Court File and Parties

COURT FILE NO.: CV-18-607692 DATE: 20220222 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Quantum Dealer Financial Corporation and NextGear Capital Corporation Plaintiffs – and – Toronto Fine Cars and Leasing Inc., Diego Sebastian Diaz, also known as Diego Diaz and as Sebastian Torrez, Claudia Guillen Aracely also known as Claudia Guillen, Garnette C. Williams, 2564523 Ontario Inc., Jasmin Ivonne Guillen Defendants

Counsel: Ted Frankel and Chris Selby, for the Plaintiffs Mitchell Fournie, for the defendants Claudia Guillen Aracely also known as Claudia Guillen, Garnette C. Williams, 2564523 Ontario Inc., Jasmin Ivonne Guillen

HEARD: July 9, 2021

PINTO J.

REASONS FOR DECISION

Overview

[1] The plaintiffs, Quantum Dealer Financial Corporation (“Quantum”) and NextGear Capital Corporation (“NextGear”), are in the business of financing used car inventories and floor plans for motor vehicle dealers in Ontario.

[2] The defendant Diego Sebastian Diaz, a.k.a. Diego Diaz and Sebastian Torrez ("Diego"), was a director, officer and controlling shareholder of the defendant Toronto Fine Cars and Leasing Inc. ("TFC"), a used car motor vehicle dealership located in Mississauga near the Toronto Airport.

[3] In 2014, Diego entered into written lending and security agreements with Quantum and NextGear to finance different portions of TFC's inventories of used motor vehicles for resale to the public.

[4] On October 25, 2016, Bryan Redinger, Chief Operating Officer (COO) of Quantum, attended at the TFC dealership and found that Diego was not present, nor was anyone else from TFC. The premises appeared abandoned but for some vehicles not financed by Quantum. Quantum later located the inventory and determined that the cars had been sold in the United States. TFC failed to remit the proceeds of the sale to Quantum. Quantum sought to enforce its security without success.

[5] On October 26, 2016, one of NextGear's account executives attended at the TFC dealership premises and observed that almost all of NextGear's inventory of vehicles was not on the lot and the premises appeared to be abandoned. NextGear discovered that the inventory had been sold to third parties and that TFC and Diego had failed to remit the proceeds to NextGear. When NextGear attempted to enforce the payment on the inventory through TFC's bank account, the payments were returned NSF.

[6] In or around January 2018, Quantum learned that Diego, using the name "Sebastian Torrez", was associated with a Spanish weekly classifieds newspaper in Toronto called Compra Y Venta (CYV), roughly translated into English as "Buy and Sell."

[7] The plaintiffs' action was commenced on October 26, 2018.

[8] Initially, the plaintiffs named a wide range of defendants who appeared to have participated in, or received funds from, an alleged fraud committed by Diego and TFC. The current whereabouts of Diego are unknown. Diego and TFC have been noted in default and are deemed to have admitted the allegations contained in the plaintiffs' claim. However, the Registrar's office rejected a request to issue default judgment against Diego.

[9] The plaintiffs discontinued the action against several of the defendants in April 2021, and brought a motion for summary judgment against the following four defendants collectively known as the "Guillen Defendants" or "GD":

(a) Claudia Guillen Aracely a.k.a. Claudia Guillen ("Claudia"), the wife of Diego. She was part of the management team at TFC.

(b) Jasmin Ivonne Guillen ("Jasmin"), the sister of Claudia.

(c) 2564523 Ontario Inc. ("256 Corp."), a corporation incorporated in March 2017 pursuant to the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, with its head office in Toronto. 256 Corp. operates CYV. Jasmin is the sole officer, director, and shareholder of 256 Corp.

(d) Garnette C. Williams ("Garnette"), Jasmin's spouse.

[10] The plaintiffs' position on summary judgment is that after Diego sold off practically an entire car lot overnight, he dissipated the proceeds through overseas and non-arm's length transfers including to the GD. To conceal his fraud and to defeat creditors, Diego acquired CYV using his sister-in-law Jasmin to act as the putative owner and operator of CYV while, in reality, he called the shots. Diego then used CYV to launder funds and to flow through cash to family members. For instance, in the two years following the October 2016 fire sale of TFC inventory, 256 Corp. operating as CYV paid $182,233 to Claudia, Diego's wife, while also paying their children's private school tuitions. The plaintiffs also allege that part of the fraudulent scheme was Jasmin receiving $175,000 from Claudia, ostensibly Claudia's share of the proceeds of the sale of the matrimonial home, which was then spent on a series of questionable transfers, such as Jasmin sending $67,000 on Claudia's behalf to a woman in Argentina for a completely undocumented business venture.

[11] The plaintiffs submit that this case has all the "badges of fraud" under the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, and that the GD are liable under the legal doctrines of "knowing assistance in breach of trust" and "knowing receipt of funds in breach of trust."

[12] The GD deny any wrongdoing and submit that while the action should be decided by way of a summary judgment motion, the plaintiffs' claim against them should be dismissed. They argue that the necessary evidence to support the plaintiffs' claim is absent. They suggest that there is no evidence that they ever received money from Diego or TFC, and that the evidence that Jasmin and 256 Corp. legitimately purchased and operate CYV is credible. Claudia and Jasmin claim that they have not seen Diego since October 2019 and believe that he is now living in South America.

[13] For the reasons that follow, I grant summary judgment against Diego, TFC and the Guillen Defendants.

The Test for Summary Judgment

[14] The test for summary judgment was succinctly set out by Koehnen J. in Waxman v. Waxman, 2021 ONSC 2180, at paras. 57-60:

[57] The test for summary judgment is not in dispute. The rules provide that the court shall grant summary judgment if "the court is satisfied that there is no genuine issue" that requires a trial. Put another way, I must grant summary judgment unless a trial is required.

[58] There is no genuine issue that requires a trial if the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. "This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result."

[59] In determining whether a trial is required, rule 20.04(2.1) allows the court to weigh evidence, evaluate credibility and draw any reasonable inference from the evidence, unless it is "in the interest of justice for such power to be exercised only at a trial". If these expanded fact-finding powers do not enable me to decide the matter, I may direct that a mini-trial be conducted if doing so will allow me to resolve the matter.

[60] It is well-established that on a motion for summary judgment: (a) each party must put its best foot forward; (b) the responding party "must lead trump or risk losing"; and (c) the motion judge is entitled to assume that all evidence that might be adduced by the respondent at trial has been adduced on the motion.

[15] In their factum and at the hearing of the summary judgment motion, each party purported to present the facts. Indeed, the parties agreed on many facts and several facts were objectively verifiable, such as the dates of certain property or financial transactions. However, other so-called "facts" were highly disputed and called for the court to draw inferences based on reviewing the evidence and making credibility findings.

[16] The parties provided extensive motion records with full transcripts of cross-examinations of the affiants. Despite the heavily contested nature of the evidence, I was satisfied that I could make findings of fact based on the totality of the evidence on the motions. Moreover, both parties agreed that forwarding the matter to trial was not necessary as it would not yield further or different evidence. The alleged fraud perpetrated by Diego, TFC and the GD occurred primarily in the 2016 to 2019 timeframe, and Diego purportedly left Canada in 2019. It appears that, on the summary judgment motion, which was argued in July 2021, each party had provided all the information that it was willing and able to present. More evidence is unlikely to emerge at trial. I find that the action is amenable to disposition by way of summary judgment.

The Facts

Diego, TFC and Claudia

[17] Diego is originally from Argentina.

[18] Claudia and Jasmin were born in El Salvador. Jasmin is two years older than Claudia. The sisters immigrated to Canada in October 1994, when Claudia was 15 and Jasmin was 17 years old.

[19] Claudia obtained a 2-year diploma from Seneca College in the law clerk program. Immediately after graduation, she started working as a law clerk at a Toronto real estate and condominium law firm. She worked there for 10 years.

[20] Claudia and Diego were married in 2004. They have four children: S (born June 2008), C (May 2011), M (March 2013) and T (March 2017).[^1]

[21] Diego opened TFC in or around 2013.

[22] Claudia worked at TFC. She was responsible for signing cheques and was a signing authority on TFC's bank account. She was also responsible for depositing cheques and doing other banking and handling cash. When Claudia worked at TFC, she was not paid a salary. She would tell Diego when she needed money for their children and transfer the amounts she needed from TFC with Diego's consent.

[23] Claudia claims that she stopped working at TFC in the summer of 2016 when her marriage broke down. Claudia continued to sign cheques for TFC, at Diego's request, even though she was not working there. Claudia also withdrew cash from TFC for Diego after she stopped working at TFC.

[24] Claudia claims that:

a) Her marriage with Diego started to break down at the end of 2015 when she started hearing rumours from other TFC employees that Diego was having an affair. Diego was often out of town. On the days that they were both working in Toronto, he would not return home until midnight.

b) In the spring of 2016, Claudia and Diego were supposed to go on a family vacation to Italy. Just before they were about to leave, Diego told her that one of TFC's salespersons had just quit, and he needed to stay behind to supervise the business.

c) When she got back from Italy, her neighbours told her that women had been visiting the house while she was away. Claudia hired a private investigator and found out that Diego was having an affair with one of the women working for the plaintiff, NextGear. Claudia later checked Diego's phone and found text messages and explicit sexual pictures that confirmed to her that he was having an affair with one of the women from NextGear.

[25] Claudia became pregnant with her and Diego's fourth child in or around June 2016.

[26] Claudia further claims that:

a) She stopped working at the dealership in July 2016. She got sick of hearing stories from the other employees about "the woman from NextGear" visiting the dealership. She did not want to talk to Diego anymore. She decided to separate from Diego and sell their home and move closer to where her mother lived.

b) Diego did not want to sell the house. He attempted to convince Claudia to stay together and keep the house by scheduling another family vacation, this time to Brazil. However, once they arrived in Brazil, she found out that Diego had also invited his friends. She was left alone with the kids. This made things easier for her to finalize the sale of the home.

c) She did not tell Diego that she was pregnant. She thought that he might refuse to sell the house if she told him. Their children were starting school in September 2016, so she wanted to sell the house quickly and find a place to live that was closer to school.

d) By the end of August 2016, she found an apartment in Thornhill and had moved in.

e) On September 23, 2016, Diego and Claudia sold their matrimonial home on Cadiz Crescent, Mississauga for $560,000 net of any mortgage or any encumbrances.

f) After the expenses were paid, there was $175,000 left over for her portion of the house sale. Diego was not taking care of the children, and Diego refused to pay her ongoing child support, so they agreed that she would take the money.

[27] After selling their matrimonial home, Claudia and the children moved into an apartment in Thornhill, and Claudia believes that Diego moved into an apartment on Bloor Street in Toronto. Claudia stated that she did not see him for the balance of 2016. Then, in January 2017, when it was obvious that she was pregnant with the couple's fourth child, Claudia and Diego rented a house whereby Claudia lived in an upper apartment and Diego lived in the apartment below.

