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Fraudulent Misrepresentation

. 10443204 Canada Inc. v. 2701835 Ontario Inc.

In 10443204 Canada Inc. v. 2701835 Ontario Inc. (Ont CA, 2022) the Court of Appeal considers fraudulent misrepresentation as a defence:
(1) Fraudulent Misrepresentation as a Defence

[20] Fraudulent misrepresentation affords a defence to a claim on a contract, because a contract that results from a fraudulent misrepresentation may be avoided or rescinded by the victim of the fraud (who may also have an action in damages against the maker of the statement): 1018429 Ontario Inc. v. Fea Investments Ltd. (1999), 1999 CanLII 1741 (ON CA), 179 D.L.R. (4th) 268 (Ont. C.A.), at paras. 50-51. In other words, where a contract is the foundation of the plaintiff’s claim, the right of the defendant to avoid the contract because it was entered into in reliance on a fraudulent misrepresentation by the plaintiff will undo the basis of the plaintiff’s claim.

(2) The Effect of Disclaimer Clauses

[21] A clause in a contract that purports to limit remedies arising from a misrepresentation does not immunize the maker of a fraudulent misrepresentation from the remedies available to the innocent party: Fea Investments, at paras. 49-54.

[22] In Hasham v. Kingston (1991), 1991 CanLII 7236 (ON SC), 4 O.R. (3d) 514 (Div. Ct.), the clause in issue excluded liability for all representations outside the terms of the contract. The Divisional Court found that the clause could not apply to a misrepresentation that was found to be fraudulent: at p. 524.

[23] The reasoning in Hasham was applied by this court in Fea Investments to conclude that a clause in a contract that limited remedies for misrepresentation did not apply to fraudulent misrepresentations: at paras. 52-54.

....

[30] Importantly, the motion judge did not find that the appellants, at any relevant time before closing, learned the true facts and therefore knew the representations made to them were false. The factors to which the motion judge referred were opportunities he considered the appellants had to discover the truth, by being more diligent in the contract terms they agreed to, the professionals they hired, or the investigations they conducted.

[31] It is settled law that such opportunities do not deprive the appellants of their right to avoid the contract on the basis of fraudulent misrepresentation. In Free Ukrainian Society (Toronto) Credit Union Ltd. v. Hnatkiw et al., 1964 CanLII 180 (ON CA), [1964] 2 O.R. 169 (C.A.), at p. 173-74, this point was conclusively stated:
Unquestionably knowledge of the untruth of a representation would be a complete bar to relief, since a person aggrieved could not assert that he had been misled by such a mis- statement even if it had been made fraudulently, and in such a case the misrepresentation would cease to have any further significance. Relief, however, will not be refused on this ground except upon clear proof that the party complaining possessed actual and complete knowledge of the true facts -- actual, not constructive, complete, not fragmentary. The onus would rest upon the plaintiff to prove that the defendants had unequivocal notice of the truth. The mere fact that they had been afforded an opportunity to investigate and verify a representation made to them would not deprive them of their right to avoid a contract obtained by such means. As Lord Dunedin stated in Nocton v. Lord Ashburton, [1914] A.C. 932 at p. 962:
No one is entitled to make a statement which on the face of it conveys a false impression and then excuse himself on the ground that the person to whom he made it had available the means of correction. [Emphasis added.]
See also Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678, at paras. 69-70.
. Chaba v. Khan

In Chaba v. Khan (Ont CA, 2020) the Court of Appeal set out the test for fraudulent misrepresentation:
[15] First, the trial judge made no error in dismissing the claim for fraudulent misrepresentation. He correctly cited the elements of fraudulent misrepresentation from Mariani v. Lemstra (2004), 2004 CanLII 50592 (ON CA), 246 D.L.R. (4th) 489 (Ont. C.A.), at para. 12, leave to appeal refused, [2004] S.C.C.A. No. 355:
(1) that the defendant made a false representation of fact; (2) that the defendant knew the statement was false or was reckless as to its truth; (3) that the defendant made the representation with the intention that it would be acted upon by the plaintiff; (4) that the plaintiff relied upon the statement; and (5) that the plaintiff suffered damage as a result.
. 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 perspectives of fraudulent misrepresentation:
[77] This Court and the Manitoba Court of Appeal have both confirmed that silence and half-truths can amount to fraudulent misrepresentation and that, where a vendor, who has no duty to speak, decides to break that silence, the doctrine of caveat emptor falls away as a defence mechanism and the vendor must speak truthfully and completely about the matters raised: see Krawchuk v. Scherbak, 2011 ONCA 352, 106 O.R. (3d) 598, at para. 77, citing Kaufmann v. Gibson (2007), 59 R.P.R. (4th) 293 (Ont. S.C.); Alevizos v. Nirula, 2003 MBCA 148, 180 Man. R. (2d) 186, at paras. 18-25. These cases involved situations where vendors completed voluntary vendor disclosure statements in residential real estate transactions.

....

