Victims of fraud often inquire whether they will be able to obtain punitive damages as against a fraudster, and whether the filing of a complaint to the police will preclude the civil Court from awarding punitive damages. In this blog, we provide some information on how Canadian Courts view requests from fraud victims for punitive damages. We also highlight several issues to consider when simultaneously proceeding with a civil recovery action and a criminal prosecution.
The largest award of punitive damages in Canadian history was ordered in March 2013 by the Saskatchewan Court of Queen’s Bench in an insurance case entitled Branco ats Zurich Life Insurance Company Ltd, et al. (2013 SKQB 98). The Court ordered Zurich to pay $3M and AIG to pay a further $1.5M in punitive damages after the insurers denied the plaintiff long-term disability and regular benefits for more than nine years. The Court held that “the insurance industry must recognize the destruction and devastation that their actions cause in failing to honour their contractual commitments to the individuals they ensure.” In the insurance context, the issue is a breach of the duty of good faith. In the fraud context, the issue is often breach of trust. Fraud victims often inquire as to a specific amount of punitive damages that a Canadian court may order a fraudster to pay in given scenario.
In Branco, the Court considered the factors that are to be canvassed in assessing whether an order for punitive damages is appropriate. These factors were set out by the Supreme Court of Canada in another insurance case referred to as Whiten ats Pilot Insurance Co., 2002 SCC 18. These factors include but are not limited to:
- whether the conduct of the defendant was planned and deliberate;
- whether the conduct of the defendant extended over a significant period of time;
- whether the defendant attempted to conceal his or her misconduct;
- whether the defendant profited from his or her misconduct;
- whether the interest violated was deeply personal to the plaintiff; and
- whether there is a history of similar misconduct by the defendant.
In Whiten, the Court noted that punitive damages are the exception to the rule, as the purpose for these damages is not to compensate the plaintiff, but rather to deter the defendant (specific deterrence) and others (general deterrence) from similar conduct. The Court also held that punitive damages are only to be awarded when compensatory damages are not a sufficient deterrent and where no other form of deterrence (such as criminal penalties) is imposed. In other words, if a fraudster is convicted and sentenced in the criminal justice system, it is unlikely that a Court will issue an order for punitive damages in subsequent civil proceedings. In Canada the Courts will rarely punish someone twice for the same conduct.
The rule against double punishment is a factor that fraud victims should consider when deciding whether to make a criminal complaint to the police, or when considering the timing for such a complaint. Should a fraud victim sue civilly for recovery and attempt to obtain judgment for both their losses and for punitive damages before making a complaint to police? Or should they make a criminal complaint to police prior to, or simultaneous with, the commencement of a civil recovery action? Or is there something about that negates an interest in reporting the matter to police at all? We refer to some legal principles from cases on fraud and punitive damages that are worth considering.
In Performance Industries Ltd ats Sylvan Lake Golf & Tennis Club Ltd.  1 SCR 595, the Court held that even though fraud is generally reprehensible, only in exceptional circumstances will punitive damages be ordered. In this case the Court held that punitive damages are not appropriate, for example, in the context of a commercial relationship between two business persons where one was not in a dominant position to the other, and where the fraudster did not benefit from his misconduct.
In Jefflin Investments Ltd. ats Crown Grading & Sodding Ltd.,  OJ No. 5348, the Court did award punitive damages in the amount of $75,000 against a bookkeeper who had defrauded her employer of $750,000; an award of approximately 10% of the actual loss. In Jefflin a criminal complaint had not been made to the police, and the civil recovery action involved a blatant and long term breach of trust from which the fraudster personally profited. More recently, in Elekta Ltd. ats Rodkin, 2012 ONSC 2062, the Court noted that the message sent to the public in Jeffin does not seem to be sinking into the consciousness of the Ontario public, and that as a result it was time to increase the range of punitive damage awards in cases involving serious and protracted frauds by an employee in a position of trust. In Elekta the Court ordered punitive damages of $200,000 involving a fraud quantified at approximately $12M (which, while the highest amount of punitive damages ordered, is ironically is less than 10% of the loss as imposed in Jeffin).
Other cases of note include iTrade Finance Holdings Inc. ats Webworx Inc. OJ No. 3939 (SCJ) where a court ordered punitive damages of $25,000 against the accountant who assisted the defendants perpetrate a fraud on the plaintiff, and Insurance Corporation of British Columbia ats Awla, (2012) where a Court imposed punitive damages of $10,000 per defendant per vehicle that they had been involved in a re-VIN fraud.
It is noteworthy that punitive damages in the fraud recovery context are often ordered in motions for default judgment (such as Elekta where the Court provided guidance on the evidence required for a default judgment case) , or in cases where the fraudster does not contest a finding of liability but rather only contests compensatory and punitive damages (such as Jeffin). In our experience, consistent with the ruling in Jeffin, the Courts will accept as reasonable punitive damages awards amounting to approximately 10% of the total loss. However, as the Court held in Jeffin , the quantum of damages varies and is dependent upon the facts of each particular case (considering the factors as listed above from the Whiten decision).
Fraud victims should also be mindful of the Criminal Code provisions on extortion, which make it an offence to threaten a criminal complaint in order to collect on a civil debt. A threat to commence a civil proceeding is not, of course, an extortion for the purposes of the Criminal Code. It is also not an offence for a fraud victim to advise a fraudster that he or she may proceed with both a civil action and a criminal complaint. A fraud victim does run the risk, however, of being accused of extortion if he or she threatens to make a criminal complaint unless a civil action is settled by a specific date.
For further information on seeking punitive damages and coordinating civil recovery actions with criminal complaints to the police, contact us at www.investigationcounsel.com.