[28] Claudia claims that she paid the rent and Diego paid for the food. She also claims that, during that period, she did not tell Diego where her money went, and did not want to know where his money went.

[29] In October 2016, Claudia transferred ownership of her Audi Q7 to Garnette for no consideration. The Audi Q7 was previously owned by TFC and by Diego, before it was transferred to Claudia. According to Garnette, Claudia transferred the vehicle to Garnette so that Claudia could reduce her insurance premiums. Claudia continued to use the Audi Q7 after she transferred it to Garnette and continues to use it to this day.

[30] On October 19, 2016, Claudia withdrew $20,000 in cash from the TFC's bank account (in four transactions of $5,000 each) and brought the money to Diego. Under cross-examination, Claudia denied knowing, or asking Diego, the purpose of the withdrawal.

Jasmin and Garnette

[31] Jasmin and Garnette were married in 2005, and have a daughter who was around 4 years old in 2016.

[32] Jasmin obtained a "Social Service Worker" diploma in 2002 following a two-year program at Humber College, and completed one year of a Bachelor of Social Work (BSW) degree program at Ryerson. She took some additional courses within the category of social work.

[33] Since high school graduation, she has always held two jobs concurrently.

[34] From 2001 until 2016, she worked as a senior coordinator at Canadian Exhibition Air Shows Inc. which involved marketing, sales, advertising, and producing an air show. She left the Air Show job in 2017 when she purchased the CYV newspaper.

[35] Since 2009, Jasmin also worked full-time at Victim Services Toronto. As of September 2019, she was working as a Case Manager and previously as a Crisis Counsellor. She works 4 to 5 days a week mostly from 7:00 a.m. to 3:00 p.m. She had previous jobs in sales, marketing, telemarketing, door-to-door sales, retail and cleaning jobs. Jasmin worked at Victim Services Toronto and at Canadian Exhibition Air Shows concurrently, and after she quit the Air Show job, worked at Victim Services Toronto and CYV concurrently.

[36] Garnette is employed by the Toronto Transit Commission (TTC) as a bus driver since 2001.

Jasmin's purchase of CYV

[37] Mario Armani is the owner of two corporations, Compra Y Venta Ltd. and Semanario Compra Y Venta Ltd. Armani founded CYV in or about 1993. The newspaper CYV was an asset of the Armani corporations.

[38] In 2016, Armani decided to retire. He initially planned to shut down CYV, but Jasmin approached him with an offer to purchase the business. She told Armani that she wanted to purchase CYV because she always wanted to own a business. Armani had never met Jasmin, but knew Diego, her brother-in-law, because Diego had taken out advertisements for TFC in CYV.

[39] Jasmin testified that she purchased CYV after a very short negotiation.

[40] On January 10, 2017, Armani and Jasmin agreed that Armani's corporations would sell CYV to Jasmin for $113,000, payable in monthly installments of $10,000 starting in March 2018. Armani testified that, in January 2017, the annual revenue generated by CYV was approximately $500,000 and annual expenses were approximately $300,000.

[41] Notably, in cross-examination, Garnette claimed that he was unaware of the purchase price of Jasmin’s business acquisition, and only knew that it was purchased in installments. He claimed that, with his work and study schedule he was too busy to know all the details.

[42] On the first day of training, Jasmin, Claudia and Diego attended. Armani was surprised to see Diego there as he was not aware that Diego would be involved in the CYV business. Jasmin told Armani that Claudia and Diego were there to help her run the company.

[43] After CYV was sold, Jasmin asked Armani not to mention to anyone that she was the new owner of CYV. In the weeks and months following, Armani received complaints from a number of CYV customers who he had known for many years, that people did not like "the new owner" and that "he" was not honouring certain longstanding arrangements with customers. It was clear to Armani from the customers' comments that they were referring to Diego as the new owner.

[44] Jasmin incorporated a business, 256 Corp., in March 2017 which operates CYV.

[45] Jasmin testified that Claudia, Diego and Garnette helped her run the CYV business. Jasmin trained Claudia with respect to CYV in February 2017. Jasmin did not give Claudia a title at the business, but Claudia "pretty much helps [Jasmin] with everything." Jasmin testified that Claudia worked 10:00 a.m. until 4:00 p.m. four to five days a week, which were roughly Claudia's hours during the entire time working in the business.

[46] Claudia and Diego's son was born in March of 2017 and Claudia was away from CYV for a few months.

[47] Between March 2018 and March 2019, monthly payments were made to Mr. Armani purportedly for the purchase of CYV. The cheques, from 256 Corp.'s RBC bank account, were signed by Claudia who was an authorized signatory for 256 Corp.'s bank account. The cheques totaled $123,024 (10 x $5,000 each, 6 x $10,428, and 1 x $10,432), which was $10,000 more than in the purchase agreement. Jasmin believes that one or more of the cheques was not cashed.

[48] When asked about how she was apparently able to pick up from where Mr. Armani had left off, especially as he had run the CYV business for 25 years, Jasmin responded that it was an easy business to run.

[49] Jasmin testified that Diego helped her with deliveries and sales until 2019. She did not pay Diego for his services at CYV as she was paying for his children's education.

[50] Jasmin testified that she used Diego a lot for the Spanish community because there were a lot of men who refused to deal with her, or women in general. If she needed a cheque collected, he helped her out. He also helped her out with social media. Diego also interacted directly with CYV's customers. Jasmin claimed that Diego did not get involved with CYV's finances but collected cheques on behalf of the business.

[51] In cross-examination, Jasmin acknowledged that she paid Diego's first and last month's rent via a cheque dated May 7, 2019. She claimed she did it because he was the father of her sister's children. She denied that Diego was the real owner of the CYV business.

[52] Jasmin stated that she did not have the money for the purchase of CYV, but she had confidence with her experience in dealing with the Air Show for many years, where she had to negotiate sponsorships and sell advertising, so she knew she could run a business. She testified that she knew, in essence, how the CYV newspaper worked as she had sold items in CYV herself.

[53] When asked in a September 2019 cross-examination what Mr. Armani told her about how much revenue CYV was generating, Jasmin responded that Mr. Armani said it varied, depending on the season and the nature of the advertising. She said she would have to consult her notes and would get back to counsel on that point. She claimed she could not remember because she was concentrating on keeping the customers, and was planning on changing the fees. She conceded that Mr. Armani did not show her any income statements for CYV.

[54] Jasmin stated that she looked at the newspaper and the price sheet as evidence of the CYV's viability. Jasmin claimed that there was no email correspondence leading up to the sale of the CYV business. Jasmin did not ask for any accounting statements or books that Mr. Armani was maintaining on behalf of CYV.

[55] Jasmin was asked in September 2019 what kind of revenue CYV was generating from 2017 up until the present. She stated that CYV's expenses were around $37,000 a month. She could not answer, from memory, what revenue the magazine was generating. She ventured a guess that it was $30,000 per month, and when it was suggested that the range would be between $35,000 and $50,000 a month, she responded "that sounds too much."

[56] Jasmin denied that Diego paid cash to Mr. Armani, in addition to whatever payments 256 Corp. paid Mr. Armani via cheque.

[57] Jasmin testified that Claudia told her to hold $175,000 in a bank account because Claudia was having a lot of marital problems and she wanted to safeguard the money away from Diego. At the same time, Jasmin testified that she helped Claudia with her basic expenses in January 2017.

[58] Jasmin denied that any of the $175,000 went to Mr. Armani to pay for the purchase of CYV, or that it was spent on the CYV business.

[59] Jasmin acknowledged that, in the beginning, she only paid herself $7,000 from CYV, then she said she had taken more money from the business. She acknowledged that she did not take a salary. She claimed that she paid for her daughter's school, bought groceries and paid gas by charging all those expenses to the CYV business.

[60] As of September 2019, Jasmin was still selecting accountants for CYV. No financial statements had been prepared, and no taxes had been filed.

[61] Jasmin testified that because she could not really afford to give Claudia a full salary at CYV, she gave Claudia a stipend, and also paid for Claudia's children's school fees. Three of the four children attended Crawford Academy, a Seventh-Day Adventist school. The tuition was about $900 per month per child, so $2,700 per month.

[62] When asked how much of a stipend she paid Claudia, Jasmin answered that it varied based on income and paying other employees first. Jasmin then suggested "maybe $2,000 a month".

[63] Under cross-examination, Jasmin was led through a series of e-transfers where 256 Corp., operating as CYV, paid Claudia. Jasmin conceded that, over a two-year period, from July 2017 to June 2019, 256 Corp. transferred $182,333 to Claudia.

[64] Jasmin also conceded that, from her personal account, and not from 256 Corp., she paid Claudia around $33,000 in 2017. Later in her cross-examination, Jasmin suggested that the $33,000 that she gave to Claudia from her (i.e. Jasmin's) personal account was actually part of the $175,000 that she was holding of Claudia's money. Jasmin then claimed she was helping Claudia pay her rent. When it was pointed out that, 256 Corp. paid $16,500 to Claudia in August 2018 alone, Claudia answered that she was helping her sister because she did not have a reliable husband.

[65] As Jasmin's evidence about how 256 Corp. could pay such large amounts to Claudia is highly relevant, I have reproduced the following excerpt from Jasmin's cross-examination:

Q. Okay. And then following February 2018, there's quite a few other payments to Claudia. I'll just read them out and then you can tell me at the end if you know what any of these things are for. So this is payments from 256 to Claudia Guillen. In March 2018, $11,700. In April 2018, $7,600. In May 2018, $10,975. Again these are cumulative figures based on multiples deposits. In June 2018, $7,500. In July 2018, $7,000. In August 2018, $16,500. In September 2018, $3,500. In October 2018, $4,000. In November 2018, 7,000. In December 2018, $10,500. In January 2019, $6,385. In February 2019, $8,100. In March 2019, $7,900. In April 2019, $1,400. In May 2019, $2,100. And in June 2019, $6,500. What were these payments from, where they're in excess of the normal stipend of $2,000?

A. Yeah, I've been helping her to pay for rent where she was. So --

Q. So you helped her -- in August 2018 you paid $16,500, and that was to help with her rent? Was she staying at the Taj Mahal in India?

A. No, way before that, up to March. So I, in essence, have been supporting my sister and her children.

Q. Do they live at a five star hotel?

Mr. Fournie: Okay. We'll keep the questions --

Jasmin: So it's not unusual that I'm helping my sister. She is my sister and I have decided to not take so much for myself and to help her, because, you know, she doesn't have a reliable husband. She doesn't have any extra help. She helps me way beyond a regular employee would help me to run the business. So it may seem unusual to you, but it isn't unusual to me, to be able to do that for my sister.

