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Supreme Court clarifies tort of civil fraud

In an important judgment, the Supreme Court of Canada has clarified the elements necessary to prove civil fraud, alleviating the potential for confusion in future cases, says Toronto civil and commercial litigator Kevin D. Toyne.

Bruno Appliance and Furniture, Inc. v. Hryniak involved a $1-million payment Bruno Appliance and Furniture, Inc. wired to Cassels Brock, who assigned the funds to an account associated with Tropos Financial Corp., a company of which Toronto businessman Robert Hryniak was the principal.

Bruno Appliance’s funds were then bundled with other funds and paid to Tropos in a bank draft, the decision reads, noting Bruno Appliance’s money then disappeared, prompting the company to launch a civil fraud action against Hryniak.

Bruno Appliance’s motion for summary judgment was granted as against Hyrniak but that decision was overturned by the Court of Appeal. The Supreme Court upheld the Court of Appeal ruling, meaning the case will proceed to trial.

The judgment summarized the following four elements of the tort of civil fraud:

-a false representation made by the defendant;
-some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness);
-the false representation caused the plaintiff to act;
-and the plaintiff’s actions resulted in a loss.

“The Supreme Court has helpfully cleared up some of the confusion regarding the elements of the tort of civil fraud,” says Toyne, partner with Brauti Thorning Zibarras LLP. “In many cases, the fact that a person is aware of a fraud and benefits from it is not enough. A finding of civil liability for fraud generally requires more, namely the making of a false statement that is relied upon by the victim. However, the principles of the law of agency can result in a person being vicariously liable for a fraud committed by another.”

Toyne says, “Plaintiffs that commence actions alleging fraud but fail to prove such a serious allegation can be exposed to adverse costs consequences. Lawyers should carefully draft fraud claims to ensure that victims of fraud aren’t victimized a second time by an avoidable adverse costs award being made against them arising from the failure to properly plead the tort.”

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