Fraudulent Misrepresentation by Omission in Canada: Context is Everything

Fraudulent misrepresentation, sometimes referred to as civil fraud, involves a false representation that has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly as to whether it was true or false. However, as a cause of action, fraudulent misrepresentation is not confined to situations involving direct false statements of fact. Findings of fraudulent misrepresentation can also be made in the absence of a direct false representation. In the right circumstances, liability for fraudulent misrepresentation can arise out of silence or omissions.

In practice, it continues to be very challenging to prove misrepresentation by omission in Canada. The challenges are on full display when one considers two recent decisions concerning the sale of real property. 

Omissions constituting fraudulent misrepresentation generally involve specific kinds of silence, including: (i) a half-truth or a representation that is practically false, not because of what is said, but because what was left unsaid; or (ii) where the circumstances raise a duty on the representor to state certain matters, if they exist, and where the representee is entitled to infer their non-existence from the representor's silence as to them. The effect of the silence, in these circumstances, is to make what was previously or concurrently said a false statement. 

In some circumstances, silence may technically leave anything stated or written as true, but result in a misconception, since the whole truth has not been told. This form of silence will not necessarily amount to misrepresentation, unless it relates to a material fact for which there is a duty on the silent party to disclose.

This situation was considered recently by the British Columbia Court of Appeal in Wang v Shao, 2019 BCCA 130 (“Wang”) which involved the sale of a multi-million dollar luxury home.  In the period leading up to the agreement, the purchaser had asked why the home was being sold. The vendor’s representative advised the reason was that the daughter was changing schools. Satisfied with that answer, the purchaser proceeded to sign the agreement. What the vendor left unsaid, however, was that her husband, who was alleged to have been a gang leader, had been murdered at the property two years prior and that their daughter was asked to leave the school she was then attending, due to concerns over the family’s connections to organised crime. When the purchaser learned of the murder, she refused to complete the sale. The vendor sued the purchaser, claiming breach of contract. The purchaser counterclaimed, alleging fraudulent misrepresentation by omission.

The trial judge agreed with the purchaser, finding that, while the representation was true on its face, it was incomplete in a material respect. It concealed the fact that the daughter changed schools as a result of the murder and that the murder was a factor in the vendor’s decision to sell the property. The vendor appealed.

The British Columbia Court of Appeal reversed the trial decision and held that there was no fraudulent misrepresentation by omission. The vendor’s representative gave an honest answer to the specific question posed by the purchaser. The appeal court found that the omission was not material because there was no evidence that the purchaser had a particular sensitivity to an event that had occurred two years earlier, and it did not affect the quality of the house or its usefulness. The appeal court took the view that the seller could not have intended to deceive the purchaser by omitting to state a fact that the seller did not know would be material to the purchaser.

By contrast, consider the recent case 100425140 Ontario Inc. v 1000176653 Ontario Inc. 2023 ONSC 6688 (“1004”),which also involved the sale of a luxury home. The plaintiff purchased a property that had been marketed as “private and secure”. However, the previous tenant, Aiden Pleterski, known as the “Crypto King”, was in fact a fraudster who had many angry creditors that would regularly pay visits to the property. Mr Pleterski had been kidnapped and assaulted by some of these creditors. As a result of repeat visits by some of the angry creditors, the purchaser learned of the previous tenant’s history. The purchaser brought an action to rescind the sale contract, alleging that the defendant made fraudulent misrepresentations, both directly and by omission, concerning the security of the home.

On a motion for summary judgment, the court held that a reasonable person would be concerned for their safety at this property if the angry creditor situation was disclosed. On the facts, the court found that a direct misrepresentation had been made as the vendor knew of the situation and marketed the property as “secure”. At the same time, the court found that the vendor had “suppressed” material information concerning the safety of the property, a misrepresentation by omission. The 1004 decision is currently under appeal.

While Canadian courts are open to finding fraudulent misrepresentation by omission, proving the allegation remains challenging. Success will turn on the specific facts and context. The recent Wang and 1004 cases were similar, albeit not identical. In both cases, the purchasers relied on incomplete representations of the vendors to enter into an agreement to purchase high-end properties. In both cases, the purchasers were left concerned about the security of the home they agreed to purchase. These two decisions make it clear that the success of a claim alleging fraudulent misrepresentation by omission will hinge on proving the facts alleged to have been omitted, the specific and material concerns of the representee, and whether, on the evidence, those concerns were made known to the representor. While it remains to be seen how the Court of Appeal for Ontario will address the issue, absent clear evidence, a party alleging an omission should not assume the court will find that their concern should have been “obvious” to the counter-party.