Q. The business can afford paying her more than $10,000 per month on at least seven different occasions?

A. Yes.

Q. I thought you said that the business is barely profitable at this stage, but I can -- yet it can afford to pay a part-time employee on an annual basis of more than $120,000 per year. Is that what you're telling us?

A. Well, I'm able to do that for her.

[66] Jasmin went on to confirm that 100% of the funds paid out to Claudia were generated by CYV.

Claudia and children move in with Jasmin and Garnette

[67] Claudia claims that, in 2018, Diego was rarely in Canada and travelled a lot. He told her that he was doing construction and odd jobs, and helping people buy cars.

[68] According to Claudia, in 2019, Diego’s behaviour got out of control. Whereas previously he would just disappear, he now became openly angry including in front of the children.

[69] Claudia claims that, on a Saturday morning in March 2019, Diego threatened her in her apartment. Claudia was apparently scared for her life and left the apartment with the four children and went to her sister Jasmin’s place for shelter. Claudia and the children have been living with Jasmin and Garnette ever since.

[70] Garnette deposed that one day in late February or March 2019, Claudia showed up unannounced with her four children at his residence and told him that Diego was threatening her. Garnette helped prepare the house and tried to make Claudia and her family feel welcome and they have lived there ever since.

The $175,000 bank draft

[71] On October 5, 2016, Jasmin was given a $175,000 bank draft by Claudia that Claudia and Jasmin described as the proceeds from the sale of Claudia and Diego's matrimonial home. Claudia testified that the money was given to Jasmin for "safe-keeping" away from Diego.

[72] On February 16, 2021, the GD delivered a chart purporting to provide further information regarding the subsequent use and transfer of the $175,000. [^2] Between the documentary evidence and the cross-examination of Claudia and Jasmin, the evidence suggests that the $175,000 was purportedly disbursed as follows:

a) $67,000 was sent to a woman, Ines Alejandra, in Argentina who Claudia testified she partnered with for a business venture selling clothes to "extra-large" people. Claudia claimed that Ines has now disappeared and that she is no longer in touch with her. No documentation was produced for this alleged business venture. When Jasmin was asked if it was prudent for Claudia to send these funds overseas, Jasmin answered that she does not tell Claudia what to do with her money.

b) Almost $10,000 ($9,960 exactly) was sent to Marvin Jiminez, a cousin in El Salvador, for no consideration. If it was a loan, it was never repaid.

c) $50,000 was withdrawn in cash by Jasmin for Claudia's "ordinary living expenses." Jasmin claimed that, at the time she withdrew the money for Claudia, she did not know what Claudia did with the money.

d) Other amounts were transferred to "unknown recipients" or were also purportedly for Claudia's "ordinary living expenses". Claudia could not remember the purpose of the "ordinary living expenses."

Additional Evidence of the plaintiffs on the Summary Judgment Motion

[73] In January 2018, Redinger, Quantum's COO, received information from a former Quantum auto dealer contact that Diego had purchased CYV using another person's name. Redinger conducted an Internet search and located a Facebook page for CYV in Spanish which, when translated into English states, "Congratulations for being successful 2017 to Diego Diaz and to all his team of El Compra Y Venta." Redinger also noticed a small picture of Diego, associated with what appeared to be an advertisement for CYV. When he clicked on the small picture, the picture expanded to show a photo of Diego smiling, holding a drink and raising his thumb up. The picture identified Diego as "Sebastian Torrez."

[74] Redinger conducted further research on CYV and discovered that the domain name "elcomprayventa.com" was registered to Claudia on May 16, 2017. Diego's email address diegodiazcba@gmail.com appeared on the registration as the registrant's email address.

[75] The plaintiffs hired a private investigator to conduct surveillance on Diego. Based on surveillance from January and March of 2018, the investigator provided photos of Diego in the driver side of a Mercedes Benz cargo van painted with CYV logos. Further surveillance was conducted on two occasions in March 2019, and one in April 2019, and Diego was observed making newspaper deliveries in the North York area.

Discussion

Default Judgment against Diego and TFC

[76] Diego and TFC did not file a defence. These two defendants are deemed to have admitted the allegations in the plaintiffs' statement of claim: Rule 19.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Accordingly, I find that, in late 2016 and early 2017, Diego and TFC breached agreements with the plaintiffs by:

(a) Removing inventory and dissipating assets from the TFC dealership and abandoning the dealership premises.

(b) Selling 9 vehicles financed by Quantum and 54 vehicles financed by NextGear out of trust to third parties; and

(c) Failing to remit proceeds from the sale of the vehicles to:

(i) Quantum, in respect of 9 of the vehicles, in the amount of $176,463.20; and

(ii) NextGear, in respect of 54 of the vehicles, in the amount of $572,999.84.

[77] As a result of the breaches of the agreements, I find that the plaintiffs incurred additional charges which are owing pursuant to the terms of the agreement, including NSF and other charges.

[78] Diego is also deemed to have admitted using the proceeds of sale from TFC to purchase, promote, and maintain CYV and to be the controlling director, officer and shareholder, as well as the guiding mind or alter ego of the CYV business.

[79] The plaintiffs are entitled to default judgment against Diego and TFC.

Expiry of Limitation Period Argument

[80] The GD submit that the plaintiffs' claim against them should be dismissed because it was brought after the expiry of the applicable two-year limitation period. The GD reason that Quantum discovered Diego and TFC had defaulted under its lending agreements on October 24, 2016, and that by the next day, Quantum was aware that it was the victim of fraud. The claim should have been commenced by October 24 or 25, 2018, yet the claim was begun by way of Notice of Action issued on October 26, 2018, by which time the limitation period had expired. Accordingly, the action should be dismissed.

[81] The plaintiffs disagree and point out that while they may have been concerned about Diego and TFC's conduct a day or two earlier, it was not until October 27, 2016 that Quantum attempted to withdraw funds by way of a series of automated draw cheques. Those draw cheques were not returned NSF until November 3, 2016, which date the plaintiffs submit is the appropriate date to commence the limitation period clock.

[82] I agree with the plaintiffs' analysis. Regardless of whether and to what extent the plaintiffs may have been aware of Diego and TFC's misconduct earlier than October 27, 2016, under the financing and lending agreements, the plaintiffs could still call on their draw cheques which, had they been honoured, would not have resulted in a claim, or at least, not in the present claim. In other words, it was not unreasonable for the plaintiffs to withdraw funds by way of the draw cheques and await the result. They did not get an NSF response until November 3, 2016. The action was commenced on October 27, 2018, which is a few days earlier than the expiry of the two-year limitation period on November 3, 2018.

[83] The plaintiffs' claim against the GD cannot be dismissed on the basis of a limitation period argument.

The Mareva Order and October 2019 Disclosure Order

[84] On June 28, 2019, Justice Chalmers granted a Mareva injunction on an ex parte basis restraining the defendants' conduct. The Mareva Order was extended a number of times by Justices Dow, Chalmers and Firestone.

[85] On October 24, 2019, Justice Nishikawa further extended the Mareva Order ("October Disclosure Order"). The October Disclosure Order required Claudia and Jasmin to provide "full particulars of the use or subsequent transfer" of the $175,000 Transfer, as follows:

9. THIS COURT FURTHER ORDERS that Claudia and Jasmin, as applicable, shall forthwith deliver to counsel for the Plaintiffs full particulars of the use or subsequent transfer of the funds in the amount of $175,000 transferred from Claudia to Jasmin on October 5, 2016 by bank draft issued by the Toronto-Dominion Bank bearing No.[XXX], including all applicable relevant financial documents.

[86] The October Disclosure Order also provided that:

8. THIS COURT FURTHER ORDERS that Jasmin and Garnette shall provide reasonable advance notice to the Plaintiffs of any negotiations or discussions regarding the refinancing of, the sale of, or transfer to title to the property municipally known as [XXX] Nairn Avenue, Toronto, Ontario, [Postal Code] (the "Nairn Property"). Notwithstanding the foregoing, Jasmin and Garnette and (sic) shall provide to the Plaintiffs 30 days advance notice of the closing of any transaction resulting in the refinancing or sale of the Nairn Property, subject to further Order of this Court or consent of the Plaintiffs. This provision shall not operate to preclude the Plaintiffs from seeking any further relief, on notice, including a certificate of pending litigation, in respect of the Nairn Property.

[87] The plaintiffs made numerous and frequent requests for disclosure. In February 2020, Jasmin provided bank statements (the "Scotiabank Statements") for a Scotiabank account which showed the deposit of the $175,000 transfer.

[88] I find that, ultimately, Jasmin declined to provide full particulars of the large cash transfers shown on the Scotiabank Statements despite repeated and frequent requests from counsel for the plaintiffs between February 2020 and February 2021. Eventually, and after the plaintiffs threatened to strike the defences of Claudia and Jasmin, Jasmin provided some particulars but they do not, in my view, constitute compliance with the October Disclosure Order.

[89] On February 16, 2021, the GD delivered a chart to the plaintiffs, reproduced as Schedule A to these Reasons, purporting to provide further information from 256 Corp. regarding the subsequent use and transfer of the $175,000 transfer. I note that this is 16 months after the October Disclosure Order. There too, the level of detail is very superficial. For instance, on January 19, 2017, $50,000 in "Ordinary living expenses" is indicated. In cross-examination, Claudia claimed she could not remember whether this was a cash or cheque withdrawal. She accepted counsel's suggestion that it was a cash withdrawal. Claudia testified that she was helping her mother pay medical bills for her grandmother in El Salvador. Claudia could not remember what portion of the $50,000 was for medical bills. Then Claudia suggested that, because she was going to have a baby, she needed cash with her as she was not going to be able to go to the bank. She also claimed she had no medical records because in El Salvador "you don't get medical records."

[90] The plaintiffs also provided an affidavit from Aaron Cressman, a lawyer with the plaintiffs' law firm. Mr. Cressman deposed, and I agree that, in addition to the GD not providing full particulars of the $175,000 transfer:

(a) Claudia did not provide particulars of her expense account at the Royal Bank of Canada, in breach of the October Disclosure Order; and

(b) 256 Corp. did not provide particulars of an expense account at the Royal Bank of Canada on a weekly basis, in breach of paragraph 4 of the July 23, 2019 order of Justice Chalmers.

[91] Mr. Cressman's affidavit details how there were long delays between the plaintiffs' request for disclosure and a response from the GD, and how the GD variously took the position that they were either not required to respond because the disclosure was not within the ambit of a judicial order or, that they had already responded and that the plaintiffs had their position.

[92] The GD also did not provide any contracts between CYV and its repeat customers who advertised in the newspaper. Nor did the GD produce any invoices that it presumably generated and sent out to those customers. Such evidence was highly relevant and would have assisted the plaintiffs and the court in determining CYV’s likely revenue both at the time of Jasmin’s purchase of the newspaper in January 2017, and thereafter.

