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Auditor Liability Revisited: Lavender v. Miller Bernstein LLPhttp://blog.blg.com/theexchange/Lists/Blog Posts/DispForm.aspx?ID=373Auditor Liability Revisited: Lavender v. Miller Bernstein LLP373BLG Blog PostBevan Brooksbankbbrooksbank@blg.com | Bevan Brooksbank | 693A30232E777C626C6763616E6164615C6262726F6F6B7362616E6B i:0#.w|blgcanada\bbrooksbank ​In Lavender v. Miller Bernstein LLP ("Lavender") the Ontario Court of Appeal overturned a decision that an auditor had a duty of care to its client's clients. In doing so, the Court of Appeal applied the principles as set out by the Supreme Court of Canada in Deloitte & Touche v. Livent Inc. (Receiver of) ("Livent"). The Lavender decision clarifies the extent to which an auditor may owe a duty of care to parties other than its own client, and reinforces the body of case law that recognizes the high threshold for imposing a duty of care in a claim for pure economic loss. <p>​<span style="text-align:justify;">In </span><a href="http://canlii.ca/t/hts38" style="text-align:justify;"><em>Lavender v. Miller Bernstein LLP</em></a><span style="text-align:justify;"> ("</span><em style="text-align:justify;">Lavender"</em><span style="text-align:justify;">) the Ontario Court of Appeal overturned a decision that an auditor had a duty of care to its client's clients. In doing so, the Court of Appeal applied the principles as set out by the Supreme Court of Canada in </span><a href="https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16920/index.do" style="text-align:justify;"><em>Deloitte & Touche v. Livent Inc</em></a><em style="text-align:justify;">. (Receiver of)</em><span style="text-align:justify;"> ("</span><em style="text-align:justify;">Livent"</em><span style="text-align:justify;">). </span><span style="text-align:justify;"> </span><span style="text-align:justify;">The </span><em style="text-align:justify;">Lavender</em><span style="text-align:justify;"> decision clarifies the extent to which an auditor may owe a duty of care to parties other than its own client, and reinforces the body of case law that recognizes the high threshold for imposing a duty of care in a claim for pure economic loss.</span><br></p>BackgroundThe decision related to a summary judgment motion brought in the context of a class action by the clients of a defunct securities dealer against the dealer's former auditor (see our Exchange post, September 7, 2017, for further detail). It was alleged that the auditor negligently audited an annual registration renewal form required to be filed with the Ontario Securities Commission ("OSC") to confirm regulatory compliance. It was contended that, as a result of this alleged failure, the OSC was deprived of information that would have caused it to intervene in the dealer's operations and thus prevent the class's losses.Several common issues were certified on consent, including inter alia whether the auditor owed a duty to the class and, if so, whether it breached that duty. The representative plaintiff in turn moved for summary judgment on these questions, amongst others. The motion judge granted summary judgment, holding that the auditor owed the class members a duty of care in its audit and had in turn failed to meet its standard of care. The Appellate DecisionThe Court of Appeal allowed the auditor's appeal, setting aside the judgment below and granting summary judgment in favour of the auditor on the basis that it owed no duty of care to the class.In arriving at its decision, the Court applied the analytical framework set out in Livent, which had been released after the decision at first instance in Lavender. Under the two-stage Anns/Cooper framework, as refined in Livent, a court must first ask whether the facts establish a prima facie duty of care. This involves establishing two distinct concepts that must be considered separately, namely reasonable foreseeability and proximity. If necessary, the court will then proceed to the second stage where it asks whether residual policy considerations justify denying tort liability.Epstein J.A., writing for the Court, held that the motion judge erred by conflating the questions of proximity and foreseeability. The Court of Appeal accordingly conducted its own proximity analysis and concluded that proximity was not established with respect to the auditor's client's clients.The relationship between the auditor and the class did not fall within a previously established category of relationship where proximity had already been found; there was no precedent in which a duty of care had been recognized between an auditor and a company's investor account holders for purposes of auditing the company's compliance with the securities statutory regime. Accordingly, the Court undertook a proximity analysis to determine whether there was a sufficiently "close and direct" relationship to ground a duty of care.The absence of a personal relationship between the parties, while "not necessarily determinative", is nonetheless an "important factor to consider." Epstein J.A. found that, on a "rigorous examination" of the evidentiary record before the motion judge, a finding of proximity could not be supported for the following reasons the auditor's mandate was of limited scope as it undertook only to audit a form that the dealer then provided confidentially to the OSC. The interposition of the OSC (and the dealer itself) between the auditor and the class rendered the relationship between the parties too remote to ground a duty of care; there was no evidence of class member reliance on the form, which was not intended to inform or otherwise induce the class; the motion judge based his determination on factual findings that amounted to palpable and overriding errors, such as reliance on a finding that the auditor would have known the names and accounts of the class members when the record revealed that the identities of clients and their accounts in fact changed regularly; and the applicable statutory scheme did not create a proximate relationship for the purpose of the class members' investment decisions.In addition, the Court of Appeal reaffirmed that cases of pure economic loss arising from negligence or negligent misrepresentation warrant "significant scrutiny", and the scope of the defendant's undertaking and the plaintiff's reliance on that undertaking are determinative of proximityIn cases of pure economic loss arising from negligent misrepresentation or performance of a service, two factors are "determinative" of the proximity analysis (i) the defendant's undertaking; and (ii) the plaintiff's reliance Livent, at para. 30. Where the defendant undertakes to provide a representation or service in circumstances that invite the plaintiff's reasonable reliance, the defendant becomes obligated to take reasonable care, and the plaintiff has a right to rely on the defendant's undertaking to do so. These "corollary rights and obligations create a relationship of proximity" Livent, at para. 30. However, the plaintiff's reliance must be within the scope of the defendant's undertaking – that is, the purpose for which the representation was made or the service was undertaken. Anything outside that scope will fall outside the scope of the proximate relationship and the defendant's duty of care; the defendant cannot be liable for a risk of injury against which it did not undertake to protect Livent, at para. 31. Further, as the majority in Livent observed, at para. 31, "the proximity analysis not only determines the existence of a relationship of proximity, but