"Shared water does not necessarily make good neighbours" Part 2 - The Appeal

In September, 2013, I wrote about a case involving the post-purchase discovery of an underground waterline on a farm.  The purchaser of a 97-acre hobby farm did not know that the vendor, who retained a three-acre parcel next to the farm where he had built his retirement home, continued to receive water from a spring on the 97-acre farm through an underground line that also supplied other neighbours.  Rather than disclosing the existence of the line and his expectation that he would continue to receive the water supply, the vendor provided a statutory declaration on the date of closing stating that he was "not aware of any person or persons ... having any claim or interest in the said lands or any part thereof adverse to or inconsistent with [his] title and that [he was] positive that none such exists."

After the waterline was discovered, the matter ended up in court and the trial judge declared that there was no prescriptive easement for the line and that the vendor was not entitled to an injunction to prevent the new purchaser from taking steps to interfere with the quality or quantity of the water supply.  The judge also found that the waterline constituted a "latent defect" and that the vendor was liable for negligent misrepresentation.  He awarded the purchaser $25,500 in damages along with nearly $115,000 in costs.

The vendor appealed the decision of the trial judge on negligent misrepresentation and damages to the Court of Appeal.  The Court of Appeal agreed with the trial judge's finding that the vendor had a duty of care not to make false statements to the purchaser, which arose "specifically from respondent's foreseeable and reasonable reliance on the appellant's representations contained in the statutory declaration."  And, since the vendor himself was a person with an alleged continuing interest in the land being purchased by the purchaser, he "knew, or, at the very least, ought to have known, that his representation to the contrary, in a statutory declaration executed under oath, was false."

The appeal was dismissed with costs to the purchaser in the amount of $22,000.

Read the appeal decision at: Hanisch v. McKean.

Judge: "Shared water does not necessarily make good neighbours ..."

Justice DiTomaso's remark seems pretty obvious - shared boundaries and shared resources are quite often the subject matter of litigation.  In this case, the Plaintiff organic farmer purchased a farm from a retired dental surgeon in 1998.  In 2007, she learned from a neighbour not only that the neighbour's water was contaminated with e-coli bacteria, but also that the neighbour's water was sourced from the Plaintiff's farm.  The judge noted: "This was surprising and disturbing news to her."

 

As a result of the discovery, the Plaintiff sued the retired surgeon for fraudulent or negligent misrepresentation.  She also sought a declaration against her neighbour that the neighbour has no prescriptive easement to use the waterline that originates on the Plaintiff's property and services the neighbour's property.  The neighbour counterclaimed for a declaration that she does have a prescriptive easement and for an injunction preventing the Plaintiff from doing anything that would interfere with the quantity or quality of the water running through the (alleged) easement.

 

At trial, a number of factual findings were made, including:

• neither the dental surgeon nor anyone on his behalf disclosed the shared waterline to the Plaintiff at any time prior to the purchase of the farm in 1998
• another farmer who had looked at purchasing the property was not told about the waterline either, and testified that had he known of it, he would not have purchased the property
• the Plaintiff received absolutely no notice of the shared waterline from the vendor prior to closing, and the first notice she had was from the neighbour in 2007
• surveys of the farm did not show the shared waterline, and would not have assisted a prospective purchaser or realtor in understanding that there was a shared water system
• the assertion by the vendor's real estate agent that notice of the waterline was not included in the property listing because there was no room for it was "incredible"
• the waterline to the neighbour's property was in use since October, 1967
• the evidence of the dental surgeon was that he consented to the use of the waterline from the time he purchased the farm property in 1975

The Court dismissed the claim by the neighbour for a prescriptive easement on the basis that use of the water line had been by consent (during the period relevant to determine the easement - in this case, 1967 to 2000, when the land was converted to Land Titles) and on the basis that the use was not "open and notorious".  The waterline was not visible and could not be discovered by the Plaintiff except from disclosure by another party. 

 

The neighbour's claim for an injunction was also dismissed.  There was no evidence of irreparable harm to the neighbour if the injunction was not granted - she could drill her own well for water. 

 

Justice DiTomaso then ruled that the waterline was a latent defect in the property and that the vendor, the retired dental surgeon, "misrepresented the nature of the property for sale by failing to notify or inform [the Plaintiff] that the water supply from the Farm supplied properties and residences to the north by way of the waterline."  The judge did not find that the misrepresentation was fraudulent (i.e. intended to mislead), but did find it was negligent and gave rise to liability.  The Plaintiff was awarded $25,500 in damages plus interest.

 

Read the decision at: Hanisch v. McKean.

Canadian Wheat Board loses appeal in negligent misrepresentation case dating from 1982

In late August 1982, widespread frost damage occurred to Western Canada’s premier Canada Western Red Spring wheat (CWRS), resulting in significant degrading of the crop. The Canadian Wheat Board (the CWB), along with the Canadian Grain Commission (the CGC), elected to market the damaged wheat under the specification “Wheat – Ex. Special Bin” (WSB) on the basis, despite its visual degradation, that it “possesses what is known as ‘fair’ milling quality and would be quite suitable for milling purposes.”

Pagnan S.p.A., an Italian corporation, purchased a large quantity of WSB from ConAgra Limited (Agro), an accredited CWB exporter. When the first cargo of wheat was delivered to Italy, it was found to be inferior and not of fair milling quality. Pagnan and Albionex together (Pagnan having sold, then repurchased the cargo from the other plaintiff, Albionex (Overseas) Limited) commenced an action in 1985, claiming against Agro for breach of contract and against the CWB based on the representations made with respect to the characteristics and quality of WSB. Agro crossclaimed against the CWB, asserting that it too had relied upon the CWB’s representations.

