No duty on deceived party to uncover falsehood

Virc v. Blair, 2014 ONCA 39:

[54]       The motion judge concluded that the appellant was unable to show that her application to set aside the separation agreement had a real chance of success at trial.  She reached this conclusion because the appellant had had an opportunity to examine the veracity of the respondent's financial disclosure, but failed to avail herself of that opportunity.  Specifically, the motion judge held (at para. 91):

Whether the misrepresentation as to the value of Renegade was deliberate, either at the date of marriage or the date of separation, is a question that cannot be determined on the evidence given the constraints of the court's ability to evaluate credibility.  Accordingly, there is a genuine issue for trial on this issue.  However, this is a case that turns on the issue of whether the wife had information that should have caused her to question this value, and, given the amounts in issue, on the facts of this case her failure to do so is fatal to her case.  Even though the equalization payment that she received may have been substantially less than her entitlement under the equalization provisions of s. 4 of the Family Law Act, I conclude that there is no genuine issue for trial as to whether a court, even if the numbers provided by the husband were deliberately false, would exercise its discretion to set aside this separation agreement.

[55]       In the motion judge's view, the fact that the appellant "had information that should have caused her to question" the veracity of the husband's disclosure precluded any chance of successfully setting aside the agreement even if the respondent had, in fact, deliberately made false disclosure. In other words, the motion judge determined that the appellant ought to have known that the value her husband attributed to his date of marriage interest in Renegade was overstated; the appellant was in a position and had information that should have caused her to question the value assigned to Renegade and the respondent's interest in it.

[56]       In making this determination, the motion judge relied on an excerpt fromCheshire & Fifoot.  She wrote at para. 83 of her reasons:

Further, where the recipient spouse has a reason to question the information provided, but does not, no misrepresentation or omission could result in the contract being avoided.  I refer to Cheshire and Fifoot, The Law of Contract, 10th ed., at p. 244, and quoted in Farquar, at para. 35:

Knowledge of the untruth of a representation is a complete bar to relief, since the plaintiff cannot assert that he has been misled by the statement, even if the misstatement was made fraudulently.  In such a case, "the misrepresentation and concealment go for just absolutely nothing…".

[57]       However, the motion judge failed to mention that the authors of Cheshire & Fifoot went on to write:

It must be carefully noticed, however, that relief will not be withheld on this ground except upon clear proof that the plaintiff possessed actual and complete knowledge of the true facts - actual not constructive, complete not fragmentary.  The onus is on the defendant to prove that the plaintiff had unequivocal notice of the truth.  In particular, the mere fact that a party has been afforded an opportunity to investigate and verify a representation does not deprive him of his right to resist specific performance or to sue for rescission.  As Lord Dunedin once said:

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. 

…

[I]t is no answer to a suit for relief to say that inspection of the contracts or of the lease or of the bills of costs was expressly invited but was not accepted. [Emphasis added.]

[58]       Once the motion judge assumed that there had been deliberate material misrepresentations, she erred in shifting the onus to the appellant to inquire as to the veracity of the respondent's financial disclosure. In the face of a deliberate material misrepresentation, the onus is not appropriately placed on the recipient spouse.  Rather, the burden is on the party disclosing to establish actual knowledge of the falsehood by the recipient.  The respondent could point to no authority for the proposition that the suggested duty of a spouse receiving financial disclosure in a matrimonial case, to investigate or test the veracity of the information provided, overtakes deliberate material non-disclosure by the other spouse.