We previously reported in an article last August that Ontario Courts are increasingly finding civil fraud on the basis of material omissions, as in the United Kingdom. This trend has continued in a recent decision by the Supreme Court of British Columbia in Wang v Shao, 2018 BCSC 377.
The case involved the aborted sale of a home in Vancouver’s upscale Shaughnessy neighbourhood for a purchase price of $6.138 million. After viewing the home, the purchaser specifically inquired through real estate agents why the vendor was selling it. The vendor’s daughter (who held power of attorney) claimed that she was selling the home because her daughter had changed schools. The purchaser was satisfied with this answer, and executed an agreement of purchase and sale. However the answer was found to be incomplete. In fact, she was also selling the home because her husband (who was alleged to be associated with a criminal gang) had been murdered outside the home two years earlier and there were concerns about the safety of the family.
The purchaser eventually discovered the murder and refused to finalize the sale. The vendor later sold the home to a second purchaser for $5.5 million, and sued the original purchaser for breach of contract in an effort to retain a $300,000 deposit and to recover an additional $338,000 to complete the difference from the ultimate sale price.
The defendant claimed that the murder, which remained unsolved, rendered the home potentially dangerous. The defendant alleged that the vendor’s failure to disclose the murder as the reason for sale constituted a fraudulent misrepresentation (deceit). This argument was advanced as a defence to vitiate all obligations under the agreement of purchase and sale, and also in support of a counterclaim seeking to recover her legal fees.
The elements of fraudulent misrepresentation were set out by the Court as follows:
- the vendor made a representation of fact to the purchaser;
- the representation was false in fact;
- the vendor knew the representation was false when it was made, or made the false representation recklessly, not knowing if it was true or false;
- the vendor intended the purchaser to act on the representation;
- the purchaser was induced to enter into contract in reliance upon the false representation and thereby suffered a detriment.
The Court was asked to decide whether the vendor’s failure to disclose the murder in the home constituted fraudulent misrepresentation by omission. Justice Pearlman found that the purported reason for the sale – that her daughter had changed schools – was superficially true but “incomplete”, and that it was intended to conceal the murder and induce the sale. The Court found the statement to be “a false representation by omission”, relying on the following description of incomplete statements that rise to the level of fraudulent misrepresentations:
An incomplete statement may be as misleading as a false one, and such half-truths have frequently been treated as legally significant misrepresentations. Almost always something is said to induce the transaction and it is open to the court to hold that the concealment of the material facts can, when taken with general statements, true in themselves but incomplete, turn those statements into misrepresentations.
The vendor was found liable for civil fraud, which vitiated the agreement of purchase and sale and defeated her claims for breach of contract. The purchaser was awarded her $300,000 deposit and recovered her legal fees. This decision forms part of a growing body of civil law in Canada confirming that a party can be held liable in fraud not only for what they say, but also for what they fail to say.