Equitable Fraud


Betrayal2Fraik v Pilon 2012 BCSC 528  discusses the concept of equitable fraud which does not arise perhaps as often as it should in reported case law.


Equitable Fraud

[37]           In the context of mistake of contract as presented by the plaintiff here, equitable fraud is equivalent to fraud but takes an “elastic approach” by attempting to do justice and relieve against hardship caused by transactions in which “it is unconscientious for a person to avail himself of the legal advantage which he has obtained” (Windjammer Homes Inc. v. Generation Enterprises 1989 2872 (BC SC), (1989), 43 B.L.R. 315 at 320 (B.C.S.C.)).

[38]           The concept arose before the Supreme Court of Canada in the case of Performance Industries Ltd. v. Sylvan Golf & Tennis Club Ltd., 2002 SCC 19 , 2002 SCC 19, [2002] 1 S.C.R. 678 (Performance Industries).

In that case, the plaintiff had been mistaken about the description of a development property that was purchased and alleged that the defendant knew of the plaintiff’s mistake when the plaintiff signed the agreement. For rectification of the contract to occur, the Court said that there had to exist a prior oral contract whose terms were definite and ascertainable, the plaintiff had to prove that the oral terms were not written down properly, the defendant must be shown to have known or ought to have known of the plaintiff’s error at the time of execution of the agreement, and the attempt of the defendant to rely upon the agreement must amount to “fraud or the equivalent of fraud” (Performance Industries at para. 31).

Rectification is not a substitute for failure of due diligence. The crucial question of what amounts to equitable fraud was described by Binnie J. as follows at para. 39:

39   What amounts to “fraud or the equivalent of fraud” is, of course, a crucial question. In First City Capital Ltd. v. British Columbia Building Corp. 1989 2868 (BC SC), (1989), 43 B.L.R. 29 (B.C.S.C.), McLachlin C.J.S.C. (as she then was) observed that “in this context ‘fraud or the equivalent of fraud’ refers not to the tort of deceit or strict fraud in the legal sense, but rather to the broader category of equitable fraud or constructive fraud …. Fraud in this wider sense refers to transactions falling short of deceit but where the Court is of the opinion that it is unconscientious for a person to avail himself of the advantage obtained” (p. 37). Fraud in the “wider sense” of a ground for equitable relief “is so infinite in its varieties that the Courts have not attempted to define it”, but “all kinds of unfair dealing and unconscionable conduct in matters of contract come within its ken”: McMaster University v. Wilchar Construction Ltd. (1971), 22 D.L.R. (3d) 9 (Ont. H.C.), at p. 19. See also Montreal Trust Co. v. Maley reflex, (1992), 99 D.L.R. (4th) 257 (Sask. C.A.), per Wakeling J.A.; Alampi v. Swartz (1964), 43 D.L.R. (2d) 11 (Ont. C.A.); Stepps Investments Ltd. v. Security Capital Corp. (1976), 73 D.L.R. (3d) 351 (Ont. H.C.), per Grange J. (as he then was), at pp. 362-63; and Waddams, supra, at para. 342.

See also Sun-Rype Products Ltd. v. Archer Daniels Midland Company, 2008 BCCA 278 , at para. 94, leave to appeal to SCC refused, (2009), 395 N.R. 388 (note).

[39]           The Court emphasized in Performance Industries at para. 40 that it will only put into words that which the parties orally agreed to, and not impose what in hindsight might appear to be a sensible arrangement that the parties might have made but did not. Also, the proof required is at the high standard of convincing proof, which is higher than the normal civil standard (Performance Industries at paras. 41-42). Evidence of the party seeking rectification must be corroborated in some way (Performance Industries at para. 43).

[40]           The first response to this argument is that the plaintiff did not plead rectification or mistake, but breach of contract. She did, however, seek restoration of the 1999 joint tenancy agreement by declaration which would necessarily have a term implied that the joint tenancy could not be severed. In this case, an agreement not to sever the joint tenancy has not been found, nor can such a term be implied. The court will uphold an implied bargain only where the terms can be ascertained with a reasonable level of comfort, hence convincing proof (Performance Industries at para. 47). There is no such convincing proof here. The plaintiff testified on discovery that there was no discussion and certainly no oral agreement about inability to sever. The plaintiff knew that Bernard could sever as it had been done before relative to this property and to these parties. There is no basis upon which to imply such a term.

[41]           Also, the evidence is only circumstantial that Bernard knew of any mistake. Everything had been arranged by Fraik. Bernard remained silent on some of the arrangements that Fraik offered. Although her conduct in severing the joint tenancy days afterwards could be considered as indicative of scheming on her part, many circumstances suggest otherwise and do not cumulate in the degree of proof required. Bernard was taken to a lawyer that she did not know to execute a document prepared by the plaintiff and that was executed by Bernard without legal advice. It would have been exceptional for a joint tenancy to include a term forbidding severance and the burden was upon the plaintiff to prove that there had been an oral agreement for same. The plaintiff did not suggest that the agreement was defective in any way until years later after Bernard had died. The plaintiff failed to prove that there was an oral agreement that did not correspond to the written joint tenancy agreement. Finally, it cannot be said in the circumstances here that Bernard received an advantage that calls for intervention. Bernard gave Fraik an increased interest in the property in the nature of an inter vivos gift, quite apart from her will. Fraik did not establish that her renovations increased the value of the property to half of the present value of the property, especially when she paid no occupation rent and established only minor contribution to expenses and the increase in equity after 1977.

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