In Bank of Montreal v. Makhija, 2026 ONCA 221, the Ontario Court of Appeal confirmed that civil fraud requires proof of knowing or reckless misrepresentation and reliance and will not be found where the defendant reasonably believed the transaction was legitimate and did not make the misrepresentation relied upon.
The Appellant, the Bank of Montreal (“Bank”), appealed the application judge’s findings that the Respondent, Master Manoj Makhija (“Makhija”) did not prepare or sign the Personal Financial Statement and that Makhija reasonably believed that the information provided to the Bank was truthful at the time of applying for a loan and credit facilities for his company, Seven Colors Entertainment Ltd. Makhija asserted that he himself had been duped by third parties who orchestrated a scheme to obtain financing for a printing business. Makhija asserted that he believed the printing business would go ahead and that the loan was for a legitimate business venture.
The Court of Appeal upheld the application judge’s findings in accepting the evidence and dismissing the Bank’s fraud claim.
The Court of Appel found that the application judge correctly identified and applied the test for civil fraud, upholding the conclusion that Makhija had a reasonable basis for believing the information provided was true and that business was bona fide.
The Court of Appeal upheld the application judge’s findings that Makhija had been deceived by third parties and that his carelessness did not amount to fraudulent intent or recklessness. The Court of Appeal added that the Bank’s position was undermined by its own evidence that it relied solely on the Personal Financial Statement, which the application judge found was not prepared or signed by Makhija.
Finally, the Court of Appeal also found that the application judge’s reasons for not finding Makhija to be reckless were adequate, allowing for a meaningful review by the Court of Appeal, while also allowing the parties to understand why the Bank’s claim was dismissed.
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