also delineates the scope of the rights and duties which flow from that relationship" (emphasis in original). In view of its finding on proximity, the Court of Appeal declined to consider reasonable foreseeability, or residual policy considerations.ConclusionAs a practical consequence, the Lavender decision will likely discourage negligence claims brought against auditors by parties other than their own clients.The decision also emphasizes that litigants seeking to establish a duty of care in a claim for pure economic loss must meet a high threshold that requires consideration of not only the scope of the auditor's undertaking, but also the degree of reliance by class members. This aspect of the decision will likely be of comfort to underwriters, securities dealers and other advisers who may become secondary targets of convenience in class actions where an issuer defendant is insolvent. <p style="text-align:justify;"><strong>Background</strong></p><p style="text-align:justify;">The decision related to a summary judgment motion brought in the context of a class action by the clients of a defunct securities dealer against the dealer's former auditor (see our <em></em><a href="/theexchange/Pages/Post.aspx?PID=275">Exchange post</a>, September 7, 2017, for further detail). It was alleged that the auditor negligently audited an annual registration renewal form required to be filed with the Ontario Securities Commission ("OSC") to confirm regulatory compliance. It was contended that, as a result of this alleged failure, the OSC was deprived of information that would have caused it to intervene in the dealer's operations and thus prevent the class's losses.</p><p style="text-align:justify;">Several common issues were certified on consent, including <em>inter alia</em> whether the auditor owed a duty to the class and, if so, whether it breached that duty. The representative plaintiff in turn moved for summary judgment on these questions, amongst others. The motion judge granted summary judgment, holding that the auditor owed the class members a duty of care in its audit and had in turn failed to meet its standard of care. </p><p style="text-align:justify;"><strong>The Appellate Decision</strong></p><p style="text-align:justify;">The Court of Appeal allowed the auditor's appeal, setting aside the judgment below and granting summary judgment in favour of the auditor on the basis that it owed no duty of care to the class.</p><p style="text-align:justify;">In arriving at its decision, the Court applied the analytical framework set out in <em>Livent</em>, which had been released after the decision at first instance in <em>Lavender.</em>  Under the two-stage <em>Anns/Cooper</em> framework, as refined in <em>Livent</em>, a court must first ask whether the facts establish a <em>prima facie</em> duty of care. This involves establishing two distinct concepts that must be considered separately, namely reasonable foreseeability and proximity.  If necessary, the court will then proceed to the second stage where it asks whether residual policy considerations justify denying tort liability.</p><p style="text-align:justify;">Epstein J.A., writing for the Court, held that the motion judge erred by conflating the questions of proximity and foreseeability.  The Court of Appeal accordingly conducted its own proximity analysis and concluded that proximity was not established with respect to the auditor's client's clients.</p><p style="text-align:justify;">The relationship between the auditor and the class did not fall within a previously established category of relationship where proximity had already been found; there was no precedent in which a duty of care had been recognized between an auditor and a company's investor account holders for purposes of auditing the company's compliance with the securities statutory regime. Accordingly, the Court undertook a proximity analysis to determine whether there was a sufficiently "close and direct" relationship to ground a duty of care.</p><p style="text-align:justify;">The absence of a personal relationship between the parties, while "not necessarily determinative", is nonetheless an "important factor to consider." Epstein J.A. found that, on a "rigorous examination" of the evidentiary record before the motion judge, a finding of proximity could not be supported for the following reasons: </p><ol><li>the auditor's mandate was of limited scope as it undertook only to audit a form that the dealer then provided confidentially to the OSC. The interposition of the OSC (and the dealer itself) between the auditor and the class rendered the relationship between the parties too remote to ground a duty of care;</li><li>there was no evidence of class member reliance on the form, which was not intended to inform or otherwise induce the class;</li><li>the motion judge based his determination on factual findings that amounted to palpable and overriding errors, such as reliance on a finding that the auditor would have known the names and accounts of the class members when the record revealed that the identities of clients and their accounts in fact changed regularly; and</li><li>the applicable statutory scheme did not create a proximate relationship for the purpose of the class members' investment decisions.</li></ol><p style="text-align:justify;">In addition, the Court of Appeal reaffirmed that cases of pure economic loss arising from negligence or negligent misrepresentation warrant "significant scrutiny", and the scope of the defendant's undertaking and the plaintiff's reliance on that undertaking are determinative of proximity:</p><p style="text-align:justify;">In cases of pure economic loss arising from negligent misrepresentation or performance of a service, two factors are "determinative" of the proximity analysis: (i) the defendant's undertaking; and (ii) the plaintiff's reliance: <em>Livent</em>, at para. 30. Where the defendant undertakes to provide a representation or service in circumstances that invite the plaintiff's reasonable reliance, the defendant becomes obligated to take reasonable care, and the plaintiff has a right to rely on the defendant's undertaking to do so. These "corollary rights and obligations create a relationship of proximity": <em>Livent, </em>at para. 30. </p><p style="text-align:justify;">However, the plaintiff's reliance must be within the scope of the defendant's undertaking – that is, the purpose for which the representation was made or the service was undertaken. Anything outside that scope will fall outside the scope of the proximate relationship and the defendant's duty of care; the defendant cannot be liable for a risk of injury against which it did not undertake to protect: <em>Livent</em>,<em> </em>at para. 31. Further, as the majority in <em>Livent</em> observed, at para. 31, "the proximity analysis not only determines the <em>existence</em> of a relationship of proximity, but also delineates the <em>scope </em>of the rights and duties which flow from that relationship" (emphasis in original). </p><p style="text-align:justify;">In view of its finding on proximity, the Court of Appeal declined to consider reasonable foreseeability, or residual policy considerations.</p><p style="text-align:justify;"><strong>Conclusion</strong></p><p style="text-align:justify;">As a practical consequence, the <em>Lavender</em> decision will likely discourage negligence claims brought against auditors by parties other than their own clients.</p><p style="text-align:justify;">The decision also emphasizes that litigants seeking to establish a duty of care in a claim for pure economic loss must meet a high threshold that requires consideration of not only the scope of the auditor's undertaking, but also the degree of reliance by class members. This aspect of the decision will likely be of comfort to underwriters, securities dealers and other advisers who may become secondary targets of convenience in class actions where an issuer defendant is insolvent.<br></p><p><br></p>9/10/2018 4:00:00 AM2018-09-10T04:00:00ZTrue1float;#9.00000000000000float;#2018.00000000000string;#Septemberfloat;#201809.000000000GP0|#73bd9e71-b257-4720-b5f3-2bd7b78a546e;L0|#073bd9e71-b257-4720-b5f3-2bd7b78a546e|Litigation Strategy;GTSet|#efd3ce69-ee46-4bca-b6af-3daf96f6b0eb;GP0|#d531403d-b705-440c-8be2-98e2a4c77989;L0|#0d531403d-b705-440c-8be2-98e2a4c77989|Class Actions;GP0|#2df25a26-3353-4357-8797-8d21a2ea3aee;L0|#02df25a26-3353-4357-8797-8d21a2ea3aee|Banking and Bills of Exchange;GP0|#11984f46-19e7-4b16-acce-db2c31f12bae;L0|#011984f46-19e7-4b16-acce-db2c31f12bae|Fraud and White Collar CrimeLitigation Strategy;Class Actions;Banking and Bills of Exchange;Fraud and White Collar Crime
