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Decision Confirms Potential for Inferred Reliance in Negligent Misrepresentation Class Actions, and for Lawyers’ Liability to Non-Clients

Author(s): Karin Sachar, Laura Fric, Kevin O’Brien

Nov 2, 2012

A recent decision of Ontario’s Divisional Court leaves open the possibilities that: (i) in a class action alleging negligent misrepresentation, a court may be able to infer reliance on a class-wide basis, as opposed to needing individual inquiries of class members, and (ii) a lawyer may owe a duty of care to non-clients, in circumstances where the lawyer’s legal opinion is used for promotional purposes.

In Cannon v. Funds for Canada Foundation, 2012 ONSC 6101, Justice Mary A. Sanderson of the Divisional Court denied leave to appeal from a decision of Justice George R. Strathy certifying a class action against those involved in a complex charitable donation tax shelter (the Gift Program). The Court also denied leave to appeal a summary judgment motion brought by the defendant lawyers who had allegedly provided comfort letters attesting to the legitimacy of the Gift Program.

Some defendants argued that Justice Strathy erred by certifying as a common issue the claim for negligent misrepresentation. Relying on other Ontario decisions, the defendants argued that class members’ reliance on the alleged misrepresentations would be an inherently individual issue, incapable of being determined on a class-wide basis. However, Justice Sanderson found there was no good reason to doubt that Justice Strathy was correct when he found that reliance could be inferred on a class-wide basis, based upon specific representations made in written materials provided to each class member.

Justice Sanderson also refused to grant leave from Justice Strathy’s dismissal of the lawyers’ summary judgment motion. The lawyers sought to have claims of both negligence and negligent misrepresentation dismissed, on the basis that they could not be found to have owed a duty of care to investors in the Gift Program. The lawyers pointed to the written declarations investors had signed, where they acknowledged receiving independent financial advice and understanding the legal and tax consequences. However, Justice Sanderson found there was no reason to doubt that Justice Strathy was correct in finding that a trial court could conclude that the lawyer had intentionally put himself in a close and direct relationship with every investor by allegedly permitting his opinion and reputation to be used in marketing.

While the facts of Cannon are complex and relatively unique, the potential for a finding of inferred reliance by an entire class could have an impact in class action litigation, including in securities class actions where claims of negligent misrepresentation are often asserted. Lawyers will also no doubt take interest in the findings with respect to the potential liability for lawyers to non-clients.