COURT OF APPEAL FOR ONTARIO

CITATION: Healthy Body Services Inc. v. 1261679 Ontario Ltd. (Raytek Communications), 2015 ONCA 516

DATE: 20150709

DOCKET: C57889

Juriansz, MacFarland and Lauwers JJ.A.

BETWEEN

Healthy Body Services Inc.

Plaintiff (Appellant)

and

1261679 Ontario Ltd., formerly c.o.b. as

“Raytek Communications”, Utpal Bhogilal Patel,

Milton L. Ramsawak and Jignashaben Utpal Patel

Defendants (Respondents)

J. Thomas Curry and Brian Kolenda, for the appellant

Simon Schneiderman, for the respondents

Heard: April 21, 2015

On appeal from the judgment of Justice Sandra Chapnik of the Superior Court of Justice, dated October 11, 2013.

ENDORSEMENT

[1] Healthy Body Services Inc. (“HBS”) appeals from the dismissal of its action in which it sought to recover monies of which it was defrauded. It sought to recover those monies from the fraudster, Patel, as well as from an earlier victim of Patel, 1261679 Ontario Ltd. (“Raytek”), and from Mr. Ramsawak, a Raytek shareholder/director. Patel pleaded guilty to stealing CAD$670,000 from Raytek. Patel has been deported, and Raytek is no longer in operation. This appeal concerns HBS claim against Mr. Ramsawak.

[2] Pursuant to an arrangement made on his sentencing, Patel made restitutionary payments of CAD$390,000 to Raytek through the Crown’s office. Some of those payments benefited Mr. Ramsawak. In its action, HBS claimed Patel made the restitutionary payments with funds he stole from it. At trial, HBS limited its claim to CAD$282,000 of the restitutionary payments.

[3] The trial judge found that the money that Patel stole from HBS could not be traced to the money received by Raytek. The trial judge did not stop there. Instead, she continued her analysis on the assumption that the HBS funds could be traced to Raytek. In that continued analysis, she found that Raytek and Mr. Ramsawak were not in “knowing receipt” of the funds, and that Mr. Ramsawak was not unjustly enriched because there was a juristic reason for any enrichment.

[4] On appeal, the appellant limits its claim to two payments of CAD$150,000 and CAD$40,000.

Did the trial judge err by excluding Patel statements?

[5] Patel was not available at trial because he had been deported. HBS submits the trial judge erred by excluding Patel’s statements that he used HBS’s money to make the restitutionary payments to Raytek. In particular, HBS points to the statement Patel made when he pleaded guilty to an obstruction of justice charge. HBS submits that the trial judge, in her analysis, relied on R. v. Starr, 2000 SCC 40, [2000] 2 S.C.R. 144, and failed to apply the principles set out in R. v. Khelawon, 2006 SCC 57, [2006] 2 S.C.R. 787.

[6] The trial judge considered whether Patel’s statements were made against interest and carefully reviewed all the circumstances in which they were made. She noted Patel’s abundant dishonesty; that he had made the contradictory statements about the source of the restitutionary payments; and that there was evidence the CAD$100,000 he said was paid out of funds from HBS actually came from a different source.

[7] We are not persuaded there is any basis to interfere with the trial judge’s decision to admit only the fact of Patel’s guilty pleas and nothing more.

The CAD$150,000 payment

[8] HBS claims that a restitutionary payment in the amount of CAD$150,000, deposited into Raytek’s bank account on April 24, 2008, came out of its funds.

[9] HBS led evidence that Patel deposited a forged cheque drawn on its account in the amount of USD$175,198.13 into his ICICI account on February 25, 2008; that on April 10, 2008, Patel made a withdrawal of USD$165,000 from his ICICI account; and that on April 10, 2008, Patel provided the Crown’s office with an ICICI bank draft in the amount of CAD$150,000 as a restitutionary payment. The Crown provided that bank draft to Raytek on April 24, 2008. On May 5, 2008, CAD$150,000 was paid out of the Raytek bank account to reduce Mr. Ramsawak’s personal line of credit held jointly with his wife.

[10] HBS called an expert who testified that on these facts, he was satisfied that the CAD$150,000 paid to Raytek through the Crown’s office was funded by the forged HBS check for US$175,198.13.

[11] The trial judge did not accept the expert’s opinion and found HBS had failed to establish on a balance of probabilities that the CAD$150,000 bank draft came from its funds. The trial judge explained that although there was a “symmetry of date and amounts…, there is no clear evidence as to the actual funds used for the bank drafts as there were two pools of funds available to Patel at the relevant time”.

