R. v. Théroux, [1993] 2 S.C.R. 5
Robert Théroux Appellant
v.
Her Majesty The Queen Respondent
Indexed as: R. v. Théroux
File No.: 22249.
1992: November 3; 1993: April 8.
Present: Lamer C.J. and La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory and McLachlin JJ.
on appeal from the court of appeal for quebec
Criminal law ‑‑ Fraud ‑‑ Elements of offence -- Mens rea ‑‑ Accused directing mind of company involved in residential construction ‑‑ Deposits taken from potential purchasers on false representation that deposits were insured ‑‑ Project not completed following company's insolvency ‑‑ Accused honestly believing that project would be completed and deposits not lost ‑‑ Whether accused guilty of fraud ‑‑ Criminal Code, R.S.C., 1985, c. C‑46, s. 380(1).
The accused, the directing mind of a company involved in residential construction, was charged with fraud. The company entered into agreements with a number of individuals for the purchase of residences. The contracts were made and the deposits taken on the basis of a false representation by the company that the deposits were insured. The representation was made orally and backed up by a certificate of participation in the insurance program. In addition, a brochure describing the program was distributed to most of the depositors. In fact, the company never paid the premiums due on a first application for participation in the insurance program and a second application was never completed. The company became insolvent, the project was not completed and most of the depositors lost their money. The trial judge found that the accused, as directing mind of the company, was responsible for the misrepresentations. The accused knew at the time that the deposits were not guaranteed but nevertheless made misrepresentations to induce potential home purchasers to sign a contract and give a deposit. The trial judge also found that the accused sincerely believed that the residential project would be completed and hence that the deposits would not be lost. The accused was convicted of fraud pursuant to s. 380(1)(a) of the Criminal Code and the Court of Appeal upheld the conviction. The issue in this appeal is whether the fact that the accused honestly believed that the project would be completed negates the mens rea of the offence of fraud.
Held: The appeal should be dismissed.
Per La Forest, Gonthier, Cory and McLachlin JJ.: The actus reus of fraud is established by proof of a prohibited act, be it an act of deceit, falsehood or other fraudulent means, and by proof of deprivation caused by the prohibited act (which may consist in actual loss or the placing of the victim's pecuniary interests at risk). Just as what constitutes a falsehood or a deceitful act for the purpose of the actus reus is judged on the objective facts, the actus reus of fraud by "other fraudulent means" is determined objectively, by reference to what a reasonable person would consider to be a dishonest act. Correspondingly, the mens rea of fraud is established by proof of subjective knowledge of the prohibited act, and by proof of subjective knowledge that the performance of the prohibited act could have as a consequence the deprivation of another (which deprivation may consist in knowledge that the victim's pecuniary interests are put at risk). In certain cases, the subjective knowledge of the risk of deprivation may be inferred from the act itself, barring some explanation casting doubt on such inference. Where the conduct and knowledge required by these definitions are established, the accused is guilty whether he actually intended the deprivation or was reckless as to whether it would occur. The accused's belief that the conduct is not wrong or that no one will in the end be hurt affords no defence to a charge of fraud. While the scope of the offence may encompass a broad range of dishonest commercial dealings, the proposed definition of mens rea will not catch conduct which does not warrant criminalization. Only the deliberately practised fraudulent acts which, in the knowledge of the accused, actually put the property of others at risk will constitute fraud. The requirement of intentional fraudulent action excludes mere negligent misrepresentation, or sharp business practice.
In this case, it is clear from the trial judge's findings that the offence of fraud is made out. The actus reus is established: the accused committed deliberate falsehoods which caused or gave rise to deprivation. First, the depositors did not get the insurance protection they were told they would get and, second, the money they gave to the accused's company was put at risk, a risk which in most cases materialized. The mens rea too is established: the accused told the depositors that they had insurance protection when he knew this to be false. By this act he was knowingly depriving the depositors of something they thought they had, namely insurance protection. It may also be inferred from his knowledge that insurance protection was not in place that the accused knew that he was subjecting the depositors' money to risk. The fact that he sincerely believed that the houses would be built, and that the deposits would not be lost, was no defence to the crime.
Per Lamer C.J. and Sopinka J.: Subject to the following reservations, McLachlin J.'s analysis of the law of fraud was generally agreed with. First, while the accused's belief that an act is honest will not avail if it is objectively dishonest as determined by reasonable persons, it is critical to distinguish this from the accused's belief in facts that, if true, would deprive the act of its dishonest character. Secondly, mens rea is not typically concerned with the consequences of the prohibited actus reus. The actus reus often includes the consequences, and, frequently, more serious offences are distinguished from less serious offences by the consequences without any additional mental element. Thirdly, the general proposition that "[r]ecklessness presupposes knowledge of the likelihood of the prohibited consequences" is applicable in the case of fraud but not necessarily for other offences.
