Ponzi schemes and other fraudulent arrangements that operate on a large scale often involve complex networks of activities, actors, and funds transfers. Given the number of players that may be required to bring about such a scheme, the tort of civil conspiracy provides a potential means for recovery for fraud victims.

The elements of civil conspiracy: Simple motive or unlawful means?

As outlined in the Supreme Court of Canada’ decision in Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd. civil conspiracy in Canada is comprised of two related but distinct categories.  The first category is the “lawful means” or “simple motive” conspiracy, and the second is the “unlawful means” or “unlawful conduct” conspiracy.

Where a victim (the plaintiff) alleges that others (the defendants) have engaged in simple motive conspiracy, he or she will be required to demonstrate that the defendants (i) engaged in a course of conduct with the predominant purpose of causing injury to the plaintiff, notwithstanding that the conduct might otherwise be legal, and (ii) that he or she suffered some damage as a result.

The Court of Appeal for Ontario, in Agribrands Purina Canada Inc. v. Kasamekas, establishes that a party to an action is liable for the tort of unlawful conduct conspiracy if the plaintiff can demonstrate that:

  1. Two or more people acted in concert, by agreement, or with a common design or intention;
  2. The co-conspirators engaged in conduct that was unlawful, which can include the breach of a statute, the violation of a contract, or the carrying out of an underlying tort, such as misrepresentation or fraud;
  3. The conduct was directed towards the plaintiff;
  4. Given the circumstances, the defendants should have known that injury was likely to result; and
  5. Injury or harm did result.

Whether a claim is based on simple motive or unlawful means conspiracy, the plaintiff must show that the defendants acted in combination – that is, that each of the alleged co-conspirators was aware of the relevant facts and intended to participate. However, it is not necessary that all the defendants be involved in the scheme from start to finish in order to ground a claim for civil conspiracy. Rather, co-conspirators may be found liable for their participation at different points in time, provided that all of the other requirements are met.

Making the case for unlawful means conspiracy

In HSBC Bank Canada v. 1100336 Alberta Ltd., HSBC had granted a secured line of credit to 828326 Alberta Ltd. (“828”). When 828 neglected to fulfill its obligations under the loan, HSBC sought to enforce its security interest against 828’s assets, only to discover that there was nothing left in the corporation. HSBC then sued the directing minds of 828 and its spin-off corporations for conspiring to defeat HSBC’s claim. Applying the test for unlawful means conspiracy, the Alberta Court of Appeal determined that the fraudsters, by engaging in the tort of conversion, had agreed and committed unlawful conduct that they knew would cause harm to HSBC, and HSBC suffered harm as a result. The Court noted that one of the defendants was liable for conspiracy, even if she had not been part of the original agreement, for having willingly carried out the instructions of another defendant, knowing that the effect of those actions would be to defraud HSBC. HSBC was ultimately awarded over $1.7 million.

In another case, Midland Resources Holding Ltd. v. Shtaif, the parties were involved in a failed joint venture to develop Russian oilfields. The plaintiffs – two respected Canadian businessmen and their shared company – claimed that the defendants engaged in a complicated web of deception, misrepresentation, securities fraud, and breaches of fiduciary duty in order to induce the plaintiffs to invest $50 million into the joint venture and then divert the funds for their own purposes. The Court agreed, finding that, at various points of time between November 2005 and March 2007, the co-conspirators had all engaged in unlawful conduct that caused injury to the plaintiffs. Because not all of the defendants were involved in each act that led to the plaintiffs’ injuries, the amounts awarded ranged from US$1.5 million to US$8.27 million for certain players, to over US$59.5 million from each of the two main co-conspirators.  This case is currently under appeal.

The tort of civil conspiracy and, in particular, unlawful means conspiracy, is a powerful potential avenue of attack available to victims of fraud.  However, evidence collection in conspiracy cases is very important in order to ensure that there is sufficient proof to support all of the required elements of the cause of action, particularly regarding the intention to act in concert.