[12] HBS submits that the trial judge made an overriding and palpable error in failing to infer that the restitutionary payment of CAD$150,000 had come from funds stolen by HBS. It seems to me HBS invites us to follow the approach put forward by Bastarache J. in dissent in Housen v. Nikolaisen, 2002 SCC 33,[2002] 2 S.C.R. 235. At para. 103 he said:

In reviewing the making of an inference, the appeal court will verify whether it can reasonably be supported by the findings of fact that the trial judge reached and whether the judge proceeded on proper legal principles ... While the standard of review is identical for both findings of fact and inferences of fact, it is nonetheless important to draw an analytical distinction between the two. If the reviewing court were to review only for errors of fact, then the decision of the trial judge would necessarily be upheld in every case where evidence existed to support his or her factual findings. In my view, this Court is entitled to conclude that inferences made by the trial judge were clearly wrong, just as it is entitled to reach this conclusion in respect to findings of fact.

[13] The majority found two problems with the dissent’s approach. It said at paras. 21-22:

First, in our view, the standard of review is not to verify that the inference can be reasonably supported by the findings of fact of the trial judge, but whether the trial judge made a palpable and overriding error in coming to a factual conclusion based on accepted facts, which implies a stricter standard.

Second, with respect, we find that by drawing an analytical distinction between factual findings and factual inferences, the above passage may lead appellate courts to involve themselves in an unjustified reweighing of the evidence. Although we agree that it is open to an appellate court to find that an inference of fact made by the trial judge is clearly wrong, we would add the caution that where evidence exists to support this inference, an appellate court will be hard pressed to find a palpable and overriding error. As stated above, trial courts are in an advantageous position when it comes to assessing and weighing vast quantities of evidence. In making a factual inference, the trial judge must sift through the relevant facts, decide on their weight, and draw a factual conclusion. Thus, where evidence exists which supports this conclusion, interference with this conclusion entails interference with the weight assigned by the trial judge to the pieces of evidence. [Underlining emphasis in original; italicized emphasis added.]

[14] In H.L. v. Canada, 2005 SCC 25, [2005] 1 S.C.R. 401, Fish J., writing for the majority, explained at para. 74:

Not infrequently, different inferences may reasonably be drawn from facts found by the trial judge to have been directly proven. Appellate scrutiny determines whether inferences drawn by the judge are "reasonably supported by the evidence". If they are, the reviewing court cannot reweigh the evidence by substituting, for the reasonable inference preferred by the trial judge, an equally - or even more - persuasive inference of its own. [Emphasis in original.]

[15] Here, given the exclusion of Patel’s admission, there was no direct evidence that HBS’s money had been used to make the restitutionary payments to Raytek. Indisputably, there was evidence before the trial judge that Patel had a pool of money available to him other than the money he stole from HBS. Only CAD$77,000 of the CAD$670,000 he had stolen from Raytek had been recovered, and he had made a restitutionary payment of CAD$100,000 that had not come out of HBS funds.

[16] There was no evidence connecting the ICICI bank paid in restitution and Patel’s ICICI account, into which he deposited the forged HBS cheque for USD$175,198.13. The bank statement of his account shows a withdrawal for USD$165,000, but does not show what happened to it. There is no evidence of how Patel paid for the bank draft. The amounts of the withdrawal and the bank draft do not match, though the withdrawal is sufficient to cover the bank draft. Both transactions, the withdrawal and the purchase of the bank draft, took place on the same day, but the evidence does not indicate which transaction took place first. HBS’s expert admitted he did not know that the CAD$150,000 did not come from the CAD$670,000 stolen from Raytek.

[17] Different inferences may reasonably be drawn from these facts. HBS invites us to reweigh the evidence. For example, HBS submitted that the trial judge placed too much weight on its expert’s concession that he did not know where the CAD$150,000 had come from and on his comment that it could have come from the money Patel had stolen from Raytek. It was for the trial judge to weigh the expert’s testimony in the light of all the evidence. In our view, the trial judge could reasonably decline to make the inference the CAD$150,000 came from HBS’s funds.

[18] The trial judge’s finding that HBS had not established the CAD$150,000 could be traced back to its funds completely disposes of HBS’s claim for the CAD$150,000. It is unnecessary to consider the other arguments advanced.

