Supreme Court of Canada
J. Nunes Diamonds Ltd. v. Dominion Electric Protection Company, [1972] S.C.R. 769
Date: 1972-03-30
J. Nunes Diamonds Ltd. (Plaintiff) Appellant;
and
Dominion Electric Protection Company (Defendant) Respondent.
1971: November 2, 3, 4; 1972: March 30.
Present: Martland, Judson, Spence, Pigeon and Laskin JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Negligence—Contract—Agreement for burglar alarm service—Inquiry as to efficiency of service—Representation that service was performing properly—Subsequent break-in without alarm being sounded—Theft of diamonds—Protection company not liable.
The appellant, a diamond merchant, entered into a contract for burglar alarm service with the respondent protection company. The contract provided, inter alia, that the protection company was not an insurer, and that “its liability hereunder shall be limited to and fixed at the sum of Fifty Dollars as liquidated damages.” It was also stipulated that no “conditions, warranties or representations have been made… other than those endorsed hereon in writing.” Subsequently, a break-in occurred at the appellant’s premises, the safe was blown up, and a large quantity of diamonds was stolen. The entry was effected without an alarm being sounded at the respondent’s station although tests indicated that both at the appellant’s closing time and after opening time the next morning the system functioned normally.
A burglary had previously taken place at the premises of another diamond merchant where the safe was protected by a similar system supplied by the respondent. Shortly after this incident, a request was made by the president of the appellant to an executive of the respondent to send someone to see if the system on the appellant’s premises was functioning. An employee was sent and, in reply to an inquiry from the secretary of the appellant’s president, he asserted that “even our own engineers could not get through the system without setting an alarm”. This answer was transmitted to the president by his secretary.
Also after the earlier break-in, the general manager of the respondent, in answer to letters from two in-
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surance brokers, advised that an investigation was continuing, that no conclusions had been reached, that “the system performed its functions properly” and that “every effort would be made to find the answer” to the matter. The contents of these two letters of reply were transmitted to the appellant’s president, but no further information was given to him or to the insurance brokers.
An action, in which the appellant based its claim against the respondent on both contract and tort, was dismissed at trial and an appeal was dismissed by the Court of Appeal. An appeal was then brought to this Court.
Held (Spence and Laskin JJ. dissenting): The appeal should be dismissed.
Per curiam: In so far as the appellant’s claim was founded on breach of contract, it was properly dismissed. The appellant had received and enjoyed all the benefits for which it had bargained.
Per Martland, Judson and Pigeon JJ.: Concerning the statement made by the respondent’s employee, the Courts below correctly held that it was made without actual or apparent authority.
As to the letters to the insurance brokers, assuming that the statement “The system performed its functions properly” was inaccurate, it could not be construed as anything more than a representation that the system had not been circumvented. If the respondent did make an honest but inaccurate statement as to the performance of its system it did not thereby assume responsibility for all damage which might thereafter be sustained by the appellant if its system, on his premises, was circumvented. The respondent was not acting in any fiduciary or advisory capacity towards the appellant.
Where the relationship between the parties is governed by a contract, there can be no tort liability for negligent misrepresentation unless the negligence relied on can properly be considered as “an independent tort” unconnected with the performance of that contract. In the case at bar, the representations relied on by the appellant could not be considered as acts independent of the contractual relationship between the parties.
In any event, the appellant failed to show that the damages claimed were caused by the statement made by the respondent’s employee or the letters written by its general manager.
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Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465, distinguished; Mutual Life & Citizens’ Assurance Co. Ltd. et al. v. Evatt, [1971] 1 All E.R. 150; Elder, Dempster & Co. Ltd. v. Paterson, Zochonis & Co., Ltd., [1924] A.C. 522, referred to.
Per Spence and Laskin JJ., dissenting: The technician had ostensible authority to make the representation made by him and this representation was very plainly a misrepresentation. A statement that not even the officers of the respondent company could circumvent the system without causing the alarm to operate was, on the admission of the respondent, a false statement. The letters of the general manager with respect to the earlier break-in contained the bald statement that the equipment had functioned properly and implied that a further report would be made when the investigation had been completed, an undertaking which the respondent failed to carry out, and in failing to make such further report, by an “economy of truth”, in fact misrepresented the situation.
Under the circumstances, that is, that the respondent was supplying to the appellant a very important service under a written contract and the inquiry was whether such service was and could be efficiently performed and the representation was that it was being so performed, the decision in Nocton v. Lord Ashburton, [1914] A.C. 932, in which case innocent misrepresentation was held to give rise to damages, was enough to justify a decision in favour of the appellant. The representations negligently made by the respondent caused damages by inducing the appellant not to take other precautions against burglary.
There was no express denial of responsibility as was found to have saved the respondents in Hedley Byrne v. Heller & Partners, supra, and the appellant was entitled to succeed upon the basis of the doctrine outlined in that case.
The clause of the agreement stipulating that no “conditions, warranties or representations have been made” could not operate as a bar to a claim based on a tortious misrepresentation made many months after the contract had been executed.
APPEAL from a judgment of the Court of Appeal for Ontario[1], dismissing an appeal from a judgment of Addy J. Appeal dismissed, Spence and Laskin JJ. dissenting.
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W.B. Williston, Q.C., and R.B. Tuer, Q.C., for the plaintiff, appellant.
T.A. King, Q.C., and J.N. Unwin, for the defendant, respondent.
The judgment of Martland, Judson and Pigeon JJ. was delivered by
PIGEON J.—The facts of this case are fully and accurately stated in the reasons of Spence J. which I have had the advantage of reading. I agree with him that in so far as the plaintiff’s (“Nunes”) claim was founded on breach of contract, it was properly dismissed. Concerning any liability in tort, I am similarly in agreement that with respect to the alleged misrepresentations to one Frank B. Mortimer, there is no reason to disturb the concurrent adverse finding on credibility.
This leaves two points for consideration:
(a) The statement to Miss Geddes by an unidentified employee of the defendant (“D.E.P”), shortly after the Baumgold incident, that “Even our own engineers could not go through the system without setting an alarm”;
(b) The letters sent by D.E.P.’s general manager, R.Y. Atlee, to two insurance brokers on October 26, 1959, that is a little more than three weeks after the Baumgold break-in.
Concerning the statement to Miss Geddes, it appears to me that the Courts below correctly held that it was made without actual or apparent authority. Nunes-Vaz himself testified that his request to a D.E.P. executive was:
to send somebody to at least see how our system—if our system was functioning or not, which they did.
This is how he finally stated it, thus clearly eliminating his earlier attempt to put it differently in saying that by “would function” he meant “that this system would not be circumvented”. In
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any case, his words must be taken for what they mean, not what he may have intended but did not say. An employee sent in answer to such a request could not reasonably be expected to be qualified for making a statement beyond the purpose of his visit namely, to ascertain whether the system was functioning. The wording of his statement shows that he was not an engineer. No employee other than a high executive or an engineer could reasonably be presumed to have knowledge of the degree of security afforded by the D.E.P. system. It is abundantly clear that there was no actual authority to make such a statement because it was established policy not to disclose to the subscribers any details of the actual method of operation, except in special cases such as banks and governments. The trial judge made the following finding that is amply supported by the evidence, bearing in mind that one of the two servicemen who testified before him was the man who made an inspection on June 7, 1961, the day following the false alarm registered two weeks before the break-in:
As to the statement by the unidentified serviceman made to Miss Geddes (refer, supra, my finding of fact No. 6), it seems unreasonable to me to suppose that Mr. Nunes-Vaz would rely on the representation of a mere serviceman as to the security of the system. The person was obviously not an engineer nor was it established that he was an electrician. He was apparently merely a person who periodically checked the current in the safe to see whether the system was operating as it should, by means of a fixed set of tests. I had the opportunity of seeing two such persons who were performing these duties for D.E.P. who gave evidence at the trial and neither one was a person with any particular skill or learning. Both would be classed as unskilled labourers.
Turning now to the letters, it is far from clear that the statment “The system performed its functions properly” was inaccurate. The trial judge’s finding was:
The method by which the diamonds were removed from the Baumgold safe was never determined, and it is still questionable whether it was by a circum-
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vention of the alarm system or by the complicity of the employees of Baumgold or of the employees of D.E.P., or a combination of any two of the three.
