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Negligent Representation – Entire Agreement and Exculpatory Clauses

Singh v. Trump 2016 Ont CA

Two unsophisticated purchasers bought condominium hotel units in the Trump International Hotel, in Toronto, as investments, ultimately wildly unsuccessful. The developer had received a ruling from the Ontario Securities Commission allowing an exemption from normal prospectus requirements on condition that the developer not market the hotel units by emphasising the potential for profit through the reservation program. That program was a means by which the hotel would rent the purchasers’ units and remit rental income after deducting expenses.

Contrary to the OSC conditions, the developer did market the hotel units by emphasising the potential for profit. In its sales pitch, it provided a document that made assumptions, based on nothing, that elevated revenue and minimised expenses.

The motions judge held that the plaintiffs proved 4 of the elements necessary for negligent misrepresentation, but failed to prove the 5^th (i.e. the purchasers did not reasonably rely on the representations). The Court of Appeal disagreed. Although the estimates were for discussion purposes only, and not a guaranteed investment program, it was still reasonable for the purchasers to rely on them, or at least assume that there was some rational basis for the estimates to have been made.

The developer relied upon the usual clauses in the agreement that there were no oral representations and that the agreement constituted the entire agreement. The Court of Appeal, relying on Tercon, a Supreme Court decision, held it was unconscionable for the developer to be able to escape exposure as a result of these clauses, particularly, but not only, because the developer had breached the OSC’s conditions for marketing the property.

The Court allowed one of the purchasers, who had not closed the final purchase, to rescind the contract. The other purchaser, who had closed the purchase, was not granted rescission, but was granted damages.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.