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Fraud

1. General
2. Elements of Criminal Fraud
3. Fraud by Omission
4. Unjust Preference
5. Fraudulent Conveyance

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1. General

Fraud occurs in several different legal contexts, from the criminal to the civil and then with several specialized applications such as bankruptcy and fraudulent conveyancing.

2. Elements of Criminal Fraud

. R v Riesberry

In the criminal case of R v Riesberry (SCC, 2015) the Supreme Court of Canada articulated the elements of criminal fraud as follows:
[20] Like virtually all offences, fraud consists of two main components, the prohibited act (actus reus) and the required state of mind (mens rea). Mr. Riesberry’s submission focuses on one of the two aspects of the actus reus. Those two aspects are:
1. . . . an act of deceit, a falsehood, or some other fraudulent means; and

2. deprivation caused by the prohibited act, which may consist in actual loss or the placing of the victim’s pecuniary interests at risk.
(R. v. Théroux, 1993 CanLII 134 (SCC), [1993] 2 S.C.R. 5, at p. 20; R. v. Zlatic, 1993 CanLII 135 (SCC), [1993] 2 S.C.R. 29, at p. 43)

[21] The issue here concerns the aspect of deprivation. Mr. Riesberry contends that there was no evidence that his fraudulent conduct caused any risk of deprivation or that at least any such risk was too remote from his conduct. He submits that the Crown did not establish that anyone betting on the race had been induced to bet by, or would not have bet but for, his fraudulent conduct.

[22] I cannot accept this position. Contrary to Mr. Riesberry’s contention, proof of fraud does not always depend on showing that the alleged victim relied on the fraudulent conduct or was induced by it to act to his or her detriment. What is required in all cases is proof that there is a sufficient causal connection between the fraudulent act and the victim’s risk of deprivation. In some cases, this causal link may be established by showing that the victim of the fraud acted to his or her detriment as a result of relying on or being induced to act by the accused’s fraudulent conduct. But this is not the only way the causal link may be established.

[23] We should first be clear about what Mr. Riesberry’s fraudulent conduct was before turning to the question of whether it caused a risk of deprivation. Fraudulent conduct for the purposes of a fraud prosecution is not limited to deception, such as deception by misrepresentations of fact. Rather, fraud requires proof of “deceit, falsehood or other fraudulent means”: s. 380(1). The term “other fraudulent means” encompasses “all other means which can properly be stigmatized as dishonest:” R. v. Olan, 1978 CanLII 9 (SCC), [1978] 2 S.C.R. 1175, at p. 1180. The House of Lords made the same point in Scott v. Metropolitan Police Commissioner, [1975] A.C. 819, a case approved by the Court in Olan (p. 1181). Fraud, according to Viscount Dilhorne in Scott, may consist of depriving “a person dishonestly of something which is his or of something to which he is or would or might but for the perpetration of the fraud be entitled”: p. 839. And as Lord Diplock said, the fraudulent means “need not involve fraudulent misrepresentation such as is needed to constitute the civil tort of deceit”: ibid., at p. 841.

[24] It follows that where the alleged fraudulent act is not in the nature of deceit or falsehood, such as a misrepresentation of fact, the causal link between the dishonest conduct and the deprivation may not depend on showing that the victim relied on or was induced to act by the fraudulent act. This is such a case.

[25] Mr. Riesberry injected and attempted to inject the racehorses with performance enhancing substances. The use of such drugs is prohibited and trainers such as Mr. Riesberry are prohibited even from possessing loaded syringes at a racetrack. This conduct constituted “other fraudulent means” because in the highly regulated setting in which he acted, that conduct can “properly be stigmatized as dishonest”: Olan, at p. 1180. He carried out these dishonest acts for the purpose of affecting the outcome of two horse races on which members of the public placed bets. His dishonest acts, therefore, were intended to and in one case actually did result in the possibility that a horse that might otherwise have won would not. The conduct therefore caused a risk of deprivation to the betting public: it created the risk of betting on a horse that, but for Mr. Riesberry’s dishonest acts, might have won and led to a payout to the persons betting on that horse. To return to Viscount Dilhorne’s words in Scott, Mr. Riesberry’s dishonest conduct created a risk that bettors would be deprived dishonestly of something which, but for the dishonest act, they might have obtained.