The CAD$40,000 payment

[19] Patel deposited CAD$48,735.40 he stole from HBS into a TD bank account on September 11, 2008. He provided the Crown with a TD bank draft dated September 16, 2008 in the amount of CAD$40,000 as a restitutionary payment. The banking records indicate that the cost of the bank draft was debited to Patel’s TD account. On October 6, 2008, Mr. Ramsawak was advised that the restitution cheques had been fraudulently obtained and that there would be no more restitutionary funds coming to him. On October 7, 2008, Raytek made a payment of CAD$40,000 to the CRA towards its outstanding tax liability created by Patel’s earlier fraud.

[20] In the case of the CAD$40,000, the direct evidence shows that stolen HBS funds can be traced into Patel’s bank account where it was mixed with other funds. We accept HBS’s argument that trust funds may be traced into mixed accounts. Nevertheless, we still find it unnecessary to address HBS’s arguments about “knowing receipt” and about unjust enrichment in relation to the CAD$40,000. Assuming the $40,000 are traced into Raytek’s account, there is no basis for finding liability on the part of Mr. Ramsawak personally. At the time Raytek paid out those funds towards its own tax indebtedness, Mr. Ramsawak was not liable for that indebtedness.

[21] Raytek is no longer operating, and HBS did not seek judgment only as against Raytek.

Conclusion

[22] The appeal is dismissed with Mr. Ramsawak’s costs fixed in the amount of $25,000 as agreed by counsel.

“R.G. Juriansz J.A.”

“J. MacFarland J.A.”

Lauwers J.A. (Dissenting):

[23] I have read the reasons of my colleague and dissent for the reasons set out below.

[24] The fraudster, Patel, stole $670,000 from his employer, Raytek, pleaded guilty to the crime and was sentenced. Under a scheme administered by the Crown, Patel’s sentence would be reduced if he repaid the money he stole. Patel then stole $490,000 from his next employer, HBS, some of which he allegedly paid as restitution to Raytek. On this appeal, HBS pursues $190,000 of this amount.

[25] I would grant judgment to the appellant in the amount of $190,000. In my view, the trial judge made reviewable errors in dismissing HBS’s claim.

A. the $40,000 payment

[26] It is common ground that on October 6, 2008, Mr. Ramsawak, the directing mind of Raytek, was advised that the restitutionary funds received from Patel had been fraudulently obtained and that no more funds would be forthcoming. The very next day, Mr. Ramsawak caused Raytek to pay $40,000 to the CRA towards its outstanding tax liability.

(1) Tracing

[27] I agree with my colleague that “the direct evidence shows that stolen HBS funds can be traced into Patel’s bank account where [they were] mixed with other funds.” I also agree that it is appropriate to “accept HBS’s argument that trust funds may be traced into mixed accounts.” My colleague’s statement that it is permissible to trace funds into a mixed account corrects the trial judge’s legal error, at para. 99, that this was not possible.

[28] The trial judge relied on Citadel General Assurance Co. v. Laurence Bank Canada 1997 334 (SCC), [1997] 3 S.C.R. 805, at para 58, but the Supreme Court made it clear in BMP Global Distribution Inc. v. Bank of Nova Scotia, 2009 SCC 15, [2009] 1 SCR 504, at para. 85, that mixing of funds is not a bar to recovery if it is possible to identify the funds, as it is in this case: See Mitchell McInnes, The Canadian Law of Unjust Enrichment and Restitution (Markham, Ontario: LexisNexis, 2014), at p. 1376.

[29] The tracing evidence proves that the $40,000 restitutionary payment was stolen from HBS and was used by Mr. Ramsawak to pay down Raytek’s tax liabilities.

(2) Knowing Receipt

[30] A consideration of the principles of the “knowing receipt” cause of action exposes a significant gap in the trial judge’s reasoning, although she stated the law correctly at paras. 90-93, citing Holmes v. Amlez International Inc. [2009] O.J. No. 4513 (S.C.J), at para. 12, and Citadel General Assurance Co. v. Lloyds Bank Canada,1997 334 (SCC), [1997] 3 S.C.R. 805, at paras. 44-49.

[31] As noted by the trial judge, at para. 90, the first element of knowing receipt is that “strangers to the trust receive or apply trust property for their own use and benefit.” This is indisputably what happened here with respect to the $40,000.

[32] Since that money was obtained by fraud, a constructive trust is imposed on it: Peter D. Maddaugh & John D. McCamus, The Law of Restitution, looseleaf (Toronto: Canada Law Book, last updated 2014), at pp. 7-12 – 7-13, citing Goodbody v. Bank of Montreal (1974), 1974 430 (ON SC), 4 O.R. (2d) 147 (H.C.J.) and Simpsons-Sears Ltd. v. Fraser (1974), 7. O.R. (2d) 61 (H.C.J.).

