“Ha! Ha! Should have been more careful!” is not a defence to fraud

December 6, 2022 | Patrick D. Fitzpatrick, Bronwhyn Simmons

For over 150 years, the law has been clear that there is no “want of due diligence” or “contributory negligence” defence available to a person sued for fraud.[1] Despite this long history, defendants still attempt to rely upon the defence, unsuccessfully.

In Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., the Supreme Court of Canada (“SCC”), Canada’s highest court, dismissed the defendant’s argument that the plaintiff should not be permitted to rectify a contract because that plaintiff’s principal failed to read the contract before signing. A significant term in the contract was contrary to what the parties had agreed upon orally prior to reducing the terms to writing. The defendant, the drafter of the contract, argued that rectification was not available because the party he tricked had not done his “due diligence” before signing the contract. This particular argument was unsuccessful before the SCC; it is well-established that a party alleged of fraud cannot succeed on a defence that amounts to “Ha! Ha! Gotcha, should have been more careful!”[2]

The plaintiff in Sylvan Lake obtained rectification because the SCC held there was fraud by the contract’s drafter. Had a lesser level of culpability been found on the facts, perhaps an argument that the plaintiff negligently failed to read the contract could have succeeded. Contributory negligence is a defence to torts other than fraud and deceit. If fraud is not proven against a defendant, but negligence is, that defendant may have done well to plead contributory negligence. However, that defence will fail where fraud is established:

70      Lord Chelmsford’s strictures were quoted and applied by Southin J. (as she then was) in United Services Funds (Trustees of) v. Richardson Greenshields of Canada Ltd. (1988) …, 22 B.C.L.R. (2d) 322 (S.C.), where she observed that “[c]arelessness on the part of the victim has never been a defence to an action for fraud” (p. 335).

Once the plaintiff knows of the fraud, he must mitigate his loss but, until he knows of it, in my view, no issue of reasonable care or anything resembling it arises at law.

And, in my opinion, a good thing, too. There may be greater dangers to civilized society than endemic dishonesty. But I can think of nothing which will contribute to dishonesty more than a rule of law which requires us all to be on perpetual guard against rogues lest we be faced with a defence of “Ha, ha, your own fault, I fool you.” Such a defence should not be countenanced from a rogue. [p. 336]

See also Dalon v. Legal Services Society (British Columbia) (1995) …, 10 C.C.E.L. (2d) 89 (B.C.S.C.). To the same effect is Spencer Bower and Turner, The Law of Actionable Misrepresentation (3rd ed. 1974), at p. 218:

A man who has told even an innocent untruth, by which he has induced another to alter his position, – much more one who has fraudulently lied with that object and result, – has debarred himself from ever complaining in a court of justice, any more than he could in a court of morals, that the representee acted on the faith of his misstatement in the manner in which he, the representor, intended that he should. He can never be heard to resent the fact that another believed the lie that was told for the very purpose of inspiring that belief, or plead as an excuse that, if the representee had not been such a fool as to trust such a knave, no harm would have been done.

Accordingly, a person who has fraudulently tricked someone into something cannot rely on the other person’s gullibility or failure to detect the lie as a defence. These principles have been followed in Alberta, with the courts confirming that a defendant cannot rely on the plaintiff’s lack of due diligence, or that the dishonesty was obvious or easily discovered, as a defence to fraud or fraudulent misrepresentation.[3]

It goes without saying that one should not defraud others. As set out in the jurisprudence over the past one-and-a-half centuries, a fraudster cannot put forward the susceptibility or carelessness of victims to being defrauded as an excuse for the fraudster’s own fraudulent conduct. A defence of “Ha, ha, your own fault, I fool you!” will not be well received in court.

For further questions about this area of law, issues regarding civil fraud or contractual disputes, or the pursuit or defence of legal action, please contact Miller Thomson’s Commercial Litigation group.

[1] See Central R. Co. of Venezuela v. Kisch (1867), L.R. 2 H.L. 99 at pp. 120-121.

[2] Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19 at para 70, quoting United Services Funds (Trustees of) v. Richardson Greenshields of Canada Ltd. (1988), 22 BCLR (2d) 322 (SC) at p 336.

[3] See, for example, Kowal v Sun Star Energy Inc, 2020 ABQB 244 at paras 392-393; see also NEP Canada ULC v MEC OP LLC, 2021 ABQB 180 at para 766.

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