[26] There is a direct causal relationship between Mr. Riesberry’s dishonest acts and the risk of financial deprivation to the betting public. Simply put, a rigged race creates a risk of prejudice to the economic interests of bettors. Provided that a causal link exists, the absence of inducement or reliance is irrelevant. I agree with the Court of Appeal that Mr. Riesberry’s reliance on Vézina and Côté v. The Queen, 1986 CanLII 93 (SCC), [1986] 1 S.C.R. 2, is misplaced. That case made it clear that
[f]raud consists of being dishonest for the purpose of obtaining an advantage and which results in prejudice or a risk of prejudice to someone’s ‘property, money or valuable security’. There is no need to target a victim . . . and the victim may not be ascertained. [p. 19]

3. Fraud by Omission

. R v Gour

The criminal case of R v Gour (Ont CA, 2014) is interesting for it's holding that in some cases, even outside of contract, the failure of a defendant to disclose facts material to the parties' relationship may constitute fraud:
[7] The appellant submits that the trial judge erred by concluding that the appellant’s failure to disclose a material fact – that his canvassers were not volunteers – was relevant in establishing the offence of fraud.

[8] We disagree. Based on R. v. Theroux, 1993 CanLII 134 (SCC), [1993] 2 S.C.R. 5 and R. v. Zlatic, 1993 CanLII 135 (SCC), [1993] 2 S.C.R. 29, which held that the words “other fraudulent means” in the offence of fraud proscribed in s. 380(1) of the Criminal Code allow convictions grounded in non-disclosure of important facts, we have no hesitation affirming the trial judge’s key conclusions:
1. the failure to disclose the handsome commissions being paid to these apparent “volunteers” constituted the hiding of a fundamental and essential element of this fundraiser-contributor relationship; and

2. this failure to disclose was such as to mislead the reasonable contributor.
[9] We hasten to add that non-disclosure of the status (volunteer v. employee) of a canvasser will not be relevant in every charitable fundraising context. That would be too sweeping a proposition. However, in this case there was extensive evidence that the appellant operated his team of canvassers in a manner calculated to mislead the public. His conduct went beyond mere use of the word “volunteer”. He also instructed them to state that all money would be disbursed to the families of the affected children and to deny that they were being paid, and he provided pamphlets that claimed that the charity had no paid staff. In these circumstances, the combination of material non-disclosure and outright lying supports the trial judge’s conclusion that a reasonable contributor would have been misled.

4. Unjust Preference

. Montor Business Corporation v. Goldfinger [I]

The case of Montor Business Corporation v. Goldfinger [I] (Ont CA, 2016) is useful for it's extended consideration of the concept of improvident disposition of assets (relevant to unjust preference). While the court decided the issue on the application of this concept in a bankruptcy context, it assesses the various 'badges of fraud' factors that inform the same issue in the context of the Fraudulent Conveyances Act, the Assignment and Preferences Act and elsewhere:
(iv) Analysis

(1) Transfers at Undervalue

[51] Section 2 of the BIA defines a “transfer at undervalue” as follows:
[A] disposition of property or provision of services for which no consideration is received by the debtor or for which the consideration received by the debtor is conspicuously less than the fair market value of the consideration given by the debtor.
[52] In the absence of evidence to the contrary, Farber’s opinion on both the fair market value of the property or services and the value of the actual consideration given or received by the debtor are to be accepted by the court: see s. 96(2) of the BIA.

[53] Weighing the adequacy of consideration is not an exercise in precision but one of judgment. Nominal or grossly inadequate consideration is insufficient and may be an indication or badge of fraud: see Feher v. Healey, [2006] O.J. No. 3450 (Sup. Ct.), at para. 45, aff’d 2008 ONCA 191 (CanLII).

[54] Forbearance from suit and a settlement agreement may constitute adequate consideration: see Ronald Elwyn Lister Ltd. v. Dunlop Canada Ltd., 1982 CanLII 19 (SCC), [1982] 1 S.C.R. 726, at p. 743; Stott v. Merit Investment Corp. (1988), 1988 CanLII 192 (ON CA), 63 O.R. (2d) 545 (C.A.), at pp. 558-60, leave to appeal dismissed, [1988] S.C.C.A. No. 185.

....

(2) Acting at Arm’s Length

[64] Given my conclusion on the transfer at undervalue issue, it is not strictly necessary to address Farber’s other arguments about s. 96 of the BIA. I will do so because my conclusions on the balance of the s. 96 factors inform my conclusions on Farber’s other grounds of appeal attacking the validity of the Payments.

