CLAUSE DISCLAIMING RESPONSIBILITY TO THIRD PARTIES RELIEVES CONSULTANT OF RESPONSIBILITY FOR NEGLIGENCE IN PREPARATION OF ENVIRONMENTAL REPORT

Wolverine Tube (Canada) Inc. v. Noranda Metal Industries Ltd. 1995 CanLII 785 (ON CA)

The Ontario Court of Appeal dismissed an action for negligent misrepresentation against a consultant who failed to identify site contamination and breaches of environmental law in environmental reports provided to the vendor, and released to the purchaser. The Ontario court found that a liability disclaimer clause contained in the reports prevented the consultant from owing a duty of care to third parties, in this case the ultimate purchaser of the property.

Drafters should ensure that disclaimers are included in reports/contracts where appropriate, and that they are clearly and comprehensively drafted. Disclaimers of liability to third parties who rely on documents are strengthened in effect against third parties if the contract requires written permission for dissemination of the report to third parties. Generally speaking, disclaimer clauses have the effect of avoiding liability to third parties.

In Wolverine Tube Inc v, Noranda Metal Industries Ltd (1995) (ONCA), Wolverine Tube (Canada) Inc (“WTC”), commenced an action against Arthur D. Little of Canada Ltd (“ADL”), after it had acquired three properties pursuant to an Asset Purchase Agreement with Noranda Metal Industries Ltd (“NMI”), a wholly-owned subsidiary of Noranda Inc (“N Inc”). ADL had been retained by N Inc as a general consultant on environmental matters to perform environmental compliance audits and liability assessments on the properties for sale. Pursuant to the consulting agreement between them, ADL prepared three environmental reports in relation to the three properties, and had provided them to N Inc. Each of the reports contained a waiver clause disclaiming ADL’s responsibility for any damages suffered by a third party because of decisions made or actions taken in reliance on its reports. Although the consulting agreement stated that the reports were not to be circulated to third parties without the prior written permission of ADL, NMI had delivered them to WTC without ADL’s knowledge or consent. The reports failed to mention the extent of the site contamination and failed to identify violations of environmental laws, which WTC later discovered after its purchase of the properties. WTC sought damages suffered as a result of the negligently prepared reports, and ADL relied upon the liability disclaimers to defend the action. The issue on appeal was whether the liability disclaimers excluded the imposition of a duty of care owed by ADL to WTC. The Ontario Court of Appeal held that the broad language of the disclaimer clause prevented the duty of care by ADL and precluded the claim in negligence by WTC. The court stated that a duty of care does not arise where a defendant disclaims responsibility for the effects of relying upon its statements. Though the disclaimer alone was sufficient to dismiss the action, additional justification was found in the facts of the case. First, the disclosure of the reports to WTC was in breach of the consulting agreement between ADL and N Inc. Second, there was insufficient evidence that WTC had relied on the reports in proceeding with the purchase. The court found that WTC received legal advice in regard to the meaning of the disclaimer clauses before purchasing the properties. The Ontario Court of Appeal dismissed the appeal and stated that there was no issue for trial.

To read the full case on CanLII, click here.