Can incriminating evidence from an administrative investigation be used in a foreign jurisdiction?http://blog.blg.com/theexchange/Lists/Blog Posts/DispForm.aspx?ID=372Can incriminating evidence from an administrative investigation be used in a foreign jurisdiction?372BLG Blog PostGabrielle Tremblaygtremblay@blg.com | Gabrielle Tremblay | 693A30232E777C626C6763616E6164615C677472656D626C6179 i:0#.w|blgcanada\gtremblay ​The Quebec Superior Court finds that incriminating material obtained by a foreign securities commission through examinations held under the purview of the Quebec securities commission can be used in penal or criminal proceedings in foreign jurisdictions. <p>​The Quebec Superior Court finds that incriminating material obtained by a foreign securities commission through examinations held under the purview of the Quebec securities commission can be used in penal or criminal proceedings in foreign jurisdictions.<br></p>In Mallat c. Autorité des marchés financiers de France, Justice Carol Cohen of the Superior Court of Quebec clarified how foreign authorities can obtain the help of Quebec's financial regulator, the Autorité des marchés financiers (the «AMFQ») to investigate individuals in order to assist prosecutions in their own jurisdiction. The plaintiffs were three high-level employees of Ubisoft who were under investigation by the French regulator, the Autorité des marchés financiers de France (the «AMFF»), regarding alleged insider trading on Ubisoft stock. Pursuant to an international agreement between several securities commissions (the Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information, referred to as the «International Agreement»), the AMFF obtained the AMFQ's cooperation in its investigation, pursuant to which the AMFF conducted examinations in Montreal in the presence of AMFQ investigators and obtained many of Plaintiffs' emails. The plaintiffs were found guilty of insider trading in France and condemned to large fines; these decisions are being appealed. The plaintiffs filed a claim against the AMFQ and the AMFF in Quebec in order for the International Agreement to be declared null and void and for the investigation, examinations and evidence obtained by the AMFF through the AMFQ be excluded from the AMFF's file as contrary to the Canadian and Quebec Charter of Rights and Freedoms. The AMFQ filed for dismissal and the AMFF filed a declinatory exception. In her judgment granting both the AMFQ and the AMFF's motions, Justice Cohen confirmed the validity of the International Agreement and the procedure followed by the AMFQ to compel plaintiffs to be examined by the AMFF and to obtain evidence from them. While any incriminating testimony and evidence given in an administrative investigation such as the AMFQ's investigations in securities matters cannot be used against witnesses in criminal or penal procedures in Canada pursuant to Canada's Evidence Act, Justice Cohen determined that this protection only applies to Canadian proceedings. As such, any incriminating material obtained by a foreign securities commission through examinations held under the purview of the AMFQ can be used in penal or criminal proceedings in foreign jurisdictions. Furthermore, the Quebec courts do not have jurisdiction over the inclusion or exclusion of evidence in foreign proceedings. While most jurisdictions have their own safeguards to include or exclude evidence based on their domestic law, pursuant to which the French tribunals in this case excluded the testimony obtained in Quebec, it is important for individuals being examined by a securities commission in Canada to consider that while they must answer all questions even if doing so will be incriminating, the protection set out in the Evidence Act regarding the exclusion of such testimony from penal or criminal proceedings only applies in Canadian jurisdictions. As such, any state which obtains the cooperation of the AMFQ through the International Agreement can, based on material obtained in Canada, prosecute individuals in their jurisdiction and the self-incriminating materials will only be excluded from their evidence if said state's internal law provides for their exclusion. <p style="text-align:justify;">In <a href="https://www.canlii.org/fr/qc/qccs/doc/2018/2018qccs3867/2018qccs3867.html?autocompleteStr=mallat&autocompletePos=1" target="_blank"><em>Mallat c. Autorité des marchés financiers de France</em></a>, Justice Carol Cohen of the Superior Court of Quebec clarified how foreign authorities can obtain the help of Quebec's financial regulator, the Autorité des marchés financiers (the «<strong>AMFQ</strong>») to investigate individuals in order to assist prosecutions in their own jurisdiction. </p><p style="text-align:justify;">The plaintiffs were three high-level employees of Ubisoft who were under investigation by the French regulator, the Autorité des marchés financiers de France (the «<strong>AMFF</strong>»), regarding alleged insider trading on Ubisoft stock. Pursuant to an international agreement between several securities commissions (the <em>Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information</em>, referred to as the «<strong>International Agreement</strong>»), the AMFF obtained the AMFQ's cooperation in its investigation, pursuant to which the AMFF conducted examinations in Montreal in the presence of AMFQ investigators and obtained many of Plaintiffs' emails. The plaintiffs were found guilty of insider trading in France and condemned to large fines; these decisions are <a href="https://www.doctrine.fr/d/CA/Paris/2017/C0603836C8C293804A526" target="_blank">being appealed</a>.<br></p><p style="text-align:justify;">The plaintiffs filed a claim against the AMFQ and the AMFF in Quebec in order for the International Agreement to be declared null and void and for the investigation, examinations and evidence obtained by the AMFF through the AMFQ be excluded from the AMFF's file as contrary to the Canadian and Quebec Charter of Rights and Freedoms. The AMFQ filed for dismissal and the AMFF filed a declinatory exception.