This finding was fully supported by the evidence. Detective Superintendent Long, called by Nunes, said that in investigating the Baumgold burglary he considered the three alternatives. In the end, he eliminated the second but as between the two others, they “just did not know” he said, adding that even now “I can speculate but I cannot say for certain”. This witness was certainly not hostile to Nunes. He said how he could, in two or three minutes, circumvent the system by resistance substitution. He did not say that when, shortly after the Nunes burglary, he attempted a circumvention in D.E.P. laboratories, he was unsuccessful, in spite of all his knowledge and his experience as a radio technician and in communication electronics. This came to light only at the end of the trial, when counsel for Nunes put in evidence the Grosso report to D.E.P.’s U.S. parent. Grosso was a senior project engineer who made an extensive investigation, at the request of D.E.P.’s attorney, after the Nunes burglary. In his confidential report to his employer, a report that was never communicated to D.E.P.’s solicitors, Grosso who knew of the Baumgold burglary and noted that “Central Station signals were not received at this time either”, wrote:
It was explained that while defeat methods are known and attempts have been made to compromise the direct-wire circuit, no successful compromise had ever been achieved.
I cannot find any evidence that “important circumstances” arose after the letters and were not reported. I also fail to see how the letters can be construed as implying an undertaking to report and how the breach of such an undertaking could be a tort.
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Even on the assumption that the Baumgold incident was really a case of circumvention of the alarm system by compromising the line between the central station and the protected safe cabinet, it is not clear that the statement “The system performed its functions properly” was inaccurate. In so far as the system was designed to set off an alarm only if the current carried on the line to a subscriber’s premises deviated by more than some 40 per cent, plus or minus, from the regular 25 milliamperes, it could be said that it had not failed to function properly. On the other hand, assuming that such regular flow of current had been maintained by substituting an equivalent resistance for the network in the protected cabinet and thus compromising the connecting line, it can be said that the system, as a whole, had not functioned properly because it had failed to set off an alarm when it was designed to set one, that is when the circuit inside the safe cabinet was broken by removing the front in order to get at the safe. Furthermore, it may be that this is how the statement ought to have been expected to be understood. I will therefore deal with the point on the assumption that the letters contained an inaccurate statement. It is not alleged that it was dishonest, and, at most, it could not be construed as anything more than a representation that the system on the Baumgold premises had not been circumvented.
The appellant relies upon the judgment of the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.[2], in which it was said that there might be, in certain circumstances, a liability for negligent misrepresentation. No finding of negligence was made because it was held that disclaimers of responsibility were sufficient to negative any duty of care which might have existed. The speeches make it clear that it is not every negligent statement which may give rise to a claim in damages. Lord Reid’s formulation at p. 486, that is quoted by my brother Spence, was considered by the Privy Council in a recent Australian case, Mutual Life & Citizens’ Assurance
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Co. Ltd. et al. v. Evatt[3], and was the subject of the following observations by Lord Diplock at p. 159:
This is not the language of statutory codification of the law of tort but of judicial exposition of the reasons for reaching a particular decision on the facts of the case. Read out of the context in which the whole argument in Hedley Byrne proceeded, i.e. advice given in the course of a business or profession which involved the giving of skilled, competent and diligent advice, these words are wide enough to sustain the respondent’s case in the instant appeal. But in their Lordships’ view the reference to “such care as the circumstances require” pre-supposes an ascertainable standard of skill, competence and diligence with which the advisor is acquainted or had represented that he is. Unless he carries on the business or profession of giving advice of that kind he cannot be reasonably expected to know whether any and if so what degree of skill, competence or diligence is called for, and a fortiori, in their Lordship’s view, he cannot be reasonably held to have accepted the responsibility of conforming to a standard of skill, competence and diligence of which he is unaware, simply because he answers the enquiry with knowledge that the advisee intends to rely on his answer. This passage should in their Lordships’ view be understood as restricted to advisors who carry on the business or profession of giving advice of the kind sought and to advice given by them in the course of that business.
On that view, it was decided that the claimant could not recover the loss suffered by reason of erroneous information negligently given by an insurance company concerning the financial stability of an associated company. Lord Diplock said at pp. 160-161:
The amendments introduced in the Court of Appeal state the respects in which it is alleged that the company was, and was known by the respondent to be, in a better position that he was to give reliable advice on the subject-matter of his enquiry…
In their Lordship’s view these additional allegations are insufficient to fill the fatal gap in the declaration that it contains no averment that the
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company to the knowledge of the respondent carried on the business of giving advice on investments or in some other way had let it be known to him that they claimed to possess the necessary skill and competence to do so and were prepared to exercise the necessary diligence to give reliable advice to him on the subject-matter of his enquiry. In the absence of any allegation to this effect the respondent was not entitled to assume that the company had accepted any other duty towards him than to give an honest answer to his enquiry nor, in the opinion of their Lordships, did the law impose any higher duty on them.
D.E.P. did not act in any fiduciary or advisory capacity towards Nunes. Its situation was that of a party contracting to supply specified services. The insurance brokers were those who were giving advice to Nunes. By giving them information, D.E.P. did not cease to be a contractor and become an advisor to the appellant on the matter of burglary protection. If it did make an honest, but inaccurate, statement as to the performance of its system it did not thereby assume responsibility for all damage which might thereafter be sustained by the appellant if its system, on his premises, was circumvented.
This is not a case where a person seeks information from another, whose business it is to give such information. It is not a case of misrepresentation leading to the making of a contract. It is a case in which, the parties having mutually established their respective rights and obligations by contract, it is sought to impose upon one of them a much greater obligation than that fixed by the contract by reason of an alleged misrepresentation as to the infallibility of the system which it provides. In essence, the appellant’s position is that, although he had agreed to accept the respondent’s system for what it was worth, and that the respondent was not to be an insurer, he can now claim in damages because the respondent had subsequently represented that the system could not be circumvented, and such circumvention had occurred.
Furthermore, the basis of tort liability considered in Hedley Byrne is inapplicable to any case where the relationship between the parties is governed by a contract, unless the negligence relied on can properly be considered as “an inde-
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pendent tort” unconnected with the performance of that contract, as expressed in Elder, Dempster & Co. Ltd. v. Paterson, Zochonis & Co., Ltd.[4], at p. 548. This is specially important in the present case on account of the provisions of the contract with respect to the nature of the obligations assumed and the practical exclusion of responsibility for failure to perform them.
It is an essential basis of the contract between the parties that D.E.P. is not to be in the situation of an insurer. It is in consideration of this stipulation that the charges are established “solely on the probable value of the service”, not on the value of the goods intended to be protected. To make the protection company liable, in the case of the failure of its protection system, not for the stipulated nominal damages ($50.00) but for the full value of the goods to be protected, is a fundamental alteration of the contract.
In my view, the representations relied on by appellant cannot be considered as acts independent of the contractual relationship between the parties. This can be readily verified by asking the question: Would these representations have been made if the parties had not been in the contractual relationship in which they stood? Therefore, the question of liability arising out of those representations should not be approached as if the parties had been strangers, but on the basis of the contract between them. Hence the question should be: May this contract of service be considered as having been turned into the equivalent of a contract of insurance, by virtue of inaccurate or incomplete representations respecting the actual value of the protection service supplied? In my view, there is no doubt that this question should be answered in the negative. There is nothing from which it can properly be inferred that Nunes considered that the contract had been so altered and it is perfectly obvious that D.E.P.’s management never intended to assume such obligations.
Irrespective of my conclusion on that point, I must say that it does not appear to me that Nunes has shown that the damages claimed were caused by the statement made and the letters written in October 1959. In order to support the claim it was
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suggested that, if not reassured by the statement and the letters as to the value of the protection system, other precautions would have been taken whereby the loss could have been avoided. Those other precautions are:
(a) Adding another protective device;
(b) Reducing the inventory;
(c) Using a bank vault.
Let us see what Nune’s vice-president, D.F. Edminson, said about other protection:
Well after the Baumgold robbery, or call it burglary, we contacted—we made investigations from other protective companies.
Q. Yes?
A. To see if they had something to offer, which we could install, something which could give us further protection.
Q. Yes?
A. I think this is what was our immediate…
Q. Did you take on any other protection?
A. No, we didn’t. We considered one other company, but decided not to take them on.
Q. And what was the basis of your decision, insofar as you personally were concerned?
A. Personally I was satisfied that the company we were considering did not have a central alarm system, and that the Dominion Electric still had a system that was invulnerable, and I was quite satisfied, and it would be just further complicating our systems to install another one, when one was sufficient.
