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Fraud - General. CHU de Québec-Université Laval v. Tree of Knowledge International Corp.
In CHU de Québec-Université Laval v. Tree of Knowledge International Corp. (Ont CA, 2026) the Ontario Court of Appeal dismissed an appeal, here brought against a finding that the appellant was "personally liable for civil fraud".
The court considers the test for civil fraud, here focussing on 'recklessness':[70] As reviewed by the trial judge, and as set out in Bruno Appliance, at para. 21, the elements of a claim for civil fraud are as follows:(a) A false representation made by the defendant;
(b) Some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness);
(c) The false representation caused the plaintiff to act; and
(d) The plaintiff’s actions resulted in a loss.[9] ....
[73] I see no error in the trial judge’s articulation of the test for a finding of recklessness, and I see no error in the trial judge’s conclusion that Mr. Caridi’s conduct was reckless for the purpose of finding civil fraud in this case.
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[75] As the trial judge noted, in Bruno Appliance, at para. 18, the Supreme Court referred to Derry v. Peek (1889), 14 App. Cas. 337 (H.L.), at p. 374, where the House of Lords stated that the knowledge requirement includes not only a false representation made knowingly or without a belief in its truth but also a false representation made “recklessly, careless whether it be true or false” (emphasis added).
[76] The trial judge went on to explain that the court can find recklessness if the person who made the false statement did not have an honest belief that the statement was true, in the sense that they were indifferent or did not care whether the statement was true: Derry, at p. 361; Parna v. G. & S. Properties Ltd., 1970 CanLII 25 (SCC), [1971] S.C.R. 306, at pp. 316-17; and Hearn v. McLeod Estate, 2019 ONCA 682, 439 D.L.R. (4th) 217, at para. 49. Based on Derry, at p. 376, the trial judge further accepted that recklessness can be made out where a person makes a false statement and closes their eyes to the facts or purposefully abstains from inquiring about the facts. This statement of the law is accurate and entirely consistent with Canadian cases in which courts have accepted that recklessness can be made out by showing that a person made a representation with disregard or a lack of care for whether it was true or false and without taking any steps to ascertain its accuracy: Precision Drilling Canada Limited Partnership v. Yangarra Resources Ltd, 2017 ABCA 378, 60 Alta. L.R. (6th) 57, at paras. 34-35; Noble v. Fuller, 1985 CarswellBC 4167 (S.C.), at para. 20.
[77] The trial judge was careful to distinguish between the type of carelessness that amounts to recklessness in the context of a claim for fraud and the type of carelessness that supports a claim for negligence. He explained that carelessness does not amount to recklessness and is not sufficient to meet the knowledge requirement for fraud where a person has an honest but mistaken belief in the truth of the statement:As noted above, “carelessness” has been held to constitute “recklessness”. In this regard, it is important to note that “careless” can mean indifference to the truth of a statement or it can mean failing to take care. This distinction was identified by Lord Herschell in Derry v. Peek, at p. 361: “To make a statement careless whether it be true or false, and therefore without any real belief in its truth, appears to me to be an essentially different thing from making, through want of care, a false statement, which is nevertheless honestly believed to be true”. [78] Accordingly, the trial judge made no error in articulating the test for the knowledge element of civil fraud. His description of the requirement for recklessness was entirely consistent with existing authorities. I see no error in this part of the trial judge’s analysis. He was clearly applying the appropriate threshold for recklessness in impugning Mr. Caridi’s conduct toward CHU.