[88] For these reasons [SS: ambiguity in what the vendor did say], I would not give effect to the argument that Harold Keenan, having decided to break silence and give notice of the cost recovery clause – if that is what he did – was in violation of an obligation to disclose it in a more forthright fashion. While he may have been nibbling at the edges of the “honest fair-dealing” concept referred to by the trial judge, Keenan’s conduct – having regard to all of the circumstances outlined above – did not rise to the level where it would be “unconscientious for [him] to avail himself of the advantage obtained”: Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, 1 S.C.R. 678, at para. 39, citing McMaster University v. Wilchar Construction Ltd. (1971), 1971 CanLII 594 (ON SC), 22 D.L.R. (3d) 9 (Ont. H.C.), at p. 19.
. Midland Resources Holding Limited v. Shtaif

In Midland Resources Holding Limited v. Shtaif (Ont CA, 2017) the Court of Appeal commented on the elements of the tort of fraudulent misrepresentation, particularly in the face of silence by the defendant:
[162] Fraudulent misrepresentation is established where there are the following five elements: (i) a false representation of fact by the defendant to the plaintiff; (ii) knowledge the representation was false, absence of belief in its truth, or recklessness as to its truth; (iii) an intention the plaintiff act in reliance on the representation; (iv) the plaintiff acts on the representation; and (v) the plaintiff suffers a loss in doing so: Amertek Inc. v. Canadian Commercial Corp. (2005), 2005 CanLII 23220 (ON CA), 76 O.R. (3d) 241 (C.A.), at para. 63, leave to appeal refused, [2005] S.C.C.A. No. 439.

[163] A misrepresentation can involve not only an overt statement of fact, but also certain kinds of silence: the half-truth or representation that is practically false, not because of what is said, but because of what is left unsaid; or where the circumstances raise a duty on the representor to state certain matters, if they exist, and where the representee is entitled, as against the representor, to infer their non-existence from the representor’s silence as to them: Robert van Kessel & Paul Rand, The Law of Fraud in Canada (Toronto: LexisNexis Canada Inc., 2013), at §2.69 and 2.72.

[164] The significance of silence always falls to be considered in the context in which it occurs: Demagogue Pty. Ltd. v. Ramensky (1992), 39 F.C.R. 31 (Austral. F.C.), at p. 32. As explained by Professor Waddams: “Almost always something is said to induce the transaction and it is open to the court to hold that the concealment of the material facts can, when taken with general statements, true in themselves but incomplete, turn those statements into misrepresentations”: S.M. Waddams, The Law of Contracts, 6th ed. (Toronto: Canada Law Book Inc., 2010), at para. 439.
. Canadian Imperial Bank of Commerce v. Deloitte & Touche

In Canadian Imperial Bank of Commerce v. Deloitte & Touche" (Ont CA, 2016) the Court of Appeal restated the elements of the tort of fraudulent misrepresentation, particularly in it's 'reckless misrepresentation' form:
[42] Reckless misrepresentation is a kind of fraudulent misrepresentation: Redican v. Nesbitt, 1923 CanLII 10 (SCC), [1924] S.C.R. 135, at p. 154. In the law of torts, a fraudulent misrepresentation that causes loss to the recipient grounds an action in “deceit” or “civil fraud”: Bruce MacDougall, Misrepresentation (Toronto: LexisNexis Canada, 2016), at para. 5.8. Recently, the Supreme Court held that a claim for “civil fraud” requires proof of the following facts: (1) a false representation made by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); (3) the false representation caused the plaintiff to act; and (4) the plaintiff’s actions resulted in a loss”: Combined Air Mechanical Services Inc. v. Flesch, 2014 SCC 8 (CanLII), [2014] 1 S.C.R. 126, at para. 21. [Emphasis added.]

[43] The third element of civil fraud summarized in Combined Air entails considering inducement and reliance. As the Divisional Court noted in respect of the lenders’ claims in Canadian Imperial Bank of Commerce v. Deloitte & Touche (2003), 2003 CanLII 38170 (ON SCDC), 172 O.A.C. 59, at para. 24, “The claims of negligent and reckless misrepresentation both require the plaintiffs to prove at trial that there have been representations of fact by each of the defendants upon which they relied.”
. PP v DD

In PP v DD (Ont CA, 2017) the Court of Appeal states the elements of the tort of negligent misrepresentation succinctly as follows:
[41] To succeed on a civil claim for fraudulent misrepresentation, the appellant must establish the following: (1) the representation was made by the respondent; (2) the respondent knew that the representation was false or was recklessly indifferent to its truth or falsity; (3) the false statement was material and by it the appellant was induced to act; and (4) the appellant suffered damages: Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8 (CanLII), [2014] 1 S.C.R. 126, at para. 21; see also Parna v. G&S Properties Ltd. (1970), 1970 CanLII 25 (SCC), 15 D.L.R. (3d) 336 (S.C.C.) at p. 344.[1] The Supreme Court of Canada has consistently recognized that “fraud without damage gives . . . no cause of action”: Hryniak at para. 20.




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