[93] I find that the GD did not provide any sufficient rebuttal to the evidence and disclosure concerns laid out in Ms. Cressman's affidavit. The GD suggest in their factum that "the plaintiffs have received tens of thousands of pages of bank and financial records… have examined the Guillen Defendants twice, and have been provided with numerous undertakings and further disclosure." However, I agree with the plaintiffs that the GD were, and are, in breach of the various disclosure orders in this proceeding, and did not ultimately provide the full particulars required of them. Of course, as parties on a summary judgment motion who were required to put their best foot forward, I draw an adverse inference from the GD's failure to provide proper disclosure, and from their breach of the various court orders.

The Refinancing of Jasmin and Garnette’s property

[94] On February 4, 2021, Jasmin and Garnett refinanced their property on Nairn Avenue by increasing their mortgage by $99,816.71 so that they could eliminate their line of credit, which Garnette testified that they had drawn down for the purpose of emergencies.

[95] The plaintiffs claim that this refinancing constitutes a breach of paragraph 8 of the October Disclosure Order which required Jasmin and Garnette to provide 30 days advance notice of the closing of any transaction resulting in the refinancing or sale of the property.

[96] The GD disagree that there was a breach of any court order and suggest that Jasmin simply overlooked a routine renewal. The GD submit that there was no prejudice to the plaintiffs, as no new debt was added to the property. I disagree.

[97] The October Disclosure Order is clearly worded to refer to any kind of refinancing. The collapse of the credit line into a renewed mortgage constitutes the kind of refinancing that, even if it did not necessarily change the equity position of Jasmin and Garnette, required them to notify the plaintiffs on proper notice subject to the court order.

The "Breakdown" of Diego and Claudia's Marital Relationship

[98] The GD claim that Diego's marital infidelity led to the breakdown of his marital relationship which, in turn, led to the sale of the matrimonial home. Supposedly, Diego and Claudia then agreed to settle their matrimonial affairs by Claudia accepting half of the proceeds in exchange for forgoing her right to commence any family law claims against Diego and TFC.

[99] Claudia deposed that other TFC employees began telling her in 2015 that Diego was having extra marital affairs. In March 2016, Claudia supposedly grew suspicious that Diego was having an affair with one of the receptionists that he hired at the dealership. When asked, Diego apparently denied it. When Claudia and the children returned from a trip to Italy, Claudia's neighbours told her that women had been visiting the house. Claudia purportedly hired a private investigator and found out that Diego was having an affair with one of the women she recognized as working for the plaintiff NextGear. Claudia said she checked Diego's phone and found explicit text messages and pictures confirming that Diego was having an affair with the woman from NextGear. She claims that she left the TFC dealership because, given Diego's behaviour, she did not feel safe.

[100] Many things are possible, but only a few things are probable. I find that the narrative provided by the GD is so far-fetched, internally inconsistent, and poorly documented, that the GD's version of events is very unlikely to be true. Conversely, the explanation put forth by the plaintiffs is more straightforward, accords with the available evidence, and common sense. The plaintiffs' explanation is that all of the events are better explained by the GD working in league with Diego on a fraudulent scheme to defeat his creditors, by flowing though trust funds to his family members including by using CYV to launder funds. On balance, I find that the plaintiffs' explanation of events is more likely to be the truth.

[101] The evidence of Diego's purported marital affair came from Claudia and Jasmin, and tangentially from Garnette, all part of the GD. Where was the evidence from the private investigator that Claudia hired in 2016 who supposedly revealed that Diego was having an affair with one of the women from NextGear? As the plaintiffs pointed out, Claudia could not even remember the name of the NextGear employee in question, despite Claudia claiming that she was familiar with the woman from visiting TFC. I find it highly unlikely that if "the affair with the NextGear woman" happened, that Claudia would not have the woman's name burned in her memory, or at least have the name written down somewhere. Claudia could also not remember the name of the investigator she hired, albeit she thought it may be "Ignace or Ian". I find it highly unusual for someone to hire a private investigator to conduct surveillance on their spouse, and then forget that investigator's name, or even the name of the investigative company. Claudia claimed the investigator showed her photos, yet she retained no copy of the photos. Her suggestion that the investigator's report contained just "photos and videos" does not accord with most investigator's practices. She claims that she got the investigator off Kijiji and that "everything was done by phone" and that the investigator requested and was paid cash. I suppose it is possible that Claudia hired a "shady" investigator with unorthodox practices which may explain all of the above; but I find, on a balance of probabilities, that there is no truth to the GD's suggestion that Diego was having an affair with someone from NextGear, or that Claudia discovered this by hiring a private investigator.

[102] I also note that GD failed to call anyone from TFC who could corroborate Claudia's claim that TFC employees kept talking about "the woman from NextGear" visiting the TFC dealership. Claudia deposed that, in or around the summer of 2016, she was sick of hearing of this from other employees. I take from this that Diego's affairs became "water cooler talk." Claudia worked at TFC for a number of years. I am assuming she developed relationships there. I am assuming that if Diego was carrying on with "the woman from NextGear" and Claudia was sick of hearing of this woman coming in, there would have been an employee from TFC who could have testified to this. But the court is simply left with Claudia's improbable account.

[103] Claudia deposed that Diego did not want to sell the house but somehow, around the time of a family vacation in Brazil (which was purportedly Diego's attempt to convince her to stay together and keep the house), she was "left alone with the kids." As of the summer of 2016, the couple were married for 12 years, they already had 3 children aged 8, 5 and 3, and Claudia was pregnant with the couple's fourth child, but had apparently not told Diego of her pregnancy. At this time, she was so upset by Diego's infidelity that she stopped working at TFC and "does not want to talk to Diego anymore." Yet, with three young children in her care, presumably without Diego's support, between July and September of 2016 - with a Brazilian vacation somewhere in there - she managed to list and sell the matrimonial home, find an apartment in Thornhill in August and move in, and sell the home on September 23, 2016. Once again, these events are possible, but I find them highly improbable. The GD's refrain on this motion is that they have provided credible explanations for their actions and are innocent bystanders of Diego's misconduct. However, I find Claudia's explanation not to be credible and reject the GD's accusation that the plaintiffs are simply coming after Diego’s family members since they have been unable to execute judgment against Diego.

[104] Another problem in the GD's narrative is the alleged deal struck between Diego and Claudia concerning the resolution of their financial affairs following the breakdown of their marriage. Claudia claims that, after the expenses were paid, her portion of the house sale proceeds was $175,000 and, as "Diego was not taking care of the kids, and he refused to pay me ongoing child support, …we agreed that I would take the money." In cross-examination, she testified that her half of the proceeds from the sale of the matrimonial home was the only funds that Diego left for her.

[105] Claudia's explanation makes no sense from a family law perspective.

[106] Under the federal Divorce Act, R.S.C., 1985, c. 3 (2nd Supp.), and Ontario family law legislation, Claudia, as the spouse with primary care of three (soon to be four) young children, and with significantly lower income and marital assets than Diego, would have almost certainly been entitled to: (a) child support; (b) spousal support; and (d) a Net Family Property (NFP) equalization payment which would take into account the proceeds of sale of the matrimonial home, and Diego's global assets including TFC. In other words, Claudia's claim that she walked away from child support, spousal support and equalization only to get a subset of equalization (i.e. something that was already owed to her) seems highly improbable. Did Claudia, a former law clerk who worked at a law firm for 10 years, not seek legal advice? The GD ask the court to believe that Claudia, faced with an unfaithful spouse who she could barely speak with, and who she was very upset with, while bearing the burden of single-handedly raising 3 children with another child on the way, was satisfied with settling all her matrimonial claims by simply receiving her own share of the proceeds of sale. The other possibility, suggested by the plaintiffs, is far more likely, that Claudia was prepared to relinquish all her family law claims, because Diego was going to look after the family through other means, namely through the fraudulent scheme that is the subject of this action.

[107] I also asked, is it more likely that Diego would financially abandon his entire family whether in 2016 (when he purportedly refused to pay child support and spousal support), 2017 (by which time he clearly knew that Claudia was pregnant but supposedly only bought food for the family while Claudia paid the rent and other expenses), 2018 (by which time Claudia was working full-time at CYV with Jasmin and living with her and Garnette), or 2019 (when Diego purportedly left Canada all together and was never heard from again); or is it more likely that Diego, having absconded with hundreds of thousands of dollars of the plaintiffs' funds, would covertly ensure that his children and wife were well taken care of? I find that the evidence strongly points to the latter based on the events concerning CYV, and the GD's inability to explain the financial transactions that are at the heart of this dispute. It is to those aspects that I now turn.

The connection between the GD and CYV

[108] I find that the facts surrounding Jasmin's purchase of CYV do not add up.

[109] Jasmin, a full-time social worker with Victim Services Toronto, claims to have wanted to run a business, and being personally familiar with CYV, decided to purchase the newspaper assets (i.e. CYV) of Armani's corporation. She claims that she parlayed her experience as a Senior Coordinator at the Canadian Exhibition Air Show into owning and operating CYV. It is uncontradicted that Jasmin purchased CYV in January 2017 after a very short negotiation with Armani.

[110] The parties dispute whether Jasmin conducted any due diligence before purchasing CYV. I find that Jasmin bought the paper almost sight unseen, with either no, or very little, due diligence. Jasmin deposed that during her initial meeting with Armani, he reviewed the existing customers with her. He told her that several customers had purchased advertising contracts that would guarantee that the business had revenue until the end of the year. She claimed that this provided her with confidence that she could expect the business to continue generating revenue into the future. Remarkably, there was no correspondence leading up to the sale of the CYV business. If there was, it was not provided by the GD at the motion. Who buys a newspaper business with no written documentation (except for the final purchase contract)?

[111] Jasmin did not review any income statements for CYV. This is all the more remarkable as Jasmin did not even have the funds to pay Armani for the purchase up front. Despite the newspaper apparently being able to generate $500,00 a year in revenue, with a $200,000 yearly profit margin, Armani was prepared to accept only $113,000 and thereto, only on a monthly installment basis starting 15 months after Jasmin's takeover of the business. The installments were to come from the revenues generated by advertising in CYV. And, apparently, he was going to offer free training.

[112] To be fair, Armani may have been desperate to offload the newspaper rather than simply close it and get nothing. Or his alleged health problems may have prompted him to accept what appears to me as an improvident bargain given that he founded and ran this successful business for 25 years. Still, there are more anomalies that cumulatively favour the plaintiffs' narrative, that Jasmin did not want or need to conduct due diligence on CYV, because the primary purpose of the purchase was not to operate a newspaper, but rather to act as a front for Diego's activities, including flowing through the illegally obtained funds though the 256 Corp. business to his family members and others.

