Indemnification and Real Estate Fraud: The Use of ex turpi causa non oritur actio in Tran v Kerr

In Tran v Kerr, 2014 ABCA 350, the Alberta Court of Appeal (“ABCA”) clarified the circumstances under which a lawyer, involved in a fraudulent real estate transaction, is liable for the losses of the ultimate purchaser, a straw buyer. In this case, Kerr was a lawyer who represented the straw buyer, Tran, in addition to other parties to the fraud.

While this case involved several issues, this post will focus on the ABCA’s application of the doctrine of ex turpi causa non oritur actio (“ex turpi causa”). Tran v Kerr provides an example of an unusual discussion of the doctrine.


The transaction at issue followed the general model of real estate frauds (described in more detail at paragraph 2). Typically, fraudulent transactions are constructed so that the straw buyer purchases a house, on paper, at an inflated value. A mortgage on the house is created, the proceeds of which flow to the ultimate fraudster. Eventually, after nobody pays the mortgage, the straw buyer, to whom the mortgage technically belongs, is left in debt. The straw buyer is normally paid a fee for their involvement. In this case, Tran received $4,000 dollars for her participation in the transaction.

Tran alleged that Kerr “was negligent in his representation of her, that he failed to advise her of the consequences of executing a high ratio mortgage, and that he acted in a conflict of interest” (para 8). Tran sought indemnification for the outstanding mortgage debt that was in her name. While Kerr admitted to representing Tran, he denied any knowledge of the transaction’s fraudulent nature. He argued that Tran’s claim was barred by the doctrine of ex turpi causa.

Previous Judgment

The trial judge decided in favour of Tran. “Overall, he viewed [Tran] as an innocent victim, observing on several occasions that she was ‘a Cambodian refugee who has a limited ability to read English’… ”  (para 9). Kerr was ordered to indemnify Tran for her losses under the transaction.


The doctrine of ex turpi causa will bar a claim, in order to preserve the integrity of the legal system, when a litigant has acted immorally. In particular, the doctrine applies “where a damage award in a civil suit would allow a person to profit from illegal or wrongful conduct or would permit evasion or rebate of a penalty prescribed by the criminal law” (para 28; citing British Columbia v Zastowny, [2008] 1 SCR 27, para 20). If the doctrine applies, the loss remains where it originally fell. This does not mean that the burden will necessarily fall “on the shoulders of the person with the greatest moral culpability” (para 29). It simply means that a loss cannot be shifted beyond the party who first bears it. Thus, while a straw buyer will generally be less blamable than the true architects of a fraud, their wrongdoing is generally sufficient to prevent them from “compelling [the other fraudulent parties] to accept responsibility for, and contribute to the loss they have created” (ibid).

However, Tran did not allege personal injury damages; instead, she was seeking indemnity. The limitations that applied in the context of personal injury did not apply in these circumstances. A higher threshold of wrongdoing had to be met to trigger the doctrine.

There were, in essence, three possible results. All turned on the mindsets of Kerr and Tran:

  • They were either intentionally fraudulent, or at least willfully blind . In this case, the doctrine would bar Tran’s claim.
  • “[T]hey were negligent, in that the circumstances should have raised concern, and they did not respond to the circumstances as would a reasonable person[.]” In this situation, the losses would be apportioned between Kerr and Tran.
  • They were completely innocent, and thus constituted mere victims. The trial judge placed Tran in this category (paras 32-33).

While, in general, straw buyers are knowingly complacent in the fraud, there is also normally evidence of such knowledge. In this case, there was no indication that Tran actually participated in any misrepresentation of any sort, or even knew that a fraud was occurring. Instead, she testified that the ultimate fraudster assured her of the legality of the transaction, and that she did not sign any purchase offers. She acknowledged that she was aware that she was borrowing money from Royal Bank, and that she signed whatever documents were placed before her at Kerr’s office. While she did not understand them due to her English proficiency, she did not make an inquiry into their nature.

The ABCA found Tran negligent, but not fraudulent. Thus, ex turpi causa could not apply. Based on this determination, and another that Kerr acted negligently, the ABCA apportioned the remaining cost of the mortgage between the parties.


This case exemplifies how “[t]he application of [ex turpi causa] in a particular case must depend on the public policy underling it, the proximity of the illegality to the claim, the gravity of the claimant’s conduct, and other relevant factors” (para 28). Different thresholds will apply depending on the suit at issue. In the case of indemnification for losses related to fraud, the doctrine will bar the claim if the party acted with (1) fraudulent intent, or (2) was willfully blind to the circumstances.

This shows how, in Canada, the courts have developed a mechanism to prevent the derivation of wrongful benefits through the legal system. This is an important principle to remember.

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