Negligent misrepresentation arises where a party suffers loss after reasonably relying on a false or misleading representation, even though the representor did not intend to deceive. Unlike fraudulent misrepresentation, which focuses on deliberate dishonesty, negligent misrepresentation centres on a failure to meet the applicable standard of care.
This cause of action is frequently pleaded in commercial disputes involving pre-contractual statements, professional advice, financial representations, and informational disclosures. Courts approach it through the established negligence framework.
The Elements of Negligent Misrepresentation
The Supreme Court of Canada in Queen v. Cognos Inc. articulated the required elements. A plaintiff must prove all of the following:
- A representation was made by the defendant.
- The defendant owed the plaintiff a duty of care based on a special relationship.
- The representation was false, inaccurate, or misleading.
- The defendant acted negligently in making the representation.
- The plaintiff reasonably relied on the representation.
- The plaintiff suffered damages as a result of that reliance.
These elements were reaffirmed in Lesage v. Canadian Forest Products Ltd..
Negligent misrepresentation follows the conventional negligence structure: duty of care, breach of the standard of care, causation, and damage.
Failure to establish any one of these elements will defeat the claim.
Duty of Care
The existence of a duty of care is assessed using the two-stage test from Cooper v. Hobart, as applied in negligent misrepresentation cases including Deloitte & Touche v. Livent Inc. (Receiver of).
Stage One: Prima Facie Duty
The court asks whether the relationship between the parties establishes:
- Reasonable foreseeability of harm; and
- Sufficient proximity.
Foreseeability examines whether the plaintiff’s injury was a reasonably foreseeable consequence of the defendant’s negligence.
Proximity assesses whether the relationship is sufficiently close and direct that it would be just and fair to impose a duty of care. In negligent misrepresentation cases, proximity is defined primarily by:
- The purpose for which the representation was made; and
- The reasonableness of the plaintiff’s reliance.
Reliance that falls outside the purpose of the representation generally falls outside the scope of the proximate relationship.
Stage Two: Residual Policy Considerations
If a prima facie duty exists, the court considers whether broader policy considerations should negate or limit that duty.
The Supreme Court has identified several relevant factors, including:
- Whether the law already provides an alternative remedy;
- The risk of creating indeterminate liability to an indeterminate class; and
- Other broad policy considerations weighing against recognition of a duty.
These considerations reflect judicial caution in expanding liability for informational statements, particularly in commercial and professional contexts.
Recognized Categories
Where courts have previously recognized a category of relationship as giving rise to a duty of care, the full Anns/Cooper analysis may not be required. In Childs v. Desormeaux, the Supreme Court confirmed that where an established category applies, courts will determine whether the present relationship is truly analogous. If so, residual policy considerations will generally have already been addressed.
Practical Implications
Negligent misrepresentation claims frequently arise in commercial settings involving:
- Precontractual negotiations;
- Financial disclosures;
- Professional advice; and
- Informational statements intended to induce reliance.
The central issues typically concern the scope of the representation, the purpose for which it was made, and whether reliance was reasonable in the circumstances. Courts will examine not only what was said, but the context in which it was communicated.
Importantly, negligent misrepresentation does not require proof of intentional wrongdoing. Liability may arise where a party undertakes to provide information in circumstances that invite reliance and fails to exercise reasonable care in doing so.
Fraudulent misrepresentation is different.
Key Risk Management Considerations for Businesses
Two principles matter more than the rest. First, define the purpose and scope of every material representation. Courts assess proximity and reasonable reliance against the purpose for which the statement was made; if you leave that undefined, you expand your exposure. Be explicit about who the information is for and what decisions it is meant to support. Second, implement and document a defensible verification process before making factual or financial statements. Negligent misrepresentation turns on whether reasonable care was exercised. If you cannot demonstrate the methodology, assumptions, and internal review behind a representation, you will struggle to prove you met the standard of care.
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