There is nothing in the record from which it could be inferred that this witness was wrong in considering that there was no other system available at the time that would have given effective protection. On the contrary, all the evidence indicates that burglars, clever enough to defeat the D.E.P. system would have, as easily, succeeded in defeating a second system if one had been added. Assuming that on a first attempt to compromise the systems, the burglars had been unsuccessful, the reasonable inference should be that this would have set an alarm which would have been treated as a false alarm, just like the alarm that was registered and reported approxi-
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mately two weeks before the successful break-in. With respect, the conclusion that a break-in would have been avoided is, in my view, unjustified, it cannot be said to be established on the balance of probabilities. In fact, there is no evidence whatever to support such a conclusion. The only witnesses who gave an expert opinion on that point, Leighton and Grosso, both said that very little or no additional security would be obtained by such means. When insurance broker Curtis was asked what he would have done if Atlee’s letter had said that the system had been defeated, he answered: “I certainly would look into every possibility of obtaining additional systems, or a sound system which would satisfy the underwriters in the companies”. Edminson’s evidence shows that this was done anyway.
The second alternative should be dismissed from consideration entirely because no claim is made on that basis. It is obvious that if the contention is that, without the incorrect information, a lower inventory would have been carried, nothing more than the difference between such reduced inventory and the actual value carried at the time of the burglary could be claimed. No argument was addressed, no figures were submitted on that basis. The claimant no doubt realized that it would have great difficulty in showing that its inventory was larger than its business needs required, or that it would have chosen to restrict its business activities and therefore to reduce its profits, if better informed of the risk of burglary despite the protection system.
As to the use of a bank vault, there is no evidence that the obvious risk involved in daily moving the inventory out of the premises would have been smaller than the risk involved in keeping it in an imperfectly protected safe. In fact, a bank vault was used for a very short time only after the burglary, although several years elapsed before a system with effective protection against circumvention by compromising the line was made available to Nunes.
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The proof in this case has shown that for protection against burglary, Nunes really relied on insurance. It was so well protected that after the break-in its insurers paid $67,000 more than the actual cost of its inventory, as found by the trial judge. This amount being substantially in excess of the additional costs and losses due to the theft, which the trial judge fixed at $22,795.07, Nunes’ chartered accountant, Adams, had to negotiate with the Department of National Revenue the allocation of the profit from the “incident” between the taxation years 1960 and 1961. Of course, the existence of indemnity insurance is not a defence available to a tortfeasor. However, this does not necessarily mean that the extent of such protection is not a factor to be borne in mind when considering whether a claimant was really lulled into a false sense of security by misrepresentations as to the value of other protective measures.
The appeal should be dismissed with costs.
The judgment of Spence and Laskin JJ. was delivered by
SPENCE J. (dissenting)—This is an appeal from the judgment of the Court of Appeal for Ontario[5] pronounced on May 1, 1970. By that judgment, the said Court of Appeal for Ontario dismissed an appeal from the judgment of Addy J. pronounced on March 19, 1969, whereby the learned trial judge dismissed the plaintiff’s action.
For the facts in the action, except in so far as they concern the alleged tort liability, I adopt the outline made by Schroeder J.A. in his careful and detailed reasons for judgment for the Court of Appeal for Ontario:
The appellant (hereinafter referred to as Nunes) carried on business as a buyer and wholesale seller of cut diamonds. From April 1951 its operations were conducted at property known for municipal purposes as No. 14 Temperance Street in the City of Toronto, but in the Fall of 1958 its business was moved to premises on the 2nd floor of a building bearing the address of 9 Richmond Street East.
On the 18th April 1951, the plaintiff applied to the defendant Dominion Electric Protection Com-
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pany (hereinafter referred to as D.E.P.) for burglar alarm service to be furnished to its then premises on Temperance Street through that company’s existing system of electrical protection against burglary. On September 26th, 1958, a new contract was made for a similar service in relation to the plaintiff’s new premises on Richmond Street East, which contract was identical in terms with the earlier contract save as to the consideration payable and the premises to be protected. The consideration stipulated was $252.00 per annum payable in monthly instalments of $21.00 each.
Clause 1 of the agreement, which provides for the services to be rendered thereunder, reads as follows:
“1. Dominion Company agrees to apply its system of electrical protection against burglary to Subscriber’s premises at 9 Richmond Street East in the City of Toronto and connect the system with its Central Office. Should an alarm from the protected premises be received at Central Office, a representative or representatives of Dominion Company will be sent to the protected premises (when a complete set of entrance keys has been provided) and, as agents of Subscriber, such representative or representatives will make all reasonable efforts to protect the property of Subscriber from theft. The representative or representatives will, immediately upon arrival, examine the premises in an effort to detect the presence of any unauthorized intruder. (Should a complete set of entrance keys not be provided, the premises will be patrolled for a period not exceeding two (2) hours, while efforts are made to notify Subscriber or until the protected premises can be opened as the case may be.)”
Clauses 5, 6 and 16 which are also material for consideration provide as follows:
“5. It is agreed by and between the parties hereto that Dominion Company is not an insurer, and that the rates hereinafter named are based solely on the probable value of the service in the operation of the system described, and in case of failure to perform such service and a resulting loss, its liability hereunder shall be limited to and fixed at the sum of Fifty Dollars as liquidated damages.
6. In the event of a temporary interruption to the service due to strikes, riots, earthquakes, conflagration, other acts of God or causes beyond the
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control of Dominion Company, Dominion Company will not be required to supply service to Subscriber while the interruption to Dominion Company service continues, providing Subscriber or his authorized representative is advised of the condition.
…
16. No conditions, warranties or representations have been made by Dominion Company, its officers, servants or agents other than those endorsed hereon in writing.”
It is not necessary to describe the defendant’s system in detail and the barest outline will be sufficient for the present purpose. The defendant provided a wooden cabinet, the interior walls of which were covered by wires forming a continuous circuit, and which was designed to encase the plaintiff’s safe. The front of the cabinet was removable, but when it was taken off the circuit was opened or broken—it was closed when the front was replaced. A wire connected with the cabinet ran to a fuse box on the second floor landing in the corridor adjacent to the plaintiff’s premises, whence the wire ran to a Bell Telephone terminal box on the second floor and thence to a large Bell Telephone terminal box in the basement. Twin Bell Telephone lines were utilized to convey the circuit to D.E.P.’s central monitor station at 92 Adelaide Street West where the power source was located, and if an attempt were made to enter the safe cabinet the circuit would be opened and an audio signal and visual signals consisting of three lights would give the alarm to D.E.P. Headquarters.
Between closing time on the 15th June 1961 and opening time on the 16th June 1961, between the hours of 5:50 p.m. and 7:50 a.m., a breaking and entering occurred on the appellant’s premises, the safe was forcibly opened, and a large quantity of diamonds was stolen. The entry was effected without an alarm being sounded at the central station of D.E.P., although tests indicated that both at closing time and after opening time on the said dates the system functioned normally.
The appellant, the plaintiff in the action, based its claim against the respondent on both contract and tort and both topics were canvassed extensively in the argument before this Court. In so far as the plaintiff’s claim was founded on breach of contract, the learned trial judge, having regard to the terms of the contract and particularly para. 16 thereof quoted above, held that the plaintiff had
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received and enjoyed all the benefits for which it had bargained. Schroeder J.A. adopted this conclusion in the following words in his reasons:
In so far as the plaintiff’s claim was founded on breach of contract, I entirely agree with the learned Judge that, having regard to the terms of the contract, the plaintiff received and enjoyed all the benefits for which it had bargained. The defendant operated the system as it had agreed to do; the equipment was not defective, and the burglary was attributable not to any failure of performance of the system, but to the unlawful intervention of astute and knowledgeable criminals against whose activities the best systems of burglary alarm on the market were not invulnerable. The contract contains no warranty which extends to a case such as this, and, in fact, expressly excludes by its terms “all conditions, warranties or representations by D.E.P., its officers, servants or agents” other than those endorsed on the contract in writing. The evidence falls far short of establishing that the defendant was in fundamental “breach of its contract or of its continuing contractual duty thereunder, and on that branch of the case the action cannot be maintained.