In this case, the trial judge's finding that the accused deliberately lied to his customers determines both the actus reus and mens rea of deceit. If the sole issue were whether the accused's conduct created a risk that the depositors might be deprived of their deposits by reason of the non‑completion of the project, the appeal should be allowed. Where the risk of deprivation is dependent on some future event not happening but the accused honestly believes that the future event will happen and there will be no deprivation, a trial judge who accepts this evidence should acquit. Here, the trial judge found there was no insurance in place, however, and therefore even if the project were eventually completed, there would have been a deprivation or risk thereof during the uninsured period. The trial judge, having made all the findings of fact which constitute a deprivation, ought to have found that this element had been made out. Failure to make such a determination would be an error of law and would entitle this Court to affirm the conviction and dispose of the case on this basis.
Per L'Heureux‑Dubé J.: Subject to the second and third reservations expressed by Sopinka J., the reasons of McLachlin J. were generally agreed with.
Cases Cited
By McLachlin J.
Not followed: R. v. Landy, [1981] 1 All E.R. 1172; R. v. Ghosh, [1982] 2 All E.R. 689; approved: R. v. Long (1990), 61 C.C.C. (3d) 156; disapproved: R. v. Bobbie (1988), 43 C.C.C. (3d) 187; Lacroix v. La Reine, [1989] R.J.Q. 812; R. v. Daigle (1987), 9 Q.A.C. 140; R. v. Sebe (1987), 35 C.C.C. (3d) 97; R. v. Mugford (1990), 58 C.C.C. (3d) 172; referred to: R. v. Olan, [1978] 2 S.C.R. 1175; R. v. Doren (1982), 36 O.R. (2d) 114; R. v. Kirkwood (1983), 42 O.R. (2d) 65; R. v. Black and Whiteside (1983), 5 C.C.C. (3d) 313; R. v. Shaw (1983), 4 C.C.C. (3d) 348; R. v. Wagman (1981), 60 C.C.C. (2d) 23; R. v. Rosen (1979), 55 C.C.C. (2d) 342; R. v. Côté and Vézina (No. 2) (1982), 3 C.C.C. (3d) 557; R. v. Hansen (1983), 25 Alta. L.R. (2d) 193; R. v. Geddes (1979), 52 C.C.C. (2d) 230; R. v. Currie; R. v. Bruce (1984), 5 O.A.C. 280; Welham v. Director of Public Prosecutions, [1961] A.C. 103; R. v. Melnyk (1947), 90 C.C.C. 257; R. v. Rodrigue, Ares and Nantel (1973), 17 C.C.C. (2d) 252; R. v. Allsop (1976), 64 Cr. App. R. 29; R. v. Huggett (1978), 42 C.C.C. (2d) 198; Lafrance v. The Queen, [1975] 2 S.C.R. 201; R. v. Lemire, [1965] S.C.R. 174.
By Sopinka J.
Referred to: R. v. Zlatic, [1993] 2 S.C.R. 000; R. v. DeSousa, [1992] 2 S.C.R. 944.
Statutes and Regulations Cited
Criminal Code, R.S.C. 1927, c. 36, s. 444 [rep. & sub. 1948, c. 39, s. 13].
Criminal Code, R.S.C. 1970, c. C-34, s. 338(1) [rep. & sub. 1974-75-76, c. 93, s. 32; 1985, c. 19, s. 55].
Criminal Code, R.S.C., 1985, c. C‑46, s. 380(1) [rep. & sub. c. 27 (1st Supp.), s. 54].
Theft Act, 1968 (U.K.), 1968, c. 60, ss. 1, 15(1).
Authors Cited
Ewart, J. Douglas. Criminal Fraud. Toronto: Carswell, 1986.
Williams, Glanville. Textbook of Criminal Law, 2nd ed. London: Stevens & Sons, 1983.
APPEAL from a judgment of the Quebec Court of Appeal, [1991] R.J.Q. 79, 61 C.C.C. (3d) 525, dismissing the accused's appeal from his conviction for fraud. Appeal dismissed.
Jean‑Claude Hébert and Eric Downs, for the appellant.
Marcel Patenaude and Léopold Goulet, for the respondent.
The reasons of Lamer C.J. and Sopinka J. were delivered by
//Sopinka J.//
Sopinka J. -- I have had the benefit of reading the reasons for judgment of McLachlin J. herein and I agree with much of her analysis and the conclusion she reaches. With respect to the meaning to be ascribed to "other fraudulent means" in s. 380(1) of the Criminal Code, R.S.C., 1985, c. C-46, I agree that the objective dishonesty test should be applied rather than the subjective approach adopted in the English cases. Although this issue does not arise in this case, it is crucial to the decision in R. v. Zlatic, [1993] 2 S.C.R. 000, which is released herewith. There are several issues in my colleague's analysis of the law of fraud with which I have difficulty, and since I will elaborate on them in Zlatic I will content myself with simply mentioning them here.