<br></p><p style="text-align:justify;">In her judgment granting both the AMFQ and the AMFF's motions, Justice Cohen confirmed the validity of the International Agreement and the procedure followed by the AMFQ to compel plaintiffs to be examined by the AMFF and to obtain evidence from them. </p><p style="text-align:justify;">While any incriminating testimony and evidence given in an administrative investigation such as the AMFQ's investigations in securities matters cannot be used against witnesses in criminal or penal procedures in Canada pursuant to Canada's <em>Evidence Act</em>, Justice Cohen determined that this protection only applies to Canadian proceedings. As such, any incriminating material obtained by a foreign securities commission through examinations held under the purview of the AMFQ can be used in penal or criminal proceedings in foreign jurisdictions. Furthermore, the Quebec courts do not have jurisdiction over the inclusion or exclusion of evidence in foreign proceedings. </p><p style="text-align:justify;">While most jurisdictions have their own safeguards to include or exclude evidence based on their domestic law, pursuant to which the <a href="https://www.amf-france.org/Sanctions-et-transactions/Decisions-de-la-commission/Chronologique/Liste-Chronologique/Sanction?year=2016&docId=workspace://SpacesStore/017ea880-bc52-4e5a-9143-dd9bce0a2d09" target="_blank">French tribunals in this case excluded the testimony obtained in Quebec</a>, it is important for individuals being examined by a securities commission in Canada to consider that while they must answer all questions even if doing so will be incriminating, the protection set out in the <em>Evidence Act</em> regarding the exclusion of such testimony from penal or criminal proceedings only applies in Canadian jurisdictions. As such, any state which obtains the cooperation of the AMFQ through the International Agreement can, based on material obtained in Canada, prosecute individuals in their jurisdiction and the self-incriminating materials will only be excluded from their evidence if said state's internal law provides for their exclusion. <br></p><p><br></p>9/7/2018 4:00:00 AM2018-09-07T04:00:00ZTrue1float;#9.00000000000000float;#2018.00000000000string;#Septemberfloat;#201809.000000000GP0|#11984f46-19e7-4b16-acce-db2c31f12bae;L0|#011984f46-19e7-4b16-acce-db2c31f12bae|Fraud and White Collar Crime;GTSet|#efd3ce69-ee46-4bca-b6af-3daf96f6b0eb;GP0|#75eda1bb-5890-4b6b-aad7-b703245ec2e8;L0|#075eda1bb-5890-4b6b-aad7-b703245ec2e8|Securities: Litigation Regulatory and ComplianceFraud and White Collar Crime;Securities: Litigation Regulatory and Compliance
Lawyers Beware: The Court Splits on the Principles to be Applied for Damages for Economic Loss in Recent Professional Negligence Casehttp://blog.blg.com/theexchange/Lists/Blog Posts/DispForm.aspx?ID=371Lawyers Beware: The Court Splits on the Principles to be Applied for Damages for Economic Loss in Recent Professional Negligence Case371BLG Blog PostSandi Shannonsshannon@blg.com | Sandi Shannon | 693A30232E777C626C6763616E6164615C737368616E6E6F6E i:0#.w|blgcanada\sshannon ​The Alberta court of Appeal considers economic loss as it relates to a solicitor negligence claim in 644036 Alberta Ltd. v. Kay McVey Smith & Carlstrom LLP. <p>​The Alberta court of Appeal considers economic loss as it relates to a solicitor negligence claim in <a href="https://www.canlii.org/en/ab/abca/doc/2018/2018abca236/2018abca236.html">644036 Alberta Ltd. v. Kay McVey Smith & Carlstrom LLP</a>.<br></p> The Alberta Court of Appeal recently considered economic loss as it relates to a solicitor negligence claim. The matter concerned the transfer of two parcels of land, one of which, due to the negligence of the solicitor, was not conveyed pursuant to a Purchase and Sales Agreement. At issue in the appeal was the manner in which the trial judge calculated the appellant's losses. The appellant argued that the trial judge failed to take into account the increased value associated with the subdivision of the lots. The trial judge had found that the ability to profitably re-sell the properties in question was not the result of the lawyer's negligence in negligence or contract. At the end of the day, the focus by the majority was on the remoteness principle. The Court of Appeal agreed with the lower court as to the date of breach but held that the reasonable foreseeability analysis required consideration of what was the "real risk" to the appellant of the negligence that ought to have been contemplated by the solicitor as at the date of breach. The majority held that the subdivision of the lands was reasonably foreseeable to the respondents at the time of the breach and that it was the subdivision of the lands, not the sale of them that increased their value. This was adequate to establish a loss in negligence. Dissenting was Honorable Justice J.A. Watson who agreed in part but stopped at "any suggestion that remoteness is the sole limit on causation in economic loss cases." <p>The Alberta Court of Appeal recently considered economic loss as it relates to a solicitor negligence claim. The matter concerned the transfer of two parcels of land, one of which, due to the negligence of the solicitor, was not conveyed pursuant to a Purchase and Sales Agreement.  At issue in the appeal was the manner in which the trial judge calculated the appellant's losses.  </p><p>The appellant argued that the trial judge failed to take into account the increased value associated with the subdivision of the lots. The trial judge had found that the ability to profitably re-sell the properties in question was not the result of the lawyer's negligence in negligence or contract. </p><p>At the end of the day, the focus by the majority was on the remoteness principle. The Court of Appeal agreed with the lower court as to the date of breach but held that the reasonable foreseeability analysis required consideration of what was the "real risk" to the appellant of the negligence that ought to have been contemplated by the solicitor as at the date of breach. The majority held that the subdivision of the lands was reasonably foreseeable to the respondents at the time of the breach and that it was the subdivision of the lands, not the sale of them that increased their value. This was adequate to establish a loss in negligence.</p><p>Dissenting was Honorable Justice J.A. Watson who agreed in part but stopped at "any suggestion that remoteness is the sole limit on causation in economic loss cases."  <br></p><p><br></p>9/1/2018 4:00:00 AM2018-09-01T04:00:00ZTrue1float;#9.00000000000000float;#2018.00000000000string;#Septemberfloat;#201809.000000000GP0|#75eda1bb-5890-4b6b-aad7-b703245ec2e8;L0|#075eda1bb-5890-4b6b-aad7-b703245ec2e8|Securities: Litigation Regulatory and Compliance;GTSet|#efd3ce69-ee46-4bca-b6af-3daf96f6b0ebSecurities: Litigation Regulatory and Compliance