[113] On the first day of training, Diego and Claudia attended with Jasmin. Armani was surprised as there was no previous discussion of their involvement. Armani was told by Jasmin that Diego and Claudia were there to help run the company. Jasmin also asked Armani not to mention to anyone that she was the new owner. The GD's explanation for this is that Jasmin did not want to ruffle the feathers of existing clients. In any event, Armani received complaints from a number of CYV customers who thought that Diego was the new owner. The GD acknowledge that Diego was helping out with newspaper deliveries, which would explain the investigative footage of him in CYV automobiles, but the evidence also shows that the website domain for CYV was registered in Claudia's name, using Diego's email address. Claudia was not given a title at the business, but she was a signatory of 256 Corp. and "helped Jasmin with everything", even though, by 2017, she was a single mother with four young children.

[114] There are a number of curiosities in the GD's version of events. By the end of October 2016, Claudia had discovered Diego's numerous extramarital affairs, the entire TFC dealership had suddenly closed, Claudia was barely on speaking terms with Diego and feared him, the parties had sold their matrimonial home and they were separated. Yet, only a few months later, by about February of 2017, Diego and Claudia are living in the same apartment complex, they are working together at CYV, but Diego is supposedly contributing nothing to the family other than paying for food, and Claudia is not asking Diego what he is doing with his money. Further, rather than pursue child support, spousal support and equalization claims against her businessman husband, Claudia has decided to work full-time at her sister Jasmin's new business for a “stipend”. Jasmin claims that Diego had no position or salary at her 256 Corp. which runs CYV, yet he is also dealing directly with certain customers, picking up customer cheques, and helping out with social media.

[115] I acknowledge that the GD defendants have explanations for each one of the above curiosities. Diego was supposedly involved because some customers wanted to deal with a man. No, Diego was not paying rent, but with four children, the food bill was expensive. Yes, Claudia and Diego were living in the same residence, but Diego did not have keys to Claudia's apartment and he came and went as he pleased. This motion comes down to whose version of events is more probable, and I find too many improbabilities in the GD's account of what happened.

[116] I have already characterized it as improbable and suspicious that, within a two-month period over the summer of 2016, Claudia listed and sold the couple's matrimonial home over her husband's objection (who was on title), and moved to Thornhill with three children, while pregnant. The house was sold on September 23, 2016.

[117] In October 2016, Claudia transferred ownership of her Audi Q7 to her brother-in-law Garnette for no consideration, supposedly so she could reduce her insurance premiums. But she continues to drive the vehicle. On October 19, 2016, Claudia withdrew $20,000 in cash from TFC's bank account (in four transactions of $5,000 each) and brought the money to Diego but she denied knowing or asking about the purpose of the withdrawal. There was no evidence that Claudia was coerced into doing this, so it seems strange that Claudia, who is apparently separated and fearful of Diego, and having no obligation to TFC, is withdrawing a large amount of cash for Diego without even asking him its purpose. Recall that Claudia did not receive a salary when she worked at TFC. She was entirely dependent on Diego for providing her with whatever funds the family needed. It seems unlikely that, between July 2016 and February 2017, when Claudia started helping out with Jasmin’s CYV business, that Claudia would not only have no source of income, but that she would also not pursue Diego financially. Incredibly, this was also when Claudia was pregnant with the couple’s fourth child.

[118] Given the timing, I find it likely that the sale of matrimonial home, the transfer in ownership of the Audi Q7, and Diego’s fire sale of the plaintiff’s inventory were events coordinated by Diego with the GD’s actual or constructive knowledge. After the sale of the matrimonial home and the transfer of the Audi Q7, there were no hard assets of Diego and Claudia for creditors to seize.

The $175,000 Transfer and how it was spent

[119] On October 5, 2016, Claudia transferred $175,000 to Jasmin, purportedly for safekeeping away from Diego. Claudia deposed that “I had nowhere to deposit the money, all my bank accounts were held jointly by Diego”, as if opening up a new bank account solely in her name was an impossibility. Not one email or text message was produced by the GD concerning this large amount of funds being transferred to Jasmin.

[120] Claudia was cross-examined on the transfer and the subsequent use of the $175,000. As there is a significant dispute between the parties as to the underlying facts, I reproduce an excerpt from the transcript of Claudia's cross-examination:

Q. And Jasmin deposited these funds in her account?

A. Yes.

Q. And Jasmin used these funds to purchase the business Compra y Venta?

A. No, no.

Q. Jasmin returned these funds to you?

A. No.

Q. Jasmin kept these funds for herself?

A. No.

Q. Jasmin continues to hold these funds today?

A. No.

Q. Where are these funds today?

A. We used them up.

Q. Used them up to run the business?

A. No. Well, I did lend her some money to start the business, but it was not a lot of money.

Q. How much did you lend her to start the business?

A. I don't remember.

Q. Was it a significant amount of money?

A. No.

Q. Was it -- did she pay back the loan?

A. Yes, throughout my work at Compra y Venta.

Q. So your evidence is that she loaned -- you loaned her some money --

A. Mm-hmm. But it was my money, so she had it in a safe -- she kept it for safe deposit for me.

Q. The loan to Jasmin or this money?

A. No, this cheque.

Q. This money. Okay, so we've got two different transactions it sounds like.

A. Mm-hmm.

Q. So this cheque, it's been used up? The funds from this cheque have been used up?

A. Mm-hmm, yes.

Q. By you?

A. Yes.

Q. Not by Jasmin?

A. No.

Q. How did these funds get back to you from Jasmin?

A. No, no, the money, it's already gone. I owe money, so I had to pay what I owe.

Q. But you've told me you paid these funds to Jasmin --

A. No, these funds, this $175,000 --

Q. Correct.

A. -- she kept for safe -- dept deposit for me.

Q. And these funds are still being kept today?

A. No.

Q. These funds have been used up?

A. Yes.

Q. These funds were used up by Jasmin?

A. At -- yes. But when I asked her to give me money.

Q. Ah, these funds are being used by Jasmin to pay you?

A. Not to pay me, for my personal whatever. Whatever I needed then I just asked her to give me.

Q. For your expenses?

A. Mm-hmm. For my expenses, not my work.

[121] I find that Claudia and Jasmin's answers are all over the map. First, Claudia says that she lent Jasmin some money to start the CYV business but it was not a lot of money, but then she does not remember how much. I find this surprising. If Claudia genuinely lent money to her sister to start a business, even if it was a small amount of money, say $5,000, I would expect that she would remember the amount.

[122] Then, when Claudia is asked, "did she pay back the loan?" which I take to mean 'did Jasmin pay back the loan that you gave her to start CYV?', Claudia answers "yes, throughout my work at Compra y Venta". Again, this answer is difficult to comprehend. If Claudia was working at CYV, and Jasmin and Claudia's evidence is that she was working there 4 to 5 days a week, she should be getting paid for her work from 256 Corp. (qua employer), and not receiving her own “loaned money” back in the form of salary.

[123] Ultimately, Claudia settled on the explanation that there were “two different transactions”, which I take to mean one where Jasmin was returning Claudia’s own “safekeeping” money to Claudia; and a second where Jasmin was paying back the funds that Claudia lent her to start the CYV business. Yet, when Jasmin was cross-examined she never mentioned anything specifically about loaning money from Claudia to start the CYV business, albeit she testified that, over time, they borrowed from each other and it is not clear whether “borrowing from each other” included borrowing money from Claudia to start the CYV business.

[124] The GD submit that the plaintiffs presented misleading and inaccurate statements about how Claudia and Jasmin treated the $175,000. The GD suggest that at no point in time did they state that the money was transferred to Jasmin as a ‘loan’ or that a portion of it was used to finance 256 Corp.’s operations or ‘start the business’. The plaintiffs go to the other extreme and suggest that “Claudia testified that $175,000 Transfer was a loan to Jasmin to ‘start the business”. [^3] I find that each party’s interpretation of the evidence oversteps the mark. My finding is that Claudia was very vague on the point of whether some of the $175,000 was provided to Jasmin’s purchase of CYV, albeit ultimately she settled on the “two transactions” explanation.

[125] With respect to how the $175,000 was purportedly spent, as described earlier:

a) $67,000 was sent to Ines Alejandra in Argentina and there is no trace of her or the business venture to which this money was directed;

b) Around $10,000 was sent to a cousin of Claudia and Jasmin’s in El Salvador who ran into some difficulties with criminal gangs, and the sisters wanted to help him out;

c) $50,000 was withdrawn in cash and described by the GD as Claudia’s “ordinary living expenses”; and

d) The balance was described by the GD as “unknown receipts” or were also Claudia’s “ordinary living expenses.”

[126] I find that this is an area in which a credibility assessment is required because there is such a paucity of information that I am required to choose between stark explanations from the parties. The plaintiffs claim that it is all too convenient that out of nowhere Claudia directs Jasmin to send money to a stranger in Argentina who has a business idea to sell clothes to “large people.” As Diego is from Argentina, the plaintiffs ask that I substitute him for Ms. Alejandra and it is evident that Claudia is just redirecting the cash that Diego obtained from the fire sale of the plaintiffs’ inventory. The GD claim that Claudia made a poor business decision, and there is no evidence linking the $67,000, or the $175,000 for that matter, to Diego’s misdeeds.

[127] With respect to the $67,000, what tips the scales against the GD and why I find their explanation not credible is that:

a) The large amount is being sent to Argentina, where Diego is from, whereas the sisters are from El Salvador

b) The amount of money is significant

c) The idea for the business (open a store to sell clothing for ‘large people’) appears inauthentic as it appears to have nothing to do with Claudia’s previous skills or experience

d) The supposed business partner cannot be traced

e) Claudia’s answers on cross-examination were superficial

f) No documentation whatsoever was provided by the GD in respect of this so-called business venture

[128] I find it highly unlikely that someone sends $67,000 to a virtual stranger in Argentina with no documentation whatsoever. Where are the emails between Claudia and Inez? Where are the plans, concepts or research for this business idea? Notably, Jasmin claims she knew nothing about Claudia’s business idea, and she did not even deign to ask Claudia about the $67,000 withdrawal, since Jasmin “does not tell Claudia how to spend her money”. This does not accord with common sense, especially as Jasmin was directed by Claudia to transfer the funds. I assume it was not every day that Claudia asked Jasmin to transfer large amounts overseas. It does not make sense that Claudia had a business idea that she did not share with her sister, but then directs her sister to send $67,000 to Argentina without an explanation. I find this very unlikely. Accordingly, I reject the GD’s explanation that Claudia lost $67,000 on a bad business decision. I find it far more likely that she was transferring funds to Diego in Argentina, or to someone of Diego’s choosing.