[33] Although the trial judge assumed the $40,000 constituted trust funds, she found that Mr. Ramsawak did not apply them for his own use and benefit. My colleague takes the position that Mr. Ramsawak did not benefit from these trust funds because he was not liable for Raytek’s tax indebtedness at the time he used the trust funds to pay it down. I would disagree. Mr. Ramsawak testified that in reducing Raytek’s indebtedness, he was also reducing his personal exposure. Therefore, in my view, both Raytek and Mr. Ramsawak benefitted from the $40,000 restitutionary payment stolen from HBS. The first element of knowing receipt is made out.

[34] The trial judge identified the second element of knowing receipt, at para. 91: “[T]he defendant must be shown to have had knowledge of facts that would have put a reasonable person on notice or inquiry as to the source of the funds.” Error crept into her consideration of this second element.

[35] The trial judge accurately noted, at para. 124, that Mr. Ramsawak did not “have constructive knowledge of any facts that would have put a reasonable person on notice or inquiry prior to October 6, 2008.” But the real problem is raised in the immediately following paragraphs, where she noted that on October 6, 2008, the Crown Attorney, David Fisher, told Mr. Ramsawak’s lawyer, Michael Title, that the restitutionary funds received had been obtained by fraud and no more funds would be forthcoming. Mr. Title transmitted this information to Mr. Ramsawak. The trial judge then asked herself the right questions about this evidence, at para. 127:

Was this sufficient information to have put a reasonable person on an inquiry? Did the defendants dissipate property in the face of actual knowledge, as alleged?

[36] However, the trial judge’s negative answers to these questions do not withstand scrutiny. There are at least two places in her reasons where an unresolved contradiction is manifest. First, at para. 67, the trial judge pointed out the timing coincidence:

When [Mr. Ramsawak] learned of the second fraud on October 6, 2008 from Mr. Title, he was also told there would be no more restitutionary funds coming to him as expected. Then on October 7, 2008 Raytek made a payment to CRA of $40,000.

[37] The trial judge did not reconcile this evidence with an exchange she recorded three paragraphs before, at para. 64, and on which she relied. Mr. Ramsawak was asked this question and gave this answer:

Question: Was there any reason to question the source of the restitution?

Answer: No.

With respect, the trial judge was obliged to explain how she could accept this evidence in the face of the evidence she noted at para. 67. Mr. Ramsawak’s answer was clearly unsupportable and unreliable.

[38] Second, the trial judge’s reluctance to confront the implausibility of Mr. Ramsawak’s testimony was repeated, at paras. 130-31 of her decision, where she noted that Mr. Ramsawak’s belief that the $40,000 he paid to CRA belonged to Raytek “was not challenged in cross-examination.” But Mr. Ramsawak was challenged, as shown by the testimony she quoted in the immediately preceding paragraph 129:

Question: You just said you “had no idea where the monies had come from”, but you will agree with me, Sir, that you knew by October 6, though, that the Crown was alleging at that point, that the monies had come from a fraud of my client?

Answer: Yes

In other words, Mr. Ramsawak plainly admitted knowing by October 6, the day before he caused the funds to be paid to CRA, that the restitutionary money was the result of a fraud. Despite this evidence, the trial judge concluded, at para. 133:

As noted, a recipient of “trust funds” is not expected to be unduly suspicious. In my view, it has not been shown that Ramsawak went ahead without further inquiry and circumstances of which an honest and reasonable person would have realized that monies taken were probably trust monies and were being misapplied.

[39] With respect, this conclusion simply does not follow from the evidence outlined by the trial judge. I am compelled to find she made a palpable and overriding error. At the moment that Mr. Ramsawak caused Raytek to pay $40,000 to CRA, he knew that the funds had been obtained by fraud. They were impressed with a constructive trust, a trust that he and Raytek both breached.

[40] In my view, both elements of knowing receipt were made out by the appellant with respect to the $40,000 payment, and the funds were correctly traced to Raytek. Accordingly, Raytek and Mr. Ramsawak personally should each be liable for breach of trust.

(3) Unjust Enrichment

[41] If, as McInnes suggests, at pp. 296-97, the appellant must also demonstrate that Raytek was unjustly enriched under the three-part test set out in Garland v. Consumers' Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, 2004 SCC 25 at para. 30, that is easily done with respect to the $40,000 sum.

[42] First, Raytek was enriched by that sum, which it expended for its own purposes. Second, HBS was correspondingly deprived. Third, once Mr. Ramsawak, Raytek’s directing mind, was told by Mr. Title that the money was tainted by fraud, any juristic reason for Raytek’s enrichment instantly vanished. The finding of the trial judge, at para 137, that the factors she listed at para. 136 combined to constitute a valid juristic reason, is simply wrong in law. Mr. Ramsawak knew the money belonged to someone else, making him a constructive trustee over it: McInnes, at p. 293.

