Simon's Megalomaniacal Legal Resources

Equity - Equitable Fraud

. Outaouais Synergest Inc. v. Lang Michener LLP

In Outaouais Synergest Inc. v. Lang Michener LLP (Ont CA, 2013) the Court of Appeal considered a botched real estate conveyance from the perspective of equitable fraud:

[92] ... The leading authority on equitable fraud is the English Court of Appeal’s decision in Kitchen v. Royal Air Force Association, [1958] 2 All E.R. 241, where Lord Evershed M.R. defined equitable fraud as “conduct which, having regard to some special relationship between the two parties concerned, is an unconscionable thing for the one to do towards the other” (at p. 249).

[93] Although not necessarily an exclusive list, there appear to be certain recognized circumstances where the concept of equitable fraud is engaged. First, conduct amounting to equitable fraud or fraudulent concealment may prevent a party from relying on a limitation period or other statutory provision that would otherwise exonerate the party from liability: see Guerin v. The Queen, 1984 CanLII 25 (SCC), [1984] 2 S.C.R. 335, at p. 356 (per Wilson J.) and at p. 390 (per Estey J.); First City Capital Ltd. v. British Columbia Building Corp. (1989), 1989 CanLII 2868 (BC SC), 43 B.L.R. 29 (B.C.S.C.); Sun-Rype Products Ltd. v. Archer Daniels Midland Company, 2008 BCCA 278, 81 B.C.L.R. (4th) 199, leave to appeal refused, [2008] S.C.C.A. No. 416. Secondly, conduct amounting to equitable fraud is one of the preconditions to the availability of the remedy of rectification of a contract on the grounds of unilateral mistake: see Sylvan Lake, at paras. 38-39. Finally, equitable fraud has been used to describe conduct that gives rise to a breach of a fiduciary duty or other equitable obligation: see Canson Enterprises Ltd. v. Boughton & Co., 1991 CanLII 52 (SCC), [1991] 3 S.C.R. 534, at p. 571.

. Pioneer Corp. v. Godfrey

In Pioneer Corp. v. Godfrey (Ont CA, 2019) the Supreme Court of Canada discusses 'fraudulent concealment' as a form of equitable fraud applied to extend the running of limitations:

[52] Fraudulent concealment is an equitable doctrine that prevents limitation periods from being used “as an instrument of injustice” (M. (K.), at pp. 58-59). Where the defendant fraudulently conceals the existence of a cause of action, the limitation period is suspended until the plaintiff discovers the fraud or ought reasonably to have discovered the fraud (Guerin v. The Queen, 1984 CanLII 25 (SCC), [1984] 2 S.C.R. 335, at p. 390). It is a form of “equitable fraud” (Guerin, at p. 390; M. (K.), at pp. 56-57), which is not confined to the parameters of the common law action for fraud (M. (K.), at p. 57). As Lord Evershed, M.R. explained in Kitchen v. Royal Air Forces Association, [1958] 2 All E.R. 241 (C.A.), at p. 249, cited in M. (K.), at pp. 56-57:

It is now clear . . . that the word “fraud” in s. 26(b) of the Limitation Act, 1939, is by no means limited to common law fraud or deceit. Equally, it is clear, having regard to the decision in Beaman v. A.R.T.S., Ltd., [1949] 1 All E.R. 465, that no degree of moral turpitude is necessary to establish fraud within the section. What is covered by equitable fraud is a matter which Lord Hardwicke did not attempt to define two hundred years ago, and I certainly shall not attempt to do so now, but it is, I think, clear that the phrase covers conduct which, having regard to some special relationship between the two parties concerned, is an unconscionable thing for the one to do towards the other. [Emphasis added.]

[53] While it is therefore clear that equitable fraud can be established in cases where a special relationship subsists between the parties, Lord Evershed, M.R. did not limit its establishment to such circumstances, nor did he purport to define exhaustively the circumstances in which it would or would not apply (see T.P. v. A.P., 1988 ABCA 352 (CanLII), 92 A.R. 122, at para. 10). Indeed, he expressly refused to do so: “[w]hat is covered by equitable fraud is a matter which Lord Hardwicke did not attempt to define two hundred years ago, and I certainly shall not attempt to do so now” (Kitchen, at p. 249, emphasis added).

[54] When, then, does fraudulent concealment arise so as to delay the running of a limitation period? Recalling that it is a form of equitable fraud, it becomes readily apparent that what matters is not whether there is a special relationship between the parties, but whether it would be, for any reason, unconscionable for the defendant to rely on the advantage gained by having concealed the existence of a cause of action. This was the Court’s point in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19 (CanLII), [2002] S.C.R. 678, at para. 39:

[Equitable fraud] “… refers to transactions falling short of deceit but where the Court is of the opinion that it is unconscientious for a person to avail himself of the advantage obtained” (p. 37). Fraud in the “wider sense” of a ground for equitable relief “is so infinite in its varieties that the Courts have not attempted to define it”, but “all kinds of unfair dealing and unconscionable conduct in matters of contract come within its ken” [Emphasis added.]

It follows that the concern which drives the application of the doctrine of equitable fraud is not limited to the unconscionability of taking advantage of a special relationship with the plaintiff. Nor is the doctrine’s application limited, as my colleague suggests, to cases where there is something “tantamount to or commensurate with” a special relationship between the plaintiff and the defendant (paras. 171 and 173-74). While a special relationship is a means by which a defendant might conceal the existence of a cause of action, equitable fraud may also be established by pointing to other forms of unconscionable behaviour, such as (for example) “some abuse of a confidential position, some intentional imposition, or some deliberate concealment of facts” (M. (K.), at p. 57, citing Halsbury’s Laws of England (4th ed. 1979), vol. 28, para. 919). In short, the inquiry is not into the relationship within which the conduct occurred, but into the unconscionability of the conduct itself.