Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Obregon et al.

[Indexed as: Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Obregon]

Ontario Reports

Court of Appeal for Ontario

Pepall, Pardu and Paciocco JJ.A.

June 5, 2020

151 O.R. (3d) 529 | 2020 ONCA 412

Case Summary

Corporations — Directors — Liability — Appellant's bankrupt husband defrauding foreign pension fund by diverting moneys into bank account of appellant's company — Trial judge finding liability against appellant based on wilful blindness — Judge erred by applying constructive knowledge standard in finding liability based on knowing assistance — Judge had no evidence to ground such a finding — Appeal allowed.

Trusts and trustees — Breach of trust — Appellant's bankrupt husband defrauding foreign pension fund by diverting moneys into bank account of appellant's company — Trial judge finding liability against appellant based on wilful blindness — Judge erred by applying constructive knowledge standard in finding liability based on knowing assistance — Judge had no evidence to ground such a finding — Appeal allowed.

The appellant was the sole officer, director and shareholder of a Canadian company, C. The respondent was a Paraguayan pension fund. With the complicity of insider officers, the respondent attempted to invest more than $34 million in Canadian investments proposed by one of the defendants, G. The bulk of the money was invested on less favourable terms and at greater risk than the fraudulent documentation disclosed. The balance was used to pay kickbacks to insiders and to enrich G and his associates. G fraudulently diverted $3 million of intended investment funds into a bank account owned by C. The respondent brought an action against multiple defendants in Canada, including the appellant. The trial judge found that, notwithstanding the appellant's legal authority to control C, her bankrupt husband, a former business associate of G, was the de facto controlling mind and will of the company and made virtually all its financial decisions. The judge found liability against both the appellant and her husband. The judge observed that the husband was one of the architects of the fraud perpetrated upon the respondent and he actively and knowingly authorized the dissipation of funds received by C that he knew or ought to have known came subject to a constructive trust in the respondent's favour. With respect to the appellant, the judge found that her passive acquiescence in her husband's schemes went beyond mere trust and faith and crossed into wilful blindness. She knew that her husband had filed for bankruptcy and she knew generally what reverses had led him there. She continued to sign cheques and authorizations for large amounts of money to transit through her company without due inquiry and in circumstances where she ought to have been on inquiry. Judgment was given against the appellant in the amount of $3 million jointly and severally with her husband and C. The appellant appealed.

Held, the appeal should be allowed.

Per Paciocco and Pardu JJ.A.: The trial judge erred by applying a constructive knowledge standard in finding the appellant liable based on knowing assistance. The doctrine of knowing assistance was a mechanism for imposing [page530] liability on strangers to a fiduciary relationship who participate in a breach of trust by the fiduciary. The preconditions of knowing assistance liability were structured to identify dishonest participation in a dishonest breach of trust. One of the elements was actual knowledge by the stranger of both the fiduciary relationship and the fiduciary's fraudulent and dishonest conduct. Although the trial judge identified certain facts that the appellant knew, he made no finding as to whether she knew or suspected that the money transiting through her company was trust money that was being employed in a dishonest or fraudulent breach of trust. That was a critical omission. Without such findings, a proper determination of wilful blindness could not be made. He spoke instead of how the appellant ought to have been on inquiry, which was the language of objective fault or constructive knowledge, not the language of subjective wilful blindness.

The trial judge made a palpable and overriding error in finding the appellant liable for knowing assistance. The finding that the appellant continued to sign cheques and authorizations for large amounts of money without due inquiry could support liability only if it related to the respondent's funds deposited to C's account. However, the trial judge had no evidence to ground a finding that the appellant signed any cheques or authorizations after such funds were deposited.

The trial judge did not base the appellant's liability alternatively on the doctrine of knowing receipt, so the respondent's contention to the contrary was rejected. Liability for knowing receipt may be imposed based on the kind of constructive knowledge found by the trial judge, but the judge based the appellant's liability on wilful blindness and found that C, and not the appellant, received the $3 million. Nor was it appropriate for the Court of Appeal to impose personal liability on the appellant as a constructive trustee, because the trial judge did not make the necessary factual findings to identify the precise funds that the appellant received personally or for her benefit, and a new trial was appropriate on the knowing receipt issue.

Per Pepall J.A. (dissenting): Although the trial judge used terms such as "without due inquiry", he also mentioned "acquiescence", "facilitating", and "orchestrated", suggesting subjective knowledge. The trial judge outlined some of the numerous benefits received by the appellant and her husband. The judge made a finding that the appellant was wilfully blind, and an independent reading of her cross-examination testimony led to no other reasonable conclusion. The appellant was found liable for knowingly assisting C's breach of trust. Read as a whole within the context of the entire record, it could not be said that the knowledge component needed to anchor a finding of wilful blindness by the appellant was absent from the trial judge's reasons, and his conclusion was supported by the record. Despite the appellant's more limited role than that of her husband, the trial judge made no palpable and overriding error in stating that the appellant continued to sign cheques and authorizations to transit money through her company. The appeal on knowing assistance would have been dismissed, rendering a new trial on knowing receipt unnecessary.

Cases referred to

1169822 Ontario Ltd. v. Toronto-Dominion Bank, [2018] O.J. No. 1570, 2018 ONSC 1631 (S.C.J.); Air Canada v. British Columbia, 1989 CanLII 95 (SCC), [1989] 1 S.C.R. 1161, [1989] S.C.J. No. 44, 59 D.L.R. (4th) 161, 95 N.R. 1, [1989] 4 W.W.R. 97, 36 B.C.L.R. (2d) 145, 41 C.R.R. 308, 2 T.C.T. 4178; Air Canada v. M & L Travel Ltd. (1993), 1993 CanLII 33 (SCC), 15 O.R. (3d) 804, [1993] 3 S.C.R. 787, [1993] S.C.J. No. 118, 108 D.L.R. (4th) 592, 159 N.R. 1, [page531] 67 O.A.C. 1, 50 E.T.R. 225; B.M.P. Global Distribution Inc. v. Bank of Nova Scotia, [2009] 1 S.C.R. 504, [2009] S.C.J. No. 15, 2009 SCC 15, [2009] 8 W.W.R. 428, 94 B.C.L.R. (4th) 1, 268 B.C.A.C. 1, 386 N.R. 296, 304 D.L.R. (4th) 292, 58 B.L.R. (4th) 1; Bikur Cholim Jewish Volunteer Services v. Langston (2009), 94 O.R. (3d) 401, [2009] O.J. No. 841, 2009 ONCA 196, 308 D.L.R. (4th) 494, 250 O.A.C. 129, 68 C.P.C. (6th) 209, 48 E.T.R. (3d) 22 (C.A.); Caja Paraguay de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Obregon, [2018] O.J. No. 5570, 2018 ONSC 5379 (S.C.J.); Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Obregon, [2020] O.J. No. 670, 2020 ONCA 124, 96 M.P.L.R. (5th) 1 (C.A.); Carl-Zeiss-Siftung v. Herbert Smith & Co. (No. 2), [1969] 2 All E.R. 367, [1969] 2 Ch 276, [1969] 2 WLR 427, [1969] FSR 40, [1969] RPC 338, 112 Sol Jo 1021 (C.A.); Christine Dejong Medecine Professional Corp. v. DBDC Spadina Ltd., [2019] S.C.J. No. 30, 2019 SCC 30, 435 D.L.R. (4th) 379, 48 E.T.R. (4th) 1, 69 C.B.R. (6th) 1, 89 B.L.R. (5th) 1; Citadel General Assurance Co. v. Lloyds Bank Canada, 1997 CanLII 334 (SCC), [1997] 3 S.C.R. 805, [1997] S.C.J. No. 92, 152 D.L.R. (4th) 411, 219 N.R. 323, 66 Alta. L.R. (3d) 241, 206 A.R. 321, 35 B.L.R. (2d) 153, 47 C.C.L.I. (2d) 153, 19 E.T.R. (2d) 93; Commercial Union Life Assurance Co. of Canada v. John Ingle Insurance Group Inc. (2002), 2002 CanLII 45028 (ON CA), 61 O.R. (3d) 296, [2002] O.J. No. 3200, 217 D.L.R. (4th) 178, 162 O.A.C. 203, 50 C.C.L.I. (3d) 6 (C.A.); DBDC Spadina Ltd. v. Walton, [2018] O.J. No. 578, 2018 ONCA 60, 33 E.T.R. (4th) 173, 56 C.B.R. (6th) 173, 419 D.L.R. (4th) 409, 78 B.L.R. (5th) 183 (C.A.); Enbridge Gas v. Marinaccio, [2012] O.J. No. 4558, 2012 ONCA 650, 355 D.L.R. (4th) 333, 298 O.A.C. 189, 96 C.C.L.T. (3d) 89, 7 B.L.R. (5th) 173 (C.A.); Gold v. Rosenberg, 1997 CanLII 333 (SCC), [1997] 3 S.C.R. 767, [1997] S.C.J. No. 93, at para. 74; Harris v. Leikin Group Inc., [2011] O.J. No. 5714, 2011 ONCA 790 (C.A.); IWA - Forest Industry Pension Plan (Trustees of) v. Leroy, [2017] B.C.J. No. 166, 2017 BCSC 158, 44 C.B.R. (6th) 221, 33 C.C.P.B. (2d) 83 (S.C.); Paton Estate v. Ontario Lottery and Gaming Corp. (2016), 131 O.R. (3d) 273, [2016] O.J. No. 3031, 2016 ONCA 458, 349 O.A.C. 106, 19 E.T.R. (4th) 171, 403 D.L.R. (4th) 485 (C.A.); R. v. Briscoe, [2010] 1 S.C.R. 411, [2010] S.C.J. No. 13, 2010 SCC 13, 400 N.R. 216, 210 C.R.R. (2d) 150, 316 D.L.R. (4th) 577, 253 C.C.C. (3d) 140, 477 A.R. 86, 87 W.C.B. (2d) 293, 73 C.R. (6th) 224, 22 Alta. L.R. (5th) 49, [2010] 6 W.W.R. 1; R. v. Morrison, [2019] 2 S.C.R. 3, [2019] S.C.J. No. 15, 2019 SCC 15, 375 C.C.C. (3d) 153, 429 C.R.R. (2d) 228, 432 D.L.R. (4th) 637, 52 C.R. (7th) 273; R. v. Sansregret, 1985 CanLII 79 (SCC), [1985] 1 S.C.R. 570, [1985] S.C.J. No. 23, 17 D.L.R. (4th) 577, 58 N.R. 123, [1985] 3 W.W.R. 701, J.E. 85-503, 35 Man.R. (2d) 1, 18 C.C.C. (3d) 223, 45 C.R. (3d) 193; Sorrel 1985 Ltd. Partnership v. Sorrel Resources Ltd., [2000] A.J. No. 1140, 2000 ABCA 256, [2001] 1 W.W.R. 93, 85 Alta. L.R. (3d) 27, 277 A.R. 1, 10 B.L.R. (3d) 61 (C.A.); Transamerica Occidental Life Insurance Co. v. Toronto Dominion Bank (1999), 1999 CanLII 3716 (ON CA), 44 O.R. (3d) 97, [1999] O.J. No. 1195, 173 D.L.R. (4th) 468, 118 O.A.C. 149, 28 E.T.R. (2d) 113 (C.A.); Wescom Solutions Inc. v. Minetto, [2019] O.J. No. 1584, 2019 ONCA 251 (C.A.)