First, while I agree that the accused's belief that an act is honest will not avail if it is objectively dishonest as determined by reasonable persons, it is critical to distinguish this from the accused's belief in facts that, if true, would deprive the act of its dishonest character. Secondly, I cannot agree with the statement that "[t]ypically, mens rea is concerned with the consequences of the prohibited actus reus." The actus reus often includes the consequences, and, frequently, more serious offences are distinguished from less serious offences by the consequences without any additional mental element. See R. v. DeSousa, [1992] 2 S.C.R. 944. Thirdly, I have reservations about the statement that "[r]ecklessness presupposes knowledge of the likelihood of the prohibited consequences" as a general proposition. This is the subjective definition of recklessness which I agree is applicable in the case of fraud but not necessarily in all cases. For instance, recklessness in the definition of criminal negligence may arguably be made out if there is objective foresight of risk. This is an issue which we have yet to resolve.
In this case, the trial judge's finding that the appellant deliberately lied to his customers that their deposits were insured determines both the actus reus and mens rea of deceit which is the first element in the definition of fraud. That leaves for consideration the issue of deprivation or risk thereof which is the second element. The trial judge found that there was no insurance in place but that the appellant believed that there was no risk to the depositors because the project would be completed and the depositors would obtain the homes in respect of which the deposits were placed. If the sole issue were whether the conduct of the appellant created a risk of deprivation to the depositors of their deposits by reason of the non-completion of the project, I would have allowed the appeal. If the risk of deprivation is dependent on some future event not happening but the accused honestly believes that the future event will happen and there will be no deprivation, a trial judge who accepts this evidence should acquit. The Crown will not have proved mens rea with respect to deprivation. In this case, however, the trial judge found there was no insurance in place and, therefore, even if the project were eventually completed, there would have been a deprivation or risk of deprivation during the uninsured period. The trial judge, having made all the findings of fact which constitute a deprivation, ought to have found that this element had been made out. While the trial judge may not have made this specific determination, failure to do so would be an error of law and we are entitled to affirm the conviction and dispose of the case on this basis. I would dismiss the appeal.
The judgment of La Forest, Gonthier, Cory and McLachlin JJ. was delivered by
//McLachlin J.//
McLachlin J. -- This appeal requires the Court to consider the elements of the offence of fraud, and in particular the mental element or mens rea necessary to sustain a conviction for fraud. The question is whether a belief that, in the end, a dishonest practice will not result in loss to the victims of that practice, negates the guilty mind necessary to establish the offence of fraud.
I - Facts
The appellant, Robert Théroux, was a businessman involved in residential construction in the province of Quebec. He operated through a company called Les Habitations Co‑Hab Inc. Although a personal bankruptcy prevented him from serving as a director of Co‑Hab, Théroux was the directing mind, or âme dirigeante, of the company.
The charges arise out of two residential housing projects Co‑Hab undertook through its subsidiaries, one in Laprairie and one in St‑Catherine. Sales to prospective home buyers were solicited from a trailer located on the Laprairie site. Co‑Hab's representative at this site entered into agreements for the purchase of the residences with a number of individuals, collecting deposits from them.
The contracts were made and the deposits taken on the basis of a representation by Co‑Hab that the deposits were insured by the Fédération de construction du Québec. The representation was made orally. It was backed up by a certificate of participation in the insurance program posted on the trailer wall, which had been furnished to Co‑Hab before it completed the application process. In addition, a brochure describing the insurance program was distributed to most of the depositors.
In fact, the representations that the deposits were insured were false. Co‑Hab never paid the premiums due on a first application for participation in the insurance program; a second application was never completed. The trial judge found that Théroux, as the directing mind of Co‑Hab, was responsible for these misrepresentations.
The company which was to have built the residences became insolvent and could not complete the project. Some of the depositors got their money back, but most lost the entire amount.
II - Judgments Below
The trial judge found that the appellant Théroux was responsible for the misrepresentations that the deposits were guaranteed, and that he had made them for the purpose of obtaining the depositors' signatures and deposits. He found that Théroux had made these misrepresentations without any reasonable assurance that the residential construction project would be completed, although he sincerely believed that it would be completed:
[translation] So it was these false representations, ... one cannot at some point sell real estate by saying: "I will deliver it on such and such a date", without being assured, like any reasonable man should be, that it can be done.
The trial judge convicted Théroux of thirteen of the eighteen counts of fraud with which he stood charged pursuant to s. 380(1)(a) of the Criminal Code, R.S.C., 1985, c. C-46 (formerly R.S.C. 1970, c. C-34, s. 338(1)(a)).
