability for the economic consequences of a
misleading financial statement. They differ, however, in material
respects. The first is based on “foresight”: what the reasonable man
would expect in the circumstances, the familiar test of responsibility
for negligence where physical harm to a person or his property
is involved. The remaining tests rely upon “knowledge”, actual
appreciation of the facts and awareness that a specific consequence
will occur. Clearly this is a narrower and stricter test of respon-
sibility. But, as Dickson J. explained, actual knowledge of a limited
class is a broader test than actual knowledge of the identity of the
plaintiff. 9 The Supreme Court adopted the broader test but left open
the question whether “mere” foresight would have sufficed. In all
14 Supra, note 1.
15 WelIbridge Holdings Ltd v. Winnipeg [1971] S.C.R. 957.
-1 Rivtow Marine Ltd v. Washington Iron Works [1974] S.C.R. 1189.
17 J. Nunes Diamonds Ltd v. Dominion Electric Protection Co. [1972] S.C.R.
769.
18 Supra, note 3, 338.
19 Ibid., 339.
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COMMENTS – COMMENTAIRES
the circumstances of this case there was the requisite actual know-
ledge and that was enough to found liability.
There can be little doubt that this conclusion, as to the type of
knowledge required in such cases, is supported by English, American
and Canadian authority. The dissenting judgment of Denning L.J.,
as he then was, in the Candler case,20 the distinction between the
famous American cases of Glanzer v. Shepard,21 and Ultramares Corp.
v. Touche,2 more recent American decisions which distinguish the
fact-situation in the Ultramares case
and the ratio decidendi in
Hedley Byrne v. Heller:24 all point in the same direction. If there
was knowledge of the use that was going to be made of the statement,
liability arises. Whether foresight of use is sufficient is not so clear.
This may depend upon whether the courts will accept ‘the notion
of “undertaking” or “assumption” of responsibility flowing from
the agreement to enter into a particular relationship with a person.
Perhaps we have not yet reached this stage in the development of
liability for negligent misstatements. The cases thus far, in various
jurisdictions, appear to have stressed factors such as the repre-
sentation of the defendant as to his skill or expertise, the knowledge
of the defendant as to the consequences that would flow from his
statement, and the ultimate proximity between the acts of the de-
fendant and the financial injury suffered by the party relying upon
the statement. In emphasizing “knowledge”, the actual appreciation
of what would be likely to happen, the courts appear to be coming
down in favour of as objective a view of the law as possible. In other
words, they seem to be trying to avoid making any more policy
decisions than were inherent in Hedley Byrne v. Heller.25 To adopt
a test of foreseeability, or of assumption of responsibility, as Dick-
son J. pointed out, would invite more subjectivity. The courts would
be continually struggling with the issue: Should we impose liability
for this kind of harm on this kind of defendant? 6 Since the judgment
of Lord Denning, M.R. in Dutton v. Bognor Regis U.D.C.,’ there is
20Supra, note 9.
21233 N.Y. 236 (1922). The public weighers of goods knew what would be
the effect of the certificate as to weight which they issued.
24Supra, note 11.
25 Ibid.
26Supra, note 3, 341.
27 [1972] 1 Q.B. 373.
22225 N.Y. 170 (1931). The accountants did not know that the balance sheet
they had prepared was going to be shown to a factor who advanced money
to the company on the strength of the document.
23Rusch Foctors, Inc. v. Levin 284 F.Supp. 85 (1968); Rhode Island Hospital
Trust National Bank v. Swartz 455 F.2d 847 (1972).
McGILL LAW JOURNAL
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more frankness in the air, and a greater willingness to admit the
role of policy in the law of negligence, and the role of the courts in
making policy, but there is nonetheless a certain coyness to be
found in judgments (especially in Canadian courts) when it comes
to declarations of this sort. If a cause can be determined on
what might be called strictly factual grounds, then so much the
better. Hence, perhaps, the way Dickson J. approached the issue
in Haig v. Bamford.2 s Earlier authority could be used, in con-
junction with the findings of fact of the trial judge, so settle the
precise point under debate, without the necessity for more fund-
amental analysis of the role of the law. The wider philosophical issues
will have to wait for future judicial determination.
