Discovering that you are or may be a victim of fraud must be one of the most horrendous emotions to experience. Many people would assume that fraud is purely a criminal matter to be dealt with by crown prosecutors and the police. However, fraud may have civil and administrative consequences. Fraud can take many forms. It might be the abuse of a power of attorney who misappropriates assets from his or her victim; it could also be business related where the fraudster is embezzling monies from his or her employer, or individuals or corporations misleading the tax authorities about information on their tax returns.
Fraud is defined in section 380 of the Criminal Code as “Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service”. In order for a conviction of fraud, the prosecutor must prove beyond a reasonable doubt each element of the fraud offense, including the mens rea, the “guilty mind”. If the prosecution is unable to make out each element of the offense, or the alleged fraudster can successfully raise a defense, then they will be found not guilty.
However, victims of fraud may be told by the police that fraud is a civil matter and that they should hire a lawyer to pursue the fraudster for their ill-gotten gains. While fraud can give rise to a tort of civil fraud (fraudulent misrepresentation) or deceit. In practice that is easier said than done because forcing a victim of fraud to pay legal fees can add insult to injury.
In the civil context, the Supreme Court of Canada in Bruno Appliance and Furniture, Inc. v. Hryniak,  1 SCR 126, 2014 SCC 8 (CanLII)confirmed the tort of civil fraud at paragraph 18 of that decision as follows:
“First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. . . . Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.”
In other words, for the tort of civil fraud to be made out, the plaintiff must prove on a balance of probabilities that:
- a false representation made by the defendant;
- some level of knowledge of the falsehood of the representation on the part of the defendant either through knowledge or recklessness;
- the false representation caused the plaintiff to act; and
- the plaintiff’s actions resulted in a loss.
Administrative penalties may also be an issue depending on the specific context of the fraud and whether the fraudster is a regulated professional (e.g. lawyers, accountants, realtors, ect.).
Practically speaking, most victims of fraud simply want their money or property back. However, fraudsters often leave a trail of broken relationships and bankruptcies in their wake. In terms of recovery, there may be viable options for victims of fraud to recovery some or a portion of their losses from a fraudster. However, it should be cautioned where a fraudster is bankrupt or the absconded funds have been spent, then there may be minimal prospects for recovery.
A few ways to assist in recovery are listed below:
(1) Restitution Orders
In criminal proceedings, a convicted fraudster may be ordered by the court to make restitution to his or her victims.
(2) Private Prosecution
In certain cases, a private citizen can lay an information against an individual accused of fraud. Should it be accepted by the court, the crown will then take over the prosecution of the case.
(3) Freezing orders
Victims of fraud can utilize the civil litigation process to strategically freeze or tie up assets of the fraudster pending the outcome of the litigation. This may involve the use of a certificate of pending litigation against land, or a freezing order or Morava injunction freezing the fraudster’s assets from being transferred to another jurisdiction or third party out of the reach of the fraud victims or creditors.
Bankruptcy is an effective tool to ferret out fraud. Upon a voluntary or involuntary bankruptcy, a bankruptcy trustee is appointed over the affairs of the individual or corporate debtor with broad reaching statutory investigation tools, including the right to compel examinations of those with knowledge of the affairs of the bankrupt or to compel documents to be disclosed.
(5) Litigation against insured professionals who assisted the fraudster
If there are professionals who assisted the fraudster, or who failed to advise you, then there may be a possibility of recovery against these professionals and their insurers.
Should there be one takeaway, it would be that victims of fraud should be proactive in engaging professional counsel to ascertain whether they might be a victim of fraud and second to consult with professionals to create a fraud recovery plan. The knee jerk reaction is for victims of fraud to want to confront the alleged fraudster and demand full repayment of their funds. This may have the opposite effect to alerting the fraudster that the fraud has been uncovered and assets may be quickly dissipated. Of course, each case depends on its own, unique facts.
This blog post is for legal information purposes only and not legal advice. Should you require legal advice, please contacted a licensed lawyer in your jurisdiction.
Cody Reedman is a litigation lawyer with a varied litigation practice including general commercial litigation, bankruptcy and insolvency, employment law, creditors’ remedies, and civil fraud matters. He is currently studying towards a Certified Fraud Examiner designation in his spare time.