OSFI Proposes Changes to its Leverage Requirements Guidelinehttp://blog.blg.com/theexchange/Lists/Blog Posts/DispForm.aspx?ID=369OSFI Proposes Changes to its Leverage Requirements Guideline369BLG Blog PostStephen J. Redican;Michael Taylorsredican@blg.com | Stephen J. Redican | 693A30232E777C626C6763616E6164615C737265646963616E i:0#.w|blgcanada\sredican;mtaylor@blg.com | Michael Taylor | 693A30232E777C626C6763616E6164615C6D7461796C6F72 i:0#.w|blgcanada\mtaylor ​Proposed changes relate to counterparty credit risk exposure for derivatives and the treatment of securitized assets in Canada.<p>​Proposed changes relate to counterparty credit risk exposure for derivatives and the treatment of securitized assets in Canada.</p> Canadian banks, federal credit unions, bank holding companies, federally regulated trust companies, federally regulated loan companies and cooperative retail associations (collectively, the institutions) are required by their respective Acts1 to maintain adequate capital. The leverage requirements set out in OSFI's Leverage Requirements guideline (the LR guideline), together with the capital standards specified in the Capital Adequacy Requirements guideline (the CAR guideline), provide the framework within which OSFI assesses whether an institution maintains adequate capital pursuant to the Acts. In particular, the LR guideline sets out the framework for the leverage ratio for institutions, which provides an overall measure of the adequacy of an institution's capital and serves as a supplementary measure to the risk-based capital requirements specified in the CAR guideline. Read More ↠<p>Canadian banks, federal credit unions, bank holding companies, federally regulated trust companies, federally regulated loan companies and cooperative retail associations (collectively, the institutions) are required by their respective Acts<sup>1</sup> to maintain adequate capital. The leverage requirements set out in OSFI's Leverage Requirements guideline (the LR guideline), together with the capital standards specified in the Capital Adequacy Requirements guideline (the CAR guideline), provide the framework within which OSFI assesses whether an institution maintains adequate capital pursuant to the Acts. In particular, the LR guideline sets out the framework for the leverage ratio for institutions, which provides an overall measure of the adequacy of an institution's capital and serves as a supplementary measure to the risk-based capital requirements specified in the CAR guideline.</p><p><a href="http://blg.com/en/News-And-Publications/Publication_5377"><strong>Read More ↠</strong></a></p>8/29/2018 4:00:00 AM2018-08-29T04:00:00ZTrue1float;#8.00000000000000float;#2018.00000000000string;#Augustfloat;#201808.000000000GP0|#83d31cc8-2281-46b1-bd03-ad81b15c38ff;L0|#083d31cc8-2281-46b1-bd03-ad81b15c38ff|Banking Regulatory;GTSet|#efd3ce69-ee46-4bca-b6af-3daf96f6b0eb;GP0|#75eda1bb-5890-4b6b-aad7-b703245ec2e8;L0|#075eda1bb-5890-4b6b-aad7-b703245ec2e8|Securities: Litigation Regulatory and ComplianceBanking Regulatory;Securities: Litigation Regulatory and Compliance
IIROC: OEO Firms Should no Longer Follow Section 2 of Notice 18-00075http://blog.blg.com/theexchange/Lists/Blog Posts/DispForm.aspx?ID=368IIROC: OEO Firms Should no Longer Follow Section 2 of Notice 18-00075368BLG Blog PostMaureen Dohertymdoherty@blg.com | Maureen Doherty | 693A30232E777C626C6763616E6164615C6D646F6865727479 i:0#.w|blgcanada\mdoherty ​In the wake of CSA releasing its Staff Notice 81-330 Status Report on Consultation on Embedded Commissions and Next Steps, IIROC has suspended section 2 of Notice 18-00075. The notice sets out IIROC's expectation of how order execution only ("OEO") firms address conflicts of interest arising from the offering of funds that pay a trailing commission described as a payment for advice and services<p>​In the wake of CSA releasing its Staff Notice 81-330 <em>Status Report on Consultation on Embedded Commissions and Next Steps</em>, IIROC has suspended section 2 of Notice 18-00075. The notice sets out IIROC's expectation of how order execution only ("OEO") firms address conflicts of interest arising from the offering of funds that pay a trailing commission described as a payment for advice and services</p> In the wake of CSA releasing its Staff Notice 81-330 Status Report on Consultation on Embedded Commissions and Next Steps, IIROC has suspended section 2 of Notice 18-00075. The notice sets out IIROC's expectation of how order execution only ("OEO") firms address conflicts of interest arising from the offering of funds that pay a trailing commission described as a payment for advice and services. In a release dated August 14, 2018, IIROC noted that it anticipates publishing proposed amendments to its requirements concerning embedded commissions and therefore until the requirements have been finalized, a suspension of section 2 is appropriate. It also noted that OEO firms are still required to follow IIROC's rules concerning conflicts of interest considering the best interest of their clients.<p>In the wake of CSA releasing its Staff Notice 81-330 <em>Status Report on Consultation on Embedded Commissions and Next Steps</em>, IIROC has suspended section 2 of Notice 18-00075. The notice sets out IIROC's expectation of how order execution only ("OEO") firms address conflicts of interest arising from the offering of funds that pay a trailing commission described as a payment for advice and services.  In a release dated August 14, 2018, IIROC noted that it anticipates publishing proposed amendments to its requirements concerning embedded commissions and therefore until the requirements have been finalized, a suspension of section 2 is appropriate.  It also noted that OEO firms are still required to follow IIROC's rules concerning conflicts of interest considering the best interest of their clients.</p>8/24/2018 4:00:00 AM2018-08-24T04:00:00ZTrue1float;#8.00000000000000float;#2018.00000000000string;#Augustfloat;#201808.000000000GP0|#75eda1bb-5890-4b6b-aad7-b703245ec2e8;L0|#075eda1bb-5890-4b6b-aad7-b703245ec2e8|Securities: Litigation Regulatory and Compliance;GTSet|#efd3ce69-ee46-4bca-b6af-3daf96f6b0ebSecurities: Litigation Regulatory and Compliance
New Judgment Clarifies When Bankruptcy Debt May Be Declared Non-Releasablehttp://blog.blg.com/theexchange/Lists/Blog Posts/DispForm.aspx?ID=365New Judgment Clarifies When Bankruptcy Debt May Be Declared Non-Releasable365BLG Blog PostOuassim Tadlaouiotadlaoui@blg.com | Ouassim Tadlaoui | 693A30232E777C626C6763616E6164615C6F7461646C616F7569 i:0#.w|blgcanada\otadlaoui BLG represented the applicant, Adobe Systems Incorporated, in this filing. <p>BLG represented the applicant, Adobe Systems Incorporated, in this filing. </p> ​The Québec Superior Court recently rendered a judgment (Francis v. Adobe 2018 QCCS 2547) confirming that a bankrupt's debt may be declared non-releasable by a discharge order pursuant to section 178 of the Bankruptcy and Insolvency Act (the "Act"), even when said discharge order has not yet been rendered or when the bankrupt's discharge has been suspended or granted conditionally pursuant to section 173 of the Act. BLG represented the applicant, Adobe Sytems Incorporated, in this filing. Read More →<p>​The Québec Superior Court recently rendered a judgment (<a href="https://www.canlii.org/en/qc/qccs/doc/2018/2018qccs2547/2018qccs2547.html" target="_blank"><em>Francis v. Adobe 2018 QCCS 2547</em></a>) confirming that a bankrupt's debt may be declared non-releasable by a discharge order pursuant to section 178 of the <em>Bankruptcy and Insolvency Act</em> (the "Act"), even when said discharge order has not yet been rendered or when the bankrupt's discharge has been suspended or granted conditionally pursuant to section 173 of the Act. BLG represented the applicant, Adobe Sytems Incorporated, in this filing.</p><p><a href="http://blg.com/en/News-And-Publications/Publication_5355" target="_blank"><strong>Read More →</strong></a></p>8/10/2018 4:00:00 AM2018-08-10T04:00:00ZTrue1float;#8.00000000000000float;#2018.00000000000string;#Augustfloat;#201808.000000000GP0|#edf60560-262c-4dfe-978c-31916bb6d7f5;L0|#0edf60560-262c-4dfe-978c-31916bb6d7f5|Bankruptcy, Insolvency and Restructuring;GTSet|#efd3ce69-ee46-4bca-b6af-3daf96f6b0eb;GP0|#75eda1bb-5890-4b6b-aad7-b703245ec2e8;L0|#075eda1bb-5890-4b6b-aad7-b703245ec2e8|Securities: Litigation Regulatory and ComplianceBankruptcy, Insolvency and Restructuring;Securities: Litigation Regulatory and Compliance