Statutes referred to

Business Corporations Act, R.S.O. 1990, c. B.16, ss. 92 [as am.], 118(1) [as am.]

Courts of Justice Act, R.S.O. 1990, c. C.43, s. 134(6) [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 61.08(2)

Authorities referred to

Oosterhoff, A.H., Chambers, Robert & McInnes, Mitchell, Oosterhoff on Trusts: Text, Commentary and Materials, 8th ed. (Toronto: Carswell, 2014) [page532]

APPEAL from the judgment of Dunphy J., [2018] O.J. No. 5570, 2018 ONSC 5379 (S.C.J.).

Kevin Sherkin and Allison Farley, for appellant.

Jacqueline L. King and Christopher Gaytan, for respondent.

The judgment of the court was delivered by

PACIOCCO J.A. (PARDU J.A., concurring): —

Overview

[1] With the assistance of insider officers and others, Eduardo Garcia spearheaded a massive fraud against a Paraguayan pension fund, Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional ("Cajubi"). As a result, Cajubi lost $12,460,930.

[2] One of Mr. Garcia's former business associates, Mr. Antonio Duscio, assisted in rerouting approximately $7.4 million of the money that Cajubi ultimately lost. Mr. Duscio filtered approximately $3 million of this money through a corporation, Catan Canada Inc. ("Catan"). His wife, Ms. Leanne Duscio, testified that she was the sole shareholder of Catan.

[3] When Cajubi brought an action against multiple defendants in Canada, Ms. Duscio was added as a defendant. The trial judge granted judgment against her in the amount of $3 million jointly and severally with her husband and Catan, finding her to have been a knowing assister relating to the Cajubi money that was routed through Catan. She alone appealed that portion of the decision.

[4] For reasons that follow, I would allow her appeal from that decision and order a new trial.

Material Facts

[5] With the complicity of Cajubi insiders (its president, vice-president and treasurer), Cajubi attempted to invest more than $34 million in Canadian investments proposed by Mr. Garcia. The bulk of this money was invested with three third-party Canadian enterprises, but on less favourable terms and at greater risk than the elaborate fraudulent documentation disclosed. The balance of the money was diverted and used to pay kickbacks to Cajubi insiders and to enrich Mr. Garcia and his associates, including his wife, Claudia Patricia De Garcia.

[6] One of those three Canadian enterprises was Union Securities Limited ("Union"). Ostensibly, Cajubi invested $14.099 million through a managed commodities trading account operated [page533] by Union. In fact, just under $11.5 million was placed with Union investments.

[7] Mr. Garcia successfully controlled the flow of material information between Cajubi and Union to hide this fact, and to paint a false picture that enabled him to maintain and increase the contributions Cajubi was making to the falsified Union investments. He did so through a shell corporation he had set up, Managed (Portfolio) Corp. ("Managed Portfolio"), which he used to facilitate the transactions between Cajubi and Union.

[8] This appeal concerns $3 million of the fraudulent Union investment, the only monies linked in any way to the appellant, Leanne Duscio. In simple terms, Mr. Garcia, with the assistance of Mr. Duscio, routed $3 million of the funds that had been invested with Union through a bank account of Catan, a corporation owned by Ms. Duscio.

[9] The complex series of transactions that achieved the routing of money through the Catan account began on August 14, 2008, when Mr. Garcia opened a new bank account in the name of Managed Portfolio, designated as "Managed (Portfolio) Corp. ITF Cajubi". The "ITF" was meant to indicate "in trust for".

[10] The next day, using a power of attorney that he had secured from Cajubi relating to the Union-managed commodities trading account, Mr. Garcia diverted $3 million to the Managed (Portfolio) Corp. ITF Cajubi account. This transaction was not known to the Cajubi insiders complicit in the fraudulent schemes.

[11] Proximate to the transfer, Mr. Garcia created false documentation purporting to show a $3 million "Demand Promissory Note" issued on August 22, 2008, by a corporation called Columbus Capital Corp. ("Columbus Capital"). This documentation represented that the promissory note was connected to Union, which it was not. Indeed, as I will describe shortly, Columbus Capital was not even incorporated until August 25, 2008, three days after Columbus Capital purportedly issued the promissory note.

[12] On August 22, 2008, the date shown on the face of the fraudulent Demand Promissory Note, the $3 million was transferred by Managed Portfolio into a bank account owned by Catan. The deposit note described the money as "due to Columbus". Immediately prior to the deposit, the balance in the Catan account was $292,238.57. Catan also held an American funds account which held an additional $13,469.37 USD at the time of the $3 million deposit into the Canadian account.

[13] Leanne Duscio is the sole officer and director of Catan and its only shareholder. Catan was incorporated in January 2006 as a business vehicle for office rental income generated from a building Catan owns, as well as a dance studio operated out of that building by Ms. Duscio. [page534]

[14] Notwithstanding Ms. Duscio's legal authority to control Catan, the trial judge found that her bankrupt husband, Mr. Antonio Duscio, a former business associate of Mr. Garcia's, was actually "the de facto controlling mind and will of Catan", and "made virtually all of the financial decisions in relation to Catan, controlled all of its banking, arranged for the keeping of its books and records, etc.".

[15] On August 25, 2008, three days after the $3 million Catan deposit, Columbus Capital was incorporated, with a business address in the Catan building. The trial judge found that at all material times, Mr. Duscio was also the de facto controlling mind and will of this corporation, even though, once again, he held no shares, directorships or corporate offices.

[16] The Corporation Profile for Columbus Capital reveals that Mr. Garcia was the administrator and president of Columbus Capital at the time of its incorporation. A Mr. Greg Baker is registered as the first and sole director. Mr. Baker is an acquaintance of Mr. Duscio. Mr. Baker expected Columbus Capital to be used for a business that he and Mr. Duscio were launching, trading in refurbished computer equipment. He would supply the business contacts and Mr. Duscio, the capital. Accordingly, Mr. Duscio was given signing authority over Columbus Capital's bank account, which enabled him to control Columbus Capital's funds.

[17] Although the $3 million was ostensibly to be placed with Columbus Capital, the funds were not simply transferred from Catan to Columbus Capital once Columbus Capital was incorporated. Instead, the trial judge found that over the next nine months, until June 1, 2009, more than $2.5 million in wire transfers was paid out of the Catan account for purposes linked to Columbus Capital. Without undertaking a close tracing on all funds in the Catan account, the trial judge estimated [at para. 394] that "at least $400,000 of Cajubi's funds were spent by Catan (under Mr. Duscio's direction) that even Mr. Duscio could not find cause to charge to Columbus".[^1]

[18] More than half of the Columbus Capital outlays from the Catan account, including the payment of significant sums to Mr. Garcia's Guatemalan uncle, Mr. Nicholas de Leon, occurred within approximately two weeks after the August 22, 2008 deposit. The bulk of the remainder was paid out one month after the deposit, when, on September 22, 2008, USD$700,038.94 was wired in connection with a Columbus Capital expenditure. The final transfer to Columbus Capital of $513,931.92 CDN did not occur until June 1, 2009. [page535]

[19] The trial judge itemized [at para. 394] the "larger of the miscellaneous non-Columbus expenditures identified during the relevant time frame" that he concluded were linked to Cajubi funds. His breakdown of those funds is presented in the reasons for decision as follows:

(a) Advances to Mrs. Duscio's Dance Studio: $19,231;

(b) Tony Duscio lawyers (paid as accounts payable): $76,558;

(c) Tony Duscio lawyers (charged as shareholder advances): $17,000;

(d) Payroll to Ms. Duscio starting in January 2009 ($750/wk x 22 = $8,250);

(e) Leanne Duscio: $20,000:

(f) Cash withdrawals ($12,500);

(g) John Duscio ($8,000);

(h) BMW (shareholder advance): $25,890;

(i) Tony Duscio cheque: $5,000;

(j) Home Improvements: at least $32,000 identified.