With respect, I agree with the conclusions of both the learned trial judge and Schroeder J.A. and have nothing to add to the reasons expressed in their judgments.
I turn next to the very troublesome question of the respondent’s liability in tort. This liability has been expressed by the appellant as being one for negligent misrepresentation in breach of a duty to the appellant resulting in loss. It is necessary to give a rather detailed outline of the circumstances in reference to this cause of action.
On October 1, 1959, the premises of Baumgold, another diamond merchant, a competitor of the appellant, were burglarized, the safe was opened, and the inventory of gems removed from it. The safe there was protected by a system supplied by the Dominion Electric Protection Company, the respondent, exactly similar to that supplied by that company in the protection of the appellant. Although the safe cabinet and the safe
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were opened, no alarm was sounded in the station of the Dominion Electric Protection Company and the respondent in fact only heard of the burglary when its staff was informed by the police after the burglars had been pursued on the street and dropped the stolen jewellery while escaping. This occurrence caused a great deal of excitement in the offices of the appellant and indeed amongst all of the customers of the respondent who were receiving the same type of protection service as Baumgold. Mr. Nunes-Vaz, the president and sole proprietor of the appellant, that same morning, October 1, 1959, instructed Miss Ella Geddes, his secretary, to telephone to the office of the respondent and ask for one of the senior executives. Mr. Nunes-Vaz’ evidence in reference to the telephone call is as follows:
Q. Did you do anything when you heard this news?
A. Yes, I did. I called the D.E.P. offices, my secretary called and asked for one of the senior executives, and I cannot recall the name of the person I spoke to.
Q. Can you identify the position that he held?
A. Well he was in a senior position, most definitely, a senior position, and I asked him in the first place what happened, and his answer was that they were trying to get to the root of it themselves, and I asked to be sent a communique in which they would explain what happened, and I asked…
HIS LORDSHIP: Just a moment now. The senior officer to whom you spoke, did he state that he did not know the cause at that time, and they were trying to find out, is that it?
A. Yes, my lord.
Q. Yes?
A. And then we asked to have somebody check and see to make sure that the system we have would function.
MR. TUER:
Q. What do you mean by “would function”?
A. Well in case of an attempted burglary, that this system would not be circumvented, the system we had in our premises to protect our…
Q. You mentioned a communique, what do you mean by a “communique”?
A. Well, a communique to issue a statement on what happened during the Baumgold…
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Q. All right, and then what next occurred?
A. We had—we didn’t—well, I think we called again to ask to send somebody to at least see how our system—if our system was functioning or not, which they did. They sent in a man, and I was myself busy with a customer, so I did not see this man—too much of this man, but Miss Geddes spoke with him, and she was talking to him. She asked him what he thought of our system now, and he…
Miss Geddes also testified as to the telephone call and as to what occurred thereafter. Her evidence in examination-in-chief is as follows:
Q. And then following that conversation what occurred?
A. Well Mr. Nunes wanted someone to come down immediately and check our system to make sure that it was all right, because the feeling was that there must have been something wrong, some defect, and we immediately wanted someone to come and check our system, to make sure it was all right.
Q. Yes?
A. My recollection is that we phoned a second time, because they just did not come immediately, and we phoned them, and a man came down, not the regular man, he was another man altogether, and he was a more senior person.
Q. Was he identified as being a D.E.P. employee?
A. He would be—no one got in unless they were.
Q. And what did this gentleman do when he was there?
A. He proceeded to check our safe, he proceeded to check the wire around the top of the wall, and in talking to him…
Q. Were you present while he was doing this?
A. Pardon?
Q. Were you present while he was doing this?
A. Yes, I was watching him doing it, because the men had to go on the phone, or they would have perhaps customers calling, and I was there watching him and discussing with him what the possibilities were, and I asked him if anything could happen to this system, if anyone could get through it.
[Page 787]
This evidence was followed by an objection as to the admissibility thereof and argument thereon. The evidence then continued:
Q. Are you certain that he was a D.E.P. employee, or that he might have been some other person sent down by D.E.P.?
A. He would not have been in if he had not come from D.E.P.
Q. Yes, but you don’t know whether he was a full-time employee of D.E.P. or whether he was a technician hired by D.E.P.?
A. I would say he was a full-time employee of D.E.P., and he presented his card to show his identification, because anyone who came had to show their identification. If they were strangers…
Q. Se he identified himself to you as a full-time employee?
A. As far as I know, yes.
After Mr. Nunes-Vaz had given his evidence, Miss Geddes was recalled and testified further:
MR. TUER:
Q. Miss Geddes, you told us last day that a gentleman came to the office, and identified himself as being from D.E.P.?
A. Yes.
Q. Is that correct?
A. Yes.
Q. And had you, during the course of the years, had a man who came from time to time to inspect your system?
A. We had a regular man who came regularly to test our equipment.
Q. And was this that man?
A. No.
Q. He was another man?
A. Right.
Q. Well then what did he do when he came in?
A. He came in, and he went over the equipment in the safe, and he tested the wires up on the wall, and around it, and naturally we wanted to know if our equipment was in defect, and this is what he came in to test, because we felt that from the other incident there could have been some error in the equipment, and this is what we first wanted to make sure, that this equipment was in working order, and that there was no defect in it.
[Page 788]
Q. Yes?
A. While he was there I was talking to him, and we were discussing the other affair.
Q. Well, what were you discussing?
A. We were discussing the Baumgold business, and what happened and how it—this was the subject that everyone was discussing, the whole trade was discussing it, and it was highly important to us, because it is our life’s blood to have our protection, and this is why we wanted to have our protection tested. In the course of conversation I asked him if this system could be got through, because we had heard that maybe this is what had happened.
Q. At Baumgold?
A. At Baumgold.
Q. Yes.
A. And he said no, he said, “even our own engineers could not go through without setting off the alarm”.
Q. And what effect did this have on you?
A. Well that was it.
Q. And what do you mean “that was it”?
A. I mean our system was all right, we were protected. It could not have been through the system, it was a human element up at Baumgolds that had…
HIS LORDSHIP: He said, “Even our own engineers could not go through this system”?
A. Yes, without setting the alarm.
HIS LORDSHIP: I am sorry, would you please repeat what was said, as much as possible. I think the witness mentioned something else, about it was “human element”.
MR. TUER:
Q. Yes, would you just repeat this, and for the record, Miss Geddes, I want you to try to remember as closely and as accurately as you can, the precise words which were used by this gentleman?
A. Well those are the precise words: “Even our own engineers could not go through the system without setting an alarm”. And to me that settled it, our system was still all right, and it was our protection.
[Page 789]
Q. You mentioned something else about how this settled your mind on Baumgold.
A. Well this meant that our own system was all right, that whatever happened at Baumgold was a human element, someone forgot to set the alarm, or there had been some other element brought into it.
Q. And did you discuss that in a discussion with Mr. Nunes-Vaz?
A. I certainly did, and Mr. Edminson, and the staff.
There was no cross-examination upon this topic.
As I have said, these events occurred on October 1, 1959. The person who attended the office of the appellant and who was referred to in Miss Geddes’ evidence was never identified. Counsel for the appellant informed this Court that the only evidence in reference thereto given by a witness for the respondent was in the examination-in-chief of Gordon William Neil Leighton who was a technician and engineering supervisor of the respondent and that evidence is as follows:
Q. Some reference was made, following the Baumgold robbery, to a representative from the defendant visting the Nunes premises. Do you have any knowledge of whether a representative visited the Nunes premises following the Baumgold robbery?
A. A representative from where, Mr. King?
Q. A representative from the defendant, D.E.P. Did any employee of the D.E.P. visit the Nunes premises following the Baumgold robbery?
A. I don’t know.
Q. You don’t know?
A. No.
It should be noted that Miss Geddes’ position was more than that of merely being a secretary of the president. The officers of the appellant company were Mr. Nunes-Vaz, president: Mr. Edminson, vice‑president; and Mrs. Nunes-Vaz, secretary-treasurer. Mrs. Nunes-Vaz, however, was not normally on the office staff and her position seems to have been merely that of being in title an officer. The only other person regularly present in the office of the appellant company in
[Page 790]
addition to Mr. Nunes-Vaz and Mr. Edminson was Miss Geddes, and it was the evidence of both Mr. Nunes-Vaz and Miss Geddes that she had charge of the office and did take part in policy decisions.