Academic speculation, however, may anticipate such determin-
ation. In my earlier article,29 I discussed certain aspects of the duty
of care which was owed under and in accordance with the decision
in the Hedley Byrne case. The emphasis there was upon the kinds
of relationship which could give rise to such duty. What the Haig
case entails, however, is slightly different. Granted that the parties
are in the kind of relationship out of which the duty can rise (e.g.,
by the fact that the defendant, the person providing the statement
or advice, is the kind of person upon whose statements reliance may
be placed, either generally or in the particular circumstances of the
case), does the existence of the duty in the individual. situition rest
upon actual knowledge or foresight of consequences? If liability
for economic or financial loss caused by a negligent misrepresenta-
tion is to approach liability for physical injury caused by other types
of negligent behaviour (driving carelessly, manufacturing harmful
goods, etc.) then it might be thought that the wider basis for liability
should be the one finally adopted by the courts. Liability in neglig-
ence, generally speaking, is founded upon the foresight of the
reasonable man, not upon the actual knowledge of the particular
defendant. It is what he ought to have known or foreseen that is
important, not what in fact he did know or foresee. Can the saine not
apply more generally? The danger is, as pointed out by Dickson J.,
following the language of Cardozo J. in the Ultramares case, that this
might lead to “liability in an indeterminate amount for an in-
determinate time to an indeterminate class”.30 But this does not
have to follow, as indeed Denning L.J. suggested in the Candler case,31
2 8 Supra, note 2.
2 9 Supra, note 1.
30 Supra, note 3, 338.
31 Supra, note 9, 180-84; see Fridman, supra, note 10, 654-656.
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and was later demonstrated in Hedley Byrne v. Heller.3 2 I find it hard
to accept, therefore, that basing liability upon the test of foreseeabili-
ty would inevitably result in an overlarge extension of the liability
that unquestionably exists or can arise at the present time. Unless the
courts deliberately desire to limit liability for negligent misre-
presentation (in a manner which, having regard to the example and
logic of negligence liability in general, one can only describe as
“unnatural”), there should be no impediment to the adoption of the
foreseeability test for this type of liability any more than there
has been for its adoption in the law of negligence generally.
Only the -difference between physical harm and economic loss,
and the possibility of larger, more extensive, more costly liability,
might justify a differentiation in the bases of liability. In the days
when awards of damages for physical injuries suffered through
negligence are mounting’ Iit
seems difficult to see any possible
justification for a distinction between two varieties of negligence
liability based upon the fear of exaggerated awards, or too extensive
a liability. Events have, as it were, caught up with the fears of the
1950’s, as expressed by the majority in the Candler case. Experience,
perhaps, has come to the aid of logic –
to use the contrast em-
ployed by Holmes J. almost a hundred years ago on the very first
page of his book, The Common Law.4 That being so, it is suggested
that in the area of negligent misstatement there is no barrier standing
in the way of broad liability compatible with the general principles
of the -law of negligence.
There would continue to exist limits to liability. Was the request
for advice or information coupled with the reliance thereon, such
as to give rise to the duty? This is the question considered by the
Supreme Court of Canada in Porky Packers Ltd v. Town of The Pas.35
Here the plaintiff alleged he had suffered loss by beginning to
build an abattoir after having been assured by an official of the
municipal authority that the sale of the land on which the abattoir
was going to be built had been approved by the council. The land
belonged to the council. Subsequently, the sale of the land was set
aside because the plaintiff had participated in -the approval by the
town council. Furthermore, the use of the land for an abattoir
violated a planning scheme already ,adopted by the town. The plain-
32 Supra, note 11.
33 See, e.g., Loney v. Voll [1974] 3 W.W.R. 193; Andrews v. Grand & Toy
Alberta Ltd [1976] 2 W.W.R. 385.
34O.W. Holmes, The Common Law (1881).
3 Supra, note 5.
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tiff sued on the basis of negligent misrepresentation, alleging that
the town council’s agent, who should have known that both the sale
and destined use of the land were improper and subject to attack,
carelessly told him that the requisite approval had been obtained. The
plaintiff relied upon the agent’s statements and lost the money spent
on construction. At trial and before the Manitoba Court of Appeal
the plaintiff succeeded. 6 The Supreme Court of Canada reversed
these decisions.