[20] In early June 2009, Mr. Baker discovered the CDN$513,931.92 transfer from Catan in the Columbus Capital bank account, an amount far beyond what the computer refurbishing business could account for. He also noted large commission payments that had been made to Mr. Nicholas de Leon, a name he was not familiar with. Concerned about the improper use of the Columbus Capital bank account, he arranged as the sole shareholder and director of Columbus Capital to change the signing officers on Columbus Capital's bank account, shutting Mr. Duscio out.

The Trial Judge's Decision

[21] On October 12, 2018, after a trial that spanned 17 days that included claims related to the transactions described, the trial judge gave judgment. [page536]

[22] The trial judge imposed extensive liability against Mr. Garcia, his wife, and corporations Mr. Garcia used to assist him in his fraudulent activity.[^2] The trial judge also found Cajubi to be entitled to judgment against Mr. Duscio, Ms. Duscio, and Catan, in the amount of $3 million arising from the Catan deposit,[^3] and to a tracing order permitting Cajubi to trace its funds.

[23] The basis for Mr. Duscio's personal liability arising from the Catan deposit was simple and compelling. Mr. Duscio was the de facto directing mind and will of Catan, and he used his control over the financial affairs of the company to assist Mr. Garcia in arranging the transfer of what Mr. Duscio knew to be $3 million in trust money held by Mr. Garcia for Cajubi. When the funds were received by Catan, Mr. Duscio knew that the transfer was occurring under the pretense that it was for a promissory note purportedly issued by a company that had yet to be incorporated. He furnished the banking information to facilitate the deposit, assisted in obtaining forged signatures for the promissory note documentation, and arranged the payment at Mr. Garcia's direction of a secret 10 per cent commission to Mr. de Leon, knowing full well that it had not been approved by Cajubi. He also arranged for other payments having no connection to the promissory note.

[24] It is helpful to set out with more specificity comments made by the trial judge relating to Mr. Duscio's de facto control over Catan because they bear on Ms. Duscio's appeal.

[25] When recounting the material transactions in the course of his reasons for decision the trial judge said [at para. 333]:

Whatever the public record shows regarding ownership and control of Catan, the defendant Mr. Anthony Duscio was at all material times the de facto controlling mind and will of Catan. Mr. and Mrs. Duscio both agree that Mr. Duscio made virtually all of the financial decisions in relation to Catan, controlled all of its banking, arranged for the keeping of its books and records, etc. Mrs. Duscio was advised by her husband from time to time what needed signing and, when asked, did so with little apparent curiosity. She had little to no direct information about any of the business undertaken by Catan. There is no evidence that she invested anything in it or played anything but a passive role. Catan was for all intents and purposes Mr. Duscio's alter ego, an alter ego whose usefulness was greatly enhanced following his bankruptcy.

[26] The trial judge reiterated [at para. 468] when finding Mr. Duscio liable that Mr. Duscio was the controlling mind and will of Catan, "even if his wife Leanne was the titular shareholder and signing officer. He arranged for all of the bookkeeping and banking and took care of matters electronically or arranged to have his wife sign what needed signing." [page537]

[27] The trial judge's brief reasons [at paras. 472-74] for imposing liability on Mrs. Duscio warrant complete reproduction:

As officers and directors -- de jure in the case of Ms. Leanne Duscio and de facto in the case of Mr. Anthony Duscio -- of Catan, the liability of Catan for breach of constructive trust by which it was bound falls equally upon the shoulders of Leanne Duscio and Anthony Duscio. These two both provided knowing assistance in Catan's breach of trust: Air Canada.

The particulars of the knowing assistance in Anthony Duscio needs no elaboration. He was one of the architects of the fraud perpetrated upon Cajubi and he actively and knowingly authorized and directed the dissipation of funds received by Catan that he knew or ought to have known came subject to a constructive trust in Cajubi's favour.

In Leanne Duscio's case, I find that her passive acquiescence in her husband's schemes went beyond mere trust and faith and crossed the line to wilful blindness. She knew that her husband had filed for bankruptcy earlier that year and she knew generally what reverses had led him there. She continued to sign as needed cheques and authorizations for very large quantities of money to transit through her company without due inquiry and in circumstances where she ought to have been on inquiry. She cannot hide behind her own wilful blindness to avoid the consequences of facilitating her husband's fraud.

[28] Later, when explaining Mr. Duscio's liability relating to three other Columbus promissory note transactions, totalling an additional $4,379,958, the trial judge explained why Ms. Duscio was not similarly liable with respect to these transactions: "There is no evidence that Mrs. Duscio or Catan had any direct role in Columbus Capital or its misappropriation of funds" [at para. 479].

[29] When summarizing his disposition, the trial judge said [para. 501]:

The liability of Ms. Duscio and her company Catan is restricted to the Cajubi funds that were actually received by Catan ($3 million). Should the plaintiff uncover evidence supporting tracing other amounts found by me to be subject to a constructive trust into the hands of either Catan or Ms. Duscio, further application may be made on the basis of such additional evidence of knowing receipt of funds subject to a constructive trust.

The Grounds of Appeal

[30] Ms. Duscio contends that the doctrine of knowing assistance is the sole basis for the $3 million judgment against her. She urges that the trial judge erred in the identification and application of [page538] the knowing assistance test, including by misapprehending the evidence. Cajubi disagrees but argues that the trial judge also based Ms. Duscio's liability on her knowing receipt of Cajubi funds. The specific issues that arise can be stated as follows:

A. Did the trial judge err by applying a constructive knowledge standard in finding Ms. Duscio liable based on knowing assistance?

B. Did the trial judge make palpable and overriding errors in finding Ms. Duscio liable for knowing assistance?

C. Did the trial judge base Ms. Duscio's liability alternatively on the doctrine of knowing receipt?

A. Did the trial judge err by applying a constructive knowledge standard in finding Ms. Duscio liable based on knowing assistance?

[31] The doctrine of knowing assistance is a mechanism for imposing liability on strangers to a fiduciary relationship who participate in a breach of trust by the fiduciary. Strangers to a fiduciary relationship who are made liable on this basis are held responsible because of their "want of probity", "meaning lack of honesty": Air Canada v. M & L Travel Ltd. (1993), 1993 CanLII 33 (SCC), 15 O.R. (3d) 804, [1993] 3 S.C.R. 787, [1993] S.C.J. No. 118, at p. 812 S.C.R.; Bikur Cholim Jewish Volunteer Services v. Langston (2009), 94 O.R. (3d) 401, [2009] O.J. No. 841, 2009 ONCA 196 (C.A.), at para. 43.

[32] Accordingly, the preconditions of knowing assistance liability have been structured to identify dishonest participation in a dishonest breach of trust. In DBDC Spadina Ltd. v. Walton, [2018] O.J. No. 578, 2018 ONCA 60, 419 D.L.R. (4th) 409 (C.A.), at para. 211, van Rensburg J.A., in a dissenting opinion adopted by the Supreme Court of Canada as its reasons on appeal, Christine Dejong Medecine Professional Corp. v. DBDC Spadina Ltd., [2019] S.C.J. No. 30, 2019 SCC 30, 435 D.L.R. (4th) 379, identified the elements of knowing assistance in a fiduciary breach [at para. 211] as

(1) a fiduciary duty; (2) a fraudulent and dishonest breach of the duty by the fiduciary; (3) actual knowledge by the stranger to the fiduciary relationship of both the fiduciary relationship and the fiduciary's fraudulent and dishonest conduct; and (4) participation by or assistance of the stranger in the fiduciary's fraudulent and dishonest conduct.

[33] Two points relating to the "actual knowledge" requirement warrant elaboration, given the issues in this appeal. The first is that the "actual knowledge" of the "stranger" must include knowledge of a fiduciary relationship and "the fiduciary's fraudulent and [page539] dishonest conduct": DBDC Spadina, at para. 211; Harris v. Leikin Group Inc., [2011] O.J. No. 5714, 2011 ONCA 790 (C.A.), at para. 8. It is not enough for the stranger to know or suspect in some unspecified way that the fiduciary was up to no good. In this case, Ms. Duscio would be liable as a knowing assister only if she had "actual knowledge" that Catan held funds as trustee, and that she was participating or assisting Catan in fraudulent and dishonest conduct relating to those funds.

[34] Second, the concept of "actual knowledge" is more expansive than the term "actual knowledge" denotes. Although "actual knowledge" by the stranger of the fiduciary relationship and of the fiduciary's fraudulent and dishonest conduct will satisfy this requirement, so, too, will "recklessness or wilful blindness to the fiduciary relationship and the fiduciary's fraudulent and dishonest conduct": Air Canada, at p. 811 S.C.R.; see, also, Harris, at para. 8.

[35] I need say nothing more about the concept of recklessness, since the trial judge imposed knowing assistance liability based on wilful blindness. Wilful blindness, the concept of interest in this appeal, is well developed in the criminal law. It has been described as "deliberate ignorance" and exists where the subject suspects the relevant facts but deliberately chooses not to inquire because they do not wish to know the truth: R. v. Morrison, [2019] 2 S.C.R. 3, [2019] S.C.J. No. 15, 2019 SCC 15, 375 C.C.C. (3d) 153, at paras. 98, 100. A finding of wilful blindness can therefore be made where an affirmative answer can be provided to the question, "Did the accused shut his eyes because he knew or strongly suspected that looking would fix him with knowledge?": R. v. Briscoe, [2010] 1 S.C.R. 411, [2010] S.C.J. No. 13, 2010 SCC 13, at para. 21.

