In this recent decision, the Ontario Court of Appeal clarified and expanded on their prior ruling in Royal Bank of Canada v. 1643937 Ontario Inc., 2021 ONCA 98, 154 O.R. (3d) 561 (C.A.) (“Royal Bank v. 164”), effectively making it very difficult for fraudsters to enforce contracts that were induced through their fraudulent misrepresentations.
Briefly, commercial contracts often contain an “entire agreement clause,” which is an attestation that the written contract contains all the representations, covenants and warranties between the contracting parties, such that the parties are, in theory, precluded from looking beyond the written contract when a dispute arises between them. Royal Bank v. 164 put limits on such clauses so that they cannot be used and abused by parties who induced the formation of a contractual relationship through fraudulent misrepresentations.
The recent clarification by the Ontario Court of Appeal was required because a lower court judge considered Royal Bank v. 164 to apply only when the parties were of unequal bargaining power. The appellate court disagreed, reasoning that “the policy of the law to discourage fraud is applicable to cases of equal and unequal bargaining power.”
Further clarification was also required because the lower court judge considered Royal Bank v. 164 to be inapplicable if the innocent contracting party was in a position to insert terms into the impugned contract that could have protected them from the fraudulent misrepresentations. The Court of Appeal completely disagreed, citing that it was well settled law that having opportunities to add protective terms is irrelevant and does not deprive the aggrieved party of their right to avoid the contract on the basis of fraudulent misrepresentation. A contracting party should be able to assume they are being told the truth, and there is no concomitant obligation to insert terms to protect themselves from fraudulent lies.
10443204 Canada Inc. v. 2701835 Ontario Inc., 2022 ONCA 745
https://www.canlii.org/en/on/onca/doc/2022/2022onca745/2022onca745.html