The Court of Appeal upheld the convictions: (1990), 61 C.C.C. (3d) 525, [1991] R.J.Q. 79. Dubé J.A. held that all that was required for a conviction was a dishonest act which had as a consequence that someone was deprived of something; the fact that Théroux honestly believed that the residences would be built, and that the deposits would not be lost, was no defence to the crime. Proulx J.A. held that the mens rea of fraud requires proof of subjective dishonesty: there must be a dishonest act on the part of the accused and that act must be thought, subjectively, to be dishonest. Proulx J.A. held, however, that this did not mean that Théroux should be acquitted because of his belief that the project would be completed. It was open to the trial judge to conclude that the Crown had proved a subjective dishonest intention to defraud even if the accused initially intended to repay, or, in this case, honour the deposits of, his victims. Proulx J.A. concluded that although Théroux's primary intention may not have been to perpetrate a fraud, Théroux [translation] "could not take refuge behind the hope of completing the project if moreover "he had no guarantee that he could complete it"". (Emphasis in original.) He suggested that the intention to defraud arose later, when the project ran into difficulties (at p. 537 C.C.C.):
[translation] What caused problems for the appellant arose not in the elaboration of his residential project, but in its execution.
III - Legislation
Prior to December 4, 1985, s. 380(1) (then s. 338(1)) read:
338. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security,
(a) is guilty of an indictable offence and is liable to imprisonment for ten years, where the subject-matter of the fraud is a testamentary instrument or where the value thereof exceeds two hundred dollars; or
(b) is guilty
(i) of an indictable offence and is liable to imprisonment for two years, or
(ii) of an offence punishable on summary conviction,
where the value of the property of which the public or any person is defrauded does not exceed two hundred dollars.
It now reads:
380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security,
(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding ten years, where the subject‑matter of the offence is a testamentary instrument or where the value of the subject‑matter of the offence exceeds one thousand dollars; or
(b) is guilty
(i) of an indictable offence and is liable to imprisonment for a term not exceeding two years, or
(ii) of an offence punishable on summary conviction,
where the value of the subject‑matter of the offence does not exceed one thousand dollars.
IV - Issue
There is no doubt that the appellant deliberately practised a deceitful act, constituting the actus reus of the offence of fraud. The issue is whether the fact that he honestly believed that the projects would be completed negates the guilty mind or mens rea of the offence. This requires this Court to examine the question of what constitutes the mens rea for the offence of fraud.
V - Discussion
1. Introduction
Fraud, as a substantive offence, was introduced in Canada only in 1948. Before this date, conspiracy to defraud was a criminal offence, but fraud committed by one person was not. In 1948 (S.C. 1948, c. 39, s. 13), s. 444 of the Criminal Code, R.S.C. 1927, c. 36, was amended to delete the "conspiracy" requirement and create the general offence of fraud. In the years following, there have been only minor amendments to the section.
It has been said that a single precept underlies the offence of fraud: "commercial affairs are to be conducted honestly" (J. D. Ewart, Criminal Fraud (1986), at p. 9). The courts, in the decades since the adoption of the new offence, have moved to develop a jurisprudence which conforms to this central tenet. Nevertheless, the generality of the language of the section coupled with the lack of jurisprudential antecedents created uncertainty as to the elements of the offence. In 1978, this Court provided a comprehensive definition of the actus reus of the offence in R. v. Olan, [1978] 2 S.C.R. 1175. But uncertainty remained about what was required to establish the mens rea of the offence, the issue raised in this case. Is the test for guilty mind objective or subjective? More particularly, does an honest belief that no one will be harmed establish the absence of mens rea? Again, must the accused subjectively believe that his or her act is dishonest before he or she will have the required mens rea?
2. The Actus Reus of Fraud
Since the mens rea of an offence is related to its actus reus, it is helpful to begin the analysis by considering the actus reus of the offence of fraud. Speaking of the actus reus of this offence, Dickson J. (as he then was) set out the following principles in Olan:
(i) the offence has two elements: dishonest act and deprivation;
(ii) the dishonest act is established by proof of deceit, falsehood or "other fraudulent means";
(iii) the element of deprivation is established by proof of detriment, prejudice, or risk of prejudice to the economic interests of the victim, caused by the dishonest act.
Olan marked a broadening of the law of fraud in two respects. First, it overruled previous authority which suggested that deceit was an essential element of the offence. Instead, it posited the general concept of dishonesty, which might manifest itself in deceit, falsehood or some other form of dishonesty. Just as what constitutes a lie or a deceitful act for the purpose of the actus reus is judged on the objective facts, so the "other fraudulent means" in the third category is determined objectively, by reference to what a reasonable person would consider to be a dishonest act. Second, Olan made it clear that economic loss was not essential to the offence; the imperilling of an economic interest is sufficient even though no actual loss has been suffered. By adopting an expansive interpretation of the offence, the Court established fraud as an offence of general scope capable of encompassing a wide range of dishonest commercial dealings.