[65] On the issue of whether the parties were at arm’s length, Farber does not challenge the trial judge’s description of the applicable test or his finding that Goldfinger and Annopol were unrelated. Rather, it challenges his application of the test and his conclusion that Goldfinger and Annopol were acting at arm’s length.

[66] Section 4(4) of the BIA states: “It is a question of fact whether persons not related to one another were at a particular time dealing with each other at arm’s length.” As a result, absent a palpable and overriding error, the trial judge’s finding on this issue is entitled to deference.

[67] The trial judge considered the dicta in Abou-Rached (Re), 2002 BCSC 1022 (CanLII), 35 C.B.R. (4th) 165, at para. 46:
[A] transaction at arm’s length could be considered to be a transaction between persons between whom there are no bonds of dependence, control or influence, in the sense that neither of the two co-contracting parties has available any moral or psychological leverage sufficient to diminish or possibly influence the free decision-making of the other. Inversely, the transaction is not at arm’s length where one of the co-contracting parties is in a situation where he may exercise a control, influence or moral pressure on the free will of the other. Where one of the co-contracting parties is, by reasons of his influence or superiority, in a position to pervert the ordinary rule of supply and demand and force the other to transact for a consideration which is substantially different than adequate, normal or fair market value, the transaction in question is not at arm’s length.
[68] He also considered Piikani Energy Corporation (Trustee of) v. 607385 Alberta Ltd., 2013 ABCA 293 (CanLII), 556 A.R. 200, which identified factors that provide guidance on non-arm’s length analysis in the context of Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) jurisprudence. These factors, enumerated at para. 29 of Piikani, are: was there a common mind which directed the bargaining for both parties to a transaction; were the parties to the transaction acting in concert without separate interests; and was there de facto control?

....

(3) Intention to Defraud, Defeat or Delay a Creditor

[72] The burden was on Farber to establish the requisite intent under s. 96 of the BIA. An inference of intent may arise from the existence of one or more badges of fraud. However, the presence of such indicia does not mandate a finding of intent. Whether the intent exists is a question of fact to be determined from all of the circumstances as they existed at the time of the conveyance: see Re Fancy (1984), 1984 CanLII 2031 (ON SC), 46 O.R. (2d) 153 (H. Ct. J.), at p. 159.

[73] Case law has identified the following, non-exhaustive list of “badges of fraud” (see DBDC Spadina v. Walton, 2014 ONSC 3052 (CanLII), at para. 67; Indcondo Building Corp. v. Sloan, 2014 ONSC 4018 (CanLII), 121 O.R. (3d) 160, aff’d 2015 ONCA 752 (CanLII), 31 C.B.R. (6th) 110, at para. 52):
• the transferor has few remaining assets after the transfer;

• the transfer was made to a non-arm’s length person;

• the transferor was facing actual or potential liabilities, was insolvent, or about to enter a risky undertaking;

• the consideration for the transaction was grossly inadequate;

• the transferor remained in possession of the property for his own use after the transfer;

• the deed of transfer contained a self-serving and unusual provision;

• the transfer was secret;

• the transfer was effected with unusual haste; or

• the transaction was made in the face of an outstanding judgment against the debtor.

5. Fraudulent Conveyance

. Palkowski v. Ivancic

In Palkowski v. Ivancic (Ont CA, 2016) the Court of Appeal upheld a trial level finding of unjust enrichment against parties who had entered into a real estate conveyance to avoid creditors. The court held that there was no juristic reason for the resulting enrichment and deprivation, since the transaction was a 'sham':
[8] The trial judge found that the appellant had been enriched and that there was a corresponding deprivation on the part of the respondents. He concluded that there was no juristic cause to justify the enrichment. The appellant submits that in this respect the trial judge erred because the existence of a contract can constitute a juristic reason for an enrichment. (See: Garland v. Consumers’ Gas Co. 2004 SCC 25 (CanLII)). The existence of the agreement of purchase and sale, they argue, constitutes an absolute bar to a claim for unjust enrichment.

[9] This submission ignores the trial judge’s unchallenged finding with respect to the agreement of purchase and sale. The trial judge found that the agreement was a “sham” transaction. Thus, as between the appellant and respondent, there was no contract to bar the claim for unjust enrichment.


Cases to be integrated


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