[36] Wilful blindness has similar meaning in knowing assistance cases. In Air Canada, at pp. 811-12 S.C.R., quoting from Carl-Zeiss-Siftung v. Herbert Smith & Co. (No. 2), [1969] 2 All E.R. 367, [1969] 2 Ch 276 (C.A.), at p. 379 All E.R., Iacobucci J. described the alternative basis for knowing assistance liability where the stranger does not have "both actual knowledge of the trust's existence and actual knowledge that what is being done is improperly in breach of that trust" by saying "of course, in both cases a person wilfully shutting his eyes to the obvious is in no different position than if he kept them open".

[37] To be clear, wilful blindness is a subjective standard of fault that depends on the stranger's actual state of mind. This distinguishes wilful blindness from objective standards of fault based on what the subject ought to have known, such as negligence: R. v. Sansregret, 1985 CanLII 79 (SCC), [1985] 1 S.C.R. 570, [1985] S.C.J. No. 23, at pp. 581-82, 584 S.C.R. [page540]

[38] This distinction is crucial given the underlying theory of liability. In Air Canada, Iacobucci J. commented that "carelessness" involved in constructive knowledge does "not normally amount to a want of probity, and will therefore be insufficient to bind the stranger's conscience", as required in knowing assistance cases: at p. 812 S.C.R. In Citadel [Citadel General Assurance Co. v. Lloyds Bank Canada, 1997 CanLII 334 (SCC), [1997] 3 S.C.R. 805, [1997] S.C.J. No. 92], La Forest J. described the kind of insufficient, constructive knowledge Iacobucci J. was referring to as "knowledge of facts sufficient to put reasonable people on notice or inquiry": at para. 48. Rosenberg J.A., discussing Air Canada, observed that "want of probity" is necessary to capture the notion of being privy or party to a fraud and that "[i]t cannot be enough that the trustee was simply negligent or ought to have known that the co-trustee was committing a fraud or fraudulent breach of trust": Bikur, at para. 43.

[39] I am persuaded that the trial judge erred in this case by relying on constructive knowledge based on Ms. Duscio's carelessness to ground his finding that Ms. Duscio "went beyond mere trust and faith and crossed the line to wilful blindness". He said in material part [at para. 474]:

She knew that her husband had filed for bankruptcy earlier that year and she knew generally what reverses had led him there. She continued to sign as needed cheques and authorizations for very large quantities of money to transit through her company without due inquiry and in circumstances where she ought to have been on inquiry. She cannot hide behind her own wilful blindness to avoid the consequences of facilitating her husband's fraud.

[40] Although the trial judge identified certain facts that Ms. Duscio knew, he made no finding as to whether she knew or suspected that the money transiting through her company was trust money that was being employed in a dishonest or fraudulent breach of trust. This is a critical omission. Without such findings, a proper determination of wilful blindness cannot be made. He spoke instead of how Ms. Duscio "ought to have been on inquiry" [para. 474]. Describing what someone ought to have known or done is the language of objective fault or constructive knowledge, not the language of subjective wilful blindness.

[41] My conclusion that the trial judge used constructive knowledge to support his knowing assistance finding is reinforced by another passage in his reasons for decision. Specifically, he said [at para. 472]:

As officers and directors -- de jure in the case of Ms. Leanne Duscio and de facto in the case of Mr. Anthony Duscio -- of Catan, the liability of Catan for breach of the constructive trust by which it was bound falls equally upon the [page541] shoulders of Leanne Duscio and Anthony Duscio. These two both provided knowing assistance in Catan's breach of trust: Air Canada.

[42] With respect, it is an error to construct liability for knowing assistance based on the status of the stranger as an officer in a corporation that has received trust property, when what is required is a finding of actual knowledge, personal recklessness or wilful blindness.

[43] I have had the benefit of reading my colleague's dissenting reasons in which she would find that the trial judge based his wilful blindness finding on Ms. Duscio's subjective knowledge. I agree with my colleague that there was evidence on the record that could have supported a finding of subjective knowledge or subjective suspicion on Ms. Duscio's part. The affidavit of August 2009 that Ms. Duscio swore in a different action attesting that, two months after the money had already been moved, she knew that approximately $500,000 had been loaned from Catan to Columbus Capital, is helpful in that regard. So, too, is the fact that Ms. Duscio benefited from some of the withdrawals that occurred while there was trust money in the account. Even the fact that she and her husband lived well beyond their incomes during the relevant period could point in that direction, notwithstanding that prior to the $3 million deposit, the Catan account already held enough money to cover the withdrawals that the trial judge found to have benefited the Duscios during the relevant period. However, the trial judge did not mention any of this in explaining his wrongful assistance finding, nor did he even allude to what Ms. Duscio knew or suspected. He spoke only of what she ought to have known. I cannot, in the face of the direct and exclusive objective-fault explanation he offered for his wilful blindness finding, read the trial judge's decision as implicitly finding that Ms. Duscio had the requisite subjective fault. The fact that on isolated occasions in the 107-page decision the trial judge used language, without elaboration or explanation, that might be taken to suggest subjective knowledge on Ms. Duscio's part does not assist me in that regard.

[44] It must be remembered when reading the decision as a whole that the trial judge made numerous factual findings that would work against a finding of subjective knowledge or suspicion on Ms. Duscio's part. Specifically, he found that Mr. Duscio was "at all material times the de facto controlling mind and will of Catan"; that he "controlled all of its banking, [and] arranged for the keeping of its books and records"; that he and Mr. Garcia had arranged for the deposit of the Cajubi funds; that he was responsible for the wire transfers paid from the account; that Ms. Duscio "had little to [page542] no direct information about any of the business undertaken by Catan"; and that "[t]here is no evidence that she invested anything in it or played anything but a passive role" [at para. 333]. Nor was there evidence of any event that triggered a need for inquiry into a possible breach of trust that she shut her eyes to; there was no evidence that Ms. Duscio was even made aware that the money had been deposited, or that wire transfers had occurred. This was not a slam-dunk case for subjective wilful blindness. It is not the kind of case, in my view, where it is appropriate to infer that the trial judge applied the appropriate subjective standards of fault, notwithstanding that in his analysis he focused solely on an objective standard of fault.

[45] I would find that the trial judge erred in law by applying a constructive knowledge standard in finding Ms. Duscio liable based on knowing assistance. This alone requires that the judgment against her be set aside.

B. Did the trial judge make palpable and overriding errors in finding Ms. Duscio liable for knowing assistance?

[46] Ms. Duscio contends that the trial judge made several palpable and overriding errors in finding her liable for knowing assistance. I will address only one of those alleged errors, as it is the only one that I would find to have occurred. I am satisfied that the trial judge committed a palpable error relating to his finding that Ms. Duscio continued to sign cheques and authorizations for very large quantities of money. Since this is the only finding the trial judge made that could show assistance by Ms. Duscio, a necessary condition to "wrongful assistance" liability, this error was overriding.

[47] Specifically, the trial judge found [at para. 474]:

She knew that her husband had filed for bankruptcy earlier that year and she knew generally what reverses had led him there. She continued to sign as needed cheques and authorizations for very large quantities of money to transit through her company without due inquiry and in circumstances where she ought to have been on inquiry. She cannot hide behind her own wilful blindness to avoid the consequences of facilitating her husband's fraud.

(Emphasis added)

[48] To support Ms. Duscio's liability, this finding would have to relate to cheques and authorizations that are linked to Cajubi funds deposited into the Catan account. However, the trial judge had no evidence that could ground a finding that Ms. Duscio signed any of the cheques or authorizations after the Cajubi funds were deposited.

[49] First, the trial judge found that it was Mr. Duscio who arranged for the $3 million deposit and the wire transfers of more [page543] than $2.5 million that the trial judge linked to Columbus Capital. There was no evidence that Ms. Duscio played any role in these wire transfers or had any knowledge that the deposit or wire transfer withdrawals had even occurred.

[50] Second, Ms. Duscio's testimony about signing cheques was not linked to the trust money. She acknowledged in her testimony to signing without due inquiry several documents relating to the acquisition and financing of Catan's 20 Queen St. North property, and the litigation affidavit of August 2009 under her husband's direction. She also agreed more generally that "I'll just sign whatever [my husband] puts in front of me." Despite this, she gave no specific evidence relating to signing any cheques that could be linked to Cajubi funds. No cheques or authorizations executed after the Cajubi deposit were put to Ms. Duscio during her cross-examination, and no other evidence was called to prove her signature on any relevant cheques or authorizations.

[51] Although contemporaneous cheques were filed in the case, no admissions were made relating to their authorship. The trial judge did not proceed during the hearing on the basis that those cheques had been proved, since he advised counsel when cross-examining Ms. Duscio to either have her prove the documents she could or read in admissions on discovery to do so. Neither step was taken, and no other evidence was presented linking Ms. Duscio to any of the contemporaneous cheques or authorizations.

[52] In my view the trial judge committed a palpable error by making the finding underlined in para. 49, above, relating as it must have to Cajubi funds, without evidence or admission.

[53] This error is not only palpable, it is overriding. As indicated, Ms. Duscio's liability for knowing assistance depended upon a finding that she assisted in the breach of trust. Cajubi argued before us that she did so by permitting Mr. Duscio to use Catan's bank account to receive and disburse the Cajubi funds, but the trial judge made no mention of this theory of assistance. The only material finding the trial judge made that could amount to assistance was this: that she "continued to sign as needed cheques and authorizations for very large quantities of money to transit through her company without due inquiry". This palpably erroneous finding had to be a lynchpin to a finding of liability for knowing assistance.

