Hogarth et al. v. Rocky Mountain Slate Inc. et al., 2011 ABQB 537

• Judge: Hughes, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: September 06, 2011
• Citations: 2011 ABQB 537;(2011), 517 A.R. 203 (QB)

Hogarth v. Rocky Mountain Slate Inc. (2011), 517 A.R. 203 (QB)

MLB headnote and full text

Temp. Cite: [2011] A.R. TBEd. SE.042

Lance Hogarth, James Snyder Construction Ltd., James Snyder, Don Jeffers, Anthony Marquart, Dwight Miller, Sani Tech Mechanical Ltd., S & P Cattle Company Ltd., Gary Schaller, Charles Sinclair, Theresa Sinclair, Juana Tamura, Josh Holdings Inc., Freedom Enterprises Inc., 972678 Alberta Ltd., Western International Plastics (Alta.) Ltd., All Services Plumbing and Heating Ltd., Rick Adams, Millie Atkinson, Bitaco Holdings Ltd., Doug Bateman Holdings Ltd., Karl Durst, Stephanie Durst, Giusti Group Ltd., Hallmark Resources Ltd., Harvey Prang Holdings Ltd. and Barry Gould (plaintiffs) v. Rocky Mountain Slate Inc., Roger Simonson, John Powell, Eli Suhan, Charles Edward Kucera and Kucera Engineers Inc. (defendants)

Rocky Mountain Slate Inc. (plaintiff by counterclaim) v. John Pfeiffer, Don Dunsmore, Millie Atkinson and Harvey Prang (defendants by counterclaim)

(0301-08678; 2011 ABQB 537)

Indexed As: Hogarth et al. v. Rocky Mountain Slate Inc. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

Hughes, J.

September 6, 2011.

Summary:

The plaintiffs collectively invested almost $1.8 Million in a company that operated a slate quarry. The business failed almost immediately and the plaintiffs lost their investments. The plaintiffs sued the defendants for a return of their investments, claiming that they were induced to invest based on negligent misrepresentations made by the company and its three principals (directors) in written materials and at company meetings. The plaintiffs also alleged that the company's chartered accountant was negligent in preparing future-oriented financial information which induced them to invest. The company counterclaimed against four of its investor directors, alleging various breaches of their duties as directors.

The Alberta Court of Queen's Bench held that the company and its three principals made negligent misrepresentations which induced all but one of the plaintiffs (Miller) to invest in the company. The chartered accountant was negligent in preparing the future-oriented financial information. The action was dismissed against the remaining defendants and the counterclaim was dismissed. The court apportioned liability.

Company Law - Topic 4183

Directors - Liability of directors - For torts - At issue was whether three principals/directors were personally liable for negligent misrepresentations made by the company inducing investors to invest - The Alberta Court of Queen's Bench held that "officers and directors of corporations are responsible for their tortious conduct in the course of their duties and as the corporation's directing minds if that conduct is pled and the plaintiff establishes the elements of tortious conduct" - See paragraphs 56 to 59.

Company Law - Topic 4566

Officers and agents - Liability - General - For tortious acts - [See Company Law - Topic 4183 ].

Damage Awards - Topic 766

Torts - Fraud and misrepresentation - Negligent misrepresentation - [See first Fraud and Misrepresentation - Topic 2508 ].

Damages - Topic 70

General principles - Considerations in assessing damages - Tax savings - The defendants were found liable to investors for negligent misrepresentation - The investors lost their investments in a failed project - Damages equalled the amount invested - The defendants argued that since each of the plaintiffs obtained tax savings because of their investments, those savings should be deducted from the damage awards to compensate the plaintiffs only for what they actually lost - The Alberta Court of Queen's Bench stated that "I am not satisfied that the evidence before me is sufficient to allow me to arrive with certainty at the amount of the tax benefit received ... Even if I am wrong it is my view that, as the court held in Leather Treaty, the benefit of any tax savings should fall to the wronged party, not the wrongdoer. Given the uncertainty as to both the quantum of any tax benefit and the appropriateness of deducting it, I decline to take any tax savings accruing to the plaintiffs into account in assessing damages." - See paragraphs 258 to 270.

