Concurrent Liability in Tort and Contract for Pre-contractual Misrepresentation

Introduction

The topic of this article is concurrent liability for pre-contractual misrepresentation made between contracting parties.

It is not uncommon for negligent misrepresentations to be made by parties in a contractual relationship with one another. The legal analysis of such misrepresentations depends on whether the misrepresentations were made prior to, or after, the execution of the contract. This article, as mentioned, concerns pre-contractual misrepresentations.

Importantly, a given pre-contractual misrepresentation may, but not must, give rise to liability in both tort and contract (Economic Negligence, 5th Edition, by Bruce Feldthusen, pg 87) (“Feldthusen”).

The key issues are (1) will a given pre-contractual misrepresentation support a claim in contract and tort concurrently; and (2) what consequences result from concurrent liability.
However, before turning to these two key issues, a brief discussion of the importance of concurrent liability is presented.

The Importance of Concurrent Liability

The question of when a given situation will facilitate both tort and contract actions is important because there may be several key differences between the actions that could influence the plaintiff’s choice of action.

The first key difference relates to limitation periods. Specifically, in contract the limitation period ordinarily begins to run upon breach, whereas in tort the limitation period does not run until the damage becomes known (Feldthusen, pg 99). Thus, a plaintiff seeking the benefit of an extended limitation period would probably want to bring an action in tort, assuming breach occurred prior to the damage coming to light.

The second key difference is that the rules of remoteness (determining liability for damages remotely resulting from tort or breach of contract) may differ (Feldthusen, pg 99). The plaintiff will, obviously, want to bring an action in which remoteness considerations are less likely to negate or diminish damages, and the choice of action could be important to this issue.
The third key difference is that sometimes the measure of damages will be greater in tort, and sometimes greater in contract (Feldthusen, pg 99). Clearly, the plaintiff should frame their action so as to maximize the damages recoverable.

The final key difference is that the applicability of statutes relating to contribution and apportionment between concurrent wrongdoers may depend on whether both wrongdoers are tortfeasors, or whether one is a tortfeasor and one merely in breach of contract (Feldthusen, pg 99).

Does an Action for Pre-contractual Misrepresentation lie Concurrently in Contract and Tort?

The leading case on concurrent liability for pre-contractual misrepresentation is BG Checo International Ltd. v. B.C. Hydro and Power Authority [1993] 1 S.C.R. 12 (“BG Checo”).

In BG Checo, the Supreme Court of Canada explained the basic rule governing concurrent liability, by saying that “where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, except where the contract indicates that the parties intended to limit or negative the right to sue in tort” (BG Checo, para 15).

To this end, it is “always open to parties to limit or waive the duties which the common law would impose on them for negligence” (BG Checo, para 15). However, a contractual limitation may not apply where the tort is independent of the contract in the sense of falling outside the scope of the contract (BG Checo, para 21).

The right to sue in tort will not be excluded merely because the parties have dealt with the matter expressly in their contract. What matters is how the parties have dealt with it (BG Checo, para 15). It is untrue that a contradiction of the tort duty by the contract completely negates the tort duty; instead, the tort duty is diminished to the extent that it is contradicted by the contract (BG Checo, para 16). That said, it is not necessary for an exclusion clause to expressly refer to negligence in order to exclude a negligence action (No. 2002 Taurus Ventures Ltd. v. Intrawest Corp 2007 BCCA 228, para 59).

The Implications of Concurrent Liability for Plaintiffs

If the basic rule above is satisfied (i.e. a given pre-contractual misrepresentation does prima facie support an action in both tort and contract, and the contract does not indicate the parties’ intention to limit or negate the right to sue in tort) then the plaintiff will have a choice of actions.

This choice will likely be influenced by the relationship between the tort duty and the contractual duty. There are three types (BG Checo, paras 17-19) of such relationships.
The first relationship is one in which the contract stipulates a more stringent obligation than the general law of tort would impose. Here, the parties are unlikely to sue in tort, since they could not recover in tort for the higher contractual duty (BG Checo, para 17).

The second relationship is one in which the contract stipulates a lower duty than that which would be imposed by the law of tort. In this situation, like the first, there is little point to suing in tort because the tort duty (and consequently any tort liability) is limited by the specific limitation agreed upon by the parties (BG Checo, para 18).

The third relationship is one in which the duty in contract and the duty in tort are co-extensive. Here, the plaintiff may seek to sue concurrently or alternatively in tort to secure some advantage specific to the law of tort (such as a more generous limitation period) (BG Checo, para 19). Reference to the differences between tort and contract mentioned above (limitation periods, damages, remoteness rules, and application of statutes) will aid the plaintiff in deciding how to frame the action.

Conclusion

There are important consequences to determining whether an action for pre-contractual misrepresentation lies concurrently in tort and contract.

An action in tort may differ from an action in contract with respect to limitation periods, remoteness rules, extent of damages, and application of statutes.

A pre-contractual misrepresentation will lead to concurrent liability where a given wrong prima facie supports an action in both contract and tort, and the contract does not indicate that the parties intended to limit or negate the tort duty.

If a given wrong does provide for concurrent liability, then the plaintiff will have a choice as to how to frame the action.

If the contract duty is greater than the tort duty, then the plaintiff will likely sue in contract due to the unavailability of recovery, in tort, for the higher contractual duty.
If the contract duty is lesser than the tort duty, then the plaintiff will similarly likely sue in contract because recovery in tort would be diminished by the extent to which the contract limits the tort duty.

If the contract duty is equal to the tort duty, then the plaintiff will have to examine the potential differences between the two claims (limitation periods, remoteness rules, extent of damages, and application of statutes) to determine how best to frame the action.