Tort Spotlight: Fraudulent Misrepresentation

Misrepresentation
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is a litigation lawyer practicing at Perley-Robertson, Hill & McDougall LLP in Ottawa, Ontario. He may be reached at 613.566.2823 or obourns@perlaw.ca.

Ever wonder what your options are if you’ve entered into a contract under false representations or promises?  One option is to bring a tort claim for “fraudulent misrepresentation”.  A fraudulent misrepresentation is one which was made with the knowledge that it is untrue and with the intent to deceive.  Fraud gives rise to effects in the law of contract and the law of tort.

For the purposes of clarity, often the tort of deceit and the tort of fraudulent misrepresentation are one and the same, “often used by the courts as interchangeable terms”. [See Re: Bozzo Bankruptcy, [2005] OJ No. 2037 and Duong v. NN Life Insurance Co. of Canada, [1999] OJ No. 2680]

 

THE TEST

While there are different iterations or variations of the test, the essential elements that must be proved to establish fraudulent misrepresentation are as follows:

1.  A false representation or statement made by the defendant;

2.  Which was knowingly false;

3.  Which was made with the intention to deceive the plaintiff;

4.  And which materially induced the plaintiff to act; and

5.  Which caused the plaintiff damage.

[See Derry v. Peek (1889), 14 App. Cas. 337 (H.L.) and TWT Enterprises Ltd. v. Westgreen Developments (North) Ltd., 1992 CarswellAlta 80, 3 Alta. L.R. (3d) 124]

Further, with respect to the second requirement above, the misstatement must be made dishonestly and/or recklessly, with lack of belief in its truth:

For there to be fraud there must be dishonestly, or such recklessness as to truth as is tantamount to dishonestly. It is clear that for a party to be liable for fraudulent misrepresentation there must be evidence of knowledge that the representation was untrue, and an intent to defraud, or the absence of an honest belief in the truth of the representation.

[See Fridman, The Law of Contract, 6th Ed. (Carswell, 2011) at page 289]

Fraudulent misrepresentation does not occur where there are no misrepresentations of fact, when there is no active concealment of material fact, conduct preventing the discovery of the true state of affairs, or discouraging the ascertainment of the true state of affairs; the actor is merely careless; there is no intention to deceive; or there are no reasonable grounds to rely upon the statement

 

REMEDIES

In 1018429 Ontario Inc. v Fea Investments Ltd., (1999) CanLII 1741 (Ont. C.A.), a company entered into a contract for the purchase of a residential complex, which stated the amount of rent allowed to be collected. Shortly after, the plaintiffs received notice from the Ministry of Housing that their rent was too high and that this amount could not be collected. The Court of Appeal cited the following passage with regards to remedies for fraudulent misrepresentation with approval (para 51):

“A fraudulent misrepresentation is one which is made with knowledge that it is untrue and with the intent to deceive.  It may constitute a term of the contract. Whether it does or not is immaterial, since fraud gives rise to effects in law of contract and the law of tort.” A contract resulting from a fraudulent misrepresentation may be avoided by the victim of the fraud. In such instances, the consent is not real consent. [underlining added]

In other words, rescission may also be granted, but the equitable remedy of rescission is discretionary.

 

In Kaboodani v. Esfahani, (2007) BCSC 1654 (B.C.S.C.), the Court cited Waddams on Damages with approval stating that;

[...] the measure of damages in a case of fraudulent misrepresentation is the amount of money required to put the plaintiff in the position that would have been occupied not if the statement had been true but if the statement had not been made. [underlining added]

Further, damages for consequential losses resulting from the fraudulent misrepresentation may also be recovered as long as they are not too remote.  In some cases, the loss of profits may be awarded as a type of consequential damage.  However, the traditional award for damages for fraudulent misrepresentation is the loss of capital.

 Owen Bourns is a litigation lawyer in Ottawa, Ontario.  He may be reached at 613.566.2823 or at obourns@perlaw.ca.

1 comments
LisaCaza
LisaCaza

Hi I have a question I'm hoping you can help me with.I quit my duties as what was termed by the company owner an "independent contractor" due to reasons that are hard to explain here in a short note. It has now been two weeks after I requested, in writing, that my name, full profile, services, and all articles to be removed immediately from the company website. However, nothing has been removed and having my name associated anywhere on the site definitely impacts my income on my own site. The owner said that she didn't want anyone knowing that I left but to give her 2 days to remove me. Like I say however it's been two weeks. Now, not ever with any "contractor" who's been hired over the years there signed any contract! Myself included. So would fraudulent misrepresentation still be a route for me to take here? Or is there something else that could legally be done? Or am I out of luck? Please if you can give any advice it would be so appreciated because as mentioned as long as my name is associated with that company, my OWN business loses out because when my name is searched both my site and the other shows up at same time - therefore clients have often gone there instead of my site to reach me - and then THAT company "snags" my clientele as a result. It is fully believed that the owner is keeping me on there purposely for this specific reason - as she knows money can be made by misleading clients into thinking I"m there still.