[54] I would therefore allow this ground of appeal, on this basis.

C. Did the trial judge base Ms. Duscio's liability alternatively on the doctrine of knowing receipt?

[55] The theory of liability of strangers to the trust for knowing receipt rests in the law of restitution. Liability arises from the fact [page544] that the stranger has received trust property for its own benefit and in doing so, has been enriched at the beneficiary's expense: Citadel, at para. 31. The stranger is therefore conscience-bound to restore the property received: Citadel, at para. 32.

[56] Since liability rests in restitution and not wrongdoing, a lower level of knowledge will suffice than in knowing assistance cases. In knowing receipt cases, constructive knowledge, based on knowledge of facts that would put a reasonable person on notice or inquiry, may serve as a basis for restitutionary liability: Citadel, at para. 48.

[57] The legal test for knowing receipt therefore requires that (1) the stranger receives trust property, (2) for his or her own benefit or in his or her personal capacity, (3) with actual or constructive knowledge that the trust property is being misapplied. In addition to actual knowledge, including wilful blindness or recklessness, requirement (3) can be met where the recipient, having "knowledge of facts which would put a reasonable person on inquiry, actually fails to inquire as to the possible misapplication of the trust property": Citadel, at para. 49; Gold v. Rosenberg, 1997 CanLII 333 (SCC), [1997] 3 S.C.R. 767, [1997] S.C.J. No. 93, at para. 74; see, also, Paton Estate v. Ontario Lottery and Gaming Corp. (2016), 131 O.R. (3d) 273, [2016] O.J. No. 3031, 2016 ONCA 458, at para. 62.

[58] Where liability is imposed, the "measure of the restitutionary recovery is the gain the [defendant] has made at the [plaintiff's] expense": Citadel, at para. 30, citing Air Canada v. British Columbia, 1989 CanLII 95 (SCC), [1989] 1 S.C.R. 1161, [1989] S.C.J. No. 44, at pp. 1202-03 S.C.R.

[59] Since liability for knowing receipt may be imposed based on the kind of constructive knowledge the trial judge found in this case, Cajubi seeks to uphold the trial judge's liability finding by urging that he imposed liability on Ms. Duscio for knowing receipt. I do not accept this contention, for these reasons:

-- Although the trial judge cited the doctrine of knowing receipt in para. 441 of his reasons for judgment he made no reference to knowing receipt when describing the liability of Ms. Duscio. Instead, he described Ms. Duscio's liability as based on "knowing assistance in Catan's breach of trust";

-- The trial judge analyzed Ms. Duscio's liability based on "wilful blindness", a mental state that is not required for knowing receipt;

-- When the trial judge explained the liability of Ms. Duscio, he focused on the $3 million deposit, and Ms. Duscio never [page545] received this $3 million for her own benefit or in her personal capacity, necessary conditions to liability based on knowing receipt. The trial judge found correctly that Catan received this money;

-- Although the trial judge made findings that at least $400,000 of the Catan money was spent by Catan on non-Columbus Capital disbursements, some of which are itemized in para. 19 above as having been paid to Ms. Duscio, or arguably for her benefit, he did not find her liable in the amount that she had gained, the measure of restitutionary recovery for knowing receipt. Instead, the trial judge found her liable for the full $3 million paid into Catan, an amount of recovery appropriate in the circumstances only for knowing assistance; and

-- The trial judge made no effort to identify which of the itemized payments described in para. 19, above, or how much of that money, was received personally by Ms. Duscio or for her benefit, which he would have had to do to impose liability based on knowing receipt.

[60] Cajubi argues that the trial judge found Ms. Duscio to be liable for knowing receipt when he said [at para. 501]:

The liability of Ms. Duscio and her company Catan is restricted to the Cajubi funds which were actually received by Catan ($3 million). Should the plaintiff uncover evidence supporting tracing other amounts found by me to be subject to a constructive trust into the hands of either Catan or Ms. Duscio, further application may be made on the basis of such additional evidence of knowing receipt of funds subject to a constructive trust.

[61] This is not a finding of liability against Ms. Duscio based on knowing receipt. As para. 11 of the formal order confirms, the trial judge was advising the parties that should constructive trust funds be shown in the future by as yet uncovered evidence to be in the hands of Ms. Duscio, a "further" application may be made "on the basis of such additional evidence of knowing receipt of funds subject to a constructive trust".

[62] I have considered whether it is appropriate for this court to impose personal liability on Ms. Duscio as a constructive trustee, based on the constructive knowledge and receipt findings made by the trial judge that could support a finding of liability for knowing receipt (although that was not the trial judge's conclusion). In my view, it is not appropriate to do so. First, the trial judge did not make the necessary factual findings to identify the precise funds, listed in para. 19 above, that Ms. Duscio received personally or for her benefit. Second, it is my view that this is a case where a substantial wrong has occurred, warranting a new trial under Courts [page546] of Justice Act, R.S.O. 1990, c. C.43, s. 134(6). Premised on a legal error, Ms. Duscio was ordered to pay $3 million. Meanwhile, Cajubi has not had the benefit of a knowing receipt determination involving Ms. Duscio, despite having pleaded this cause of action. Since I would order a new trial on the knowing receipt issue, a precise determination of liability based on knowing receipt can be made at the retrial, if appropriate.

[63] One final point. None of what I say affects the validity of the contingent tracing order that trial judge made. Not only is the tracing order contingent, a tracing order does not depend upon a finding of liability for knowing receipt. Liability in tracing flows from the fact of receipt, and the extent of liability is dependent on the amount received: B.M.P. Global Distribution Inc. v. Bank of Nova Scotia, [2009] 1 S.C.R. 504, [2009] S.C.J. No. 15, 2009 SCC 15, at paras. 78-79. A party holding identifiable property that another has a superior legal or equitable right to possess can be compelled under the rules of legal or equitable tracing to transfer that property to the party with the superior legal or equitable right, without the need for a finding of liability for knowing receipt, and without a finding of that the holder is a constructive trustee of that property. As La Forest J. emphasized in Citadel, at para. 57, "[t]he imposition of liability as a constructive trustee on the basis of 'knowing receipt' is a restitutionary remedy and should not be confused with the right to trace assets at common law or in equity." He further said, at para. 58:

Liability at common law [based on common law or equitable tracing rules] is strict, flowing from the fact of receipt. Liability in "knowing receipt" cases is not strict; it depends not only on the fact of enrichment (i.e. receipt of trust property) but also on the unjust nature of that enrichment (i.e. the stranger's knowledge of the breach of trust).

[64] For this reason, I would therefore respectfully observe that the contingent tracing order made by the trial judge is more demanding than it needs to be. If Cajubi funds are traced into the hands of Ms. Duscio, and are identifiable under the rules of equitable tracing, on further application Ms. Duscio could be required to hand the funds over, or to hand over any lasting assets that have been acquired with those funds, without the need for a finding of actual or constructive knowledge on her part.

Conclusion

[65] I would allow the appeal and set aside the order made in para. 10 of the judgment that holds Leanne Duscio jointly and severally liable to pay to Cajubi $3 million. I would also order a new trial relating to the personal liability claims made against Leanne Duscio for knowing receipt of trust funds. Catan remains jointly [page547] liable with Mr. Duscio and Columbus Capital for the $3 million to be paid to Cajubi pursuant to para. 10 of the trial judge's order.

[66] I would set aside the costs order made against Leanne Duscio below.

[67] I would order costs in this matter to be payable to Leanne Duscio in the amount of $30,000, inclusive of disbursement and applicable taxes, as agreed between the parties.

PEPALL J.A. (dissenting): --

[68] Knowing assistance and knowing receipt are torts that frequently find themselves in the company of civil fraud. They are torts that have evolved as our legal system has struggled to respond to dishonest dealings in society.

[69] In this appeal, the trial judge presided over a 17-day trial involving Cajubi, a Paraguayan workers' pension fund located in Paraguay, that was defrauded of over $20 million, a fraud that was largely masterminded by Canadians. As mentioned by my colleague, we dismissed the appeal brought by two of the perpetrators, Mr. and Mrs. Garcia, and their associated companies: 2020 ONCA 124, 96 M.P.L.R. (5th) 1. In addition to the judgment of $20,843,888 granted against the Garcias, the trial judge also ordered the appellant, Leanne Duscio, and her wholly owned company, Catan Canada Inc. ("Catan"), to pay Cajubi $3 million. Mrs. Duscio is also the sole officer and director of Catan. Catan did not appeal this $3 million judgment against it. Nor did Anthony Duscio, the bankrupt husband of the appellant, appeal the $7,379,958 judgment granted against him in favour of Cajubi.

[70] My colleague would allow Mrs. Duscio's appeal relating to the $3 million award against her based on knowing assistance and would order a new trial on knowing receipt. His basis for allowing the appeal is that the trial judge erred by applying a constructive knowledge standard to the wilful blindness component of knowing assistance and made a palpable and overriding error relating to his finding that Mrs. Duscio continued to sign as needed cheques and authorizations for very large quantities of money to transit through Catan.

[71] I would dismiss the appeal on knowing assistance, which would also render a new trial on knowing receipt unnecessary. In my view, read as a whole together with the record, I am not persuaded that the judgment awarded was in error.

Trial Judge's Reasons

[72] In extensive reasons for decision, 107 pages in length, the trial judge addressed the case against the Garcia defendants, as he [page548] called them.[^4] Along with others, the Garcia defendants orchestrated a massive fraud against the Cajubi pension fund in Paraguay. However, the Duscios were not mere bystanders to this fraud.

