Kripps v. Touche Ross & Co., 1997 CanLII 2007 (BC CA)

JudgeRowles, Finch and Ryan, JJ.A.
CourtCourt of Appeal (British Columbia)
Case DateApril 25, 1997
JurisdictionBritish Columbia
Citations1997 CanLII 2007 (BC CA);35 CCLT (2d) 60;89 BCAC 288;[1997] 6 WWR 421;33 BCLR (3d) 254;[1997] BCJ No 968 (QL);(1997), 89 B.C.A.C. 288 (CA);[1997] CarswellBC 925;70 ACWS (3d) 931

Kripps v. Touche Ross & Co. (1997), 89 B.C.A.C. 288 (CA);

    145 W.A.C. 288

MLB headnote and full text

Stephen Kripps, Agnes Kripps, Edward Thorpe, Bonnie Thorpe, David Plunz and Gayle Plunz (plaintiffs/appellants) v. Touche Ross & Co. (defendant/respondent) and Victoria Mortgage Corporation Ltd., Oakside Corporation Ltd., Hermann G. Bessert, Robert E. Mitchell, Hugh M. Blair, Daniel P. Kramer, James D. Kadlec and Douglas T. Hawkes (defendants)

(CA019919)

Indexed As: Kripps et al. v. Touche Ross & Co. et al.

British Columbia Court of Appeal

Rowles, Finch and Ryan, JJ.A.

April 25, 1997.

Summary:

The plaintiff investors purchased deben­tures after the issue of a prospectus by Victoria Mortgage Corp. The prospectus included, inter alia, an auditor's report by the defendant Touche Ross. The investors sued the auditor, Victoria, Victoria's directors and the Superintendent for damages for negligent misrepresentation or nondisclosure by the auditor. As a result of interlocutory applica­tions, the action against the Superintendent was dismissed and the action against the auditor was confined to instances where the investors could establish actual reliance on the audit reports.

The trial judge found that the auditor breached its duty of care to the investors but that the investors failed to establish reliance upon the misstatements in the audit reports as an inducement to the purchase of their debentures. The trial judge accordingly dismissed the action. See [1995] 6 W.W.R. 180; 5 B.C.L.R.(3d) 22; 24 C.C.L.T.(2d) 136. The investors appealed.

The British Columbia Court of Appeal, Ryan, J.A., dissenting, allowed the appeal.

Fraud and Misrepresentation - Topic 2508

Misrepresentation - Negligent misrepre­sentation - The British Columbia Court of Appeal referred to the required elements for a successful claim in negligent misrep­resentation - See paragraph 35.

Fraud and Misrepresentation - Topic 2508

Misrepresentation - Negligent misrepre­sentation - The British Columbia Court of Appeal held that it was sufficient for the plaintiff in an action for negligent misrep­resentation to prove that the misrepresen­tation was at least one factor which induced the plaintiff to act to his or her detriment - Where the misrepresentation in question was one which was calculated or which would naturally tend to induce the plaintiff to act upon it, the plaintiff's reli­ance may be inferred - The inference of reliance was one which may be rebutted but the onus of doing so rested on the representor - See paragraph 103.

Fraud and Misrepresentation - Topic 2535

Misrepresentation - Elements - Reliance -[See second Fraud and Misrepresenta­tion - Topic 2508 ].

Fraud and Misrepresentation - Topic 2535

Misrepresentation - Elements - Reliance - Investors purchased debentures upon Vic­toria issuing a prospectus, including finan­cial statements and an auditor's report - Victoria used the purchase funds to pro­vide loans secured by land mortgages - The auditor's report stated that the finan­cial statements represented Victoria's fi­nancial position according to Generally Accepted Accounting Principles (GAAP) - The financial statements, however, failed to disclose the amount of mortgage loans in default and misrepresented future losses and "non-performing loans" - The British Columbia Court of Appeal held that the investors relied on the misstatements as an inducement to purchase the debentures - The investors would not have invested had the prospectus contained a qualified audit - The court found the auditor liable for negligent misrepresentation - See para­graphs 87 to 105.

Professional Occupations - Topic 1503

Accountants - Duty to third parties - Purchasers of securities - [See Securities Regulation - Topic 5405 ].

Securities Regulation - Topic 5405

Prospectuses - False or misleading infor­mation - Investors purchased debentures upon Victoria issuing a prospectus, includ­ing financial statements and an auditor's report - Victoria used the purchase funds to provide loans secured by land mort­gages - The auditor's report stated that the financial statements represented Victoria's financial position according to Generally Accepted Accounting Principles (GAAP) - The financial statements, however, failed to disclose the amount of mortgage loans in default and misrepresented future losses and "non-performing loans" - The British Columbia Court of Appeal held that the auditor breached its duty of care to the investors - The auditor had actual knowl­edge that the statements did not fairly represent Victoria's financial position - Auditors could not escape liability by relying on GAAP's where the statements misrepresented the financial position - See paragraphs 37 to 105.