[129] I also find that the GD’s explanation that Jasmin was returning Claudia’s share of the matrimonial proceeds back to her in bits and pieces as “ordinary living expenses” not credible. In July 2017, for instance, Jasmin transferred $8,500 in so called “ordinary living expenses” to Claudia. I do not find anything “ordinary” about that large sum and find it totally disproportionate to a typical family’s “ordinary living expenses”. No explanation or documentation whatsoever was provided by the GD. With respect to the $50,000 that Claudia took out in cash for Claudia on January 19, 2017, Claudia’s explanation verged from “I was paying my mother’s medical bills in El-Salvador,” to “I needed the funds as I was pregnant and could not go to a bank to withdraw cash”. Does anyone take out massive amounts of cash anticipating an inability to go to a bank due to pregnancy? The glib explanation provided by the GD that “outside of a few specific transactions to potential business partners and family members, the entire $175,000 was used for the payment of ordinary living expenses” glosses over a glaring lack of detail and/or documentation that one would have expected the GD to produce on the motion had their facts actually been true. Moreover, and as stated earlier, the GD did not, in any way, provide full particulars of how the $175,000 was spent.

[130] Finally, also unexplained by the GD, is Jasmin’s testimony that the approximate $33,000 that she gave to Claudia from her (i.e. Jasmin's) personal account was actually part of the $175,000 that she was holding of Claudia's money.

256 Corp.’s payment to Claudia

[131] Perhaps the most glaring problem with the GD’s position is that the math does not add up in respect of how 256 Corp. o/a CYV could provide such large payments to Claudia and pay all its other newspaper expenses. I find that it is more likely than not that the additional funds came from Diego who was using CYV to launder funds and flow them through to his family members.

[132] When Jasmin was asked in September 2019 what kind of revenue CYV was generating under her management, she had difficulty answering the question despite the fact that she had run the business for three years. I find this revealing. I expect that most small business owners can very easily answer this question. Especially here, as the only real source of revenue for CYV was advertising.

[133] Jasmin eventually ventured a guess of around $30,000 per month. When $35,000 to $50,000 per month was suggested as a possibility, she said that that would be too much. Yet, she stated that CYV’s expenses were around $37,000 per month to run it “barebones”. This means, on Jasmin’s own evidence, CYV was losing money or, was barely profitable.

[134] Yet, Jasmin testified that she paid $2,700 a month for the school tuition of three of Diego and Claudia’s children, plus her own daughter’s tuition which, I assume is $900, since her daughter attended the same private school as Claudia’s children. Thus far, we have $3,600 a month in expenses, not to mention groceries and gas being paid by CYV. Notably, Jasmin confirmed that 100% of the funds paid out to Claudia were generated by CYV.

[135] None of this is objectively verifiable because CYV prepared no financial statements and did not file any taxes. Also, CYV did not hire an accountant. I draw a strong adverse inference from this and conclude that some or all of the reason is that, had financial oversight and tax compliance occurred, the GD would not have been able to conduct themselves as they did.

[136] Jasmin initially claimed that she paid Claudia a “modest stipend” of around $2,000 a month and that it varied based on income and paying other employees first. In cross-examination, however, she was confronted with the fact that 256 Corp. paid Claudia $182,333 from July 2017 to July 2019, including more than $10,000 per month on at least seven occasions. This is a massive payment for a non-employee who is apparently just helping the business owner. Jasmin suggested that beyond the $7,000 that she paid herself initially, she did not take a salary from CYV. Query why Claudia would be paid vastly more than Jasmin who was the putative owner of the business? And how, in any scenario, could such large monthly payments to Claudia ever be called a “stipend”?

[137] Claudia changed her evidence several times in an attempt to explain these discrepancies suggesting that (a) she was sometimes paid a commission if she sold good advertising; (b) that her salary had not been set; (c) that she could not remember whether she was paid a commission or a bonus for additional sales performance; and (d) that she would be paid extra for her work on social media.

[138] As an example, Jasmin had no rational explanation for how or why she paid $16,500 to Claudia from 256 Corp. for the month of August 2018 alone. She fell back on “well I was able to do that for Claudia” and suggested that her reason for payment was because Claudia had an unreliable husband.

[139] A rough calculation suggests that if I take the monthly payments to Claudia from CYV, which average out to $7,597 (based on $182,333/24 months), plus $3,600 in school tuitions, the business would need a monthly additional profit of around $11,000 just to cover off these expenses. Of course, there is also a newspaper to run. If we accept Jasmin’s evidence that it cost $37,000 a month in expenses to run CYV as a barebones operation, I calculate that CYV would need a revenue of $48,000 a month to additionally pay for Claudia and the school tuitions. We have not factored in occasionally paying for Jasmin’s family’s groceries and gas. Given Jasmin’s evidence that monthly revenues were around $30,000 and “$35,000 to $50,000” is too much, it is difficult to see how CYV could sustain the payments to the GD and publish the paper from its normal advertising revenue. I find that it is more likely that CYV must have had another source of funds, and given the evidence, I find the funds came from Diego’s fire sale of the plaintiffs’ property.

Evidence of “Badges of Fraud"

[140] The plaintiffs submit that this case exhibits all the "badges of fraud" recognized in Ontario jurisprudence.

[141] In Ernst & Young Inc. v. Aquino, 2021 ONSC 527, the following explanation of “badges of fraud” was provided, at paras. 152-155:

[152] In Montor Business Corp. (Trustee of) v. Goldfinger, 2016 ONCA 406, 36 C.B.R. (6th) 169 (“Montor Business Corp.”) at paras. 72-73, the Court of Appeal for Ontario identified a non-exhaustive list of “badges of fraud” and stated that an inference of intent to defraud, defeat or delay a creditor may arise from the existence of one or more badges of fraud; but whether the intent exists is a question of fact determined from all of the circumstances as they existed at the time of the conveyance. As stated by Justice Brown, as he then was, in Montor Business Corp. (Trustee of) v. Goldfinger, 2013 ONSC 6635, 37 C.B.R. (6th) 200 (“Goldfinger”) at para. 6635, “A court must resist the temptation to inject back into the circumstances surrounding the impugned transaction knowledge about how events unfolded after that time. The focus must remain on the belief and intention of the debtor at the time, as well as the reasonableness of that belief in light of the circumstances then existing.”

[153] Courts have identified several badges of fraud, including the following:

1. The conveyance was general (i.e., a transfer of substantially all of the transferor’s property).

2. The transferor continued in possession and used the goods as the transferor’s own, including selling them.

3. The conveyance was secret.

4. The conveyance was made in the face of an ongoing legal process.

5. The conveyance amounted to a trust of the goods.

6. The deed contained the self-serving and unusual provision “that the gift was made honestly, truly, and bona fide.”

7. The deed gives the transferor a general power to revoke the conveyance.

8. The deed contains false statements as to the consideration.

9. The consideration is grossly inadequate.

10. There is unusual haste to make the conveyance.

11. Some benefit is retained under the settlement by the settlor.

12. Cash is taken in payment instead of a cheque.

13. A close relationship exists between the parties to the conveyance.

[154] These badges serve an evidentiary function. They can be viewed as “circumstantial evidence that may cause a court to draw an inference of intent.”: Roderick Wood, “Transfers at Undervalue: new wine in old skins?” Annual Review of Insolvency Law (Toronto: Ontario: Thomson Reuters: 2017) Online: WestlawNext Canada.

[155] Where a transaction displays one of the badges of fraud, this will usually be enough to establish the debtor’s illegal purpose unless the debtor can provide an innocent explanation: Anthony Duggan et al., Canadian Bankruptcy and Insolvency Law, 3rd ed. (Toronto: Emond Montgomery 2015) at 223.

[142] For the following reasons, I agree that the “badges of fraud” exist in this case:

a) Neither Claudia nor Diego had any apparent assets remaining after the transfer.

b) The transfers were made to non-arms-length recipients.

c) The matrimonial home and Audi Q7 transfers were made just before Diego carried out the TFC fire sale and defaulted on his obligations.

d) No consideration was provided for the Audi Q7 transfer.

e) Insufficient consideration was provided for the transfers of the house proceeds, and control and funding of the CYV business. For reasons stated earlier, I reject the GD’s assertion that Claudia receiving her own share of the proceeds of the sale of the matrimonial home constitutes sufficient consideration from Diego.

f) The cash stolen from the plaintiffs appears to have gone into the $175,000 transfer and to finance the 256 Corp. business which in turn financed the living expenses of Claudia, Jasmin, Garnette and their children. Claudia continues to use the Audi Q7. Diego is using 256 Corp. as a debt-avoidance and money laundering vehicle, nominally providing his services for free, but having 256 Corp. pay his and his extended family’s ongoing expenses.

g) Other than the CYV Final Purchase Agreement, there is virtually no documentation concerning the funding of the CYV business, the transfer of the Audi Q7, the financial transfers to family members and third parties.

h) The timing is suspect. Many transfers were made in the month immediately before and after the TFC dealership was abandoned.

i) The operations of 256 Corp. such as passing off payments for the families’ private school tuitions, groceries and gas bills as business expenses are flagrantly in violation of the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.).

j) Jasmin wanted secrecy to be maintained over the new ownership of CYV. Diego used a different name, “Sebastian Torrez”, when dealing with CYV.

k) 256 Corp. created no financial statements, did not file taxes, and did not hire an accountant.

l) Many financial transactions were large and cash based such as Claudia’s purported “Ordinary living expenses”.

The Tests for Knowing Receipt and Knowing Assistance

[143] The plaintiffs submit that this court should ground liability against the GD on the basis of the legal doctrines of knowing assistance and knowing receipt.

[144] In Boal v. International Capital Management Inc., 2021 ONSC 651, the elements of a claim for “knowing assistance” and “knowing receipt” were explained by Perell J., at paras. 112-120:

[112] The elements of a claim for knowing assistance are: (1) the plaintiff is the beneficiary of a trust or fiduciary relationship; (2) the trustee or fiduciary fraudulently or dishonestly breaches his or her equitable duty; (3) the defendant has actual knowledge of the fiduciary relationship and the fiduciary’s misconduct; and, (4) the defendant actively assists in the fraudulent or dishonest conduct. The remedy for knowing assistance is measured by the plaintiff's injury consequent to the fiduciary’s or trustee's misconduct.

[113] In Air Canada v. M & L Travel Ltd., Justice Iacobucci, stated: “The knowledge requirement for this type of liability is actual knowledge, recklessness or willful blindness will also suffice.” Justice Iacobucci. explained that for liability for knowing assistance, the defendant had to have actual knowledge, willful blindness, or recklessness about both the existence of the fiduciary relationship and about the dishonest and fraudulent scheme.

[114] For liability for knowing assistance, the defendant must be shown to have actual knowledge, including willful blindness or recklessness of the fiduciary relationship and of the fiduciary's fraudulent and dishonest conduct. In other words, for liability for knowing assistance, the defendant must be shown to have a personal, subjective mental state of knowing, being willfully blind, or being reckless about the existence of a fiduciary relationship and about dishonest conduct relating to that relationship. Willful blindness is a subjective standard of fault that depends on the defendant's actual state of mind and is distinguishable from objective standards of fault based on what the defendant ought to have known.