[73] Mr. Duscio's then company, Universal Settlements Inc. ("USI"), hired Mr. Garcia as a salesman around 2002. USI was in the viaticals business -- it found investors to purchase life insurance policies from owners. Sadly, for the pension fund, through his work with USI, Mr. Garcia came into contact with Cajubi in 2005.

[74] The trial judge introduced the Duscios in para. 14 of his reasons:

Mr. Anthony Duscio, his wife Leanne Duscio and her company Catan Canada Inc. -- the "Duscio Defendants" -- stand in a class apart among the other defendants to this action. Their involvement (in the subject-matter of this proceeding at least) is limited to the "Columbus Notes" matter by which Cajubi was defrauded of almost $7.4 million. This was an utterly fraudulent investment scheme Mr. Duscio and Mr. Garcia hastily assembled to avoid sending back to Paraguay the proceeds of liquidation of the Union Securities investment. This scheme enabled Mr. Garcia to secrete more than $1 million of Cajubi's funds out of Canada into the hands of a family member. Some or all of the remaining funds simply vanished in a variety of fraudulent transfers orchestrated by the Duscio Defendants without even a façade of propriety. While Mr. Garcia appears to have been taken by surprise by the extent of Mr. Duscio's fraud, this does not affect the liability of either for the blatant and fraudulent misappropriation of the plaintiff's funds.

[75] At para. 329 and following, the trial judge described how Mr. Garcia caused $7,379,958 of the pension fund's money to be transferred to Columbus Capital Corp. ("Columbus Capital"), discussed in more detail below.

[76] Catan owned a heavily mortgaged property on Queen Street in Kitchener, which it acquired in 2006. This building had no tenants, so Mrs. Duscio moved her dance studio, described by her as a hobby and for which she got paid $1,000 -- $1,500 a month, into the building. Mrs. Duscio testified that the dance studio lost money each year.

[77] Greg Baker's daughter attended the dance studio and, as a result of this connection, Mr. Duscio was introduced to Mr. Baker. Mr. Baker asked Mr. Duscio to assist with start-up funds for a computer refurbishing and leasing business. The two discussed the [page549] venture and Mr. Duscio later discussed the venture with Mr. Garcia as well. In August 2008, Mr. Duscio arranged for Columbus Capital to be incorporated. Mr. Duscio had filed for bankruptcy in early 2008 and Mr. Baker became the sole officer and director of Columbus Capital. Catan's building on Queen Street in Kitchener became Columbus Capital's registered office.

[78] Mr. Baker did not know where the funding came from for the computer leasing business, but transactions ensued, and he thought the venture was taking off. The trial judge found that Mr. Duscio controlled all of Columbus Capital's finances, kept the books, and was the de facto controlling mind and will of Columbus Capital from inception. Tensions began to grow, however, and things fell apart when Mr. Baker discovered various banking ledgers with large amounts of money that he did not recognize. Mr. Baker locked Mr. Duscio out of Columbus Capital on June 9, 2009, and the company ceased carrying on business soon after.

[79] The trial judge found that substantially all of the funds that went into Columbus Capital came from the Cajubi pension fund and from customers paying for purchases financed by the Cajubi pension fund. He also found that nothing had been recovered by Cajubi from Columbus Capital.

[80] The trial judge found at para. 333 of his reasons that Mr. Duscio was the de facto controlling mind, will, and alter ego of Catan. Mrs. Duscio was advised by Mr. Duscio what needed signing and, when asked, did so with little apparent curiosity. She had little to no direct information about the business undertaken by Catan. There was no evidence that she invested anything in Catan or played anything but a passive role. However, she was the sole shareholder, officer, and director of Catan.

[81] The trial judge described the Duscios' circumstances, at paras. 335 and 336 of his reasons:

At the time of trial, Mr. Duscio had very recently obtained employment working in a factory while Mrs. Duscio works as a sales assistant in a retail store at a modest hourly wage. Despite their very modest joint income, the couple continues to maintain a lifestyle well beyond what their income would suggest. They live in a custom-built home outside of Kitchener that can only be described as palatial, have a property in Florida that they visit perhaps two times per year and have luxury cars registered to both addresses.

Mr. Duscio had originally hoped to house USI in the Queen Street building but when that situation turned into litigation, Catan was left with a building and no tenant. Mrs. Duscio moved her dance studio from her home to the office and began a small-scale business that she described as more of a hobby out of the building. As of mid-2008, Garcia caused $7,379,958 of Cajubi's money to be "invested" in Columbus Capital through the latter's issuance of promissory notes. Duscio had little in the way of concrete plans for the building (it was eventually sold in 2012). [page550]

[82] On August 22, 2008, Mr. Garcia caused $3 million of Cajubi's money to be transferred directly to Catan.[^5] By June 9, 2009, very little of the money transferred to Catan or Columbus Capital remained. The trial judge found that all of the funds deposited in Catan's account were impressed with a constructive trust in favour of Cajubi.

[83] Over the intervening ten months, Catan's general ledger identified approximately $2 million being transferred to Columbus Capital. In addition, according to an affidavit sworn by Mrs. Duscio on August 20, 2009, which I will discuss in further detail, and on which she was cross-examined at trial, $513,931.92 was lent by Catan to Columbus Capital in June 2009.

[84] In addition, $400,000 was spent by Catan. Some of the details of these disbursements in favour of the Duscios are described at para. 19 of my colleague's reasons.

[85] As the trial judge observed, at para. 395 of his reasons:

There is no evidence that Catan had any "business" beyond owning the 20 Queen Street building from which a small amount of rental income was derived. I need not examine or count every nickel to conclude as I do that all or substantially all of the funds spent by Catan from August 22, 2008 until June 1, 2009 went to personal expenditures of either Mr. Duscio or Mrs. Duscio. Cajubi's money, once deposited at Catan, became a piggy bank that was drawn upon at will. Mrs. Duscio was given a salary she had not previously drawn, home improvements were made and paid for, luxury car payments were made, etc.

[86] Money coming into Columbus Capital followed the same pattern as shown by Catan. The trial judge noted that this included expenditures of a clearly personal nature in favour of Mr. and Mrs. Duscio, having nothing to do with the computer leasing business. Examples given were Mrs. Duscio's dance studio: $20,530; Mrs. Duscio advances: $31,522.81; Credit Nation: $999,936.10; and Home improvements of at least $21,000: at para. 405. [page551]

[87] Having outlined the facts, the trial judge correctly described the elements of fraudulent misrepresentation, breach of fiduciary duty, knowing assistance and knowing receipt. He relied on Air Canada v. M & L Travel Ltd., supra, and DBDC Spadina Ltd. v. Walton, supra, rev'd, Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd., supra.

[88] He wrote, at paras. 441 and 442:

The doctrine of knowing receipt requires a finding that the person has received trust property in his or her own personal capacity with actual or constructive knowledge of the breach of trust or fiduciary duty: DBDC at para. 37. It is thus only applicable as against the recipient of property found to be trust property (including property subject to a constructive trust) upon proof of the requisite level of knowledge. It is a form of liability that arises from the law of restitution and is a tool deployed, among other purposes, to trace trust funds that have been misappropriated and restore them to their rightful owner.

The doctrine of knowing assistance is fault-based instead of restitution-based. It requires proof that the person, with knowledge, participates in or assists the defaulting trustee or fiduciary in a fraudulent or dishonest scheme: DBDC at para. 40. Actual knowledge includes recklessness or wilful blindness: Air Canada at para. 39.[^6]

[89] The trial judge found that the facts known to Catan established that the pension fund's $3 million was received by Catan as a consequence of fraud and in breach of fiduciary duties owed to Cajubi by Mr. Garcia and his company. Accordingly, Catan's funds were impressed with a constructive trust in favour of Cajubi and Catan breached its obligations as constructive trustee by failing to hold the funds separate and apart and by failing to take immediate steps to return them to the pension fund: at para. 470. He wrote that Catan violated its trust obligations to Cajubi as quickly and as often as possible, including by making expenditures on clearly personal items for the benefit of the Duscio family: at para. 471.

[90] As mentioned, the trial judge granted judgment to Cajubi against Mr. Duscio and Columbus Capital in the amount of $7,379,958 and against Mrs. Duscio and Catan in the amount of $3 million and also made a tracing order. My colleague has already recited some of the trial judge's conclusions, at para. 472 and following, but for ease of reference, I will repeat paras. 472 to 474:

As officers and directors -- de jure in the case of Ms. Leanne Duscio and de facto in the case of Mr. Anthony Duscio -- of Catan, the liability of Catan for breach of the constructive trust by which it was bound falls equally upon the [page552] shoulders of Leanne Duscio and Anthony Duscio. These two both provided knowing assistance in Catan's breach of trust: Air Canada.

The particulars of the knowing assistance of Anthony Duscio needs no elaboration. He was one of the architects of the fraud perpetrated upon Cajubi and he actively and knowingly authorized and directed the dissipation of the funds received by Catan that he knew or ought to have known came subject to a constructive trust in Cajubi's favour.

In Leanne Duscio's case, I find that her passive acquiescence in her husband's schemes went beyond mere trust and faith and crossed the line into wilful blindness. She knew that her husband had filed for bankruptcy earlier that year and she knew generally what reverses had led him there. She continued to sign as needed cheques and authorizations for very large quantities of money to transit through her company without due inquiry and in circumstances where she ought to have been on inquiry. She cannot hide behind her own wilful blindness to avoid the consequences of facilitating her husband's fraud.

(Emphasis added)

[91] The trial judge thus first concluded that Catan was liable for breach of constructive trust. He went on to conclude that Mr. and Mrs. Duscio "provided knowing assistance in Catan's breach of trust": at para. 472.