Fraud and Misrepresentation - Topic 2508

Misrepresentation - General principles - Negligent misrepresentation - The plaintiffs collectively invested almost $1.8 Million in a company that operated a slate quarry - The business failed almost immediately and the plaintiffs lost their investments - The plaintiffs sued the defendants for a return of their investments, claiming that they were induced to invest based on negligent misrepresentations made by the company and its three principals (directors) in written materials and verbally at company meetings - The Alberta Court of Queen's Bench held that the company and its three principals made negligent misrepresentations to the plaintiffs, which were relied on by the plaintiffs (except Miller) to induce them to invest - The plaintiffs were owed a duty of care (proximity), they relied on the misrepresentations, the representations were false, inaccurate or misleading, and the plaintiffs all suffered damages - It was misrepresented that an engineer (Kucera), the only person with quarry experience, would be an integral part of managing the quarry operation (he was not) - The forecasted production of saleable slate projections was made by the three principals, none of whom had the expertise or experience to do so - The representations led the plaintiffs to believe that the engineer, the only person with such expertise, made the forecasts - Although regulations limited the amount of slate that could be quarried (absent permission to exceed the limits), the principals represented production quantities of over three times that limit without seeking permission to exceed the regulatory limits - This was not disclosed because the principals purportedly believed that such permission would be automatically given when applied for - All of the representations, which were false, inaccurate or misleading, were relied on by the investors and induced them to invest - Damages equalled the amounts invested (without deduction for tax savings experienced by the plaintiffs), as the court was satisfied that but for the misrepresentations, none of the plaintiffs would have invested in the project - See paragraphs 60 to 270.

Fraud and Misrepresentation - Topic 2508

Misrepresentation - General principles - Negligent misrepresentation - The Alberta Court of Queen's Bench referred to the elements of negligent misrepresentation: "1. There must be a duty of care based on a 'special relationship' between the representor and the representee. 2. The representation in question must be untrue, inaccurate or misleading. 3. The representor must have acted negligently in making the representation; 4. The representee must have relied, in a reasonable manner, on the negligent misrepresentation; and 5. The reliance must have been detrimental to the representee in the sense that damages resulted." - See paragraph 60.

Professional Occupations - Topic 1479

Accountants - Negligence - Future-oriented financial information - The plaintiffs collectively invested almost $1.8 Million in a company that operated a slate quarry - The business quickly failed and the plaintiffs lost their investments - The plaintiffs sued the defendants for a return of their investments, claiming that they were induced to invest based on negligent misrepresentations made by the company and its three principals in written materials and verbally at company meetings - One of the principals was a chartered accountant who prepared the future-oriented financial information relied on by the investors - The Alberta Court of Queen's Bench held that the accountant was negligent in preparing the future-oriented financial information, particularly the forecasted production levels - The accountant accepted the forecasted production numbers determined by his two co-principals, neither of whom had, to the accountant's knowledge, the expertise or experience to make such forecasts - The accountant, by failing to take any steps to verify the reasonableness of the forecasted production numbers, breached his duty to exercise reasonable care and skill in the performance of his professional duties - See paragraphs 271 to 290.

Cases Noticed:

Salomon v. Salomon & Co., [1897] A.C. 22 (H.L.), refd to. [para. 56].

Montreal Trust Co. of Canada et al. v. Scotia McLeod Inc. et al. (1995), 87 O.A.C. 129 (C.A.), refd to. [para. 56].

Blacklaws et al. v. 470433 Alberta Ltd. (2000), 261 A.R. 28; 225 W.A.C. 28; 84 Alta. L.R.(3d) 270; 2000 ABCA 175, refd to. [para. 57].

Queen (D.J.) v. Cognos Inc., [1993] 1 S.C.R. 87; 147 N.R. 169; 60 O.A.C. 1, refd to. [para. 60].

Sharbern Holding Inc. v. Vancouver Airport Centre Ltd. et al. (2011), 416 N.R. 1; 306 B.C.A.C. 1; 516 W.A.C. 1; 2011 SCC 23, refd to. [para. 60].

Anns v. Merton London Borough Council, [1978] A.C. 728 (H.L.), refd to. [para. 65].

Hercules Management Ltd. et al. v. Ernst & Young et al., [1997] 2 S.C.R. 165; 211 N.R. 352; 115 Man.R.(2d) 241; 139 W.A.C. 241, refd to. [para. 66].

Nielsen v. Kamloops (City) and Hughes, [1984] 2 S.C.R. 2; 54 N.R. 1, refd to. [para. 66].

Cooper v. Hobart - see Cooper v. Registrar of Mortgage Brokers (B.C.) et al.

Cooper v. Registrar of Mortgage Brokers (B.C.) et al., [2001] 3 S.C.R. 537; 277 N.R. 113; 160 B.C.A.C. 268; 261 W.A.C. 268, refd to. [para. 66].

Haig v. Bamford et al., [1977] 1 S.C.R. 466; 9 N.R. 43, refd to. [para. 75].