Torts - Topic 8992

Duty of care - Particular relationships - Negligent words - Preparation of financial information - Investors purchased deben­tures upon Victoria issuing a prospectus, including financial statements and an auditor's report - Victoria used the pur­chase funds to provide loans secured by land mortgages - The auditor's report stated that the financial statements repre­sented Victoria's financial position accord­ing to Generally Accepted Accounting Principles (GAAP) - The financial state­ments, however, failed to disclose the amount of mortgage loans in default and misrepresented future losses and "non-performing loans" - The British Columbia Court of Appeal held that the auditor owed a duty of care to the investors, arising from its knowledge of the report's purpose - See paragraphs 37 to 52.

Cases Noticed:

Kripps et al. v. Touche Ross & Co. et al. (1992), 15 B.C.A.C. 184; 27 W.A.C. 184; 69 B.C.L.R.(2d) 62 (C.A.), refd to. [para. 28].

Queen (D.J.) v. Cognos Inc., [1993] 1 S.C.R. 87; 147 N.R. 169; 60 O.A.C. 1, refd to. [para. 35].

Hedley, Byrne & Co. v. Heller & Partners Ltd., [1963] 2 All E.R. 575; [1964] A.C. 465 (H.L.), refd to. [para. 38].

Haig v. Bamford et al., [1977] 1 S.C.R. 466; 9 N.R. 43, refd to. [para. 38].

Edgeworth Construction Ltd. v. Lea (N.D.) & Associates Ltd. et al., [1993] 3 S.C.R. 206; 157 N.R. 241; 32 B.C.A.C. 221; 53 W.A.C. 221, refd to. [para. 38].

Rangen Inc. v. Deloitte & Touche Inc. (1994), 48 B.C.A.C. 17; 78 W.A.C. 17; 95 B.C.L.R.(2d) 182 (C.A.), refd to. [para. 38].

Lapointe v. Hôpital le Gardeur, [1992] 1 S.C.R. 382; 133 N.R. 153; 45 Q.A.C. 299, refd to. [para. 67].

Sceptre Resources Ltd. et al. v. Deloitte Haskins & Sells et al. (1991), 120 A.R. 6; 8 W.A.C. 6; 83 Alta. L.R.(2d) 157 (C.A.), refd to. [para. 67].

Revelstoke Credit Union v. Miller, [1984] 2 W.W.R. 297 (B.C.S.C.), refd to. [para. 68].

Neuzen v. Korn (1995), 188 N.R. 161; 64 B.C.A.C. 241; 105 W.A.C. 241; 11 B.C.L.R.(3d) 201 (S.C.C.), refd to. [para. 69].

Vincent v. Canadian National Railway, [1979] 1 S.C.R. 364; 29 N.R. 451, refd to. [para. 70].

Wade v. Canadian National Railway, [1978] 1 S.C.R. 1064; 17 N.R. 378; 22 N.S.R.(2d) 540; 31 A.P.R. 540, refd to. [para. 70].

L.K. Oil & Gas Ltd. et al. v. Canalands Energy Corp. (1989), 98 A.R. 161; 60 D.L.R.(4th) 490 (C.A.), refd to. [paras. 82, 127].

Inland Kenworth Ltd. v. Commonwealth Insurance Co. (1990), 48 B.C.L.R.(2d) 305 (C.A.), refd to. [para. 84].

Parallels Restaurant Ltd. v. Yeung's Enter­prises Ltd. (1990), 4 C.C.L.T.(2d) 59 (B.C.C.A.), refd to. [para. 96].

Redgrave v. Hurd (1881), 20 Ch. D. 1 (C.A.), refd to. [para. 96].

Arnison v. Smith (1889), 41 Ch. D. 348, refd to. [para. 96].

Bell v. Tinmouth (1988), 32 B.C.L.R.(2d) 349 (C.A.), refd to. [para. 96].

Australian Steel & Mining Corp. Pty. Ltd. v. Corein, [1974] 2 N.S.W.L.R. 202 (C.A.), refd to. [para. 96].

Power v. Kenny, [1960] W.A.R. 57 (Full Ct.), refd to. [para. 96].

Sidhu Estate v. Bains et al. (1996), 77 B.C.A.C. 116; 126 W.A.C. 116; 25 B.C.L.R.(3d) 41 (C.A.), refd to. [para. 96].

Statutes Noticed:

Securities Act, R.S.B.C. 1979, c. 380, sect. 42 [para. 6]; sect. 46, sect. 47 [para. 42].

Securities Act, S.B.C. 1985, c. 83, sect. 114(1) [para. 45].

Authors and Works Noticed:

Dugdale, A.M. and Stanton, K.M., Pro­fessional Negligence (2nd Ed. 1989), p. 235 [para. 71].

Fleming, John G., The Law of Torts (8th Ed. (1992), p. 106 [para. 71].

Fridman, G.H.L., The Law of Torts in Canada (1989), p. 287 [para. 71].

Percy, R.A., Charlesworth and Percy on Negligence (8th Ed. 1990), p. 451 [para. 71].

Counsel:

G.A. Urquhart, Q.C., and D.A. Brindle, for the appellants;

W.B. McAllister, Q.C., and N. Garson, for the respondent.

This appeal was heard in Vancouver, British Columbia, on June 11 to 13, 1996, before Rowles, Finch and Ryan, JJ.A., of the British Columbia Court of Appeal. The decision of the court was delivered on April 25, 1997, and the following opinions were filed:

Finch, J.A. (Rowles, J.A., concurring) - see paragraphs 1 to 108;

Ryan, J.A., dissenting - see paragraphs 109 to 129.

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