Real Estate – Disclosure Statement – Negligent Misrepresentation – Future Oriented Financial Information – Duty of Care to Investors
Brad Dixon and Steve Warnett for the Plaintiffs

In litigation arising out of the pre-sale of strata units for the Westin Grand Hotel in Vancouver, the Plaintiff investors were successful in establishing that misrepresentations were made in connection with the presentation of future oriented financial information (“FOFI”) in the disclosure statement issued for marketing purposes. The court's ruling follows on from the recognition by the Supreme Court of Canada, in Kerr v. Danier Leather that the presentation of FOFI in disclosure documents may carry with it actionable, implied representations that reasonable care and skill has been exercised in the development of financial projections and, in appropriate circumstances, that the financial projections are objectively reasonable.

In making various liability findings, the court found that the occupancy assumptions underlying the financial projections for the hotel had not been developed using reasonable care and skill by the hotel consulting firm engaged by the developers. The hotel consulting firm was found to owe a duty of care to investors in providing its reasonableness opinion and was found to have breached that duty. The financial projections were attributed in the disclosure statement to the hotel developers and to the proposed hotel management company. Applying Kerr v. Danier Leather, the court found that the hotel developers and the proposed hotel management company had made an implied representation that the financial projections were objectively reasonable and had done so negligently. Liability on these common law misrepresentation claims is subject to proof of reliance and loss. Under the British Columbia Real Estate Act, Part 2, now repealed and replaced by the Real Estate Development Marketing Act, the hotel developers and directors were found to have made false statements in the Disclosure Statement in comparing the assumed occupancy rates for the hotel to the expected occupancy rates for competitive hotels. Subject to proof of quantum, the hotel developers and directors were found liable to compensate the Plaintiff investors pursuant to the statutory cause of action.