(4) Change in Position

[43] At para. 138, the trial judge stated, “Ramsawak changed his position in good faith by applying the restitutionary funds to the financed shortfalls caused by Patel's fraud on Raytek.” With respect, Mr. Ramsawak’s claim to have acted in good faith evaporates once he is found to be in knowing receipt, as I believe he must have been for the reasons set out above. In any event, McInnes points out, at p.1509, that the defence does not apply where the funds are used to defray debt:

Liability will not be reduced merely because the defendant has used an enrichment to discharge debts that arose regardless of the impugned transfer. Since debts must be satisfied in any event, such expenditures do not constitute a change of position.

[44] McInnes cites RBC Direct Investing Inc. v Khan, 2010 ONSC 3100, [2010] O.J. No. 2241, which states, at para. 13, that “the party who received the funds by mistake cannot expect to be able to profit from their receipt by a reduction in a debt it would otherwise have.” Put another way, at para. 21:

It stands to reason that if a person is the recipient of funds he, she or it know it should not have, but spends it anyway, they cannot then rely on a materially-changed circumstance to claim they should not be compelled to return the funds.

[45] In my view, for these reasons, neither Raytek nor Mr. Ramsawak can escape their obligation, as constructive trustees in knowing receipt, to repay the $40,000 by which they were unjustly enriched to the appellant.

B. The $150,000 Payment

[46] The issues with respect to Patel’s $150,000 payment also involve tracing, knowing receipt, unjust enrichment and change of position.

(1) Tracing

[47] The following facts relevant to tracing are not in dispute:

• February 25, 2008 – Patel deposited a forged cheque drawn on HBS’s account in the amount of USD $175,198.13 into his ICICI account;

• No other significant deposits or withdrawals were made from Patel’s ICICI account until April 10, 2008;

• April 10, 2008 – Patel withdrew USD $165,000 from his ICICI account;

• April 10, 2008 – Patel provided the Crown’s office with an ICICI bank draft in the amount of $150,000 as a restitutionary payment to Raytek;

• April 24, 2008 – the Crown provided the ICICI bank draft to Raytek;

• May 5, 2008 – Mr. Ramsawak caused Raytek to pay $150,000 to reduce the personal line of credit he held jointly with his wife, secured against their home;

• October 6, 2008 – Mr. Ramsawak was told that the restitutionary funds had been obtained by fraud and no more funds would be forthcoming; and

• October 29, 2008 – Mr. Ramsawak borrowed $309,000 from the personal line of credit.

• October 31, 2008 – Mr. Ramsawak paid $309,000 to CRA.

[48] The appellant relied on the evidence of James B. Hoare, a Certified Chartered Accountant who was qualified as an expert in forensic accounting. Mr. Hoare provided a written report in which he tracked the cash flows carefully. He linked them to the accounts in his evidence. Mr. Hoare gave the expert opinion that the $150,000 ICICI bank draft delivered by Patel to the Crown came from the USD $175,198.13 that Patel had taken from the appellants and deposited into his ICICI account. He explained his reasoning in chief and in cross-examination.

[49] The trial judge was not satisfied that the appellant had proven the connection through Mr. Hoare’s evidence and the documents. She relied particularly heavily on a snippet of Mr. Hoare’s cross-examination, which she clearly considered important, since she quoted it at para. 59, and again at para. 106:

Regarding the $150,000 bank draft that went to Raytek, Mr. Hoare opined that it came out of the ICICI account in the sum of $165,000. He pointed out that the bank draft and the date of withdrawal were the same; and he concluded that the $150,000 bank draft delivered to the Crown on April 10, 2008 must have come from the $175,000 USD that went into the account on February 25, 2008. The following exchange in cross-examination is telling:

Q. But we do know, do we not, Mr. Hoare, that Mr. Patel had stolen other money, right?

A. From HBS?

Q. From my client [Raytek], $670,000.

A. Yes.

Q. How do you know that the $150,000 didn't come from my client's 670,000 that was stolen from him?

A. I don't know that.

Q. You don't.

A. That's correct.

[50] The trial judge also referred, at para. 107, to the evidence of Mr. Fisher, the Crown Attorney who had carriage of the criminal fraud proceedings against Patel. She stated, “The fact that Mr. Fisher understood that Patel had received a cheque for $175,000 purportedly from a “rich uncle”, and had taken $25,000 to pay other debts, does not support the conclusion that the plaintiff’s money funded the restitution.” The possible existence of a “rich uncle” was also referred to by the trial judge at paras. 39, 42, 54, and 86.

