In certain cases, the courts will order a losing party in a lawsuit to pay enhanced costs for wrongly alleging fraud. The court looked at this issue in the recent case of 956126 Alberta Ltd v JMS Alberta Co Ltd, 2021 ABQB 121. The court said at paragraph 24:
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[24] Where unsubstantiated allegations of fraud, deceit, or dishonest conduct are made in a Statement of Claim, increased costs may be awarded: Thompson v Procrane Inc, 2016 ABCA 71 at paras 15-17 [Thompson]; Myers v Alanridge Homes Ltd, 2019 ABQB 65 at para 18; Bizon v Bizon, 2012 ABQB 605 at para 21; R & S Industries Inc v Hildebrand Industries Ltd, 2002 ABQB 1107; Khamo v Daved, 1998 ABQB 832 at para 24. The Court discourages unfounded allegations of this nature and may award enhanced costs to penalize the accuser’s conduct, even where no evidence is provided that the defending party suffered actual prejudice or embarrassment: Thompsonat para 16.
[25] Enhanced costs for failure to prove allegations of fraud or dishonesty are generally awarded only where “reprehensible, scandalous or outrageous conduct” is shown on the part of one of the parties: Hamilton v Open Window Bakery Ltd, 2004 SCC 9 at para 26.
[26] The Alberta Court of Appeal explained the proper approach in Abt Estate v Ryan, 2020 ABCA 133 at para 59 [Abt], referring to Strategic Acquisition Corp v Multus Investment Corp, 2017 ABQB 297 at paras 25-26, varied but affirmed as to costs, 2018 ABCA 63 at para 20:
... enhanced costs for failure to prove fraud ... should be reserved for the most egregious cases where, for example, the court is punishing a litigant for falsifying documents submitted to the court, or intentionally making false allegations of fraud....Where the allegations of fraud have some circumstantial plausibility with some basis on the facts alleged, in general terms, the plaintiff’s conduct cannot then be described as “reprehensible, scandalous or outrageous”.
[27] The Court of Appeal in Abt at para 61 confirmed that the analytical framework for unfounded allegations of fraud invites a trial judge to analyze:
1. the nature of the allegation made, and whether the particular circumstances of the party against whom the allegation was made were such as to make the implication of the allegation more serious;
2. what, if any, information supportive of the allegation was known to the party making the allegation;
3. the strength and reliability of that information as it was known, or should have been known, by the party making the allegation;
4. the steps taken by the party making the allegation to verify the information upon which the allegation was based;
5. when the information was made known to the party making the allegation, whether additional information subsequently became known and whether the allegation was modified, or withdrawn to reflect the new information;
6. the timeliness of any such modification or withdrawal; and
7. whether the party making the allegation knew, or should have reasonably known, the allegation’s implications for the party against whom it was made...
If you have any questions about enhanced costs please feel free to contact us.
The information contained in this article is not legal advice. No solicitor client relationship is formed through this article. The reader is encouraged to retain counsel for advice in these matters.
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