Kripps et al. v. Touche Ross & Co. et al. (1997), 89 B.C.A.C. 288; 145 W.A.C. 288 (C.A.), refd to. [para. 105].

Esso Petroleum v. Mardon, [1976] 2 All E.R. 5 (C.A.), refd to. [para. 109].

Hayes v. Schimpf et al. (2005), 219 B.C.A.C. 48; 361 W.A.C. 48; 2005 BCCA 568, affing. [2004] B.C.T.C. 1408; 2004 BCSC 1408, refd to. [para. 109].

Kelly v. Lundgard et al. (2001), 286 A.R. 1; 253 W.A.C. 1; 202 D.L.R.(4th) 385; 2001 ABCA 185, refd to. [para. 110].

Maclise (S.) Enterprises Inc. v. Union Securities Ltd. et al. (2009), 469 A.R. 131; 470 W.A.C. 131; 2009 ABCA 424, refd to. [para. 112].

Motkoski Holdings Ltd. v. Yellowhead (County) (2010), 474 A.R. 367; 479 W.A.C. 367; 2010 ABCA 72, refd to. [para. 112].

North American Life Assurance Co. v. Pitblado & Hoskin et al. (2009), 245 Man.R.(2d) 111; 466 W.A.C. 111; 2009 MBCA 83, refd to. [para. 176].

Manufacturers Life Insurance Co. v. Pitblado & Hoskin et al. - see North American Life Assurance Co. v. Pitblado & Hoskin et al.

Strand v. Emerging Equities Inc. et al. (2008), 425 A.R. 314; 418 W.A.C. 314; 2008 ABCA 23, refd to. [para. 176].

NBD Bank Canada v. Dofasco Inc. et al. (1999), 127 O.A.C. 338; 46 O.R.(3d) 514 (C.A.), refd to. [para. 177].

Rainbow Industrial Caterers Ltd. et al. v. Canadian National Railway Co. et al., [1991] 3 S.C.R. 3; 126 N.R. 354; 3 B.C.A.C. 1; 7 W.A.C. 1, refd to. [para. 256].

Brady v. LePage (A.E.) (B.C.) Ltd. (1989), 35 B.C.L.R.(2d) 378 (S.C.), refd to. [para. 259].

Haida Inn Partnership v. Touche Ross & Co. (1989), 42 B.C.L.R.(2d) 151 (S.C.), refd to. [para. 260].

Toronto-Dominion Bank v. Leigh Instruments Ltd. (Bankrupt) et al. (1997), 29 O.T.C. 86; 33 O.R.(3d) 696 (Gen. Div.), refd to. [para. 261].

Antonacci v. Great Atlantic & Pacific Co. of Canada Ltd. (2000), 128 O.A.C. 236; 48 C.C.E.L.(2d) 294 (C.A.), refd to. [para. 262].

Treaty Group Inc. v. Drake International Inc., [2005] O.T.C. 1044; 36 C.C.L.T. (3d) 265 (Sup. Ct.), refd to. [para. 263].

Sherman v. Orenstein & Partners et al., [2003] O.T.C. 787 (Sup. Ct.), refd to. [para. 264].

Huber (J.A.) Holdings Ltd. v. Davidge et al. (1992), 128 A.R. 268 (Q.B.), refd to. [para. 273].

Bloor Italian Gifts Ltd. et al. v. Dixon et al. (2000), 133 O.A.C. 338; 48 O.R.(3d) 760 (C.A.), refd to. [para. 277].

Perez v. Galambos et al., [2009] 3 S.C.R. 247; 394 N.R. 209; 276 B.C.A.C. 272; 468 W.A.C. 272, refd to. [para. 287].

Authors and Works Noticed:

Klar, Lewis N., Tort Law (4th Ed. 2008), c. 7, footnote 51 [para. 73].

Osborne, Philip H., The Law of Torts (3rd Ed. 2007), p. 173 [para. 111].

Sarra, Janis P., and Davis, Ronald B., Director and Officer Liability in Corporate Insolvency (2nd Ed. 2010), pp. 32, 33 [para. 58].

Counsel:

Johanna C. Price and Patrick S. Robinson (Peacock Linder & Halt LLP), for the plaintiffs/defendants by counterclaim;

Scott H.D. Bower (Bennett Jones LLP), for the defendant, John Powell;

Roger Simonson, defendant, self-represented, and as agent for the defendants Eli Suhan and the defendant/plaintiff by counterclaim Rocky Mountain Slate Inc.;

David Salmon (Salmon & Co.), for the defendants, Charles Edward Kucera and Kucera Engineers Inc.

This action and counterclaim were heard before Hughes, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following judgment on September 6, 2011.