Civil fraud claims in Ontario

Civil fraud claims are more common than ever before. Fairly recent changes to the law have made proof of fraud easier -- although it is still not easy -- and the general inclination to pursue all reasonably available claims has increased the number of claims sounding in fraud. That said, allegations of fraud must be pursued with care.  There are serious cost consequences for unfounded allegations of fraud and proof of such claims is not easy.  Additionally, often otherwise valid claims for fraud are made against defendants who are judgment proof and a realistic approach to whether a claim is worth pursuing must be taken.

 

Certain procedural requirements apply to fraud (or other misrepresentation) claims.  Full particulars of the fraud, where, when and how it was made, together with a statement of it falsity and damages resulting there from must be pleaded: Rule 25.06, Lana v. Menasco, [1996] O.J. No 1448

 

Until fairly recently the general consensus was that civil fraud claims (and other allegations of moral turpitude) had to be proven to a higher level than the usual civil balance of probabilities. While the burden was not so high as to be beyond reasonable doubt the sense that fraud had to be strictly proven was widespread.

 

That view was dispelled in F.H. v. McDougall, 2008 SCC 53. The Court held the civil standard of proof applies to all civil claims. That said, the Court also suggested the trier of fact must be mindful of the mysterious "inherent" probabilities or improbabilities. What that actually means is unclear except to suggest that proof of fraud still remains difficult. The key passage in the case reads:

 

… evidence must always be sufficiently clear, convincing and cogent to satisfy the balance of probabilities test.  But again, there is no objective standard to measure sufficiency.  In serious cases, like the present, judges may be faced with evidence of events that are alleged to have occurred many years before, where there is little other evidence than that of the plaintiff and defendant.  As difficult as the task may be, the judge must make a decision.  If a responsible judge finds for the plaintiff, it must be accepted that the evidence was sufficiently clear, convincing and cogent to that judge that the plaintiff satisfied the balance of probabilities test.

 

 

One way civil fraud is more easily proven is where there is a criminal conviction for fraud. If there is a finding after trial that finding will bind the civil court: F., K. (Litigation guardian of) v. White, 2001 CanLII 24020. If there is a guilty plea that plea will normally be dispositive unless good reason is set out to explain why it should be ignored: Andreadis v. Pinto, 2009 CanLII 50220 (ON S.C.) . Of course, the verdict or plea only goes so far as the facts proven or admitted. If there is a plea to a fraud for $5,000 that will not support (except to a limited degree) a civil claim for $500,000.

 

One principle that has not changed is costs in a fraud case. In general, costs where fraud is alleged are on a full indemnity basis.  If fraud is proven the costs are full indemnity to the plaintiff, unless the facts are such as to make the allegations, though unproven, still appropriate: Hamilton v Open Window, [2003] S.C.J.  No. 72. If fraud fails the defendant generally gets full indemnity costs: Reno v. Wonderland [2008] O.J. No 4678.