According to this recently released case, purchasers who spend money assessing the merits of a purchase of assets must absorb those costs because sellers have no obligation or duty to disclose factors about the asset that could impact its value or quality. In this case it was expenses associated with a real estate purchase and sale (ie: appraisers, surveys, soil tests, consultants, etc). Absent such a duty, the cost to pursue the asset is simply the cost of doing business: not all negotiations end up in a ratified agreement, and often deals fall through when the due diligence is done.
The case involved a prospective purchaser who was denied the right to recover the costs they incurred in pursuing a land deal with a Municipality, who the prospective purchaser believed wasted their time by not disclosing problems with the land, including environmental and Indian burial site issues. The purchaser argued that the municipality owed them a duty to disclose during the negotiation of the agreement of purchase and sale (“APS”). The court rejected this argument, concluding that there was no common law duty or obligation to disclose during negotiations: in this case, no obligation or duty to disclose the potential environmental/archeological issues leading up to or during the negotiations.
The court came to this view based on commercial policy grounds, as follows:
“[205] A duty to conduct contractual negotiations in good faith or a positive obligation to disclose negative information about one’s product or services, is inherently repugnant to the adversarial process of commercial negotiations.
[206] There is no certainty or standard by which a court could enforce such a duty at common law. Such a common law duty could not adequately or reasonably be “enforced” by the court. Contrast this to situations where such a statutory duty of detailed disclosure exists to protect the public such as in a prospectus in the Securities Act or in a franchise offering in the Arthur Wishart Act.
[207] Parties are entitled to pursue their own respective interests during the course of contractual negotiations. On the other hand, once an agreement is finalized by the parties, courts has jurisdiction to deal with limited aspects of the negotiations such as whether fraudulent or negligent misrepresentations were made during the negotiations but only in the context of the agreed upon terms in the agreement. That is because the parties have negotiated and agreed upon the terms of the agreement – the necessary yardstick for assessing any claims advanced.
…
[209] To ensure what is important to them, during contractual negotiations either party can request as a term of the agreement being negotiated representations or warranties from the opposing side. Each party knows what is important to them and know what representations and warranties they want or need for them to come to an agreement. It is for the other party to decide what representations or warranties, if any, will or will not be given and included in the agreement. If a party wants a particular representation or term that the other party refuses to agree to, the remedy is to withdraw from the negotiations.
[210] Absent some statutory obligation to disclose, to require parties to enter negotiations with an obligation to fully and completely disclose all potential negative facts to the opposing side (whether the other side considers them relevant) would eliminate due diligence, the need for representations, warranties and many terms. And then the issue would be what is material? Was it fully disclosed? Were the consequences of the negative fact disclosed? And so forth.
[211] All parties enter negotiations knowing that an agreement may or may not be reached. Both parties take their chances, spend their time and often money, during the negotiations.
[212] I conclude, there was no duty or obligation of good faith to negotiate before or after the Preliminary Agreement.
[213] This claim is dismissed.
The case is chock full of analysis on other “theories” of liability as well, all of which were rejected: these include alleged breach of duty of good faith set out by the Supreme Court in Bhasin v. Hrynew, 2014 SCC 71, the Municipality’s alleged breach of their own that purported created a duty of “openness, accountability and transparency,” alleged enhanced duties owed by municipal defendants to act in a “bona fide” manner and without “fraud, oppression or improper motives,” the alleged duty to disclose latent or patent defects, misrepresentation (through silence), fraud, breach of fiduciary duty, unjust enrichment, etc.
Correct Building Corporation v. Lehman, 2022 ONSC 527
https://www.canlii.org/en/on/onsc/doc/2022/2022onsc527/2022onsc527.html#_Toc94003713