The recent decision of the British Columbia Court of Appeal in Kokanee Mortgage M.I.C. Ltd. v. Burrell1 confirms that the general principle in law remains that disclaimers extinguish liability. Only in very limited circumstances can a party reasonably rely on a piece of information coupled with a clear clause excluding liability.
In this case, Kokanee Mortgage M.I.C. Ltd. ("Kokanee") is a mortgage company. It made a $700,000 loan to a borrower and took a second mortgage on a real property owned by the borrower as security. Before advancing the loan, one of the managing directors of Kokanee reviewed and relied on an appraisal report prepared by Robin Burrell of Coast Property Appraisals Ltd. ("Coast Property") for the borrower in relation to the real property. However, as it turned out, the appraised value certified by Coast Property in its report was off the mark by almost $1 million. The borrower subsequently defaulted on their obligations. Although Kokanee successfully foreclosed on the real property, it still suffered significant losses on this loan. Kokanee then sued Coast Property and its principals for negligent misrepresentation.
Coast Property's primary defence is a disclaimer clause found in its report which states, among other things:
It is not reasonable for any other party to rely on this appraisal without first obtaining written authorization from the client, the author and any supervisory appraiser …
Written consent from the author and supervisory appraiser, if applicable, must be obtained before any part of the appraisal report can be used for any purpose by anyone except the client and other intended users identified in the report …
In his reasons, Harris J. distilled the issue in this case to the following question: assuming Kokanee's reliance would have been reasonable in the absence of the disclaimer, was it reasonable for Kokanee to rely with knowledge of the disclaimer?2 In answering this question, Harris J. noted that, to treat Kokanee's reliance as reasonable in the circumstances of this case would be to permit Kokanee, through its otherwise reasonable reliance, to unilaterally impose a practically non-disclaimable duty on Coast Property.3
In the end, Harris J. found that it was reasonable for Coast Property to include the disclaimer in its report to control its risk of liability and the borrower to use the appraisal to interest a prospective lender, but it was not reasonable for Kokanee to rely on the appraisal while having full knowledge of the disclaimer. The crucial consideration here is the fact that there are alternative sources of information available should Kokanee needs to be certain about the fair market value of the real property but instead it decided to rely on Coast Property's appraisal for reasons of business efficacy.4 The Court then went on to dismiss Kokanee's action in its entirety.
It should be noted, however, this case does not suggest that once a party inserts a disclaimer in the information it gives to another party, it is then fully protected from potential liability. There are circumstances that warrant a finding that even with full knowledge of the disclaimer, it is still reasonable for the other party to rely on such information.5 Rather, the key takeaway of this decision should be that if more reliable information is needed, the inquirer should be prepared to pay for it.6