[92] My colleague takes issue with one sentence in para. 474 in two respects. First, he states that the use of the words "without due inquiry" and "in circumstances where she ought to have been on inquiry" establish that the trial judge incorrectly applied an objective test to the knowledge component of wilful blindness. Second, he states that the trial judge made a palpable and overriding error in finding that Mrs. Duscio signed as needed cheques and authorizations for very large quantities of money to transit through her company, Catan. I will delineate why I reject these two arguments that anchor my colleague's allowance of the appeal and the setting aside of the judgment of the trial judge.

Analysis

(1) Wilful blindness

[93] In this case, the trial judge found that Mrs. Duscio was wilfully blind in facilitating Catan's breach of trust. My colleague reasoned that there was evidence on the record that could have supported a finding of subjective knowledge on Mrs. Duscio's part. I agree. Indeed, there was ample evidence to support the trial judge's finding of wilful blindness. My colleague takes issue with what he describes as Mrs. Duscio's carelessness to ground the trial judge's finding of wilful blindness and the application of a constructive knowledge standard. I do not agree that the trial judge's finding of wilful blindness was based on a carelessness or constructive knowledge standard. [page553]

(a) The trial judge's language and Mrs. Duscio's affidavit

[94] First, although the trial judge did use the terms "without due inquiry" and "in circumstances where she ought to have been on inquiry", this does not preclude a finding of wilful blindness, and in any event, I would not read his reasons so narrowly as my colleague does. The trial judge used other words to describe Mrs. Duscio that import the requisite knowledge component: "acquiescence" (at para. 474), "facilitating" (at para. 474) and "orchestrated" (at para. 14). All of these words, each of which the trial judge used to describe Mrs. Duscio's participation in the dishonest conduct of Catan, suggest subjective knowledge. He was also of the view that she had constructive knowledge, but this did not preclude his express or implicit finding of subjective knowledge. The evidence of such knowledge supports my conclusion that the trial judge was not limiting his basis for liability to constructive knowledge.

[95] I will start first with Catan. As mentioned, the trial judge gave judgment against Catan for $3 million. The trial judge found that it received the $3 million as a consequence of fraud. At para. 470 of his reasons, the trial judge stated that Catan breached its obligations by, among other things, failing to return those funds to Cajubi. The judgment against Catan has not been appealed. As mentioned, Mrs. Duscio is the sole officer, director and shareholder of Catan. The trial judge did not make a finding that Catan had other signing officers, as he did with Columbus Capital.

[96] On August 20, 2009, Mrs. Duscio swore an affidavit in support of an Application in which Catan was suing Columbus Capital. At the trial of the action under appeal, Mrs. Duscio was cross-examined on her sworn affidavit, which she testified that she recalled. In that affidavit, she makes oath and says that she is the president of Catan "and as such, [has] knowledge of the matters to which I hereinafter depose". She then describes the following: her husband's bankruptcy; the bankruptcy of Mr. Baker, whom she described as the director of Columbus Capital; how Catan, an Ontario corporation, agreed to lend and did lend Columbus Capital $513,931.92; and how she was "genuinely concerned that Mr. Baker has misappropriated the Loan proceeds". She spoke of Mr. Baker having closed Columbus Capital's bank accounts without "our knowledge or consent" and also expressed concern about having made a loan to an undischarged bankrupt. Thus, although she claimed no knowledge of the $3 million, she sought the return of $513,931.92 of that amount.

[97] Our system of justice in the civil arena is largely based on testimony given under oath and sworn affidavits. This is [page554] particularly the case with the increase of a paper record in summary judgment motions. Mrs. Duscio's affidavit was referenced in her cross-examination and was a part of the evidence at trial. It defies reason that, having sworn such an affidavit, subjective knowledge of the fraud and breaches perpetrated by Catan was not imputed by the trial judge to Mrs. Duscio. At a minimum, it would be fair for the trial judge to draw an inference from this and other evidence that Mrs. Duscio was wilfully blind, as that term is legally understood.

(b) The appellant's receipt of benefits

[98] Second, receipt of a benefit may also ground an inference that Mrs. Duscio knew of the fraud and the breaches: Air Canada, at p. 812 S.C.R. The trial judge found that there was no evidence that Catan had any "business" beyond owning the 20 Queen Street building from which a small amount of rental income was derived and that all or substantially all of the funds spent by Catan from August 22, 2008 until June 1, 2009 went to personal expenditures of either Mr. Duscio or Mrs. Duscio. This of course was Cajubi's money. To use the trial judge's language, Cajubi's money, once deposited at Catan, became "a piggy bank" for the Duscios. Recall that at this time, Mr. Duscio was bankrupt. At the time of trial, Mr. Duscio had very recently obtained modest employment working in a factory, while Mrs. Duscio worked as a sales assistant in a retail store at a low hourly wage. She reported income of $25,500 and $22,437.08 for the years 2008 and 2009, yet the cheques to her from Catan, which based on the business records, appear to have been deposited into her Bank of Montreal bank account, far exceeded those amounts. In the years 2007, 2008 and 2009, on behalf of Catan, she reported losses of $95,981, $130,266 and $79,211 respectively. Catan's taxable income was noted as zero and she is identified as the Company's president and contact person. The electronic tax filing appears to certify that she has examined the return and that the information is accurate and complete. In her cross-examination, Mrs. Duscio reiterated that Catan didn't have much day-to-day business other than collecting rent. A review of all of the account statements and Catan's general ledger, which were before the trial judge, show that other than the fraudulent funds, no other material amounts were deposited into Catan.

[99] The trial judge outlined some of the numerous benefits received by both of them. Despite their very modest joint income, the couple, who had been together for 35 years, continued to maintain a lifestyle well beyond what their income would suggest. They lived in a custom-built home outside of Kitchener that could only be described as palatial, had a property in Florida [page555] that they visited perhaps two times per year and had luxury cars registered to both addresses. Moreover, Mrs. Duscio received a salary she had not previously drawn, home improvements were made and paid for, and luxury car payments were made, all from Catan and hence Cajubi. She testified that her dance studio had lost money for each of the six years it had been in operation. And, Mr. Duscio was bankrupt. In essence, the pensions of the Paraguayan workers became pensions for the Duscios.

(c) The trial judge's finding of wilful blindness

[100] Third, it cannot be ignored that the trial judge did make a finding that Mrs. Duscio was wilfully blind. This is unlike the Supreme Court's decision in Citadel General Assurance Co. v. Lloyds Bank Canada, supra, where, in concluding that the trial judge had improperly restricted her findings of knowing assistance to constructive knowledge, the court noted that there was no finding of wilful blindness or recklessness: at para. 23. This is not that case.

[101] In essence, my colleague disregards this finding. Rather, relying on one sentence in the trial judge's reasons, he concludes that the trial judge failed to understand the concept of wilful blindness and only applied an objective standard, based on Mrs. Duscio's carelessness, to ground his finding. With respect, this is an overly narrow reading of the trial judge's decision. As mentioned, stating that Mrs. Duscio ought to have been on inquiry does not preclude a finding of wilful blindness. Indeed, the fact that someone ought to have been on inquiry may be a factor to consider in whether they were wilfully blind: IWA - Forest Industry Pension Plan (Trustees of) v. Leroy, [2017] B.C.J. No. 166, 2017 BCSC 158, 44 C.B.R. (6th) 221 (S.C.) ("Trustees of the IWA"), at paras. 121-22. In Trustees of the IWA, the trial judge applied a subjective standard for wilful blindness, but also inferred wilful blindness from a combination of what the personal defendant subjectively knew and what she ought to have known about the corporate defendant's breach of trust.

[102] In the paragraph on Mr. Duscio's liability, the trial judge explained that Mr. Duscio was one of the architects of the fraud who "knowingly authorized and directed the dissipation of the funds received by Catan". The trial judge then went on to say that Mr. Duscio "knew or ought to have known" that those funds were subject to a constructive trust in Cajubi's favour (emphasis added). No one in this case suggests that the trial judge applied an objective standard for Mr. Duscio. It is clear that the trial judge considered, correctly, that what someone ought to have [page556] known may be a factor to consider in determining whether they were wilfully blind.

[103] Moreover, in closing argument at trial, the trial judge was specifically referred to a decision that he had authored two months earlier in 1169822 Ontario Ltd. v. Toronto-Dominion Bank, [2018] O.J. No. 1570, 2018 ONSC 1631 (S.C.J.), involving knowing assistance and wilful blindness. In that decision, the trial judge noted that actual knowledge is required for the equitable tort of knowing assistance and observed that this included wilful blindness and recklessness. He wrote, at paras. 128 and 132-137 of that decision:

The parameters of the equitable claim for knowing assistance in a breach of trust are quite clear and the required level of knowledge is a high one. Only actual knowledge of the existence and breach of the trust -- or its moral equivalents wilful blindness or recklessness -- will suffice to bind the stranger's conscience in favour of the victim of the breach of trust and give rise to a remedy where the required action was not taken. The bank's liability does not arise where only constructive knowledge of the breach can be shown: Air Canada at paras. 39-41.

It has long been held that actual knowledge of fraud also extends to parties who are wilfully blind of the fraud or who are reckless as to its existence. They are each equivalent to each other in terms of the consequences that flow from having such knowledge and failing to act upon it.

Both wilful blindness and recklessness are comparatively high standards of knowledge because they involve a level of knowledge that is considered to be morally equivalent to actual knowledge. They require a consideration of both the degree of actual knowledge and of the culpable attitude or mental state of the person whose knowledge is in question.