Subsequent cases followed Olan's lead, fleshing out the elements of the offence set out in Olan in a broad and purposive manner. One of the first questions which arose was whether the third type of dishonest conduct, "other fraudulent means", was a super‑added element which the Crown must prove in addition to proving either deceit or falsehood. This was rejected in R. v. Doren (1982), 36 O.R. (2d) 114 (C.A.); see also R. v. Kirkwood (1983), 42 O.R. (2d) 65 (C.A.). In a number of subsequent cases, courts have defined the sort of conduct which may fall under this third category of other fraudulent means to include the use of corporate funds for personal purposes, non‑disclosure of important facts, exploiting the weakness of another, unauthorized diversion of funds, and unauthorized arrogation of funds or property: R. v. Black and Whiteside (1983), 5 C.C.C. (3d) 313 (Ont. C.A.); R. v. Shaw (1983), 4 C.C.C. (3d) 348 (N.B.C.A.); R. v. Wagman (1981), 60 C.C.C. (2d) 23 (Ont. C.A.); R. v. Rosen (1979), 55 C.C.C. (2d) 342 (Ont. Co. Ct.); R. v. Côté and Vézina (No. 2) (1982), 3 C.C.C. (3d) 557 (Que. C.A.); R. v. Hansen (1983), 25 Alta. L.R. (2d) 193 (C.A.); R. v. Geddes (1979), 52 C.C.C. (2d) 230 (Man. C.A.); R. v. Currie; R. v. Bruce (1984), 5 O.A.C. 280, and R. v. Kirkwood, supra. As noted above, where it is alleged that the actus reus of a particular fraud is "other fraudulent means", the existence of such means will be determined by what reasonable people consider to be dishonest dealing. In instances of fraud by deceit or falsehood, it will not be necessary to undertake such an inquiry; all that need be determined is whether the accused, as a matter of fact, represented that a situation was of a certain character, when, in reality, it was not.
A further question, whether it was necessary for the accused to have profited by the fraud, had been uniformly answered in the negative prior to Olan: Welham v. Director of Public Prosecutions, [1961] A.C. 103 (H.L.); R. v. Melnyk (1947), 90 C.C.C. 257 (B.C.C.A.); R. v. Rodrigue, Ares and Nantel (1973), 17 C.C.C. (2d) 252 (Que. C.A.); R. v. Allsop (1976), 64 Cr. App. R. 29, and R. v. Huggett (1978), 42 C.C.C. (2d) 198 (Ont. C.A.). In Olan, this Court affirmed this rule at pp. 1182‑83.
3. The Mens Rea of Fraud
(i) Doctrinal Considerations
This brings us to the mens rea of fraud. What is the guilty mind of fraud? At this point, certain confusions inherent in the concept of mens rea itself become apparent. It is useful initially to distinguish between the mental element or elements of a crime and the mens rea. The term mens rea, properly understood, does not encompass all of the mental elements of a crime. The actus reus has its own mental element; the act must be the voluntary act of the accused for the actus reus to exist. Mens rea, on the other hand, refers to the guilty mind, the wrongful intention, of the accused. Its function in criminal law is to prevent the conviction of the morally innocent -- those who do not understand or intend the consequences of their acts. Typically, mens rea is concerned with the consequences of the prohibited actus reus. Thus in the crimes of homicide, we speak of the consequences of the voluntary act ‑‑ intention to cause death, or reckless and wilfully blind persistence in conduct which one knows is likely to cause death. In other offences, such as dangerous driving, the mens rea may relate to the failure to consider the consequences of inadvertence.
This brings me to the question of whether the test for mens rea is subjective or objective. Most scholars and jurists agree that, leaving aside offences where the actus reus is negligence or inadvertence and offences of absolute liability, the test for mens rea is subjective. The test is not whether a reasonable person would have foreseen the consequences of the prohibited act, but whether the accused subjectively appreciated those consequences at least as a possibility. In applying the subjective test, the court looks to the accused's intention and the facts as the accused believed them to be: G. Williams, Textbook of Criminal Law (2nd ed. 1983), at pp. 727‑28.
Two collateral points must be made at this juncture. First, as Williams underlines, this inquiry has nothing to do with the accused's system of values. A person is not saved from conviction because he or she believes there is nothing wrong with what he or she is doing. The question is whether the accused subjectively appreciated that certain consequences would follow from his or her acts, not whether the accused believed the acts or their consequences to be moral. Just as the pathological killer would not be acquitted on the mere ground that he failed to see his act as morally reprehensible, so the defrauder will not be acquitted because he believed that what he was doing was honest.
The second collateral point is the oft‑made observation that the Crown need not, in every case, show precisely what thought was in the accused's mind at the time of the criminal act. In certain cases, subjective awareness of the consequences can be inferred from the act itself, barring some explanation casting doubt on such inference. The fact that such an inference is made does not detract from the subjectivity of the test.
