Recent Alberta Court decision determines if intent adds another element to the established test for fraud or deceit

In the recent decision of NEP Canada ULC v MEP OP LLC, the Court took the opportunity to provide direction on whether intent is a required element of the test for fraud in Alberta. When the Supreme Court of Canada did not include any express intention requirement in its recitation of the test for fraud in Bruno Appliance and Furniture Inc v Hryniak, 2014 SCC 8 (“Bruno Appliance”), questions arose as to whether intention was an element. The Alberta Court of Appeal noted the uncertainty in the law in Precision Drilling Canada Limited Partnership v Yangerra Resources Ltd 2017 ABCA 378. The MEP decision now provides some direction on this uncertain issue.

Background

NEP made a bid to purchase MEP’s oil and gas assets in Alberta. As part of the negotiations, NEP performed due diligence, including reviewing information provided by MEP and following up with MEP on information that was not otherwise provided in disclosure. Subsequent to closing the deal with MEP, NEP became aware of significant issues of regulatory non-compliance with the MEP oil and gas assets that were not disclosed by MEP during negotiations.

Deceit/fraud

NEP alleged, among other things, that MEP had fraudulently misrepresented and failed to fully disclose material information respecting the compliance status of MEP’s oil and gas assets during the purchase negotiations. In analyzing liability for deceit (fraud), Justice Nixon undertook a thorough review of fraud jurisprudence in Canada. Applying the Supreme Court of Canada’s test from Bruno Appliance, Justice Nixon reiterated that fraud requires i) a false representation; ii) awareness of the falsehood by the defendant through knowledge or recklessness; iii) reliance by the plaintiff on the false representation; and iv) loss suffered by the plaintiff as a result. Further, Justice Nixon noted that while disclosure in negotiations are not mandatory unless the parties agree, if disclosure is made and that disclosure is intended to be relied upon by the counter-party, it must be accurate and comprehensive to the fullest extent possible. Partial disclosure or silence with knowledge of the information withheld, or recklessness as to its existence or truth, may be sufficient to establish a fraudulent misrepresentation.

The Court considered two contentious questions concerning the test for fraud: Is intention required to establish fraud and does fraud require proof of a certain mens rea? The answer to both these questions by Justice Nixon was yes.

Reviewing the historical framework of fraud, Justice Nixon held that intent is a requisite element of the cause of action. However, the intent that must be established is the intent that the innocent party will rely on the misrepresentation, rather than an independent intent to deceive. Therefore, the actus reus of the tort of  fraud is the making of a false representation, with knowledge that it is false, or recklessness as to the truth of it, to an innocent party, while the mens rea is the intent that that false representation will be relied upon. As stated succinctly by Justice Nixon, “the intention to deceive is implicit when someone makes a false statement intending or knowing that the other party will rely on it.” The intention to deceive is made out through two of the elements of the test for fraud set out in Bruno Appliance: the false statement and knowing or intending that the false statement be relied upon. 

Takeaways

NEP Canada ULC v. MEP OP LLC provides useful jurisprudence on the role of intent as part of the cause of action of deceit or fraud. This decision has made clear that intention does not add another element to the established test for fraud or deceit, but is already implicit in the existing analysis. Plaintiffs seeking to establish deceit or fraud do not need to establish an additional element to make out their claim. 

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