[51] The trial judge concluded, at para. 108:

As previously noted, a tracing order at common law is only available in respect of funds that have not lost their identity by becoming part of a mixed fund. In this case, the plaintiff has been unable to identify the restitutionary funds paid to Raytek as trust funds taken from the plaintiff, on a balance of probabilities. Although there is symmetry of date and amounts in some cases, there is no clear evidence as to the actual funds used for the bank drafts as there were two pools of funds available to Patel at the relevant time.

[52] There are, in my view, palpable and overriding errors in the trial judge’s reasoning process, quite apart from the legal error she made concerning mixed funds, which I addressed above. The errors are that the trial judge:

(i) took Mr. Hoare’s cross-examination evidence out of context;

(ii) imposed a higher standard of proof on the appellant than the civil standard of the balance of probabilities; and

(iii) took into account information that was not evidence.

[53] I address each of these in turn.

(i) The trial judge took Mr. Hoare’s cross-examination evidence out of context

[54] The uncontradicted evidence is that Patel stole $670,000 from Raytek, but only about $70,000 in assets were recovered from Patel. The trial judge relies on the notion that Patel has the balance of the money he stole hidden somewhere and that it is somehow available to him.

[55] The trial judge’s focus on the cross-examination snippet excerpted above was misplaced. As an expert witness, Mr. Hoare was obliged to testify in an impartial way and to answer questions fairly. He did so when he said that he did not know for sure if the funds for the $150,000 payment came from a secret fund, rather than Patel’s ICICI account, which he had already identified as the likely source of the money. He would have given the same answer to any cross-examination question requiring him to identify the source of the funds with one hundred per cent certainty, such as “How do you know the $150,000 didn’t come from my client’s rich uncle?” or “How do you know the $150,000 didn’t come from my client’s lottery winnings?”

[56] In my view, these are all logically equivalent questions and answers. There is no evidence, but only speculation, that a secret fund exists under Patel’s control. The same is true of the putative rich uncle.

[57] In my view, Mr. Hoare’s answer to the cross-examination question does not undermine, in the slightest, the expert tracing evidence that he put forward in his report and in his evidence. At no point did the cross-examination undermine the substance of his evidence, as I explain below. This snippet was taken out of context by the trial judge.

(ii) The trial judge imposed a higher standard of proof on the appellant than the civil standard of the balance of probabilities

[58] It is trite law that in a civil case, the plaintiff is obliged to prove his or her case on the balance of probabilities. This burden does not increase in cases involving misfeasance or fraud: F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41, at para. 40.

[59] However, the trial judge did not apply this standard to Mr. Hoare’s evidence. By relying so heavily on the cross-examination snippet, she effectively imposed on the appellant the requirement of certainty. Mr. Hoare said that he did not “know” that the $150,000 did not come from Patel’s stolen funds. He could never know that without being beside Patel as he was implementing the transactions.

[60] All Mr. Hoare could do is what he did: undertake the expert task of tracing. On the balance of probabilities, he demonstrated that the $150,000 came from the ICICI bank account, which contained HBS funds stolen by Mr. Patel. As acknowledged by the trial judge, there is both symmetry of date and sufficiency of funds between Mr. Patel’s withdrawal of funds and $150,000 restitutionary payment. Further, and importantly, the bank draft used to make the $150,000 payment was issued by the same bank from which Mr. Patel withdrew $165,000.

[61] There is no suggestion in the evidence or in the argument that Mr. Hoare failed to apply the presumptive rules of tracing. See Peter D. Maddaugh & John D. McCamus, at pp. 7-21 to 7-27; Bradley Crawford, The Law of Banking and Payment in Canada, vol. 2, looseleaf (Canada: Reuters Thomson, 2013) at pp. 3-73 - 3-76; Paul McGrath, Commercial Fraud in Civil Practice, 2d ed. (New York: Oxford University Press, 2014), at pp. 465-79.

[62] The trial judge’s requirement of “clear evidence” in para. 108 relates back to her expectation that the expert must “know” with certainty where the money came from. That, however, was not the burden on the appellant.