The learned trial judge made no specific fiinding as to credibility in reference to Miss Geddes testimony. There was, however, no evidence contra and the learned trial judge in refusing to give effect to the claim for actionable misrepresentation in reference to the words which she testified were spoken to her did so upon the basis that the unnamed and so-called technician could not bind his employers in making such representation. I therefore am of the opinion that I am entitled to consider this appeal on the basis that Miss Geddes’ evidence was believed.
The second set of circumstances in reference to misrepresentation must be considered. Frank B. Mortimer, an independent investigator and adjuster, was called upon to investigate the Baumgold case. Giving evidence for the appellant, he testified that he spoke with one Lyttle, the then manager of the respondent’s Adelaide Street station in Toronto, who had died previous to the trial, and that Lyttle indicated to him that the Baumgold robbery was a freak and that the respondent did not feel that the system could be compromised, i.e., that the safe could be entered without the alarm system cutting into the operation. Mortimer further testified that he informed Mr. Nunes-Vaz of this conversation. The learned trial judge, however, made a definite finding in reference to the evidence of Mortimer in these words:
I was not at all impressed by the evidence of Mortimer and I do not believe that he was told that the system could never be circumvented.
The Court of Appeal for Ontario accepted such finding on credibility and I see no reason to disturb that finding and therefore I shall not further consider the question of misrepresentation as to the evidence of Mortimer.
[Page 791]
The third circumstance in reference to misrepresentation was as follows: On October 8, 1959, Curtis Insurance Limited of Toronto wrote to the late Mr. Lyttle a letter which read:
Dear Mr. Lyttle:
We represent a number of Lloyd’s Underwriters who have clients in Toronto and the Baumgold Bros. of Canada Limited break-in stirred their interest to a great extent.
We want to know as soon as possible the cause of it and measures taken to prevent other burglaries. This is a serious situation and corrective measures should be taken as the Underwriters as well as the Insureds wish to be assured that the system stand in good stead for their protection and interest.
Your report will be appreciated.
Yours very truly,
CURTIS INSURANCE LIMITED
And on October 14, Eyl Brothers also wrote to Mr. Lyttle as follows:
Dear Mr. Lyttle:
We have a substantial number of diamond merchants insured in Toronto and Montreal and were of course very upset and worried about the break-in at Baumgold Brothers of Canada Limited. In order to be able to send a full report to Underwriters we wonder whether you would be good enough to let us know as soon as possible the cause of this and the measures which are taken by your company to prevent such burglaries. You will no doubt agree with us that this situation is extremely serious as the underwriting of such policies is largely based on the protection offered by the Assured. Appreciating to hear from you at your earliest convenience.
Yours very truly,
EYL BROTHERS
Those two letters were replied to by Mr. R. Y. Atlee, the general manager of the respondent, on
[Page 792]
October 26, 1959. The replies were identical and I quote only the one to Eyl Brothers which reads as follows:
Gentlemen:
Thank you for your letter of October 14th addressed to our Mr. J.A. Lyttle.
We are concerned, just as you are, that systems which we install and service give our subscribers the best possible protection.
An investigation, started immediately after the Baumgold incident, is still continuing. Toronto police officials and our people have reached no conclusions as yet. The system performed its functions properly.
You can be assured that there is no relaxing nor will there be, of our principal interest—serving subscribers in all ways consistent with good protection. Every effort will be made to find the answer to the Baumgold matter.
Yours very truly,
The evidence is that the contents of those two letters of reply were both transmitted to Mr. Nunes-Vaz. It is to be remembered that Mr. Nunes-Vaz, in the evidence which I have quoted above, had stated that he had requested the respondents to “send a communique in which they would explain what happened”. The evidence is that following this letter no further information in reference to the Baumgold robbery was given to Mr. Nunes-Vaz, Eyl Brothers, or Curtis Insurance Limited.
It has been said that the respondent, in its contract with the appellant, fixed a most modest fee and expressed that fee to be only for the services set out therein so that to assess a very large liability against the respondent would be to put it in the position of an insurer—a position it expressly rejected in the very words of the contract. I am of the opinion that fails to give effect to the plain words of Eyl Brothers’ letter seeking reassurance which I have quoted above. In that letter, the appellant’s insurers state plainly their concern not with the modest fee the appellant was required to pay the respondent but with the very large amount they risked by insuring the appellant and others in the same business and that their
[Page 793]
underwriting of such risk was based largely on the protection which the appellant was obtaining from the services of the respondent. The respondent, in my view, was warned that the advice which was requested was most important to these insurers and therefore also to the appellant. Therefore, the modesty of the contract fee is not relevant to the issue of whether the respondent should be held liable in damages, not for any breach of contract but for tortious misrepresentation the serious consequences of which had been conveyed to it by Eyl Brothers.
Upon the basis of the evidence as to these three sets of circumstances, the appellant claims from the respondent damages on the basis of misrepresentation acted upon by the appellant to its detriment. Mr. Nunes-Vaz has given evidence that if at any time he had been informed that the alarm system supplied by the respondent to his company could have been circumvented, that is a burglary of the safe could have been carried out without causing the alarm system to go into operation, he would have taken any one of a variety of actions to lessen his risk. Amongst those actions he suggested that he would have had another alarm system, that he would have much reduced the inventory being held overnight in the safe, and that he would have considered transporting that inventory daily at the end of the business day to a bank for storage in the vaults of the latter. Now it is true that none of those alternatives or perhaps accumulative further protective steps could have given absolute insurance against loss by burglary. Any other protection system which would either replace or supplement that of the respondent would be about as vulnerable as that of the respondent for the evidence would indicate that the respondent’s system on June 6, 1961, when the robbery occurred, was just as efficient as any other system in use in Canada. However, if the safe were protected by the two alarm systems instead of only one then two alarm systems would have to be circumvented with the consequent prolongation of the time required, addition of the equipment required, and studying of the
[Page 794]
layout of the second system. Secondly, the reduction of the inventory would leave that reduced inventory subject to burglary, and, thirdly, the daily transportation of the inventory to a bank vault would subject to a danger by way of hold-up probably as great or greater than to leave it where it was protected by a good although not a perfect system. Certainly any of those steps would have made the burglary much more difficult and I personally am ready to conclude that the probabilities are that the burglary was successfully carried out because Mr. Nunes-Vaz took no precautionary steps when he was not only not informed that the system supplied by the respondent could be circumvented but when he was informed that not even the officers of the respondent company could succeed in circumventing the system.
I propose to deal first with the question of whether the statement to Miss Geddes, and by her transmitted to Mr. Nunes-Vaz, does constitute a representation which binds the respondent. It must be remembered that Mr. Nunes-Vaz requested an examination and I find much importance in the words which he used in making such request, “and then we asked to have somebody check and see to make sure that the system we have would function”. And when he was asked by counsel to explain what he meant by the words “would function” he answered, “Well, in case of an attempted burglary that this system would not be circumvented, the system we have had in our premises to protect our…” Therefore, I have no doubt that this employee was sent to the premises of the appellant for the purpose of checking the system to make sure that it would function, that is, that it would not be circumvented, and would protect the appellant’s inventory. Neither the appellant company nor its president, Mr. Nunes-Vaz, was in the slightest bit interested in whether wires were all connected or how the system operated electrically. What they were interested in was that the system would operate to sound the alarm warning from any interference with the safe or its surroundings. That is why the appellant had purchased the system and it was the apparent failure of a like system to operate in the case of the Baumgold robbery which was the cause of Mr. Nunes-Vaz immediate concern. The unnamed
[Page 795]
employee who Miss Geddes testified she is sure was a full-time employee of the respondent and was not the ordinary inspector who carried out periodic inspections did attend and she believes presented his identification card upon attending the premises and did make an inspection. Mr. Nunes-Vaz was engaged with customers and neither he nor Miss Geddes was capable of understanding the process of the inspection but nothing could be more natural than for Miss Geddes to inquire from the man who was making the inspection whether he could say that the inspection showed that the purpose for which he had been sent to inspect had been accomplished, that is, to determine whether the system would function to protect the inventory. That question, Miss Geddes testified, she put in very ordinary and easily understood language and language which accurately reflected the purpose of the technician’s visit:
I asked him if this system could be got through because we had heard that maybe this is what had happened.