[115] As for the requirement of knowledge of a dishonest and fraudulent scheme, which was a point of controversy and divergence in the case law, Justice Iacobucci held that for knowing assistance, the quality of the breach of equitable duty made a difference and equity’s imposition of liability upon the defendant was justified only if the predicate conduct was dishonest and fraudulent in the sense of being morally reprehensible.

[116] In Air Canada v. M & L Travel Ltd., Justice Iacobucci held that constructive knowledge, that is, knowledge of circumstances that would put an honest person on inquiry, was insufficient for liability for knowing assistance. This degree of knowledge was insufficient because constructive notice did not amount to the want of probity that would attract equity’s interest as a court of conscience. In other words, for liability for knowing assistance an objective mental state (non-personal, non-subjective mental state) of what a person ought to have known is insufficient to ground liability for knowing assistance.

[117] The elements of a claim of knowing receipt are: (1) the plaintiff is the beneficiary of a trust or fiduciary relationship; (2) the defendant receives property from the trust or fiduciary in his or her personal capacity; and (3) the defendant has actual or constructive knowledge that the property was transferred to him or her in breach of trust or fiduciary duty. Unlike knowing assistance, which is a fault based wrongdoing, knowing receipt is based on notions of an objective state of knowledge and notions of unjust enrichment, where regardless of fault, it is unjust that the defendant receive and keep an enrichment. Thus, the remedy for knowing receipt is measured by the defendant’s ill-gotten gain.

[118] In terms of what the plaintiff must prove, knowing receipt sets a lower standard for its knowledge component than does knowing assistance. It is lower because it is easier to prove objectively what a person ought to know in the circumstances of a particular case, than it is to prove: (a) what the defendant actually knew; (b) whether the defendant was willfully blind; or (c) whether the defendant was reckless.

[119] Reflecting its connection to the notions of unjust enrichment, the rationale for liability for knowing receipt at a lower standard than for knowing assistance is that if the defendant seeks to obtain a personal advantage in circumstances that a reasonable person would be alert to the possible claims of a beneficiary, then it is fair for a court of conscience to require the defendant to ensure himself or herself of the propriety of the transaction. In Citadel General Assurance Co. v. Lloyds Bank Canada, Justice La Forest stated:

In “knowing receipt” cases, relief flows from the breach of a legally recognized duty of inquiry. More specifically, relief will be granted where a stranger to the trust, having received trust property for his or her own benefit and having knowledge of facts which would put a reasonable person on inquiry, actually fails to inquire as to the possible misapplication of trust property. It is this lack of inquiry that renders the recipient’s enrichment unjust.

[120] The constructive notice capable of satisfying the knowledge element of knowing receipt is still a high standard of knowledge because it entails a level of moral culpability that would justify a court of conscience imposing liability. The willful blindness that will constitute constructive notice sufficient for liability arises when a party is aware of the need for inquiry but deliberately declines to inquire. [^4]

Application of the “Knowing Assistance” and “Knowing Receipt” Test

[145] I find that the first two element of the “knowing assistance” and “knowing receipt” test are easily met: (1) The plaintiffs were the beneficiaries of a trust or fiduciary relationship; and (2) Diego and TFC fraudulently or dishonestly breached their equitable duty. Diego and TFC did not defend against the plaintiffs’ action, and they are admitted to have engaged in breach of fiduciary duty.

[146] The GD submit that the plaintiffs’ claim falls apart at the next stage. They argue that the plaintiffs are unable to identify the specific funds that came from the breach of fiduciary duty, and that there is insufficient evidence that the GD, faced with the receipt of funds, ought to have inquired into the source. Relatedly, they submit there is no way to measure damages without the identification of trust funds: see Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Garcia, 2020 ONCA 412, 151 O.R. (3d) 529, at para. 58.

[147] I disagree and find that the remaining elements of the legal test are satisfied.

Knowing Assistance

[148] For liability under knowing assistance, the defendant must be shown to have actual knowledge, which definition includes wilful blindness or recklessness of the fiduciary relationship and of the fiduciary's fraudulent and dishonest conduct.

[149] Earlier in these Reasons, I found that Claudia concocted the story of “the woman from NextGear” having an affair with Diego. This taints her credibility with respect to the rest of her “break-up” story with Diego. Of course, like any married couple, they may have had their share of problems, however, I find that Claudia had actual knowledge (which includes wilful blindness or recklessness) of Diego’s plans to abandon the TFC dealership and conduct a fire sale of the inventory. The findings I rely on include:

a) Claudia actually worked at TFC and had banking authority there.

b) Her claim that she could quickly sell the matrimonial home over Diego’s objection, and without his assistance in a matter of weeks, is not credible. I find that she and Diego sold their home in a bid to defeat creditors.

c) On October 5, 2016, Claudia transferred $175,000 to Jasmin for the non-sensical reason of “safekeeping”. I do not accept that none of these funds came from the fire sale of the plaintiffs’ inventory at TFC. Given the dubious explanation provided by the GD about the subsequent use of these funds, I find that they were funds traceable to the breach of the fiduciary duty. I find that the overall facts support this finding. In the alternative, I would rely on the presence of “badges of fraud” and find that the GD have not met their onus to rebut the presumption that their conduct was intended to defraud the plaintiffs. The GD’s contention that the $175,000 is one and the same as the proceeds of sale of the matrimonial home rest solely on the evidence of Claudia and, to a lesser extent, Jasmin, which is a very shaky foundation given what I have found regarding their credibility.

d) On October 19, 2016, Claudia withdrew $20,000 in cash from TFC's bank account (in four transactions of $5,000 each) and brought the money to Diego, and denied knowing or asking Diego the purpose of the withdrawal. She either actually knew of Diego’s nefarious plan or was willfully blind and reckless as to his true purpose. I do not accept the GD’s argument that the fire sale only occurred later on in October 2016, and that Claudia had no reason to suspect wrongdoing on Diego and TFC’s part.

[150] I find that when Jasmin withdrew funds out of the $175,000 and, for instance, sent $67,000 to “Inez Alejandra” in Argentina, she must have known that she was sending it to Diego or to someone of Diego’s choosing, and that she therefore had a personal, subjective mental state of knowing, being willfully blind, or being reckless about the fact that the funds had come from Diego abandoning the TFC dealership and absconding with the proceeds of the fire sale.

[151] The evidence then suggests that Diego, Claudia and Jasmin formulated a plan whereby the purchase and operation of CYV would act as a vehicle to further launder and distribute the proceeds of the fire sale.

[152] On balance, and not withstanding Claudia’s evidence that the $175,000 was a separate transaction from whatever “small” amount of loan she provided to Jasmin to start the CYV business, I find that a portion of the $175,000 transfer was used to start or finance the CYV business. Jasmin admitted that she did not have the money herself to start the business. Even if the first payment to Armani was not due for several months after she took over the CYV business, by Jasmin’s own evidence, the business was either losing money or barely profitable.

[153] I find that Diego was the architect of the scheme to use CYV and its true owner. Claudia had signing authority over the bank accounts of 256 Corp. o/a CYV. The evidence indicates that CYV could not sustain the financial outlays it was making without an external source of funding above and beyond the revenue generated by advertising. Claudia, Jasmin and Garnette were the obvious beneficiaries as tens of thousands of dollars a month were filtered through CYV to pay for the Diego/Claudia and Jasmin/Garnette families. CYV paid Diego’s first and last month’s rent on May 7, 2019 and transferred $182,233 to Claudia between July 2017 to June 2019.

[154] I find Garnette not credible when he claims that, for altruistic reasons, and without any forewarning, he took Claudia and her four children into his home in March 2019 where Diego’s family continues to live rent-free. I also find Garnette not credible when he asserts that he did not know what his wife Jasmin paid to purchase the CYV newspaper from Armani. It seems incredible that a husband, on a TTC bus driver’s salary, would not ask his wife, “what is your new business going to cost our family?” I find that Jasmin, Claudia and Garnette had knowledge that Diego’s funds paid through the 256 Corp. were what was paying their families’ private school tuitions, grocery, gas and other household expenses, and not CYV’s legitimate advertising profits.

Knowing Receipt

[155] As noted in Boal, unlike knowing assistance, which is a fault-based wrongdoing, knowing receipt is based on notions of an objective state of knowledge and notions of unjust enrichment, where regardless of fault, it is unjust that the defendant receive and keep an enrichment.

[156] Knowing receipt being an easier standard to satisfy, the facts and findings I have made in respect of knowing assistance do not need to be repeated under knowing receipt and provide a more than adequate basis to find the GD liable under the knowing receipt standard. The circumstances would cause a reasonable person to inquire into and know that Diego and TFC had engaged in wrongdoing, and that the plaintiffs’ trust property was being misapplied and diverted to Claudia and Jasmin’s families. The GD’s lack of inquiry renders their enrichment unjust.

Damages

[157] The remedy for knowing assistance is measured by the plaintiff's injury consequent to the fiduciary’s or trustee's misconduct. The remedy for knowing receipt is measured by the defendant’s ill-gotten gain.

[158] The plaintiffs seek the following damages based on the various headings:

	Quantum	NextGear
Unremitted Proceeds	$176,462.20	$572,999.82
NSF Charges and other hard costs	$10,489.84	$52,155.82
Contractual Interest (prejudgment, up to July 9, 2021, date of summary judgment motion hearing)	$209,183.65	$221,344.12
Totals	$396,135.69	$846,499.76

[159] In the within case, having found in favour of the plaintiffs under knowing assistance, I find that what the plaintiffs have claimed as damages is their “injury” consequent to the defendants’ misconduct.

[160] If, however, I am wrong under knowing assistance, but am correct under knowing receipt, I would ordinarily be required to determine the GD’s ill-gotten gain.

[161] However, here, due to a number of factors including the GD’s persistent failure over disclosure, the nature of the fraudulent scheme, the use of corporate funds for personal use, and the frequent use of cash transfers, the GD have impeded the plaintiffs from easily tracing the flow of funds from the proceeds of the fire sale into the use of the funds by the GD. I find it lies ill in the mouth of the GD to now argue that the plaintiffs cannot put their finger on the specific amount of trust funds that have disappeared. While I am satisfied that the elements of knowing receipt have been satisfied, determining the exact amount of trust funds improperly used by the GD is difficult.

[162] The GD rely on Caja Paraguaya, where the majority of the Court of Appeal was critical of the trial judge for making no effort to identify which of the certain itemized payments was received personally by Ms. Duscio, the appellant and wife of one on the fraudsters in that case. Despite allowing Ms. Duscio’s appeal, the majority considered the case to be one where a substantial wrong had occurred warranting a new trial on the question of “knowing receipt” based on correct legal principles. The majority saw a new trial as a remedy to the indeterminacy problem that the trial judge faced.

[163] Although I could forward this matter to trial to somehow better determine the amount of restitutionary relief that the GD owe to the plaintiffs, I decline to do so because nothing further will be gained by forwarding the matter to trial. Both sides to this litigation agree that the matter can and should be resolved by way of summary judgment. In my view, the problem of “indeterminacy” of damages would likely continue to persist at trial as the GD have been fully questioned on the record. I do not know what different answers they would give at trial that they have not already given in cross-examination.

