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Fraud - Defences. Liquid Capital Exchange Corp. v. Daoust
In Liquid Capital Exchange Corp. v. Daoust (Ont CA, 2024) the Ontario Court of Appeal denies the proposition that a lack of due diligence by a fraud victim operates as a defence to the fraudster:[20] Liquid Capital also submits that the trial judge erred by considering whether it had failed to exercise due diligence that would have uncovered the fraud. When a person has been deceived by fraud it is not a defence that they could have learned the truth by proper inquiry: Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678, at para. 69.
[21] The short answer to this argument is that, on a fair reading of the trial judge’s reasons, she did not introduce a lack of due diligence defence into her consideration of the fraud claim against Zito. She concluded, in respect of that claim, that Liquid Capital had not proven that Zito was a party to the fraud. Her two references to a due diligence concept were not related to that finding. Although she may have considered a lack of due diligence on the point of whether it would be appropriate to hold Enbridge vicariously liable if Zito had committed a fraud, she nowhere indicates that lack of due diligence was a defence for Zito.
[22] Paragraph 22 of the trial judge’s reasons describes a proposition that “Liquid Capital was not properly diligent” as a “theory of Enbridge’s defence”, not Zito’s. She later, in analysing the claim against Enbridge, noted that Liquid Capital did not fully follow its own procedures and that, had it done so, it would have discovered the fraud. But she does not state that any failure of due diligence on Liquid Capital’s part negated Zito’s alleged liability for fraud.
[23] The trial judge’s later reference, in para. 83 of her reasons, to Liquid Capital not completing its usual due diligence is not expressed as any sort of defence. Rather, she cites Liquid Capital’s lack of full diligence as having stemmed from its trust in Cook, leading it to become a victim of Cook and Daoust’s fraud.
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