Albert Bruno was the
principal of an American company called Bruno Appliance and Furniture, Inc. In
late 2001, Bruno met with Robert Cranston, the principal of a Panamanian
company, Frontline Investments Inc. As a result of those meetings, Bruno signed
a number of investment documents in favour of Frontline.
In February of 2002,
Bruno met with Cranston and Gregory Pebbles, a lawyer at the Toronto offices of
Cassels Brock and Blackwell. Robert Hryniak did not attend this meeting.
However, Hryniak's company, Tropos Financial Corp., received and paid a bill for
Pebbles' attendance.
In early March of
2002, Bruno Appliance wired US$1 million to Cassels Brock who assigned the
funds to an account associated with its client, Hyrniak's company, Tropos. Bruno Appliance's funds
were then "bundled" with other funds totalling US$3.5 million and paid to Tropos
in a bank draft. At the end of April 2002, Tropos paid US$2.5 million to a
company called Southern Equity Investors Inc. and in June 2002, Tropos
transferred approximately US$550,000 to an individual named Reinhard. By the
end of September 2003, the balance in Cassels Brock's Tropos account had dwindled
to US$19,000.
Bruno Appliance's
money was not invested and it never received a return on its investment.
Bruno Appliance
joined with other plaintiffs in a civil fraud action against Hryniak, Peebles and Cassels
Brock. The plaintiffs brought motions for summary judgment. The motion judge
found that Bruno Appliance had established its claim against Hryniak. He found
that despite his absence from the early meeting, Hryniak knew that the meeting
was occurring and that his company Tropos paid for Pebbles' attendance. The
motion judge found that Hryniak was aware that US$1 million was placed in the
Tropos account and that he gave instructions regarding those funds.
On appeal to the
Ontario Court of Appeal, the court allowed Hyrniak's appeal and held that there were two genuine issues that
required a trial: whether Hryniak induced Bruno Appliance to invest; and whether some of the funds were misappropriated by Cranston rather than
Hryniak.
The Court of Appeal
also found that the motion judge failed to address the issue of whether Hryniak
knowingly made any misrepresentation that induced Bruno Appliance to invest, a
necessary element of fraud.
The Court of Appeal
ordered that the Bruno Appliance action proceed to trial. The plaintiff further
appealed to the Supreme Court of Canada.
The Supreme Court of
Canada dismissed the plaintiff's appeal and ordered that the action proceed to trial.
At the Supreme Court
the parties disagreed as to the elements of the tort of civil fraud, in
particular whether proof was required that Hryniak induced Bruno Appliance to
invest its money. The judgment of the court was delivered by Justice
Karakatsanis.
The Supreme Court held that a classic statement of the elements
of civil fraud stems from an 1889 decision of the British House of Lords,
Derry v. Peek:
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 approved 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 guilty person of it is material. It matters not that there was no intention to cheat or injure the person to whom the statement was made.
Since that
statement was made, the Supreme Court of Canada has added two additional requirements - the
false statement must actually induce the plaintiff to act upon it and proof of
loss is required.
Accordingly, Justice
Karakatsanis summarized the following four elements of the tort of civil fraud:
(1) a false representation made by the defendant; (2) some level of
knowledge of the falsehood of the representation on the part of the defendant
(whether through actual knowledge or recklessness); (3) the false representation
caused the plaintiff to act; and (4) the plaintiff's actions resulted in a
loss.
In dismissing the
appeal, the SCC found that there was a genuine issue requiring a trial. Civil
fraud required a finding that Hryniak made a misrepresentation which induced
Bruno Appliance to invest. The motion judge did not identify the need for a
misrepresentation and did not find that Hryniak had made one. Since Hryniak was
not present at the important meeting, he could only be liable for any
misrepresentations made by Peebles or Cranston if their statements could be
attributed to him. However, the Court of Appeal considered and rejected the
possibility that Pebbles or Cranston was acting as Hryniak's agent.
While the motion
judge found that the evidence clearly demonstrated that Hryniak was aware of the
fraud and may have in fact benefited from the fraud, whether Hryniak perpetrated
the fraud by inducing Bruno Appliance to contribute the US$1 million to a
non-existent scheme was a genuine issue that required a trial.
Regards,
Blair
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