Court of Appeal Comments on Knowledge Requirement for Torts of Knowing Assistance and Knowing Receipt
In Quantum Dealer Financial Corporation v Toronto Fine Cars and Leasing Inc 2023 ONCA 256, the Court of Appeal provided insight on the factual record required to find strangers to a fiduciary or trust liable for misappropriated assets under the torts of knowing assistance and knowing receipt. In doing so, the Court also provided useful commentary on the fact-finding powers of a judge at a summary judgement motion.
The misappropriation in this case involved a man who came to Canada from Argentina, operated a business in Canada for several years, then fraudulently sold off company assets before returning to Argentina. While in Canada, the man married a woman who had immigrated from El Salvador. They had four children together, but eventually separated before the husband returned to Argentina.
On a summary judgement motion, the motion judge found several parties, including the fraudster’s ex-wife, liable for knowing assistance and knowing receipt of funds derived from the misappropriation of the company’s assets. The motions judge found the liable parties had made several transactions using funds derived from the fraud.
Although the ex-wife and the other liable parties provided alternate explanations for each of the transactions at issue, the motions judge found that these explanations, while possible, were unlikely to be true. For example, the ex-wife sent a large money transfer to Argentina, and she explained this transaction by saying that she sent money to a business partner. The motions judge found that it was far more likely that she was sending money to her Argentinian ex-husband, especially since she was from El Salvador, rather than Argentina. However, there was no direct evidence to support the theory that she had sent the money to her ex-husband.
Rejecting their explanations, the motions judge found that the ex-wife and the other parties were liable for nearly $1.5 million under the torts of knowing assistance and knowing receipt.
On appeal, the appellants argued that the motions judge had made inappropriate findings of fact based on the evidence before him, and that the record was insufficient for the findings that supported liability under knowing assistance or knowing receipt.
The Court of Appeal allowed the appeal and overturned the summary judgment. The Court held that rejecting the defendant’s explanations was not the same as accepting an alternative proposition. A finding that the ex-wife was not being truthful was not proof that she knew the money was the product of her ex-husband’s fraud. Simply rejecting the ex-wife’s explanations fell short of the knowledge requirement for both knowing assistance and knowing receipt. It was open to the motion judge to reject the ex-wife’s evidence on this point, but such a rejection did not provide positive proof of the theory that the money had been sent to her ex-husband in Argentina.
Knowing assistance requires actual knowledge, recklessness, or willful blindness that the funds in question came from a breach of fiduciary duty. A third-party’s knowledge must include the existence of a trust or fiduciary relationship, as well as the knowledge that the fiduciary duty was breached. It is not necessary for the third-party to benefit from the breach, though such a benefit may provide an inference that they knew about the breach.
Knowing receipt has a less demanding knowledge requirement—it is sufficient to show that a third-party ought to have known that the funds were misappropriated trust assets. However, a plaintiff must show that the assets in question were misappropriated trust assets.
The Court of Appeal remitted the matter to trial, where the evidence could be properly evaluated.
This case provides insight about what is required to prove that a party is liable under the torts of knowing assistance and knowing receipt, and it also provides a warning for summary judgement motions where a witness’s credibility is a key issue. Although the parties in this case agreed that the matter was appropriate for summary judgement, the motion judge’s conclusions were based mainly on the credibility of the witnesses, and the record before him was not sufficient to support such conclusions. The Court of Appeal agreed that several of the transfers at issue were suspicious, but more direct evidence was necessary to prove liability under the torts of knowing assistance and knowing receipt.
