Court of Appeal Dismisses Fraudulent Misrepresentation Claim
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In a recent decision, the Ontario Court of Appeal dismissed an appeal arising out of a lawyer’s claim that a mortgage broker had committed the torts of fraudulent misrepresentation and/or inducing breach of contract arising from refinancing efforts on a residential property.

Mortgage Broker Becomes Involved in Refinancing of Couple’s Home 

In 2012, a couple bought a house, financed partly with an $80,000 loan from a lawyer. However, the couple did not make their monthly payments on the loan and their debt to the lawyer grew with interest to over $100,000. 

As a result, the lawyer registered the debt as a charge on the property and later obtained an order for possession. A notice of sale was issued to be effective June 24, 2014, but the sale was stayed on a temporary basis by a court order issued on June 23, 2014. 

Subsequently, a mortgage broker became involved and tried to arrange for mortgage financing for the couple, whose debt to the lawyer had grown to about $160,000. The lawyer and the couple agreed to settle the debt (the “first settlement”) on the basis that the couple would pay the lawyer $115,000, with costs of the motion to stay the sale proceedings to be fixed or assessed by the court.

In a schedule to the settlement agreement for the first settlement, dated August 28, 2014, the couple signed a promissory note for $115,000 in favour of the lawyer. The mortgage broker also signed the promissory note as guarantor, though he claimed that he thought he was only signing as a witness and later admitted to not reading the document first.

The mortgage broker continued to seek financing for the couple, but disputed his role as guarantor as well as the costs award. He and the couple sued the lawyer for fraudulent misrepresentation, claiming $2 million and $1 million respectively. 

The lawyer and the couple ultimately agreed to settle the actions on the basis that they would pay the lawyer $140,000 (the “second settlement”). 

The lawyer then counterclaimed against the mortgage broker, alleging that the broker’s fraudulent misrepresentation induced him to enter into the first settlement with the couple, and that the mortgage broker later induced breach of contract by undermining that settlement.

At the subsequent hearing for summary judgment, the mortgage broker acknowledged he had suffered no damages and that the lawyer had settled his claims with the couple, rendering the guarantee issue moot; as a result, the mortgage broker’s claim against the lawyer was dismissed. However, the court found the mortgage broker raised genuine issues requiring a trial regarding the lawyer’s counterclaim and ordered those claims to proceed to trial. 

At the ensuing trial, the judge dismissed the lawyer’s counterclaim against the mortgage broker. He concluded that the lawyer had not established that the mortgage broker was liable for either fraudulent misrepresentation or inducing breach of contract. The trial judge also held that the lawyer’s second settlement with the couple relieved the mortgage broker of any obligation as guarantor for the couple’s debt.

As a result, the trial judge ordered the mortgage broker to pay the lawyer costs for the main action of $20,000, and ordered the lawyer to pay the mortgage broker costs for the counterclaim of $18,000, for net costs to the lawyer of $2,000.

The lawyer appealed the decision, raising at least 14 grounds of appeal. 

Court of Appeal Dismisses Lawyer’s Appeal

The Court of Appeal found that the trial judge had correctly cited the five elements of fraudulent misrepresentation as follows: 

  1. that the defendant made a false representation of fact; 
  2. that the defendant knew the statement was false or was reckless as to its truth; 
  3. that the defendant made the representation with the intention that it would be acted upon by the plaintiff; 
  4. that the plaintiff relied upon the statement; and 
  5. that the plaintiff suffered damage as a result.

Pursuant to these criteria, the court found the trial judge was entitled to conclude that the lawyer had failed to establish that the mortgage broker had made any false or reckless representation inducing the lawyer to enter the first settlement with the couple. It also found the trial judge was correct in finding that the terms of the settlement agreement vitiated any tangible claim that the mortgage broker had represented anything to the lawyer he knew to be false or reckless and which the lawyer would have relied on or acted on to his detriment.

The court also found that the trial judge had made no error in dismissing the claim for inducing breach of contract when he concluded that the lawyer had failed to prove the third of the four elements required for such a claim. The four elements are: 

  1. the plaintiff must have a valid and enforceable contract with the defendant;
  2. the defendant was aware of the existence of the contract; 
  3. the defendant intended to and did procure the breach of the contract; and
  4. because of the breach, the plaintiff suffered damages.

Further, the court found that the trial judge had been correct in dismissing the claim to enforce the mortgage broker’s guarantee. While a lender may have separate claims against both the borrower and their guarantor, it had not been a term of the lawyer’s settlement with the couple that he could pursue the mortgage broker and the lawyer had accepted $140,000 in full satisfaction of the debt owed to him by the couple.

Finally, the court found no basis to interfere with the trial judge’s costs ruling. 

As a result, the appeal was dismissed. 

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