What is Fraud?

Fraud is the act of depriving someone of their property, money or something else of value through deceit, falsehood or other fraudulent means. More specifically it must be proven that:

-       There was a dishonest act be it an act of deceit, a falsehood or some other fraudulent means; 

-       There was a deprivation caused by the dishonest act. This can be an actual loss or simply putting another’s interests at risk; and 

-       Awareness that the prohibited act could have as a consequence the deprivation of another

From this list a few key principles emerge in relation to the dishonest act. Firstly, dishonesty is determined objectively by reference to what a reasonable person would consider to be a dishonest act. Secondly, conduct falling short of being the highest standard of straightforward or honourable business dealings will not always amount to “dishonesty” for the purposes of the law of fraud. Thirdly, the dishonest act can be an omission if it would mislead a reasonable person. Finally, “other fraudulent means” is a broad category that has been used to support convictions in a number of situations where deceit or falsehood cannot be shown. For example, 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 have all fallen under the reach of “other fraudulent means”.

The fact that no actual loss is required for the offence to be proven can be traced back to the conduct being targeted. As the Supreme Court of Canada in R. v. Zlatic, [1993] 2 S.C.R. 29 explained:

What is essential is not the formalities of profit or actual pecuniary loss, but that dishonest commercial practices which subject the pecuniary interest of others to deprivation or the risk of deprivation be visited with the criminal sanction. 

In relation to the awareness of the potential deprivation Zlatic provides a helpful example. Mr. Zlatic had received goods worth more than $375,000 from his suppliers in return for post‑dated cheques or on credit.  He then used the money obtained from the sale of the goods for gambling and eventually went bankrupt.  At trial, he testified that he had a system which, he believed, would increase his odds of winning and allow him to pay back his suppliers. The court had little trouble in finding, despite Mr. Zlatic’s system, that he was aware of the potential for loss to others.