[63] The trial judge’s reasoning led my colleague to conclude:

There was no evidence connecting the ICICI bank [draft] paid in restitution and Patel’s ICICI account, into which he deposited the forged HBS cheque for USD$175,198.13. The bank statement of his account shows a withdrawal for USD$165,000, but does not show what happened to it. There is no evidence of how Patel paid for the bank draft. The amounts of the withdrawal and the bank draft do not match, though the withdrawal is sufficient to cover the bank draft. Both transactions, the withdrawal and the purchase of the bank draft, took place on the same day, but the evidence does not indicate which transaction took place first. HBS’s expert admitted he did not know that the CAD$150,000 did not come from the CAD$670,000 stolen from Raytek.

[64] I agree with my colleague that it is always better to have better evidence. The tracing evidence about Patel’s $40,000 payment and its genesis is of better quality than the evidence about Patel’s $150,000 payment, but that does not diminish the actual evidence that Mr. Hoare put forward in support of his professional opinion that the $150,000 cheque came from HBS funds. The substance of that evidence was not shaken on cross-examination, certainly not by the snippet the trial judge relied on.

(iii) The trial judge took into account information that was not evidence

[65] I readily accept, as the case law requires, that the weighing of evidence is the province of the trial judge. But, to be weighed in the balance, the information must actually be evidence. In my view, the trial judge took bits of information and combined them to counterbalance Mr. Hoare’s evidence, without pausing to consider whether they were facts proven on the balance of probabilities that were entitled to any weight whatsoever.

[66] The first, and most obvious, related to Patel’s putative secret fund. The existence of this fund and its accessibility to Patel is a matter of speculation. There is no evidence that such a fund exists, only a surmise based on the fact that so little of the money he stole was actually recovered. This, in my view, is not sufficient to clothe the fund with status as actual countervailing evidence.

[67] The trial judge appears to rely on the evidence of Mr. Title, counsel for Raytek, who was the primary contact with Crown counsel in the disbursement of restitutionary funds. She noted, at para. 35, “In his view, based on his review of seized documents, Patel maintained control of funds stolen from Raytek overseas and could reassemble them when needed.” She repeated the reference, at para 76: “Mr. Title believed that wherever Patel lodged Raytek's funds, "he was able to assemble them and repay them" as part of the stated restitution.” With respect, Mr. Title’s belief is not evidence. (I observe too that Mr. Title’s belief serves his client’s interest.)

[68] The trial judge then said, evocatively, “Indeed, in July 2008 some of the funds were "brought" to the TD bank near Patel's home where he had a bank draft issued for $50,000.” There is no evidence about the source of the funds "brought" to the TD bank near Patel's home.

[69] The trial judge took a similar approach to Mr. Fisher’s evidence in para. 107 of the decision, which I repeat for convenience: “The fact that Mr. Fisher understood that Patel had received a cheque for $175,000 purportedly from a “rich uncle”, and had taken $25,000 to pay other debts does not support the conclusion that the plaintiff’s money funded the restitution.” This is logically true, but Mr. Fisher’s understanding is logically probative of nothing, including the opposite conclusion that the appellant’s money did fund the restitution. Mr. Fisher’s understanding does not undermine Mr. Hoare’s evidence that the likely source of the funds from which the $150,000 payment was made was Patel’s ICICI USD account, where he earlier deposited the USD $175,000 stolen from the appellant.

[70] To the extent that the trial judge may be understood to have drawn an inference about the existence and accessibility of Patel’s secret fund, in my view, such an inference would not be reasonably supported by the actual evidence and thus constitutes a reviewable error.

[71] In H.L. v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401, the Supreme Court reconsidered the standard of review applicable to inferences of fact. Justice Fish explained, at paras. 73-74:

These passages from the majority reasons in Housen should not be taken to have decided that inferences of fact drawn by a trial judge are impervious to review though unsupported by the evidence. Nor should they be taken to have restricted appellate scrutiny of the judge's inferences to an examination of the primary findings upon which they are founded and the process of reasoning by which they were reached.

I would explain the matter this way. Not infrequently, different inferences may reasonably be drawn from facts found by the trial judge to have been directly proven. Appellate scrutiny determines whether inferences drawn by the judge are "reasonably supported by the evidence". [Emphasis in original.]

[72] To conclude this section of the reasons, in my view, the trial judge improperly applied a higher standard of proof than the balance of probabilities to Mr. Hoare’s expert evidence. She diminished its weight by taking a snippet of cross-examination entirely out of context. She relied on spurious items of information that were not found as facts on the balance of probabilities, but were merely speculative in nature.

[73] I would find that the appellant proved on a balance of probabilities, through Mr. Hoare’s quite conventional expert tracing evidence, that the $150,000 paid by Patel came from funds stolen from HBS. There was no evidence to the contrary.