Court of Appeal adds another exception to when contractual interpretation is a matter of law http://blog.blg.com/theexchange/Lists/Blog Posts/DispForm.aspx?ID=367Court of Appeal adds another exception to when contractual interpretation is a matter of law 367BLG Blog PostChristine Muircmuir@blg.com | Christine Muir | 693A30232E777C626C6763616E6164615C636D756972 i:0#.w|blgcanada\cmuir ​The Court of Appeal for Ontario holds that a contract incorporating statutory terms is a question of law <p>​The Court of Appeal for Ontario holds that a contract incorporating statutory terms is a question of law<br></p> In CNH Canada Ltd., v. Chesterman Farm Equipment Ltd., the Ontario Court of Appeal ruled on the interpretation of a standard form farm equipment dealership agreement. The agreement was interpreted at first instance by the Agriculture, Food and Rural Affairs Tribunal pursuant to the Farm Implements Act, a statute meant, in part, to remedy the contractual power imbalance between farm implement dealers and distributors. The appeal arose from a decision of the Divisional Court largely upholding the Tribunal's decision. The dispute related to the termination of the dealership agreement and the impact of the recently in force Dealership Agreements Regulation on that termination. The Tribunal held that the Regulation amended the agreement, and revised its renewal provision to incorporate the Regulation's mandatory terms respecting renewal, making the manner in which the agreement was terminated a breach of the contract. The Tribunal awarded damages to the dealer for the breach, and ordered a significant costs award against the distributor for its conduct in the termination of the dealership agreement, as well as during the proceedings. Appeals from decisions of the Tribunal are limited solely to questions of law, and the Court emphasized that questions of contractual interpretation usually involve questions of mixed fact and law. However, the Court noted that the interpretation of a contract like the dealership agreement, which incorporated statutory terms by operation of law, was of "precedential value" and transcended the factual circumstances of the parties such that the interpretive exercise before it was a question of law and properly before the Court. Applying a standard of review of reasonableness, the Court of Appeal ultimately upheld the decision of the Tribunal with respect to its interpretation of the renewal provisions of the agreement. The decision of the Court provides a clear circumstance in which the interpretation of a contract will be deemed a question of law, informing both the appropriate standard of review on appeal and whether, in circumstances in which a statute limits a right of appeal to questions of law alone, appellate review is available at all. <p>In <em><a href="http://canlii.ca/t/ht00w">CNH Canada Ltd., v. Chesterman Farm Equipment Ltd</a>.</em>, the Ontario Court of Appeal ruled on the interpretation of a standard form farm equipment dealership agreement. The agreement was interpreted at first instance by the Agriculture, Food and Rural Affairs Tribunal pursuant to the <em>Farm Implements Act</em>, a statute meant, in part, to remedy the contractual power imbalance between farm implement dealers and distributors.  The appeal arose from a decision of the Divisional Court largely upholding the Tribunal's decision.</p><p>The dispute related to the termination of the dealership agreement and the impact of the recently in force <em>Dealership Agreements Regulation</em> on that termination. The Tribunal held that the <em>Regulation</em> amended the agreement, and revised its renewal provision to incorporate the <em>Regulation</em>'s mandatory terms respecting renewal, making the manner in which the agreement was terminated a breach of the contract. The Tribunal awarded damages to the dealer for the breach, and ordered a significant costs award against the distributor for its conduct in the termination of the dealership agreement, as well as during the proceedings. </p><p>Appeals from decisions of the Tribunal are limited solely to questions of law, and the Court emphasized that questions of contractual interpretation usually involve questions of mixed fact and law.  However, the Court noted that the interpretation of a contract like the dealership agreement, which incorporated statutory terms by operation of law, was of "precedential value" and transcended the factual circumstances of the parties such that the interpretive exercise before it was a question of law and properly before the Court. </p><p>Applying a standard of review of reasonableness, the Court of Appeal ultimately upheld the decision of the Tribunal with respect to its interpretation of the renewal provisions of the agreement. The decision of the Court provides a clear circumstance in which the interpretation of a contract will be deemed a question of law, informing both the appropriate standard of review on appeal and whether, in circumstances in which a statute limits a right of appeal to questions of law alone, appellate review is available at all. <br></p><p><br></p>8/9/2018 4:00:00 AM2018-08-09T04:00:00ZTrue1float;#8.00000000000000float;#2018.00000000000string;#Augustfloat;#201808.000000000GP0|#73bd9e71-b257-4720-b5f3-2bd7b78a546e;L0|#073bd9e71-b257-4720-b5f3-2bd7b78a546e|Litigation Strategy;GTSet|#efd3ce69-ee46-4bca-b6af-3daf96f6b0ebLitigation Strategy
Will the Coffey Class Action have a Ripple Effect?http://blog.blg.com/theexchange/Lists/Blog Posts/DispForm.aspx?ID=364Will the Coffey Class Action have a Ripple Effect?364BLG Blog PostMelissa M. Smith;Carol E. Derk;Robert Dawkins;Sinem Ersoymesmith@blg.com | Melissa M. Smith | 693A30232E777C626C6763616E6164615C6D65736D697468 i:0#.w|blgcanada\mesmith;cderk@blg.com | Carol E. Derk | 693A30232E777C626C6763616E6164615C636465726B i:0#.w|blgcanada\cderk;rdawkins@blg.com | Robert Dawkins | 693A30232E777C626C6763616E6164615C726461776B696E73 i:0#.w|blgcanada\rdawkins;sersoy@blg.com | Sinem Ersoy | 693A30232E777C626C6763616E6164615C736572736F79 i:0#.w|blgcanada\sersoy ​The proceeding is filed as a class action on behalf of Ripple owners, believed to be in the thousands by the plaintiff, and could have potential implications for other crypto-asset issuers and owners.<p>​The proceeding is filed as a class action on behalf of Ripple owners, believed to be in the thousands by the plaintiff, and could have potential implications for other crypto-asset issuers and owners.</p> ​The question as to whether crypto-assets should be classified as securities has been widely discussed both in Canada and the United States, with the Canadian Securities Administrators ("CSA") recently publishing guidance on this point in CSA Staff Notice 46-308 – Securities Law Implications for Offerings and Tokens. Now, thanks to a class action lawsuit launched against Ripple Labs, the United States federal court also has a chance to weigh in on this issue. Coffey v Ripple Labs Inc., is a class action lawsuit filed by Ryan Coffey in May of this year in which it is alleged that Ripple Labs’ XRP tokens constitute securities and, as such, their unregistered sale violates state and federal securities laws. The proceeding is filed as a class action on behalf of Ripple owners, believed to be in the thousands by the plaintiff, and could have potential implications for other crypto-asset issuers and owners ... Read More →<p>​The question as to whether crypto-assets should be classified as securities has been widely discussed both in Canada and the United States, with the Canadian Securities Administrators ("CSA") recently publishing guidance on this point in <a href="http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20180611_46-308_securities-law-implications-for-offerings-of-tokens.htm" target="_blank">CSA Staff Notice 46-308 – Securities Law Implications for Offerings and Tokens</a>. Now, thanks to a class action lawsuit launched against Ripple Labs, the United States federal court also has a chance to weigh in on this issue. <em>Coffey v Ripple Labs Inc.