Legal Blog

Deceit

Occasionally, a client may lie to his lawyer. We know, it’s hard to believe, but, really, it happens. Sometimes, the lie is directed against an opposing party and, sometimes, horrors, the lie is directed against the lawyer. Does the lawyer have recourse against his lying client? This question was answered in Morris Bureau v. Darde (2013) 335 N.S.R. (2d) 378 (N.S.C.A.).

Lie

The law firm represented the client in his divorce. The firm requested a $50,000 retainer for what turned out to be a 17-day trial. The client told the firm that he had arranged a line of credit to pay the legal fees and asked the firm to complete the trial and receive payment at its end. These representations were false and the client knew that they were false. The firm represented the client without the retainer and the time for payment came and went. But the client did not pay the lawyer. Surprise!

The client then filed for bankruptcy and was subsequently discharged. Was the firm out of luck for its fees? No. The firm applied under s. 178(1)(e) of the Bankruptcy and Insolvency Act requesting that its claim against the client survive the bankruptcy. To be successful, the firm had to demonstrate that the client received its services as a result of false pretences or fraudulent misrepresentation.

The classic definition of fraudulent misrepresentation (or deceit) arose out of Derry v. Peak (1889) (H.L.). The claimant must show that:

1.         The defendant made a representation;

2.         The representation was false;

3.         The defendant made the representation knowingly, without belief of its truth, or was recklessly indifferent as to its truth; and

4.         The claimant relied on the representation and turned over property (or services) in consequence.

Application 

The trial judge had no hesitation in holding that the client fraudulently misrepresented his assets and ability to pay and granted the firm’s application.

The client appealed. He took no issue with the first three parts of the test, but argued that the firm’s reliance on his lies had to be reasonable and was not. An ironic argument if ever there was one.

The Court of Appeal noted that reliance on a representation is necessary to found a claim for negligent misrepresentation, but not to found a claim for fraudulent misrepresentation. For fraudulent misrepresentation, the representation need only be materially connected to the actions of the plaintiff. The test for materiality is subjective; the question is not whether the representation would have caused a reasonable person to act, but whether it was a true inducement for the plaintiff’s actions.

The Court dismissed the appeal.