Clarification of standard of proof for fraud

In Smysniuk v Stecyk, 2015 SKCA 54, the Saskatchewan Court of Appeal squarely addresses the proper standard of proof in cases of fraud.

Alan and Roy, once partners, incorporated Alroy Oilfield Construction Incorporated to carry on their construction business. Alan’s role was that of a heavy equipment operator and foreman supervising the work at construction sites. Roy’s role was to take care of the business and financial operations of Alroy Inc. When Roy offered to buy Alan out, Alan saw, for the first time, the financial statements of Alroy and took issue with them. Immediately thereafter, Roy conspired with the other individual defendants to transfer all the assets of Alroy to a new company, All-Roy Oilfield Contractors Corporation, also a defendant. All-Roy also assumed all of the contracts, business opportunities and employees of Alroy.

Most of the 80 page judgment relates to specific credibility and factual findings of the trial judge in finding all of the defendants liable in fraud and conspiracy. However, some defendants argued that the trial judge erred in law by failing to apply the appropriate standard of proof.

The Court of Appeal commences its analysis, at para. 98, with the instruction of the Supreme Court of Canada in F.H. v. McDougall, 2008 SCC 53, at para. 40, that there is only one standard of proof in civil cases and that is proof on a balance of probabilities.

Despite the clear guidance in F.H. v. McDougall, there remains in the case law a persistent strain of authority preserving a higher standard of scrutiny for serious allegations such as fraud: see, for example, 0895625 B.C. Ltd. v. Ascent Developments Corp., 2014 BCSC 1722, at para. 17; Lageveen v. De Haas, 2013 ONSC 4482, at paras. 46-48; Walsh v. Unum Provident, 2013 NSCA 124, at para. 15, 18; HSBC Bank Canada v. Lourenco, 2012 ABQB 380, at para. 17; Hermez v. Saskatchewan Government Insurance, 2010 SKQB 207, at paras. 24-25.

The cross-appellants argued that such a higher standard should apply in this case: “… the judge should have carefully scrutinised the evidence to ensure that Alan had adduced clear and cogent evidence to support his claim” (at para. 99).

The Court of Appeal squarely rejects this argument, at para. 99, citing the direct instruction of the Supreme Court of Canada in this regard, in F.H. v McDougall, at para. 45: “…it is inappropriate to say that there are legally recognized different levels of scrutiny of the evidence depending upon the seriousness of the case.”

The Court's description of the standard of proof is basic but helpful in clarifying what balance of probabilities really means, and how it does not allow for different levels of scrutiny:

...the standard of proof in civil matters (which may be colloquially described as: “Is it more likely than not?”) is met when a preponderance of the evidence supports the factual conclusion proposed by the person having the burden of proof (at para. 102).

The Court of Appeal emphasized, at para. 101, the correct starting point for an appeal court’s analysis: “…the examination under this ground of appeal must start with the presumption that a trial judge has applied the correct standard of proof: F.H. v McDougall, at para. 54…” It concluded, at para. 102, that the trial judge’s reasons, viewed as a whole, demonstrated that he concluded that the preponderance of evidence supported the findings of fraud and conspiracy.

Although it does not contain any analysis, the recent case of Himel v. Molson, 2015 ONCA 405, involving a fraudulent mortgage transaction, is also of assistance in dispelling the authorities clinging to a more stringent standard of proof for fraud. It neatly states:

1 THE COURT (orally):-- We find the appellant's grounds of appeal to be without merit, for the following reasons:

2 First, the trial judge applied the correct standard of proof, which is the balance of probabilities: F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41, at para. 40.

Hopefully the mounting authorities will soon put an end to this fruitless area of dispute, so the focus can be placed on the evidence itself.