</em>, is a class action lawsuit filed by Ryan Coffey in May of this year in which it is alleged that Ripple Labs’ XRP tokens constitute securities and, as such, their unregistered sale violates state and federal securities laws. The proceeding is filed as a class action on behalf of Ripple owners, believed to be in the thousands by the plaintiff, and could have potential implications for other crypto-asset issuers and owners ... </p><p> <a href="http://blg.com/en/News-And-Publications/Publication_5350" target="_blank"> <strong>Read More →</strong></a></p>7/25/2018 4:00:00 AM2018-07-25T04:00:00ZTrue1float;#7.00000000000000float;#2018.00000000000string;#Julyfloat;#201807.000000000GP0|#75eda1bb-5890-4b6b-aad7-b703245ec2e8;L0|#075eda1bb-5890-4b6b-aad7-b703245ec2e8|Securities: Litigation Regulatory and Compliance;GTSet|#efd3ce69-ee46-4bca-b6af-3daf96f6b0eb;GP0|#d531403d-b705-440c-8be2-98e2a4c77989;L0|#0d531403d-b705-440c-8be2-98e2a4c77989|Class Actions;GP0|#2df25a26-3353-4357-8797-8d21a2ea3aee;L0|#02df25a26-3353-4357-8797-8d21a2ea3aee|Banking and Bills of ExchangeSecurities: Litigation Regulatory and Compliance;Class Actions;Banking and Bills of Exchange
In the Internet of Things, Opportunities Abound for Class Action Litigation http://blog.blg.com/theexchange/Lists/Blog Posts/DispForm.aspx?ID=366In the Internet of Things, Opportunities Abound for Class Action Litigation 366BLG Blog PostGlenn Zakaib;Edona C. Vilagzakaib@blg.com | Glenn Zakaib | 693A30232E777C626C6763616E6164615C677A616B616962 i:0#.w|blgcanada\gzakaib;evila@blg.com | Edona C. Vila | 693A30232E777C626C6763616E6164615C6576696C61 i:0#.w|blgcanada\evila ​At an estimated 8.4 billion in number, connected devices now in use outnumber people on earth.1 It is estimated that the usage of these devices will continue to grow, reaching 20 billion devices over the next two years and 50 billion devices by 2050.2 The Internet of Things (IoT) describes the milieu of these connected devices, which are connected to each other and to the internet.<p>​At an estimated 8.4 billion in number, connected devices now in use outnumber people on earth.<sup>1</sup> It is estimated that the usage of these devices will continue to grow, reaching 20 billion devices over the next two years and 50 billion devices by 2050.<sup>2</sup> The Internet of Things (IoT) describes the milieu of these connected devices, which are connected to each other and to the internet.</p> At an estimated 8.4 billion in number, connected devices now in use outnumber people on earth.1 It is estimated that the usage of these devices will continue to grow, reaching 20 billion devices over the next two years and 50 billion devices by 2050.2 The Internet of Things (IoT) describes the milieu of these connected devices, which are connected to each other and to the internet. IoT technologies are transforming not only industrial processes but the way people do business. Their effect is far reaching, cutting across all disciplines and industries. These connected devices range from wearables, children's smart toys and home appliances, to digital health devices and autonomous vehicles. In this new world of product development, IoT technologies are marked by shorter product and adoption cycles and have the capability to collect, store, and exchange highly specific data about their users. Product failures or vulnerabilities of IoT devices may not only lead to privacy breaches, but also to property damage, personal injury, and economic loss claims. Class actions may well become an effective litigation tool for advancing claims involving IoT technology failures. As recent IoT class action jurisprudence demonstrates, IoT product failures may be exposed by an ill-intentioned third party in the course of a cyber-attack or through benign schemes driven by research and journalistic initiatives.3 At times, the exposed vulnerability may necessitate a product recall.4 Read More →<p>At an estimated 8.4 billion in number, connected devices now in use outnumber people on earth.<sup>1</sup> It is estimated that the usage of these devices will continue to grow, reaching 20 billion devices over the next two years and 50 billion devices by 2050.<sup>2</sup> The Internet of Things (IoT) describes the milieu of these connected devices, which are connected to each other and to the internet. IoT technologies are transforming not only industrial processes but the way people do business. Their effect is far reaching, cutting across all disciplines and industries. These connected devices range from wearables, children's smart toys and home appliances, to digital health devices and autonomous vehicles.</p><p>In this new world of product development, IoT technologies are marked by shorter product and adoption cycles and have the capability to collect, store, and exchange highly specific data about their users. Product failures or vulnerabilities of IoT devices may not only lead to privacy breaches, but also to property damage, personal injury, and economic loss claims. Class actions may well become an effective litigation tool for advancing claims involving IoT technology failures. As recent IoT class action jurisprudence demonstrates, IoT product failures may be exposed by an ill-intentioned third party in the course of a cyber-attack or through benign schemes driven by research and journalistic initiatives.<sup>3</sup> At times, the exposed vulnerability may necessitate a product recall.<sup>4</sup></p><p><a href="http://blg.com/en/News-And-Publications/Publication_5354" target="_blank"><strong>Read More →</strong></a></p>7/20/2018 4:00:00 AM2018-07-20T04:00:00ZTrue1float;#7.00000000000000float;#2018.00000000000string;#Julyfloat;#201807.000000000GP0|#d531403d-b705-440c-8be2-98e2a4c77989;L0|#0d531403d-b705-440c-8be2-98e2a4c77989|Class Actions;GTSet|#efd3ce69-ee46-4bca-b6af-3daf96f6b0eb;GP0|#da989fe7-de9b-44ca-9a7c-ade6643bc163;L0|#0da989fe7-de9b-44ca-9a7c-ade6643bc163|Cybersecurity;GP0|#73bd9e71-b257-4720-b5f3-2bd7b78a546e;L0|#073bd9e71-b257-4720-b5f3-2bd7b78a546e|Litigation StrategyClass Actions;Cybersecurity;Litigation Strategy
If You Want to be Sure, You Should be Prepared to Pay for Ithttp://blog.blg.com/theexchange/Lists/Blog Posts/DispForm.aspx?ID=362If You Want to be Sure, You Should be Prepared to Pay for It362BLG Blog PostJake Zhongjzhong@blg.com | Jake Zhong | 693A30232E777C626C6763616E6164615C6A7A686F6E67 i:0#.w|blgcanada\jzhong ​A recent decision of the British Columbia Supreme Court highlights the potential risk of relying on freely available information coupled with a disclaimer that limits liability.<p>​A recent decision of the British Columbia Supreme Court highlights the potential risk of relying on freely available information coupled with a disclaimer that limits liability.