Having ventured these general comments on mens rea, I return to the offence of fraud. The prohibited act is deceit, falsehood, or some other dishonest act. The prohibited consequence is depriving another of what is or should be his, which may, as we have seen, consist in merely placing another's property at risk. The mens rea would then consist in the subjective awareness that one was undertaking a prohibited act (the deceit, falsehood or other dishonest act) which could cause deprivation in the sense of depriving another of property or putting that property at risk. If this is shown, the crime is complete. The fact that the accused may have hoped the deprivation would not take place, or may have felt there was nothing wrong with what he or she was doing, provides no defence. To put it another way, following the traditional criminal law principle that the mental state necessary to the offence must be determined by reference to the external acts which constitute the actus of the offence (see Williams, supra, c. 3), the proper focus in determining the mens rea of fraud is to ask whether the accused intentionally committed the prohibited acts (deceit, falsehood, or other dishonest act) knowing or desiring the consequences proscribed by the offence (deprivation, including the risk of deprivation). The personal feeling of the accused about the morality or honesty of the act or its consequences is no more relevant to the analysis than is the accused's awareness that the particular acts undertaken constitute a criminal offence.
This applies as much to the third head of fraud, "other fraudulent means", as to lies and acts of deceit. Although other fraudulent means have been broadly defined as means which are "dishonest", it is not necessary that an accused personally consider these means to be dishonest in order that he or she be convicted of fraud for having undertaken them. The "dishonesty" of the means is relevant to the determination whether the conduct falls within the type of conduct caught by the offence of fraud; what reasonable people consider dishonest assists in the determination whether the actus reus of the offence can be made out on particular facts. That established, it need only be determined that an accused knowingly undertook the acts in question, aware that deprivation, or risk of deprivation, could follow as a likely consequence.
I have spoken of knowledge of the consequences of the fraudulent act. There appears to be no reason, however, why recklessness as to consequences might not also attract criminal responsibility. Recklessness presupposes knowledge of the likelihood of the prohibited consequences. It is established when it is shown that the accused, with such knowledge, commits acts which may bring about these prohibited consequences, while being reckless as to whether or not they ensue.
These doctrinal observations suggest that the actus reus of the offence of fraud will be established by proof of:
1. the prohibited act, be it an act of deceit, a falsehood or some other fraudulent means; and
2. deprivation caused by the prohibited act, which may consist in actual loss or the placing of the victim's pecuniary interests at risk.
Correspondingly, the mens rea of fraud is established by proof of:
1. subjective knowledge of the prohibited act; and
2. subjective knowledge that the prohibited act could have as a consequence the deprivation of another (which deprivation may consist in knowledge that the victim's pecuniary interests are put at risk).
Where the conduct and knowledge required by these definitions are established, the accused is guilty whether he actually intended the prohibited consequence or was reckless as to whether it would occur.
The inclusion of risk of deprivation in the concept of deprivation in Olan requires specific comment. The accused must have subjective awareness, at the very least, that his or her conduct will put the property or economic expectations of others at risk. As noted above, this does not mean that the Crown must provide the trier of fact with a mental snapshot proving exactly what was in the accused's mind at the moment the dishonest act was committed. In certain cases, the inference of subjective knowledge of the risk may be drawn from the facts as the accused believed them to be. The accused may introduce evidence negating that inference, such as evidence that his deceit was part of an innocent prank, or evidence of circumstances which led him to believe that no one would act on his lie or deceitful or dishonest act. But in cases like the present one, where the accused tells a lie knowing others will act on it and thereby puts their property at risk, the inference of subjective knowledge that the property of another would be put at risk is clear.
(ii) Jurisprudential Considerations
The view of mens rea suggested above accords with earlier rulings of this Court which rejected the notion that the accused's subjective appreciation of his or her dishonesty is relevant to the mens rea of fraud. In Lafrance v. The Queen, [1975] 2 S.C.R. 201, the accused had taken a car with the intention of returning it later. This Court was faced with the issue of whether this amounted to theft. Martland J. (for the majority) held that it did and that the taking was fraudulent, at p. 214: "The taking was intentional, under no mistake and with knowledge that the motor vehicle was the property of another. In my opinion this made the taking fraudulent."
In R. v. Lemire, [1965] S.C.R. 174, this Court held that the accused's belief that his actions would subsequently be ratified afforded no defence. The accused, the Chief of the Quebec Liquor Police, had been told by the Premier of Quebec to submit fictitious expense accounts in order to receive a salary increase which had been agreed to but which could not be officially paid until a government‑wide salary review, then under way, had been completed. In submitting the expense accounts Lemire no doubt felt that his actions, if unorthodox, were not dishonest. Nevertheless, Lemire was convicted. Reversing the decision in the Court of Appeal, Martland J. (for the majority) held, at p. 193:
In other words, [the court below held that] there is no intent to defraud within the requirement of s. 323(1) [now s. 380(1)] if the accused person, while deliberately committing an act which is clearly fraudulent, expects that that which he is doing may, at a later date, be validated. To me the very statement of this proposition establishes its error in law.