[164] Given the circumstances, I would not resolve the indeterminacy problem in the GD’s favour by declaring a lesser amount of damages under knowing receipt, than I would under knowing assistance.

Punitive Damages

[165] The plaintiffs seek punitive and exemplary damages against Diego, TFC and the GD as follows:

	Quantum	NextGear
Punitive Damages	$75,000	$175,000

[166] In Gennett Lumber Co. v. John Doe a.k.a. Milton Harvey et al., 2019 ONSC 1345, 145 O.R. (3d) 61, Sossin J., as he was then, described the purpose of punitive damages, at para. 30:

[30] The Supreme Court of Canada stated in Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, 2002 SCC 18 ("Whiten") that the purposes of punitive damages relate to retribution, denunciation and deterrence (para. 111). Writing for the majority of the court, Binnie J. described punitive damages in the following terms (at para. 36):

Punitive damages are awarded against a defendant in exceptional cases for "malicious, oppressive and high-handed" misconduct that "offends the court's sense of decency": Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130, at para. 196. The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour. Because their objective is to punish the defendant rather than compensate a plaintiff (whose just compensation will already have been assessed), punitive damages straddle the frontier between civil law (compensation) and criminal law (punishment).

[167] In Gennett Lumber, the court ordered punitive damages of roughly 50% of the actual losses suffered by Gennett in that case.

[168] Here, the plaintiffs seek $75,000 in punitive damages against Quantum’s loss of proceeds of $176,462.20, and $175,000 on NextGear’s loss of proceeds of $572,999.82, which if awarded, would be considerably less than 50% of the losses incurred.

[169] Given the deceptive conduct of Diego, TFC and the GD, I find that their misconduct represents a marked departure from ordinary standards of decent behaviour. They have taken a legitimate newspaper and business, CYV, which has a long history of serving the Spanish speaking community in Toronto, and converted it into a front for their fraudulent scheme.

[170] I find that the punitive damages sought by the plaintiffs are proportionate to the losses incurred and accord with the denunciatory purposes of such damages.

Costs

[171] The plaintiffs seek full-indemnity costs of $232,229.78 for the summary judgment motion and the action based on their Bill of Costs as follows:

Total Fees: $187,586.00 HST on Fees: $24,386.18 Disbursements: $20,257.60 Total Fees and Disbursements: $232,229.78

[172] I am satisfied that the Bill of Costs is reasonable and find, given the fraudulent nature of the defendants’ costs, that full indemnity costs are justified. In appropriate and exceptional circumstances, courts are entitled to award both punitive damages and full indemnity costs: NDrive, Navigation Systems v. Zhou, 2021 ONSC 7772, at paras. 18 to 20.

[173] In addition to the fraudulent conduct of the defendants justifying full indemnity costs, I find that the plaintiffs breached court disclosure orders and, as discussed above, sought to refinance their mortgage in breach of the judicial order of Nishikawa J. In other words, beyond the defendants’ misconduct with respect to the proceeds of the fire sale and CYV that merits an elevated scale of costs, the defendants repeatedly failed to respond to the plaintiffs or, when they did, they did not ultimately provide the full particulars of what was ordered by the court. This case is about the plaintiffs having to chase the defendants every step of the way to recover their trust funds. While it is true that the GD did not argue against the action being decided by way of summary judgment, I do not see a reason why the plaintiffs should not recover their legal fees completely.

Appointment of Receiver

[174] I understood the plaintiffs to request that, were I not to order damages against the GD, I should appoint an equitable receiver, the costs to be borne by the GD.

[175] The appointment of a receiver under s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, is a matter of discretion. The court has jurisdiction to grant broad powers to the receiver, including selling property. An equitable receiver may be appointed over a corporation to effect a restitutionary remedy: see Weig v. Weig, 2012 ONSC 7262, at para. 122-123; Canadian Film Development Corp. v. Perlmutter et al, 1986 CarswellOnt 534 (Ont. S.C.), at paras. 28, 36, 38, and 43.

[176] As I am ordering damages, I do not appoint a receiver. However, if I have misunderstood the plaintiffs’ request, I am prepared to receive submissions on this point.

Order

[177] An order shall go as follows:

a) Default judgment is granted against Diego and TFC.

b) The plaintiffs’ motion for summary judgment is granted against the GD.

c) Diego, TFC and the GD are jointly and severally liable and shall pay forthwith to NextGear the amount of $846,499.76, bearing post-judgment interest in the amount of 9.5% per annum.

d) Diego, TFC and the GD shall pay to NextGear the amount of $175,000 in punitive damages.

e) Diego, TFC and the GD shall pay to NextGear its costs fixed in the amount of $117,449.93. [^5]

f) Diego, TFC and the GD are jointly and severally liable and shall pay forthwith to Quantum the amount of $396,135.69, bearing post-judgment interest in the amount of 21% per annum. [^6]

g) Diego, TFC and the GD shall pay to Quantum the amount of $75,000 in punitive damages.

h) Diego, TFC and the GD shall pay to Quantum its costs fixed in the amount of $117,449.93.

i) The monetary amounts shall bear interest.

[178] By March 1, 2022, the parties shall provide me with a draft order based on these Reasons, approved as to form and content, and a clean copy in WORD format, for my review and signature, by sending a copy via email to my judicial assistant, Patricia Lyon-McIndoo, at patricia.lyon-mcindoo@ontario.ca.

Pinto J. Released: February 22, 2022

Schedule “A”

Statement Number	Statement Time Period	Transaction Description	Type of Transaction	Date	Amount (CDN $)	Response	Source
48508	Oct-16	Deposit TD Draft	Deposit	07-Oct-16	175,000.00	Account statement provided	Scotia Account Statement A/C 01686
05940	Dec-16	Debit memo Wire Payment	Withdrawal	15-Dec-16	66,698.80	Transfer to Ines Alejandra	Scotia Account Statement A/C 01686
41134	Jan-17	Debit memo Wire Payment	Withdrawal	05-Jan-17	9,960.00	Transfer to Marvin Jiminez	Scotia Account Statement A/C 01686
41134	Jan-17	Withdrawal	Withdrawal	19-Jan-17	50,000.00	Ordinary living expenses	Scotia Account Statement A/C 01686
41134	Jan-17	Credit memo MS Jasmin I Guillen Wire Payment	Deposit	26-Jan-17	62,888.47	Return of Dec 16 transfer	Scotia Account Statement A/C 01686
41134	Jan-17	Debit memo Draft Purchase	Withdrawal	27-Jan-17	67,000.00	Transfer to Ines Alejandra	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
41134	Jan-17	Point of sale purchase Tasco Distributors - to North York ONCA	Withdrawal	30-Jan-17	1,828.34	Appliance purchase	Scotia Account Statement A/C 01686
17519	Feb-17	Withdrawal 19510400 PC-Email Money Trf	Withdrawal	27-Feb-17	3,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
44591	Mar-17	Withdrawal 21818337 PC-Email Money Trf	Withdrawal	31-Mar-17	3,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
04729	Apr-17	Withdrawal 47483718 PC-Email Money Trf	Withdrawal	07-Apr-17	3,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
12501	May-17	Withdrawal 66945917 MB-Email Money Trf	Withdrawal	15-May-17	800.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
12501	May-17	Withdrawal 82594237 MB-Email Money Trf	Withdrawal	20-May-17	1,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
12501	May-17	Withdrawal 16585895 MB-Email Money Trf	Withdrawal	31-May-17	3,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
07753	Jun-17	Withdrawal 33409664 MB-Email Money Trf	Withdrawal	05-Jun-17	1,500.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
07753	Jun-17	Withdrawal 58169734 MB-Email Money Trf	Withdrawal	13-Jun-17	2,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
07753	Jun-17	Withdrawal 80992242 MB-Email money Trf	Withdrawal	20-Jun-17	1,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
07753	Jun-17	Withdrawal 91050084 MB-Email money Trf	Withdrawal	23-Jun-17	1,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
07753	Jun-17	Withdrawal 08372875 MB-Email money Trf	Withdrawal	29-Jun-17	2,000.00	Unknown	Scotia Account Statement A/C 01686
07753	Jun-17	Deposit 08436868 MB-Email Money Trf	Deposit	29-Jun-17	1,000.00	Unknown	Scotia Account Statement A/C 01686
07753	Jun-17	Withdrawal	Withdrawal	30-Jun-17	1,500.00	Unknown	Scotia Account Statement A/C 01686
01463	Jul-17	Withdrawal 32233230 MB-Email Money Trf	Withdrawal	06-Jul-17	3,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
01463	Jul-17	Withdrawal 74251521 MB-Email Money Trf	Withdrawal	19-Jul-17	1,500.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
01463	Jul-17	Withdrawal 99313368 MB-Email Money Trf	Withdrawal	27-Jul-17	1,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
01463	Jul-17	Withdrawal 10852905 MB-Email Money Trf	Withdrawal	31-Jul-17	3,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
05598	Aug-17	Withdrawal 46721902 MB-Email Money Trf	Withdrawal	11-Aug-17	2,000.00	Unknown	Scotia Account Statement A/C 01686
05598	Aug-17	Withdrawal 52946562 MB-Email Money Trf	Withdrawal	14-Aug-17	700.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
05598	Aug-17	Withdrawal 71024983 MB-Email Money Trf	Withdrawal	18-Aug-17	2,000.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
05598	Aug-17	Withdrawal 92526205 MB-Email Money Trf	Withdrawal	25-Aug-17	540.00	Ordinary living expenses	Affidavit of Stacey Weltman, sworn August 9, 2019, Exhibit A
17460	Dec-17	Deposit 06522416 MB-Email Money Trf	Deposit	27-Dec-17	3,000.00	Unknown	Scotia Account Statement A/C 01686
17460	Dec-17	PC Transfer to Credit Card	Withdrawal	27-Dec-17	2,900.00	Unknown	Scotia Account Statement A/C 01686

[^1]: I have anonymized the children’s names and not included their exact dates of birth to protect their identities. [^2]: Chart from para. 80 of the plaintiffs’ factum appended as Schedule A to these Reasons. [^3]: At paragraph 40 of the plaintiffs’ factum. [^4]: The footnotes referencing various authorities have been removed from this except of the Boal decision. [^5]: This amount appears to be half of $234,899.86, the amount of full-indemnity legal costs requested by the plaintiffs at the hearing, which implies that Quantum and NextGear are splitting the costs award on a 50-50 basis. However, the Bill of Costs figure provided to the court was $232,229.78. The parties can write to the court to clarify this apparent discrepancy. [^6]: The rate of interest was provided when Mr. Selby, on behalf of the parties, provided a draft order to the court on July 14, 2021 in respect of default judgement against Diego.