Q. At Baumgold?
A. At Baumgold.
Miss Geddes’ evidence is that the precise words used by the person carrying out the inspection in reply to that inquiry was “even our own engineers could not get through the system without setting an alarm”. That is the exact assurance that Mr. Nunes-Vaz desired when he made the call. The person who attended on behalf of the respondent and who was said to be a senior man, gave the exact reassurance requested and I cannot understand how it can be said that the appellant and its president Mr. Nunes‑Vaz, to whom the answer was transmitted, would not be entitled to rely on the representation made by such employee of the respondent. I repeat, Mr. Nunes-Vaz had requested an inspection to determine this very thing. In answer to his request, an inspector was sent to the premises. The inspector investigated and the inspector gave the very answer requested. This repondent company evidently keeps a most accurate record of employees and of the time they spend on various duties in the premises of their subscribers. One document produced at trial and
[Page 796]
marked as ex. 11 is a record of inspections made from March 6, 1959, until February 1964 in the premises of Nunes Diamonds Limited. That record shows the series of dates when the inspection card was issued, the names of the inspectors, the date when the inspection was made, the date when the inspection was completed and whether repairs were necessary. The record shows no inspection made in October 1959. In my view, it would have been possible for the respondent to produce records to show that no employee of that company had been present in the premises of the appellant on October 1, 1959, or on any other date in that month. No such record was produced and I have cited the whole of the evidence given on behalf of the respondent in reference to the evidence given on behalf of the appellant as to such inspection. It would seem to me that the evidence given on behalf of the appellant raises a strong prima facie case of a representation made by an employee in the scope of his duty, a duty to determine whether the system in the appellant’s premises was functioning, and that that duty should certainly include the duty of assuring the appellant’s officers if the inspector did find that the system was so functioning and that when the inspector uttered the words which Miss Geddes testified he did utter in so far as they indicated the system was functioning he was simply carrying out the duty for which he had been dispatched. There is no doubt he went farther but so far as the appellant is concerned it would seem that the appellant was entitled to believe that the representation as made by that employee of the respondent was within that employee’s authority. I point out that this is not one of the cases where a servant of an employer takes an action which is in itself a tort and causes damage and the question then is whether the action was an action taken within the scope of the servant’s employment.
Such cases as C.P.R. v. Lockhart[6], illustrate that actions even against the employer’s interest if taken in the course of the servant’s duties for his employer may make the employer liable.
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I regard this case as one of those where the question is whether the employee had the ostensible authority to make the representation to Miss Geddes, transmitted by her to Mr. Nunes-Vaz, which he did make, and under the particular circumstances of the cases I can see no other conclusion than that the appellant and its officers were entitled to conclude that the unnamed inspector or technician, whatever he may be, was authorized to make the representation.
In the case of the Atlee letters of October 26, 1959, which I have recited above, no quesion of the authoriy to make a representation is in issue. Mr. Atlee was the general manager of the respondent and signed the letters as such.
There remains the question as to whether these two representations, that by the technician to Miss Geddes, and that by Mr. Atlee, are misrepresentations and give a cause of action to the appellant. Of course, the representation made by the unnamed technician or inspector to Miss Geddes is very plainly a misrepresentation. A statement that not even the officers of the respondent company could circumvent the system without causing the alarm to operate was, on the admission of the respondent, a false statement. The said officers of the respondent knew of and testified as to three different methods whereby the system could be circumvented. The representation made in the letters is of a different character and perhaps what was not said is as important as what was said. The statement, “Toronto Police officials and our people have reached no conclusions as yet. The system performed its functions properly” is certainly a suggestion that although the investigation had not been completed the indication was that the system of alarm worked properly but that the burglary had occurred for some other reason. The final paragraph of the letter which reads as follows:
You can be assured that there is no relaxing nor will there be, of our principal interest—serving subscribers in all ways consistent with good protection. Every effort will be made to find the answer to the Baumgold matter.
is certainly an indication that investigation will be continued until an answer to the Baumgold
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matter had been discovered and surely it is the implication from such a statement that the appellant as someone most interested in that investigation will be informed of the result thereof. The evidence is that no officer of the appellant company ever heard any more from the respondent.
The learned trial judge has made a finding of fact fully supportable on the evidence as follows:
The method by which the diamonds were removed from the Baumgold safe was never determined, and it is still questionable whether it was by a circumvention of the alarm system or by the complicity of the employees of Baumgold or of the employees of D.E.P., or a combination of any two of the three.
Surely, even this unsatisfactory conclusion of the Baumgold investigation was of the greatest interest to the appellant. If the system could be circumvented simpliciter then Mr. Nunes-Vaz has outlined alternative steps which he might take and I have referred to them above. If the Dominion Electric Protection Company employees were involved in the burglary, that fact was one of the greatest interest to another subscriber to the protection offered by the respondent company. No employee of the respondent was ever determined to have been guilty of any such complicity but immediately after the Baumgold robbery the respondent did discharge four different employees for security reasons. In the light of the finding of the trial judge as to the result of the Baumgold investigation, one cannot understand why this important information should not have been given to the appellant. It was the respondent’s position that it was an integral part of the security which it offered its subscribers that no one should know how the system could be circumvented and that therefore it would have been most unwise to have ever admitted to the appellant or any other subscriber that such result could be obtained. The appellant was in a somewhat peculiar position. Only three persons would have had any right to information as to the security of the system: the president, the vice-president, and Miss Geddes, who may be called the informal secretary. Surely, the revelation to them that the system could be circumvented would not have been as dangerous to security gen-
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erally as the failure to reveal such a fact especially when it was quite possible that knowledge of the fact was current in the underworld, if the Baumgold robbery resulted from circumvention, and that it was even possible that some employees of the respondent had been in complicity with the burglars. Four of the employees had been subsequently discharged as security risks.
It is possible, of course, that misrepresentation may be made by what has been called the economy of truth, an expression used by Hodgins J.A., in Kenny v. Lockwood[7], at p. 161. In this case, I view the failure to inform the appellant of the result of the Baumgold investigation after the general manager of the respondent had forwarded his letters of October 26, 1959, as more than a mere “economy of truth”. It is a case of an implied undertaking to further report and then a failure to so further report when most important circumstances should have been reported.
There remains, therefore, the question of whether these representations, which I have found to be misrepresentations, give rise to a cause of action. In this case, no reliance was placed upon any allegation of fraud or deceit and the case must be considered as merely one of innocent misrepresentation.
The general understanding of the decision of the House of Lords in Derry v. Peek[8] was stated to be that there could not be any action for damages for innocent misrepresentation and that fraud in the strictest sense must be alleged and proved. Fraud was said to be either a knowing misstatement of the facts or a statement made recklessly not caring whether it be true or false, and a statement merely made in error and without investigation prior to the making thereof to determine whether it was true or false was not fraud which could give a cause of action.
A series of cases which need not be analyzed here followed Derry v. Peek and applied that doctrine. However, in Nocton v. Lord Ashburton[9], the House of Lords had the opportunity to consider Derry v. Peek and to place strict limitations on the extent of the principle there enunciated.
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The facts in Nocton v. Ashburton were that a solicitor had persuaded his client to release part of the security in a mortgage held by the client upon the representation that the balance of the security was more than adequate. The solicitor himself held a subsequent mortgage upon the premises released and, of course, his security was considerably improved by the release of the subject thereof from his client’s prior mortgage. The mortgagor defaulted in the payment of the client’s mortgage and the security therefor proved most inadequate so that the client Ashburton suffered a very heavy loss and took action against the solicitor Nocton on the basis of the solicitor’s misrepresentation. Neville J., at trial, found that although the misrepresentation was carelessly made it was not fraudulent and relying on Derry v. Peek dismissed the action. The Court of Appeal reversed this finding, held that the representation was fraudulent and therefore held the solicitor liable. The Law Lords, on further appeal, were of the opinion that it was not proper to reverse a finding of fact made as to the non-fraudulent character of the representation by the trial judge after he had heard the witnesses and considered all the circumstances. They then concluded that Derry v. Peek did not apply to all cases of innocent misrepresentation but that, on the other hand, there were cases where misrepresentation although innocent would give rise to a cause of action. Viscount Haldane, the Lord Chancellor, in a lengthy and very carefully considered judgment, accepted as a starting point a statement made by Lord Herschell in the course of his reasons in Derry v. Peek wherein Lord Herschell had carefully excluded from the class,
…those, cases where a person within whose special province it lay to know a particular fact, has given an erroneous answer to an inquiry made with regard to it by a person desirous of ascertaining the fact for the purpose of determining his course…
In Nocton v. Ashburton, the Court found that the situation between a solicitor and his client was
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one of those cases. It is true that the major part of the reasons given by the various Law Lords in that case deals with the situation where the representor is in some fiduciary relationship to the representee but that circumstance may be validly explained by saying that that was the situation with which the Law Lords were concerned in that particular case not that a case of fiduciary relationship is the only one within Lord Herschell’s carefully enunciated exception which I have quoted above.