[79] More importantly, whether one uses the term “recklessness” or “carelessness” as that term is used in civil fraud cases, the trial judge’s evidentiary findings fully support his conclusion that Mr. Caridi’s conduct was reckless. Notably, on March 26, 2020, when the agreement between CHU and TOKI was made, Mr. Caridi represented that he could obtain 3 million NIOSH certified N95 masks at a point when Mr. Lee had provided no information or assurances that he could deliver any masks, let alone 3 million NIOSH certified N95 masks. Mr. Caridi nevertheless represented that, if CHU paid the full contract price, he could deliver the masks. Over the next few days, Mr. Caridi persistently represented to CHU that he could obtain at least some NIOSH certified N95 masks when he never received any assurances or information from Mr. Lee or anyone else that he could obtain and deliver any NIOSH certified N95 masks. He had no subjective belief in these representations, nor any factual basis for them. The trial judge found that Mr. Caridi did not intend to take CHU’s money and vanish – but he did intend to induce CHU to pay TOKI, regardless of whether TOKI could deliver the masks or not. There is no question that this conduct met the threshold for recklessness in the context of a claim for civil fraud. . Anwar v. Canada (Attorney General)
In Anwar v. Canada (Attorney General) (Fed CA, 2025) the Federal Court of Appeal briefly considered the requirements of fraud:[9] Allegations of fraud must be supported by credible evidence to establish that a false representation was made either knowingly or in a reckless or careless manner: Pfizer Canada Inc. v. Canada (Health), 2011 FCA 215, 336 D.L.R. (4th) 49 at para. 20–21; Shen v. Canada (Citizenship and Immigration), 2017 FC 115 at para. 26; Barkley v. Canada, 2018 FC 227 at para. 26. . Kadonoff v. OSC
In Kadonoff v. OSC (Div Court, 2023) the Divisional Court considered a s.9 Securities Act appeal of "a finding of the Ontario Securities Commission (“OSC”) that he engaged in fraudulent conduct pursuant to s. 126.1 of the Securities Act, and the penalty imposed by the [SS: now named] Capital Markets Tribunal (CMT) in that proceeding".
Although this was an administrative (CMT) ruling, the appellant sought to advance a common law 'due diligence defence' [which is more commonly advanced strict liability (eg. POA) prosecutions], and in the course of that attempt the court considered a related 'defence of reasonable reliance on legal advice':Did the Panel err in law by finding that Mr. Kadonoff had not established a due diligence defence under s. 126.1 of the Securities Act?
[35] Mr. Kadonoff argues that the Panel erred in stating that due diligence is not an available a defence to an allegation of breach of s. 126.1 of the Securities Act. The Panel made this comment in the context of its consideration of the defence of reasonable reliance on legal advice. At paragraph 239 of the reasons the Panel wrote:[239] We will now review the defence of reasonable reliance on legal advice and consider whether it is available to the respondents on the facts of this case.
[240] The defence is available in a Commission proceeding in respect of an allegation that requires Staff to establish an intentional or wilful act. An allegation of fraud contrary to the Act falls into that category. The defence is therefore available, subject to a respondent satisfying the criteria for its use.
[241] Subsection 126.1(1) of the Act does not provide for a due diligence defence, and under these circumstances none is available. Instead, a respondent who asserts the defence must establish that:a. the lawyer had sufficient knowledge of the facts on which to base the advice;
b. the lawyer was qualified to give the advice;
c. the advice was credible given the circumstances under which it was given; and
d. the respondent made sufficient enquiries and relied on the advice. [242] The last of these four components has a due diligence aspect to it, and even though the defence in this context is not a true due diligence defence, diligence on the part of the respondent asserting the defence may play a role both in the assessment of the mental element at the merits stage and as a potential mitigating factor at the sanctions stage (if any) of a proceeding. (Citations omitted). [36] The defence of due diligence is a defence available at common law or by statute for strict liability offences. It involves an individual proving on a balance of probabilities that they took all reasonable care or took all reasonable steps to avoid committing the offence: R. v. Sault Ste Marie (City), [1978] 2 S.C.R. 1299, 1978 CanLII 11 (SCC), at p. 14.