</p> The recent decision of the British Columbia Court of Appeal in Kokanee Mortgage M.I.C. Ltd. v. Burrell1 confirms that the general principle in law remains that disclaimers extinguish liability. Only in very limited circumstances can a party reasonably rely on a piece of information coupled with a clear clause excluding liability. In this case, Kokanee Mortgage M.I.C. Ltd. ("Kokanee") is a mortgage company. It made a $700,000 loan to a borrower and took a second mortgage on a real property owned by the borrower as security. Before advancing the loan, one of the managing directors of Kokanee reviewed and relied on an appraisal report prepared by Robin Burrell of Coast Property Appraisals Ltd. ("Coast Property") for the borrower in relation to the real property. However, as it turned out, the appraised value certified by Coast Property in its report was off the mark by almost $1 million. The borrower subsequently defaulted on their obligations. Although Kokanee successfully foreclosed on the real property, it still suffered significant losses on this loan. Kokanee then sued Coast Property and its principals for negligent misrepresentation. Coast Property's primary defence is a disclaimer clause found in its report which states, among other things It is not reasonable for any other party to rely on this appraisal without first obtaining written authorization from the client, the author and any supervisory appraiser … Written consent from the author and supervisory appraiser, if applicable, must be obtained before any part of the appraisal report can be used for any purpose by anyone except the client and other intended users identified in the report … In his reasons, Harris J. distilled the issue in this case to the following question assuming Kokanee's reliance would have been reasonable in the absence of the disclaimer, was it reasonable for Kokanee to rely with knowledge of the disclaimer?2 In answering this question, Harris J. noted that, to treat Kokanee's reliance as reasonable in the circumstances of this case would be to permit Kokanee, through its otherwise reasonable reliance, to unilaterally impose a practically non-disclaimable duty on Coast Property.3 In the end, Harris J. found that it was reasonable for Coast Property to include the disclaimer in its report to control its risk of liability and the borrower to use the appraisal to interest a prospective lender, but it was not reasonable for Kokanee to rely on the appraisal while having full knowledge of the disclaimer. The crucial consideration here is the fact that there are alternative sources of information available should Kokanee needs to be certain about the fair market value of the real property but instead it decided to rely on Coast Property's appraisal for reasons of business efficacy.4 The Court then went on to dismiss Kokanee's action in its entirety. It should be noted, however, this case does not suggest that once a party inserts a disclaimer in the information it gives to another party, it is then fully protected from potential liability. There are circumstances that warrant a finding that even with full knowledge of the disclaimer, it is still reasonable for the other party to rely on such information.5 Rather, the key takeaway of this decision should be that if more reliable information is needed, the inquirer should be prepared to pay for it.6 1 Kokanee Mortgage M.I.C. Ltd. v. Burrell, 2018 BCCA 151 2 supra, at paras. 24-25 3 supra, at para. 38 4 Kokanee Mortgage M.I.C. Ltd. v. Burrell, 2018 BCCA 151, at paras. 38-40 5 See Micron Construction Ltd. v. Hong Kong Bank of Canada, 2000 BCCA 141 6 Kokanee Mortgage M.I.C. Ltd. v. Burrell, 2018 BCCA 151, at para. 35<p>The recent decision of the British Columbia Court of Appeal in <strong> <em>Kokanee Mortgage M.I.C. Ltd. v. Burrell</em></strong><sup>1</sup> confirms that the general principle in law remains that disclaimers extinguish liability. Only in very limited circumstances can a party reasonably rely on a piece of information coupled with a clear clause excluding liability.</p><p>In this case, Kokanee Mortgage M.I.C. Ltd. ("<strong>Kokanee</strong>") is a mortgage company. It made a $700,000 loan to a borrower and took a second mortgage on a real property owned by the borrower as security. Before advancing the loan, one of the managing directors of Kokanee reviewed and relied on an appraisal report prepared by Robin Burrell of Coast Property Appraisals Ltd. ("<strong>Coast Property</strong>") for the borrower in relation to the real property. However, as it turned out, the appraised value certified by Coast Property in its report was off the mark by almost $1 million. The borrower subsequently defaulted on their obligations. Although Kokanee successfully foreclosed on the real property, it still suffered significant losses on this loan. Kokanee then sued Coast Property and its principals for negligent misrepresentation.</p><p>Coast Property's primary defence is a disclaimer clause found in its report which states, among other things:</p><p style="margin-left:20px;"> <em>It is not reasonable for any other party to rely on this appraisal without first obtaining written authorization from the client, the author and any supervisory appraiser …</em></p><p style="margin-left:20px;"> <em>Written consent from the author and supervisory appraiser, if applicable, must be obtained before any part of the appraisal report can be used for any purpose by anyone except the client and other intended users identified in the report …</em></p><p>In his reasons, Harris J. distilled the issue in this case to the following question: assuming Kokanee's reliance would have been reasonable in the absence of the disclaimer, was it reasonable for Kokanee to rely with knowledge of the disclaimer?<sup>2</sup> In answering this question, Harris J. noted that, to treat Kokanee's reliance as reasonable in the circumstances of this case would be to permit Kokanee, through its otherwise reasonable reliance, to unilaterally impose a practically non-disclaimable duty on Coast Property.<sup>3</sup></p><p>In the end, Harris J. found that it was reasonable for Coast Property to include the disclaimer in its report to control its risk of liability and the borrower to use the appraisal to interest a prospective lender, but it was not reasonable for Kokanee to rely on the appraisal while having full knowledge of the disclaimer. The crucial consideration here is the fact that there are alternative sources of information available should Kokanee needs to be certain about the fair market value of the real property but instead it decided to rely on Coast Property's appraisal for reasons of business efficacy.<sup>4</sup> The Court then went on to dismiss Kokanee's action in its entirety.</p><p>It should be noted, however, this case does not suggest that once a party inserts a disclaimer in the information it gives to another party, it is then fully protected from potential liability. There are circumstances that warrant a finding that even with full knowledge of the disclaimer, it is still reasonable for the other party to rely on such information.<sup>5</sup> Rather, the key takeaway of this decision should be that if more reliable information is needed, the inquirer should be prepared to pay for it.<sup>6<br></sup></p><hr /><p> </p><p> <sup>1</sup> <em>Kokanee Mortgage M.I.C. Ltd. v. Burrell</em>, 2018 BCCA 151</p><p> <sup>2</sup> <em>supra</em>, at paras. 24-25</p><p> <sup>3</sup> <em>supra</em>, at para. 38</p><p> <sup>4</sup> <em>Kokanee Mortgage M.I.C. Ltd. v. Burrell</em>, 2018 BCCA 151, at paras. 38-40</p><p> <sup>5</sup> See <em>Micron Construction Ltd. v. Hong Kong Bank of Canada</em>, 2000 BCCA 141</p><p> <sup>6</sup> Kokanee Mortgage M.I.C. Ltd. v. Burrell, 2018 BCCA 151, at para. 35</p>7/19/2018 4:00:00 AM2018-07-19T04:00:00ZTrue1float;#7.00000000000000float;#2018.00000000000string;#Julyfloat;#201807.000000000GP0|#75eda1bb-5890-4b6b-aad7-b703245ec2e8;L0|#075eda1bb-5890-4b6b-aad7-b703245ec2e8|Securities: Litigation Regulatory and Compliance;GTSet|#efd3ce69-ee46-4bca-b6af-3daf96f6b0ebSecurities: Litigation Regulatory and Compliance