There have been a series of cases in which an innocent misrepresentation has been held to give rise to damages following Nocton v. Ashburton. Such situations include those between banker and customer. The applicability of the liability under the principle was, however, refused in Candler v. Crane, Christmas & Co.[10], a claim made by a person who was then a prospective investor and who was given, by an accountant of the company in which he was considering investing, an erroneous statement of that company’s affairs. In that case Lord Denning, in a very strong dissenting judgment, was in favour of finding liability, saying at p. 178:
If you read the great cases of Ashby v. White, (1703) 2 Ld. Raym. 938, Pasley v. Freeman, (1789) 3 Term. Rep. 51, and Donoghue v. Stevenson, [1932] A.C. 562, you will find that in each of them the judges were divided in opinion. On the one side there were the timorous souls who were fearful of allowing a new cause of action. On the other side there were the bold spirits who were ready to allow it if justice so required. It was fortunate for the common law that the progressive view prevailed. Whenever this argument of novelty is put forward I call to mind the emphatic answer given by Pratt, C.J., nearly two hundred years ago in Chapman v. Pickersgill, (1762) 2 Wilson 145, 146, when he said:
I wish never to hear this objection again. This action is for a tort: torts are infinitely various; not limited or confined, for there is nothing in nature but may be an instrument of mischief.
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The same answer was given by Lord Macmillan in Donoghue v. Stevenson when he said:
The criterion of judgment must adjust and adapt itself to the changing circumstances of life. The categories of negligence are never closed.
I beg leave to quote those cases and those passages against those who would emphasize the paramount importance of certainty at the expense of justice. It needs only a little imagination to see how much the common law would have suffered if those decisions had gone the other way.
The extent to which the principle should be applied came to a head in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.[11] There, Hedley Byrne were engaged in business with a company known as Easipower Ltd. and first in August of 1958 turned to their own bankers, the National Provincial Bank, and inquired whether such bankers could inform them in confidence of the financial status of Easipower Ltd. The National Provincial Bank, Piccadily Office, communicated with its city office, and the representative of the city office telephoned Heller & Partners Ltd. who were the bankers for Easipower Ltd. The officer of the latter company, the respondents, on the day of the call, made an exact note of that telephone request:
They wanted to know in confidence and without responsibility on our part, the respectability and standing of Easipower Ltd., and whether they would be good for an advertising contract for £8,000 to £9,000. I replied, the company recently opened an account with us. Believed to be respectably constituted and considered good for its normal business engagements…
Later, in November of the same year, the appellants wrote to their bankers, the National Provincial Bank, at its Piccadilly Branch, asking again that the financial structure and status of Easipower Ltd. be investigated concluding that it would be appreciated if the bank could make its check as exhaustive as it reasonably could. The National Provincial Bank wrote to the respon-
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dents Heller & Partners Ltd., a letter headed “Private and Confidential” and reading:
Dear Sir,
We shall be obliged by your opinion in confidence as to the respectability and standing of Easipower Ltd., 27 Albemarle Street, London, W.1, and by stating whether you consider them trustworthy, in the way of business, to the extent of £100,000 per annum advertising contract.
Four days later, the respondent replied “Confidential, for your private use and without responsibility on the part of this bank or its officials.”…
Re E . . . . . . Ltd.
Respectably constituted company, considered good for its ordinary business engagements. Your figures are larger than we are accustomed to see.
Hedley Byrne & Co. Ltd. proceeded to make contracts for advertising whereby they rendered themselves personally liable for a very large sum and upon the insolvency of Easipower Ltd. suffered a loss of some £17,000. It is to be noted that Heller & Partners Ltd. were not the bankers for and had no connection with Hedley Byrne & Co. and that the advice given to Hedley Byrne & Co. through the National Provincial Bank was given altogether gratuitously and without any situation whereby Heller & Partners Ltd. stood to profit.
It is, of course, apparent from the recital of the facts, that there is no question of fraud or deceit. It was, however, taken as proved that the representation as to the worth of Easipower Ltd. was made carelessly and was in fact a misrepresentation. The action came on for trial before McNair J. who gave judgment dismissing the action on the ground that the defendant Heller & Partners owed no duty of care to the appellants, saying, in part:
In my judgment, however, these facts, though clearly relevant on the question of honesty if this had been in issue, are not sufficient to establish any special relationship involving a duty of care even if
[Page 804]
it was open to me to extend the sphere of special relationship beyond that of contract and fiduciary relationship.
(The italicizing is my own.)
The Court of Appeal affirmed the judgment at trial feeling bound by authority and not satisfied that it would be reasonable to impose upon the banker the obligation suggested. All five Law Lords sitting on the appeal to the House of Lords gave judgment. Although they were unanimous in dismissing the appeal upon the ground that the respondent Heller & Partners Ltd. had expressly disclaimed responsibility in exact words when giving the first representation and also the second, the various members of the House of Lords all expressed the view that apart from such disclaimer, the respondents would have been liable. Lord Reid in his reasons referred to Viscount Haldane’s using as the base for his judgment in Nocton v. Ashburton the speech of Lord Herschell in Derry v. Peek, which I have quoted above, and also referred to Lord Haldane’s further statement in Robinson v. National Bank of Scotland Ltd.[12], at p. 157, where the Lord Chancellor said:
In saying that I wish emphatically to repeat what I said in advising this House in the case of Nocton v. Lord Ashburton, [1914] A.C. 932, that it is a great mistake to suppose that, because the principle in Derry v. Peek, 14 App. Cas. 337, clearly covers all cases of the class to which I have referred, therefore the freedom of action of the courts in recognizing special duties arising out of other kinds of relationship which they find established by the evidence is in any way affected. I think, as I said in Nocton’s case, that an exaggerated view was taken by a good many people of the scope of the decision in Derry v. Peek. The whole of the doctrine as to fiduciary relationships, as to the duty of care arising from implied as well as express contracts, as to the duty of care arising from other special relationships which the courts may find to exist in particular cases, still remains, and I should be very sorry if any word fell from me which should suggest that the courts are in any way hampered in recognizing that the duty of care may be established when such cases really occur.
(The italicizing is my own.)
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Lord Read points out that this passage made it clear that Lord Haldane did not think that a duty to take care must be limited to cases of fiduciary relationship in the narrow sense and that Lord Haldane spoke, on the other hand, of “special relationships” and expressed the view that there was no logical stopping place short of all those relationships where it is plain that the party seeking information or advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that, and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on it. Lord Reid continued, at p. 486:
A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought: or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require: or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require.
A similar view was expressed by the other Law Lords and I need not make extensive reference to their judgments.
In considering Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., Schroeder J.A., in giving reasons for the Court of Appeal for Ontario, quoted the paragraph which I have just quoted and expressed the view that the respondent in this case had followed the first course mentioned by Lord Reid, that is, he had kept silent or declined to give the information. With respect, I must express an opposite conclusion. Although Schroeder J.A. excepted from his statement the evidence as to the representation made by the so-called technician since he was of the opinion
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that it could not bind the company, I am of the opinion that the representation made by the general manager in the two letters dated October 25th which I have quoted was much more than refraining from giving any information or advice. The letters contained the bald statement that the equipment had functioned properly and as I have pointed out certainly implied that a further report would be made when the investigation had been completed, an undertaking which the respondent failed to carry out, and in failing to make such further report, by what has been nicknamed an “economy of truth”, in fact misrepresented the situation.
I am, therefore, of the opinion that the respondent here adopted not the first course outlined by Lord Reid but the third course outlined by Lord Reid, i.e., that the respondent simply answered without any qualification. As Lord Reid pointed out, a respondent choosing the last course must be held to have accepted some responsibility for his answer being given carelessly or to have accepted a relationship with the inquirer which required him to exercise such care as the circumstances required. Lord Morris of Borth-y-Gest said at p. 502:
My Lords, I consider that it follows and that it should now be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference. Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise.