The real basis of the judgment of Pigeon3. (Martland and
Ritchie JJ. concurring),ZT was the illegality of the plaintiff in particip-
ating in the sale of the land to him. Since the resulting contract
between the town and the plaintiff was illegal, it would have been
inconsistent and contrary to principle to have permitted an action to
lie in tort on a negligent misrepresentation which induced such an
illegal contract. Although the issue was left without full discussion,
it seems that this aspect of the case, which appears to have eluded
the courts below, figured prominently in the thinking, if not the
language, of the Supreme Court. A plaintiff will not be allowed to
succeed in either tort or contract, if he himself is somehow involved
in illegality at the time the cause of action arisesY8 As an English
judge said in another context, 9 where, as it happened, the plaintiff
was equally tainted with impropriety, procul este profani.
However, the main thrust of the judgment of Spence J. (Laskin
C.J.C., and Judson, Dickson, Beetz and de Grandpr6 JJ. concurring)
was in a different direction. To their Lordships the issue to deter-
mine was whether there had been a representation given by someone
who owed a duty under the Hedley Byrne doctrine. There was
no representation, nor was there any negligence. But, perhaps
more importantly, the situation did not come within the doctrine.
As Spence 3. explained:
It is requisite for liability under the Hedley Byrne principle that the
representations be made to a person who has not expert knowledge him-
self by a person whom the representee believes has a particular skill or
judgment in the matter, and that the representations were relied upon to
the detriment of the representee. 40
In the case before the Court, as the faots revealed, the plaintiff,
the representee, as Spence J. called him, had more knowledge of
what was going on, or was supposed to be going one, than the
36 Cf. Fridman, supra, note 1, 25-27.
37 (1976) 7 N.R. 569, 584.
38 G.H.L. Fridman, The Wrongdoing Plaintiff (1972) 18 McGill L.. 275.
3 9 Harry Parker Ltd v. Mason [1940] 2 K.B. 590, 602 per McKinnon L.J.
40 Supra, note 32, 583.
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COMMENTS – COMMENTAIRES
representor, the official of the municipal corporation. So that, even
if there had been a representation made by the latter, the former
had relied on his own knowledge and judgment at all times.
The decision in the Supreme Court of Canada in this respect does
not appear to add anything to what has already been decided and
discussed in relation to the Hedley Byrne principle. It rather ex-
emplifies and applies that principle. However, the case is not with-
out its importance as an illustration of a refusal on the-part of the
highest court in Canada to create liability at a time when, as already
suggested, the scope of tortious responsibility is increasing. A party
who has incurred financial loss will not always be able to place
the responsibility at someone else’s feet.
The two cases which have been considered here, in effect, cons-
titute the two poles of liability for negligent misrepresentation:
one requires knowledge and appreciation of the consequences, the
other requires reliance. The duty to take care when making a state-
ment, on which all is based, depends upon the extent to which the
maker of the statement (i) knows who is going to use it and for
what purpose and (ii) appreciates that reliance-is going to be placed
upon his opinion. The most important consideration is the expertise
of the maker of the statement (as the Evatt4′ case would stress), and
to a lesser extent the special knowledge of the facts and the cir-
cumstances. As I indicated in my earlier article,4 2 there may still be a
chance for the courts in Canada to extend the scope of liability if
they refuse to adopt the somewhat narrower attitude of the Privy
Council in the Evatt case. The language employed in the Porky
Packers case does not preclude this.
Furthermore, the decision in Haig v. Bamford does not con-
clusively settle the question of which test applies to create a duty
to the plaintiff in cases of negligent misrepresentation. Must the
defendant possess “actual” knowledge of the circumstances or
merely be able to foresee, as a reasonable man, the consequences
of his actions? We will have to wait for the answer.
G.H.L. Fridman*
4 1 Mutual Life & Citizens’ Assurance Co. v. Evatt [1971] 1 All E.R. 1S0.
4 2 Supra, note 1.
* M.A., B.C.L., LL.M., Professor of Law, University of Western Ontario.
