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Equity - Equitable Fraud

. Campbell v. Toronto Standard Condominium Corporation No. 2600

In Campbell v. Toronto Standard Condominium Corporation No. 2600 (Ont CA, 2024) the Ontario Court of Appeal allowed an appeal from a Superior Court application ruling that reversed an arbitrator's award ruling. The application held that s.46(1)9 ['Setting aside award - Fraud'] and s.47(2) of the Arbitration Act (AA) ['Time limit - Exception for Fraud'] operated, here on the argument that 'constructive fraud' (which is an equitable principle quite broader that typical fraud) applied in these AA provisions:
[1] This appeal raises the narrow question of the meaning of the word “fraud” in the Arbitration Act, 1991, S.O. 1991, c. 17, (the “Act”) and, in particular, whether the word as used in s. 46(1)9 and s. 47(2) of the Act includes “constructive fraud”. Section 46(1)9 permits a court to set aside an arbitral award that was obtained by fraud, and s. 47(2) provides that the normal 30-day time limit for commencing an application or appeal does not apply if fraud or corruption is alleged.


[4] The application judge granted the respondents’ application and set aside the arbitral award. Although he held that there was no actual fraud in this case, he found that the Condo Corp. had committed constructive fraud by agreeing to proceed with the arbitration to determine the issue of costs but then expanding the issues to address the entire history of the dispute between the parties. He held that the word “fraud” as it appears in s. 46(1)9 and s. 47(2) includes constructive fraud.


(f) Fraud v. constructive fraud

[51] In this case, the application judge gave the word “fraud” an expansive interpretation, including not only fraud but also the equitable concept of constructive fraud. As can be seen from his description of the difference between fraud and constructive fraud, in Holley, at para. 130, it is readily apparent that constructive fraud is a much broader concept than fraud, in that it eliminates the requirements of knowledge and intent to deceive:
To summarize, at its core, common law fraud involves dishonest and moral turpitude. The fraud elements of common law fraud are that the defendant has an intent to deceive and makes a false statement that he or she knows is false or the defendant makes a false statement that he or she is indifferent to its truth value. Constructive fraud does not necessarily involve dishonesty or moral fraud in the ordinary sense, but a breach of sort that would be enforced by a court of conscience. [Emphasis in the original.]
[52] In the words of the application judge, constructive fraud focuses on the concept of “unfairness”.

(g) “Fraud” does not include constructive fraud

[53] The word “fraud”, which is not defined in the Act, is used twice in the Act: in ss. 46(1)9 and 47(2). Given the presumption of consistent expression – the presumption that within a statute the same words have the same meaning and different words have different meanings – the word “fraud” has the same meaning in both sections: Sullivan, at § 8.04.

[54] As the application judge recognized, the word “fraud” has an established legal meaning at common law. The Supreme Court has recognized that “[w]ords that have a well-understood legal meaning when used in a statute should be given that meaning unless Parliament clearly indicates otherwise”: R. v. D.L.W., 2016 SCC 22, [2016] 1 S.C.R. 402, at para. 20. Thus, had the Legislature intended to extend the meaning of “fraud” to include the different and broader concept of “constructive fraud” one would have expected it to do so explicitly.

[55] Reading “fraud” to include the concept of “constructive fraud” would be out of step with appellate case law. As set out above, this court has consistently stated that s. 46 provides a narrow basis upon which a court may interfere with an arbitral award and does not create an alternate appeal route. The approach is consistent with the objectives of the Act – to promote efficiency and finality. While this court has not opined on s. 47(2), it has affirmed that there is no judicial discretion to extend the 30-day time limit under s. 47(1), which is also consistent with the principles of efficiency and finality.

[56] Case law has also repeatedly emphasized the exceptional nature of applications to appeal or set aside arbitral awards and the primacy of the terms of the arbitration agreement under which parties may restrict or preclude appeals. It has also cautioned courts to be aware of strategic attempts by losing parties to expand the scope of review beyond what they had agreed to under the arbitration agreement.

[57] In my view, expanding the meaning of the word fraud in s. 46(1)9 and s. 47(2) to include constructive fraud would be at odds with this case law. It risks significantly undermining the principles of efficiency and finality, because the nature of constructive fraud is much broader than that of fraud itself, as the application judge recognized. Unlike civil fraud, actual dishonesty or intent to deceive is not required to establish constructive fraud.

[58] Expanding the meaning of “fraud” also risks inviting strategic enlargement of the grounds for setting aside an arbitral award, as illustrated by this case.

[59] In this case, had the parties applied to set aside the arbitral award within the 30-day period set by s. 47(1), it is conceivable that their claims might have fallen within some of the other grounds enumerated in s. 46 for setting aside an award, such as the invalidity of the agreement, as set out in s. 46(1)2, or procedural unfairness, as set out in s. 46(1)6 of the Act, though I do not want to be taken as suggesting that such grounds would or could have succeeded in the circumstances. Those routes were no longer open to the respondents after the expiration of 30 days by the express terms of ss. 46 and 47: see e.g., Mattamy (Downsview) Limited v. KSV Restructuring Inc. (Urbancorp), 2023 ONSC 3013, at paras. 39-40.

[60] Instead, the respondents sought to circumvent the time limit by alleging fraud and constructive fraud. The application judge delved into the merits of the arbitrator’s decision in the course of reaching his conclusion that constructive fraud is included in the meaning of fraud. Each side had a different view of what “costs” meant. This was at the heart of the merits of the case. But it was not open to the respondents to argue that the arbitrator had erred, or wrongly or even unfairly interpreted the terms of the agreement in seeking to have the award set aside under s. 46(1)9. For these reasons, I conclude that the application judge erred in interpreting “fraud” to include constructive fraud in s. 46(1)9 and s. 47(2).

[61] In any event, to the extent that the arbitrator did determine substantive issues that were not simply “costs” in the narrowest sense, it did not amount to constructive fraud in the circumstances. It was appropriate and necessary for him to consider factors such as the history and nature of the complaints, the length of the proceedings and the reasonableness of the parties’ conduct in the course of exercising his costs discretion: Act, s. 54; see also s. 4 of the Notice of Arbitration.
. 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.


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Last modified: 27-03-24
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