[74] It is not in dispute that Mr. Ramsawak used the $150,000 payment from Patel to pay down the line of credit held jointly with his wife, and then used his line of credit to pay down Raytek’s debt to CRA.

[75] This completes the tracing exercise and confirms that the $150,000 Mr. Ramsawak paid to CRA was stolen from HBS, and thus impressed with a trust. However, the appellant’s right to restitution further depends on whether the elements of knowing receipt and unjust enrichment can be established. For the reasons set out below, I find that both claims are proved on the fact of this case.

(2) Knowing Receipt

[76] To review the pertinent facts briefly, Mr. Ramsawak received Patel’s bank draft for $150,000 through the Crown on April 24, 2008. On May 5, 2008, he caused Raytek to pay $150,000 to reduce the personal line of credit he held jointly with his wife, which was secured against their home. On October 6, 2008, Mr. Ramsawak was told that the restitutionary funds had been obtained by fraud. On October 29, 2008, Mr. Ramsawak borrowed $309,000 from the personal line of credit. On October 31, 2008 he paid $309,000 to CRA.

[77] As the trial judge accurately observed, at para 92, citing Holmes, at para. 12:

The requisite level of knowledge need not arise prior to or at the time of the receipt of the monies. Even if received innocently, once the recipient learns of the fraud or breach of trust, whether actually or constructively, he is liable to return any of the property he then holds.

[78] When Mr. Ramsawak got the money in April, and used it to pay down his personal debt in May, he did not know that the money was tainted. But when he made the payments to CRA in October, he was fully aware that it was tainted. Therefore, the knowledge requirement of knowing receipt is clearly made out.

[79] In my view, it does not matter that the $150,000 was first used to pay down a line of credit taken jointly by Mr. and Mrs. Ramsawak, which was secured by the family home, as the trial judge suggested at para. 114. The trial judge refers to this fact as the basis for concluding that “only a portion of the monies ($150,000) used to pay down their joint debt would enure to the benefit of Mr. Ramsawak.”

[80] However, the reduction of the joint line of credit is not the benefit at issue in this “knowing receipt” analysis, as Mr. Ramsawak had no reason to question to source of the $150,000 when the payment to the line of credit was made. Rather, it is the payment of Raytek’s CRA debt, at a time when Mr. Ramsawak was aware that the $150,000 was obtained by fraud, that is relevant. As explained above with respect to the $40,000 payment, a reduction in Raytek’s tax liability constituted a benefit for both Raytek and Mr. Ramsawak personally. Therefore, the ‘use and benefit’ element of knowing receipt is also met. This has nothing to do, with respect, with his wife’s liability on the joint line of credit.

(3) Unjust Enrichment

[81] The three key elements of unjust enrichment are also plainly made out with respect to the $150,000. First, Mr. Ramsawak and Raytek were enriched by reducing Raytek’s debt to CRA, which Mr. Ramsawak admitted also reduced his personal exposure. Second, this enrichment corresponds with an equivalent deprivation to HBS, from whom the $150,000 was stolen. Third, and finally, there can be no juristic reason for the enrichment, since Mr. Ramsawak was fully aware that the $150,000 he received was obtained by fraud at the time he paid it to CRA.

(4) Change in Position

[82] The defence of change in position does not apply to the $150,000 for the same reasons that it did not apply to the $40,000 payment.

[83] By using the $150,000 to pay down Raytek’s CRA debt, Mr. Ramsawak applied those trust funds to his own use and benefit at a time when he had knowledge of facts that would have put a reasonable person on notice or inquiry as to the source of the funds.

[84] Mr. Ramsawak cannot claim to be an innocent party acting in good faith in paying down the CRA debt when he knew the money he used to do so was stolen. Further, the debt to CRA would have been due regardless of his receipt of the $150,000 from Mr. Patel; his position was not meaningfully changed by his receipt of the stolen funds.

Disposition

[85] In this case the trial judge was faced with rival claims from two fraud victims. She was manifestly sympathetic to the plight of Mr. Ramsawak and his wife, whose house was implicated in these proceedings. She described Mr. Ramsawak, at para. 62, as an older gentleman of retirement age. She noted, at para. 70, that Raytek went out of business because, according to Mr. Ramsawak, “they couldn’t afford to continue,” largely as a result of Patel’s predations. (No similar details are recorded about the appellant.) But the case must be resolved by the application of legal principles, not judicial sympathy.

[86] For these reasons I would grant judgment in favour of the appellant in the amount of $190,000 plus interest and costs.

Released: July 9, 2015 (RGJ)

“P. Lauwers J.A.”