The trial judge in the Manitoba Court of Queen's Bench delivered lengthy reasons for decision in July 2009, holding Agro liable to the plaintiffs for breach of contract and the CWB liable for negligent misrepresentation. Agro’s crossclaim against the CWB was allowed. Judgment was eventually entered in favour of the plaintiffs and against the defendants jointly and severally in the amount of $4,642,392.40, inclusive of interest to the date of judgment, plus costs. Judgment was also entered (in favour of Agro) in a similar amount against the CWB.

Agro and the CWB then appealed their liability and damages, and the CWB appealed Agro’s crossclaim judgment. The plaintiffs also cross appealed, arguing that damages should be increased.  None of these appeals or cross-appeals succeeded at the Court of Appeal.

Read the decision at: Albionex (Overseas) Ltd. et al. v. Conagra Ltd. et al.

Caveat Emptor - 1978 John Deere 1830 "in very good condition"

In September 2008, the Defendant had advertised for sale in the Western Producer a 1978, 1830 John Deere tractor, indicating, among other things that it was in very good condition. The Plaintiff contacted the Defendant by telephone, who confirmed that it was in good condition. The parties arranged for the Plaintiff to attend at the Defendant’s place to examine the tractor. Having done so, the parties negotiated a sale of the tractor, on September 29, 2008, for the sum of $8,800.00. No written contract or bill of sale was signed by the parties.

In a civil action in the Provincial Court of Saskatchewan, the Plaintiff claimed that between the date of purchase and when these proceedings were commenced, roughly twenty-one months later, the tractor had very light service. In the interim, however, the Plaintiff had been required to spend $593.53 on the hydraulic cylinders. As well, in the spring of 2010, the tractor had been examined by a mechanic who confirmed that the rear of the engine block was cracked, and had been re-welded. As well there was a hole in the side of the engine block that had been patched by pieces of metal and covered up with silicone. Further, the steering mechanism was such that it was too dangerous to drive.

Therefore the Plaintiff claimed that the Defendant had engaged in misrepresentation of the mechanical condition of the tractor at the material time. He sought recission of the contract (cancellation), with a return to him of the purchase price and related expenses.

The Plaintiff, however, was unable to prove that the Defendant had misrepresented the state of the tractor at the time of purchase.  The Plaintiff did not call the mechanic who had examined the tractor as a witness.  On that basis, the Court declined to rescind the contract and found that the principle of caveat emptor (buyer beware) also applied.

Read the decision at: Suwinski v. Wiebe.

Court allowing negligent misrepresentation suit to proceed against Tobacco Marketing Board

An Ontario Superior Court Judge has dismissed most of the claims brought by tobacco growers against their marketing board, but is allowing a claim of negligent misrepresentation to proceed.  Justice Thomas Heeney found that the following claims related to the dismantlement of the tobacco industry in Ontario raised no reasonable cause of action (i.e. there is no legal basis for the claims):

• Refusal to share information: It was alleged that the Board was privy to information that it did not share with the producers that was critical to the survival of the industry.
• Negotiating an exit strategy: It was alleged that the Board shifted its emphasis from its duties as a regulator and marketer of tobacco to one that it is not authorized by statute to do: that is, to negotiate with the federal and provincial governments for a compensation package for tobacco producers that would result in tobacco production ceasing permanently in Ontario. This involved seeking compensation for the lost value of tobacco quota, lost income, lost property values and transitional assistance.
  
• Failure to properly negotiate annual crop sizes and to seek other markets: It was alleged that the Board called for an end to tobacco production in Ontario in 2006, and initially refused to negotiate the size of the 2006 crop. This had a negative effect on the actual crop size that was ultimately arrived at. In so doing, the Board acted negligently.
  
• Passing a regulation that prevented renting or share-growing quota: It was alleged that, in 2006, the Board wrongfully and without statutory authority passed a regulation which prevented the plaintiff from renting or share-growing its production quota if it sold the tobacco kilns located on its farm.
  

The one claim that did survive the motion to dismiss brought by the Marketing Board was related to a kiln conversion program.  In 2001, the manufactures told the producers, through the Board, that the burners in their tobacco kilns had to be converted from direct to indirect heat, to eliminate cancer-causing nitrosamines in the cured leaf.  This would involve an expenditure on the part of the producers of approximately $7,000 per kiln.  Producers were told by the Board that 25% of the kilns had to be converted in 2001 and the remainder in 2002. Producers were given three year projections in relation to crop size and, based upon this, the plaintiff made its business decision to make the required investment.  The Board neglected to get a signed commitment from the manufacturers in relation to crop size, with the result that they ended up being significantly less than the plaintiff had been led to believe, and insufficient to justify or pay for the cost of conversion.

Justice Heeney found that the Statement of Claim issued against the Marketing Board did disclose a cause of action for negligent misrepresentation and ruled that this part of the claim could proceed toward trial.  One important difference between the surviving claim and those that were dismissed was that the kiln conversion decision by the Board was an operational decision as opposed to a policy decision.  Government bodies cannot generally be held liable for bad policy, but they can be held liable for negligently putting the policy into action.


Read the decision at: Marlor Farms Inc. v. The Ontario Flue-Cured Tobacco Growers' Marketing Board.