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Civil Litigation - Costs - Effect of Allegation of Fraud

. 2651171 Ontario Inc. v. Brey

In 2651171 Ontario Inc. v. Brey (Ont CA, 2022) the Court of Appeal considered the role of unfounded fraud allegations on cost awards:

[11] Finally, we address the respondent Brey’s submission that the appellant’s costs should be reduced because of the appellant’s alternative submission on the motions that the respondent Brey fraudulently misrepresented that the property could be used as a fourplex. We agree there should be a reduction.

[12] Regardless at what stage in the proceedings they are raised, unfounded allegations of fraud may attract serious cost consequences as a form of chastisement and a mark of the court’s disapproval because of their extraordinarily serious nature that go directly to the heart of a person’s very integrity: Bargman v. Rooney (1998), 30 C.P.C. (4th) 259 (Ont. Gen. Div.), at paras. 18-19.

[13] In the present case, the appellant did not plead fraudulent misrepresentation. Rather, the issue of fraudulent misrepresentation was raised as an alternative argument to its main contention of negligent misrepresentation. The motion judge declined to determine this issue because it was not advanced in its statement of claim. She also stated that had the claim been properly advanced, she would have dismissed it “in the absence of any credible evidence that [the respondent] Brey intentionally misled [the appellant] and other potential purchasers about the lawful use of the Property or potential exposure as a result of the renovation of the Property forty-five years earlier.”

[14] The appellant’s allegations of fraudulent misrepresentation occupied a small part of the proceedings and did not form the basis for the motion judge’s decision. Nevertheless, based on the motion judge’s reasons, they appear to have been proffered “without regard for the rule that fraud must be strictly pleaded and strictly proved”: Toronto Dominion Bank v. Leigh Instruments Ltd. (Trustee of), [1998] O.J. No. 4221 (Gen. Div.), at para. 17. Moreover, while not all unsuccessful allegations of fraud and dishonesty lead inexorably to cost consequences, where, as here, a party makes such allegations unsuccessfully “with access to information sufficient to conclude that the other party was merely negligent and neither dishonest nor fraudulent”, costs sanctions may be appropriate: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 26.

[15] As a result, we are of the view that a reduction of the appellant’s costs is appropriate as a reminder that “allegations of fraud and dishonesty are simply not to be made unless there is every reasonable likelihood that they can be proved”: Bargman, at para. 19.