I do not, of course, overlook the fact that a variety of rulings can be found in lower courts, some of which adopt the position that unless the Crown establishes that the accused subjectively intended to act dishonestly, the mens rea of fraud is not proven and the accused is entitled to be acquitted: see, R. v. Bobbie (1988), 43 C.C.C. (3d) 187 (Ont. C.A.); Lacroix v. La Reine, [1989] R.J.Q. 812 (C.A.); R. v. Daigle (1987), 9 Q.A.C. 140; R. v. Sebe (1987), 35 C.C.C. (3d) 97 (Sask. C.A.), and R. v. Mugford (1990), 58 C.C.C. (3d) 172 (Nfld. C.A.). This was the position adopted by Proulx J.A. in the appeal now before this Court.
These decisions are largely predicated on the English approach in R. v. Landy, [1981] 1 All E.R. 1172 (C.A.), which held that the accused must subjectively believe his or her actions to be dishonest to support conviction, or upon the modification of that approach in R. v. Ghosh, [1982] 2 All E.R. 689 (C.A.), where it was held that the accused must subjectively realize that his or her conduct falls below the ordinary standard of reasonable and honest people. There are two problems with applying the English authorities to the Canadian offence of fraud. First, the relevant English offence rests on language different from that of the Canadian offence. Specifically, the English offence (ss. 1 and 15(1) of the Theft Act, 1968 (U.K.), 1968, c. 60) expressly refers to "dishonest appropriation" and "dishonestly" obtaining by deception, respectively. This wording, absent in Canada, has been interpreted in England to show Parliament's intention to require subjective awareness of dishonesty. The second problem is, as I see it, that the English authorities cannot be reconciled with the basic principles of criminal law relating to mens rea.
The British Columbia Court of Appeal for these reasons rejected the English approach in R. v. Long (1990), 61 C.C.C. (3d) 156. Taggart J.A. held at p. 169 that Landy was not the law in Canada. With respect to Ghosh, he stated, at p. 170: "I agree with Ewart's [supra] opinion that the Ghosh approach is predicated upon assumptions which have no relevance to the Canadian law of fraud." Taggart J.A. summarized the mental element of fraud as follows, at p. 174:
. . . the mental element of the offence of fraud must not be based on what the accused thought about the honesty or otherwise of his conduct and its consequences. Rather, it must be based on what the accused knew were the facts of the transaction, the circumstances in which it was undertaken and what the consequences might be of carrying it to a conclusion.
In my opinion, Taggart J.A. was correct in rejecting the English approach. While the authorities are far from consistent, the better view is that the accused's belief that the conduct is not wrong or that no one will in the end be hurt affords no defence to a charge of fraud.
(iii) Pragmatic Considerations
Pragmatic considerations support the view of mens rea proposed above. A person who deprives another person of what the latter has should not escape criminal responsibility merely because, according to his moral or her personal code, he or she was doing nothing wrong or because of a sanguine belief that all will come out right in the end. Many frauds are perpetrated by people who think there is nothing wrong in what they are doing or who sincerely believe that their act of placing other people's property at risk will not ultimately result in actual loss to those persons. If the offence of fraud is to catch those who actually practise fraud, its mens rea cannot be cast so narrowly as this. As stated in R. v. Allsop, supra, approved by this Court in Olan, at p. 1182:
Generally the primary objective of fraudsmen is to advantage themselves. The detriment that results to their victims is secondary to that purpose and incidental. It is "intended" only in the sense that it is a contemplated outcome of the fraud that is perpetrated.
The law of fraud must be sufficiently broad to catch this secondary incident of the defrauder's purpose or it will be of little avail.
This approach conforms to the conception of the offence of fraud which imbues this Court's decision in Olan. Olan points the way to a conception of fraud broad enough in scope to encompass the entire panoply of dishonest commercial dealings. It defines the actus reus accordingly; the offence is committed whenever a person deceives, lies or otherwise acts dishonestly, and that act causes deprivation (including risk of deprivation) to another. To adopt a definition of mens rea which requires subjective awareness of dishonesty and a belief that actual deprivation (as opposed to risk of deprivation) will result, is inconsistent with Olan's definition of the actus reus. The effect of such a test would be to negate the broad thrust of Olan and confine the offence of fraud to a narrow ambit, capable of catching only a small portion of the dishonest commercial dealing which Olan took as the target of the offence of fraud.
The question arises whether the definition of mens rea for fraud which I have proposed may catch conduct which does not warrant criminalization. I refer to the fear, reflected in the appellate decisions adopting a narrower definition of the required mens rea, that the reach of the offence of fraud may be extended beyond criminal dishonesty to catch sharp or improvident business practices which, although not to be encouraged, do not merit the stigma and loss of liberty that attends the criminal sanction. The concern is that any misrepresentation or practice which induces an incorrect understanding or belief in the minds of customers, or which causes deprivation, will become criminal. As Marshall J.A. put it in Mugford, supra, at pp. 175‑76:
. . . it is not sufficient to base fraud merely upon a finding that the appellant induced a state of mind in his customers which was not correct. Any misrepresentation may have that effect. Criminal dishonesty extends further. . . .
