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Building long-term integrity in the voluntary carbon market
In recent years, an important question has arisen in relation to the voluntary carbon market (VCM) as it continues to expand: How do we elevate and maintain its integrity?
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Canada | Publication | June 4, 2020
In Youyi Group Holdings v Brentwood Lanes, the British Columbia Court of Appeal upheld the trial judge’s decision to refuse to enforce two real estate purchase contracts on the basis that the contracts were “tainted” by the illegality of a larger fraudulent scheme.
Youyi Group Holdings (Canada) Ltd. and DHI Holdings Inc. (the purchasers) and Brentwood Lanes Canada Ltd. and Maple Ridge Lanes (1981) Ltd. (the vendors) entered into two linked agreements of purchase and sale (the purchase agreements) for two commercial properties.
The purchasers, with the assistance of their real estate agent, devised a scheme to deceive mortgage lenders, brokers, appraisers and potential joint venture partners into providing more financing than was warranted. The scheme comprised the following components:
Two weeks before closing, the vendors advised the purchasers they would not be proceeding with the sale due to the alleged wrongdoing of the purchasers and their common real estate agent. The purchasers commenced an action against the vendors for specific performance of the purchase agreements.
The trial judge concluded that the various agreements were interrelated and each an essential part of the overall transaction, which was intended to deceive third-party lenders. The trial judge declined to enforce the purchase agreements on the ground that they were tainted by the illegality of the overall scheme.
In dismissing the purchasers’ appeal, the court made the following key points respecting the defence of illegality in Canada:
The court held that by preparing separately numbered schedules that could be removed from lending applications, the purchasers had deliberately structured the transaction to facilitate fraud. It was therefore open to the trial judge to decline to enforce the purchase agreements.
The court left open the issue of whether the fraudulent schemes that were proposed as part of the transaction but not carried out (i.e., the false deposit scheme and the fabricated purchase agreement) could be considered as a basis to refuse to enforce the purchase agreements.
The court’s rejection of the rigid “reliance rule” is an acknowledgement that a principled, flexible approach is required to respond to the increasingly complex nature of fraud. It will be crucial to the illegality analysis to consider the context in which a document was created and its intended purpose within the larger fraudulent scheme.
Publication
In recent years, an important question has arisen in relation to the voluntary carbon market (VCM) as it continues to expand: How do we elevate and maintain its integrity?
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