[37] This defence is also incorporated in some statutes, including in s. 122 of the Securities Act in the case of a prosecution for the offence of making misleading statements:Defence – Without limiting the availability of other defences, no person or company is guilty of an offence under clause (1)(a) or (b) if the person or company did not know and in the exercise of reasonable diligence could not have known that the statement was misleading or untrue or that it omitted to state a fact that was required to be stated or that was necessary to make the statement not misleading in the light of circumstances in which it was made. [38] In contrast to s. 122 which uses the language of “reasonable diligence,” s. 126.1 of the Securities Act provides:Fraud and market manipulation
126.1(1) A person or company shall not, directly or indirectly, engage or participate in any act, practice or course of conduct relating to securities, derivatives or the underlying interest of a derivative that the person or company knows or reasonably ought to know,
a. results in or contributes to a misleading appearance of trading activity in, or an artificial price for, a security, derivative or underlying interest of a derivative; or
b. perpetrates a fraud on any person or company. [39] Due diligence can take several forms. As counsel for the OSC concedes, a mistake of fact is an aspect of due diligence which can be a legitimate defence in a prosecution under s. 126.1 of the Securities Act. Mr. Kadonoff raised that defence, testifying that he did not know that SIF#1’s funds were being used to fund the distributions by SIF#2 in June, July and August of 2015.
[40] Had the Panel accepted this evidence, then this would have been a defence, at common law, akin to due diligence. Mr. Kadonoff’s mistake would have countered the allegation that he knew or reasonably ought to have known that the acts done perpetrated a fraud. But the Panel did not accept his evidence on this point, finding that although Mr. Kadonoff raised concerns about the transfers, he signed the cheque to SIF#2 distributions in his capacity as an officer of SIF Inc. The Panel went on to say that “a reasonable inquiry would have revealed exactly what Mr. Kadonoff feared was indeed happening, we cannot accept his wishful assertion that he relied on others to justify his signing the cheque.” Thus, although the Panel did not describe his defence as one of due diligence, it nevertheless considered Mr. Kadonoff’s defence of mistake of fact, and his lack of knowledge and rejected his evidence on that point. I find that in considering the defence of mistake of fact, and in observing that there was no statutory defence of due diligence in s. 126.1, the Panel did not fall into legal error.
[41] In reading the detailed reasons for each of the defences raised by Mr. Kadonoff and considering the discussion of due diligence in the context of the section, I conclude that it is likely that the Panel meant that s. 126.1 does not include an explicit statutory defence of due diligence. The Panel understood the defences raised by Mr. Kadonoff at common law and addressed them. This raises a question of mixed fact and law. I see no error in law or any palpable and overriding error in the Panel’s application of the law to Mr. Kadonoff’s defence of mistake of fact or purported exercise of due diligence. Thus, I would not give effect to this ground of appeal. . Ontario v. Madan
In Ontario v. Madan (Ont CA, 2023) the Court of Appeal considered an ambitious fraud defence of contributory negligence, here one that amounts to the accusation that the victim left themselves open to the fraud:[18] The contributory negligence defence advanced by the appellants is predicated on Ontario’s alleged failure to take adequate steps to protect itself from the fraud perpetrated against it. The defence, as framed in the statements of defence, applies to all of the claims advanced by Ontario, including the fraud, theft, and conversion claims: see e.g., Shalini’s Statement of Defence, at paras. 30-33, 35.
[19] The proposition that a fraudster’s liability for damages flowing from its fraud should be reduced to reflect a victim’s failure to protect itself from the fraud would, if accepted, strongly suggest that if perpetrated against the right victim, crime would indeed pay. Thankfully the law is to the contrary. As the motion judge held, a victim’s negligence or carelessness affords no defence, partial or otherwise, to an allegation of dishonesty: Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678, at paras. 67-71; Man Financial Canada Co. v. Keuroghlian, 2008 ONCA 592, 47 B.L.R. (4th) 190, at paras. 44-46.
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[25] Apart from the state of the case law, the appellants’ claim fails on a first principles analysis. The appellants maintain that even if they are in possession of assets that are the indirect proceeds of the frauds perpetrated against Ontario, and even though the appellants have no legitimate claim to any part of the proceeds of those frauds, they should be entitled to keep the assets, or at least part of the assets, which are the indirect proceeds of the fraud, presumably to “punish” Ontario for not taking adequate steps to protect itself from the fraud.
[26] On this approach, the appellants become the beneficiaries of what can only be described as a windfall, occasioned by Ontario’s failure to protect itself from Sanjay’s fraud. I am unaware of any equitable principle which justifies this result. Indeed, the result, a permanent financial loss for Ontario, the victim of the fraud, and a windfall gain for the appellants, bystanders to the fraud, seems the antithesis of equity.
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