It would be a startling extension of criminal liability if every statement urging the public to purchase one's wares because only a limited supply remain were by itself to be visited with criminal sanction.
This poses starkly the critical question: does a view of the offence of fraud which catches a broad range of dishonest commercial dealing also catch conduct which should not be regarded as criminal, but rather left to the civil sanction?
In my view, the approach to the offence of fraud adopted in Olan and perused in these reasons does not take us out of the proper domain of the criminal sanction. To establish the actus reus of fraud, the Crown must establish beyond a reasonable doubt that the accused practised deceit, lied, or committed some other fraudulent act. Under the third head of the offence it will be necessary to show that the impugned act is one which a reasonable person would see as dishonest. Deprivation or the risk of deprivation must then be shown to have occurred as a matter of fact. To establish the mens rea of fraud the Crown must prove that the accused knowingly undertook the acts which constitute the falsehood, deceit or other fraudulent means, and that the accused was aware that deprivation could result from such conduct.
The requirement of intentional fraudulent action excludes mere negligent misrepresentation. It also excludes improvident business conduct or conduct which is sharp in the sense of taking advantage of a business opportunity to the detriment of someone less astute. The accused must intentionally deceive, lie or commit some other fraudulent act for the offence to be established. Neither a negligent misstatement, nor a sharp business practice, will suffice, because in neither case will the required intent to deprive by fraudulent means be present. A statement made carelessly, even if it is untrue, will not amount to an intentional falsehood, subjectively appreciated. Nor will any seizing of a business opportunity which is not motivated by a person's subjective intent to deprive by cheating or misleading others amount to an instance of fraud. Again, an act of deceit which is made carelessly without any expectation of consequences, as for example, an innocent prank or a statement made in debate which is not intended to be acted upon, would not amount to fraud because the accused would have no knowledge that the prank would put the property of those who heard it at risk. We are left then with deliberately practised fraudulent acts which, in the knowledge of the accused, actually put the property of others at risk. Such conduct may be appropriately criminalized, in my view.
4. Application of the Law on this Appeal
The trial judge found that the appellant deliberately lied to his customers, by means of verbal misrepresentations, a certificate of participation in the insurance scheme, and brochures advising that the scheme protected all deposits. The lies were told in order to induce potential customers to enter into contracts for the homes the appellant was selling and to induce them to give him their money as deposits on the purchase of these homes. The trial judge also found that the appellant knew at the time he made these falsehoods that the insurance for the deposits was not in place. Finally, he found that the appellant genuinely believed that the homes would be built and hence that there was no risk to the depositors. "No risk" used in this sense is the equivalent of saying the appellant believed the risk would not materialize.
Applying the principles discussed above, these findings establish that the appellant was guilty of fraud. The actus reus of the offence is clearly established. The appellant committed deliberate falsehoods. Those falsehoods caused or gave rise to deprivation. First, the depositors did not get the insurance protection they were told they would get. That, in itself, is a deprivation sufficient to establish the actus reus fraud. Second, the money they gave to the appellant's company was put at risk, a risk which in most cases materialized. Again, this suffices to establish deprivation.
The mens rea too is established. The appellant told the depositors they had insurance protection when he knew that they did not have that protection. He knew this to be false. He knew that by this act he was depriving the depositors of something they thought they had, insurance protection. It may also be inferred from his possession of this knowledge that the appellant knew that he was placing the depositors' money at risk. That established, his mens rea is proved. The fact that he sincerely believed that in the end the houses would be built and that the risk would not materialize cannot save him.
VI - Disposition
I would dismiss the appeal.
The following are the reasons delivered by
//L'Heureux-Dubé J.//
L'Heureux-Dubé J. -- Although I am in general agreement with the reasons of McLachlin J., I share some of the reservations expressed by my colleague Sopinka J. in his reasons, in particular regarding the two following issues, which he expressed as follows (at p. 000):
Secondly, I cannot agree with the statement that "[t]ypically, mens rea is concerned with the consequences of the prohibited actus reus." The actus reus often includes the consequences, and, frequently, more serious offences are distinguished from less serious offences by the consequences without any additional mental element. See R. v. DeSousa, [1992] 2 S.C.R. 944. Thirdly, I have reservations about the statement that "[r]ecklessness presupposes knowledge of the likelihood of the prohibited consequences" as a general proposition. This is the subjective definition of recklessness which I agree is applicable in the case of fraud but not necessarily in all cases. For instance, recklessness in the definition of criminal negligence may arguably be made out if there is objective foresight of risk. This is an issue which we have yet to resolve.
I agree with the result reached by both of my colleagues and would dispose of the case as they do.
Appeal dismissed.
Solicitors for the appellant: Hébert & Bourque, Montréal.
Solicitor for the respondent: Marcel Patenaude, Longueuil.