Lord Devlin at p. 530, said:
I shall therefore content myself with the proposition that wherever there is a relationship equivalent to contract, there is a duty of care.
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The learned author of Fleming on the Law of Torts, in the 4th edition, at p. 564, in referring to Hedley Byrne v. Heller & Partners, said:
The sheet anchor of a duty of care is the speaker’s assumption of responsibility for what he says. In other words, the recipient must have had reasonable grounds for believing that the speaker expected to be trusted. There is a world of difference, e.g., between casual statements on social or informal occasions and serious communications made in circumstances warranting reliance. Usually, though by no means exclusively, the latter are encountered in the sphere of business or professional affairs, though not necessarily between persons linked by a contractual or fiduciary tie in the conventional sense.
I am of the view that the learned author, in that statement, properly summarized the effect of Hedley Byrne v. Heller & Partners, and I apply the case and that summary to the facts in the present case. Certainly, the inquiries made by the insurance representatives in their letters replied to by the general manager of the respondent on October 26, 1959, and the inquiry made by Miss Geddes to the unnamed technician were not made on social or informal occasions but were serious communications made in circumstances where the representor could have no other view than that his expert opinion was intended to be relied on.
I am personally of the view that under the circumstances which existed in the present case, that is, that the respondent was supplying to the appellant a very important service under a written contract and the inquiry was whether such service was and could be efficiently performed and the representation was that it was so being performed, the decision in Nocton v. Lord Ashburton is enough to justify a decision in favour of the appellant. Herein, I think I should note that Addy J., in his reasons, said:
I feel also in the present case that, due to the existence of the contract and also the special knowledge which D.E.P. had, covering the subject matter of burglar protection systems, a special relation existed between the plaintiff and the defendant. By reason of this D.E.P. would, in my view, be respon-
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sible for any misrepresentation pertaining to burglar protection which it negligently made to the plaintiff and which caused damages by inducing the plaintiff to fail to take precautions against burglary which it otherwise would have taken. If, in the ordinary course of business or in professional affairs a person seeks information or advice from another, who is not under contractual obligation to give this advice, in circumstances in which a reasonable man so asked would know that he was being trusted or that his skill or judgment was being relied on, and the person asked chooses to give the information or advice, without clearly so qualifying his answer to show that he does not accept responsibility, then the person replying accepts the legal duty to exercise such care as the circumstances require in making his reply; and for a failure to exercise that care, an action will lie if damage results.
In so far as that paragraph is a statement of facts, I accept it; in so far as it is a statement of law, I agree with it. In the present case, there was no such express denial of responsibility as was found to have saved Heller & Partners in Hedley Byrne v. Heller & Partners. In my opinion, the appellant is entitled to succeed upon the basis of the doctrine outlined in the latter case even if he thought that Nocton v. Ashburton did not go far enough to aid it.
Before concluding my consideration of whether the appellant is entitled to succeed on his claim for actionable misrepresentation, I must refer to a case in this Court: Guay v. Sun Publishing Company Limited[13]. There, a publishing company in Vancouver had published a news item stating that the appellant’s husband and three children had been killed in an automobile accident in Ontario where the husband and three children were then living. No such accident took place and the respondent was unable to get any explanation whatsoever for the publication of the article. The appellant took action for negligence but did not allege either fraud or malice or the existence of any contractual relationship between her and the newspaper. The action was maintained at trial but the Court of Appeal for British Columbia allowed
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the appeal and that disposition was affirmed in this Court. It is difficult to pick out a ratio decidendi. First, it might be pointed out that Cartwright J., as he then was, giving judgment for himself and for Rinfret C.J., dissenting, simply declined to consider cases as to false misrepresentation with which I have been dealing here being of the view that the case then being considered was analogous to one in which the respondent unintentionally but negligently had struck the appellant or caused some object to strike her and the respondent should have foreseen the probability of the appellant reading the report and suffering injury and therefore the respondent had a duty to check the accuracy of the report before publishing it. Mr. Justice Estey admitted that the respondent owed a duty to the appellant to exercise reasonable care to verify the truth of the report but held that the appellant could not succeed upon the evidence because it failed to establish that she suffered physical illness or other injuries consequent upon shock or emotional disturbance caused by the reading of the report. Kerwin J., as he then was, held that the appellant was not a neighbour of the respondent within the meaning of Lord Atkin’s statement in Donoghue v. Stevenson[14], since she was not a person so closely and directly affected by the publishing of the report that the respondent ought reasonably to have had the appellant in contemplation as being affected injuriously when it was directing its mind to the act of publishing. Whether one agrees with that finding of facts or not the judgment is certainly one on facts. Locke J. alone gave judgment in reference to the cases as to false though not fraudulent misrepresentations adopting Le Lievre v. Gould[15]; Balden v. Shorter[16], and Candler v. Crane, Christmas & Co., supra. Those are all cases which have been directly overruled by the House of Lords in Hedley Byrne & Co. v. Heller & Partners, supra. I am of the opinion that Locke J. cannot be taken as having given the decision of the Court in this matter and that this Court is now free to adopt the principles outlined in Hedley Byrne v. Heller & Partners rather than the earlier narrow
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view in the cases cited which view has been refuted in Hedley Byrne v. Heller.
The question remains whether para. 16 of the agreement between the appellant and the responddent applies. That paragraph reads simply:
16. No conditions, warranties or representations have been made by Dominion Company, its officers, servants or agents other than those endorsed hereon in writing.
That clause is contained in a written contract dated September 26, 1958. By its words, it refers to conditions, warranties or representations which have been made and can have no application whatsoever to representations which were made some thirteen months after the date of the contract. Addy J., in giving reasons for judgment at trial, said:
At the outset, I would like to make it clear that the plaintiff has not, in my view, contracted itself out of its right to claim damages against the defendant, if such damages can be founded on an action in tort. A clause purporting to provide for exclusion of liability for negligence will be strictly interpreted and, even though it might exempt from liability based on a contractual duty, it will not exempt from liability based on the breach of a general duty of care unless the words to that effect are clear and unequivocal.
With that view I agree and have no hesitation in coming to the conclusion that cl. 16 of the agreement between the appellant and the respondent cannot operate as a bar to a claim based on a tortious misrepresentation made many months after the contract which contained such a clause had been executed.
The agreement between the parties is of importance in so far as it established a relationship between them, and thus provided a basis upon which, in the light of subsequent events, the appellant could rightly assess that the negligent misrepresentations of the respondent were made in breach of a duty of care to the appellant. I cannot agree that the mere existence of an ante-
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cedent contract foreclosed tort liability under the Hedley Byrne principle.
For these reasons, I have come to the conclusion that the appellant is entitled to succeed upon its claim for actionable misrepresentation. A certain amount of time was spent during the argument in this Court and evidently much more in the Court of Appeal for Ontario in discussing the quantum of damages. With respect, I adopt the view stated by Schroeder J.A. in the sentence:
In my opinion, the learned trial judge was justified in fixing the damages at $303,147.07 on the basis of the evidence which he accepted and this Court would not be warranted in interfering with his costs.
I would, therefore, allow the appeal and give judgment for the appellant for that amount with costs throughout.
Appeal dismissed with costs, SPENCE and LASKIN JJ. dissenting.
Solicitors for the plaintiff, appellant: Fasken & Calvin, Toronto.
Solicitors for the defendant, respondent: Blake, Cassels & Graydon, Toronto.
[1] [1971] 1 O.R. 218, 15 D.L.R. (3d) 26.
[2] [1964] A.C. 465.
[3] [1971] 1 All E.R. 150.
[4] [1924] A.C. 522.
[5] [1971] 1 O.R. 218, 15 D.L.R. (3d) 26.
[6] [1942] A.C. 591.
[7] [1932] O.R. 141, [1932] 1 D.L.R. 507.
[8] (1889), 14 App. Cas. 337.
[9] [1914] A.C. 932.
[10] [1951] 2 K.B. 164.
[11] [1964] A.C. 465 (H.L.)
[12] [1916] S.C. (H.L.) 154.
[13] [1953] 2 S.C.R. 216, [1953] 4 D.L.R. 577.
[14] [1932] A.C. 562.
[15] [1893] 1 Q.B. 491.
[16] [1933] 1 Ch. 427.