They are concepts that are defined in part by contrast to what they are not. While a failure to inquire after being put on notice can be a component of wilful blindness or of recklessness, it can also be a component of constructive knowledge, the latter concept entailing a significantly lower level of knowledge and culpability.

Wilful blindness or recklessness requires proof of culpable conduct that goes beyond "mere" negligence or laziness underlying a failure to inquire. It requires a combination of knowledge and conduct of a level that can fairly be equated to actual knowledge. The additional element I have described as "culpability" was described by Iacobucci J. in Air Canada as being "want of probity". He described this as the element that differentiates wilful blindness or recklessness (either of which will bind the stranger's conscience) from constructive knowledge (which normally will not): Air Canada at para. 41.

Wilful blindness arises where a party is aware of the need for inquiry but declines to undertake it "because he does not wish to know the truth"; where "it can almost be said that the defendant actually knew"; where it can be said that the person suspected the fact and realized its probability but refrained from obtaining confirmation deliberately: R. v. Sansregret, 1985 CanLII 79 (SCC), [1985] 1 S.C.R. 570 at para. 22. It is to be distinguished from mere negligence in [page557] failing to obtain information. The required level of knowledge extends beyond knowledge of some risk of fraud to knowledge of the "clear probability" of it: Big X Holdings Inc. v. Royal Bank of Canada, 2015 NSCS 184 at para. 89. In Bullock v. Key Property Management Inc., 1997 CanLII 3440 (ON CA) the Court of Appeal found that wilful blindness is premised on the existence of an actual suspicion that certain facts exist and not on the failure to take steps to inform oneself of those facts.

Each of these definitions of wilful blindness intentionally sets this standard apart from mere negligence and thus attaches to a much narrower, more exceptional and thus more culpable range of conduct. In Bullock, it was not sufficient that the bank should have been on inquiry regarding its customer.

[104] I accept that the trial judge's reasons in the case under appeal would have benefitted from elaboration and more precision. It would have been preferable had he repeated the statements of law from 1169822 Ontario Ltd. in the Cajubi reasons. However, the trial judge in this case applied the same correct standard.

[105] Furthermore, at para. 441, he noted that knowing receipt requires a finding that the stranger had actual or constructive knowledge of the breach of trust. In the next paragraph, he explained that knowing assistance requires a finding that the stranger had actual knowledge (which includes wilful blindness or recklessness) of the breach of trust. He specifically left "constructive knowledge" out of the explanation of knowing assistance, after including it in the explanation of knowing receipt the paragraph immediately before. I cannot conclude that the trial judge's finding of wilful blindness was grounded in an objective standard.

(d) The appellant's testimony at trial

[106] Fourth, Mrs. Duscio's cross-examination at trial, peppered with "I don't know" and "I can't recall" answers, did not detract from the trial judge's finding of wilful blindness. The following is an example of one of her answers:

Q:

Tony Duscio, okay, so you just signed the papers, you

had no idea what was happening?

A:

Well, I'm not going to say I had no idea. He probably

told me what was happening, and I -- I'm not going to

dispute him or disagree with anything he's doing. I

don't know why I would, so I would have signed the

papers, yes.

Q: Okay.

A:

And probably not given it a lot of thought either.

[page558]

[107] Mrs. Duscio also testified that even though she signed whatever was put in front of her, she recognized that she had responsibility for the things she signed.

[108] My colleague suggests that the excerpt above is restricted to the purchase of the office building, but again, with respect, he ignores the other possible global interpretation that treats her evidence as the summing up or culmination of her prior testimony. It is the trial judge who has the opportunity to see and hear the witnesses in the context of the trial as a whole, not this court.

[109] Again, although it would have been preferable for the trial judge to elaborate, faced with the constellation of facts before him, it was open to him to find wilful blindness and to conclude that Mrs. Duscio was wilfully shutting her eyes to Catan's dishonest dealings. Indeed, Mrs. Duscio is the very definition of someone who is wilfully blind. Frankly, an independent reading of her cross-examination testimony leads to no other reasonable conclusion.

(e) The test for knowing assistance of breach of trust

[110] Lastly, I reiterate that Mrs. Duscio was found liable for knowingly assisting Catan's breach of trust. At paras. 31-33 of his reasons, my colleague repeatedly references fiduciary relationships and breach of fiduciary duty. However, this case raises the issue of how the doctrine of knowing assistance applies in circumstances of breach of constructive trust.[^7]

[111] The relevant test for knowing assistance of breach of trust is from Air Canada: (1) there must be a trust;[^8] (2) a fraudulent and dishonest breach of that trust; (3) actual knowledge by the [page559] stranger of the fraudulent and dishonest breach of trust (wilful blindness or recklessness will also suffice); and (4) participation by or assistance of the stranger in the fraudulent and dishonest breach of trust. In Air Canada, the Supreme Court explained that the method by which a trust is created has an impact on the question of the stranger's knowledge of the trust. The decision in Air Canada concerned a trust created by contract, so the Supreme Court stated that "whether the stranger knew of the trust will depend on his or her familiarity or involvement with the contract": Air Canada, at p. 812 S.C.R. There was no mention in Air Canada of fiduciaries or fiduciary relationships. In circumstances of breach of constructive trust, the trustee does not necessarily owe fiduciary obligations: Oosterhoff, at p. 1132. Fiduciary relationships therefore do not always play a role in a case of knowing assistance of breach of constructive trust.

[112] From Air Canada, it follows that, in cases of breach of constructive trust, whether the stranger knew of the trust will depend on his or her familiarity or involvement with the circumstances leading to the imposition of the constructive trust. As mentioned, Catan was impressed with a constructive trust because the funds were received in circumstances of dishonesty and fraud. Constructive trusts are imposed by law, so it is unhelpful to speak of strangers to a constructive trust "knowing" of, or even being wilfully blind to, the trust's existence, as my colleague suggests.

[113] Again, based on how the Air Canada test would apply in circumstances of breach of constructive trust, Mrs. Duscio was required to (1) know, or be wilfully blind to, the circumstances leading to the imposition of a constructive trust on Catan; (2) know, or be wilfully blind to, Catan's fraudulent activity;[^9] and (3) participate or assist in Catan's fraudulent activity. In cases of knowing assistance of breach of constructive trust, a finding of liability will depend on the particular circumstances of each individual case. Hence a case-by-case analysis is required.

[114] Against this backdrop, the trial judge found Mrs. Duscio wilfully blind to the fraudulent means by which Catan received the funds. Her passivity did not preclude a finding of wilful blindness. A wide range of factors can be taken into account in inferring wilful blindness. In Sorrel 1985 Ltd. Partnership v. Sorrel [page560] Resources Ltd., [2000] A.J. No. 1140, 2000 ABCA 256 (C.A.), for example, the Alberta Court of Appeal considered the respondents' subjective knowledge of a "depressed market" to be relevant in determining whether they were wilfully blind. The issue was whether the personal respondents were liable for knowingly assisting a breach by Sorrel Resources Ltd. ("Sorrel") of a trust relationship it had with the appellant, Sorrel 1985 Limited Partnership (the "Sorrel Partnership"). This turned, in part, on whether the personal respondents knew that Sorrel Partnership funds were at risk of being seized by creditors because of Sorrel's vulnerability. The Alberta Court of Appeal held that they were wilfully blind or reckless of the fact even if they did not have actual knowledge. This was because "[t]hey had subjective knowledge that Sorrel had a serious working overdraft, the market was depressed and they were refinancing": Sorrel, at para. 72. Knowledge of general facts like a "depressed market", and of certain surrounding circumstances reflecting the financial health of a company, may be relevant to a wilful blindness assessment.

[115] In this case, the trial judge focused, as he should have, on the fact that Mrs. Duscio knew about her husband's bankruptcy and the circumstances that led him to his bankruptcy; that the Duscios had modest incomes but lived extravagant lives; and that Mrs. Duscio was Catan's sole officer, director, and shareholder. The trial judge found that, given Mrs. Duscio's subjective knowledge of these things, she was wilfully blind to the fraudulent means by which Catan received and disbursed funds, and Catan's obvious breach of trust. She swore an affidavit referencing what she described as a loan to Columbus Capital in circumstances where, apart from a small amount of rental income, her company, as found by the trial judge, had no business. From all of these facts, the trial judge was entitled to find that she was wilfully blind and that these funds did not belong to Catan or to her. Mrs. Duscio's conscience was sufficiently affected to justify the trial judge's imposition of liability upon her.

[116] Even if it were the case that the trial judge grounded his wilful blindness finding on an objective standard, which I do not accept, this court is permitted to review the record in order to determine if the finding of wilful blindness was open to the trial judge. In Wescom Solutions Inc. v. Minetto, [2019] O.J. No. 1584, 2019 ONCA 251 (C.A.), for example, the trial judge mistakenly applied an objective standard for wilful blindness, but this court nevertheless held that the trial judge's error "in law in his articulation of the concept of wilful blindness" did not mean that the trial judge was wrong to conclude that the appellant was wilfully blind: Wescom, at para. 10. The trial judge's mischaracterization of wilful [page561] blindness was not fatal because he had made findings of fact that established that the appellant was wilfully blind on a subjective standard. Again, my colleague agrees that there was evidence on the record that could have supported a finding of subjective knowledge on Mrs. Duscio's part.

(f) Conclusion on wilful blindness

[117] Contrary to my colleague's determination, I conclude that, read as a whole within the context of the entire record before him, it cannot be said that the knowledge component needed to anchor a finding of wilful blindness by Mrs. Duscio is absent from the trial judge's reasons. Moreover, the trial judge's conclusion was supported by the record. He was fully conversant with the detailed record, having presided over the trial for over three weeks and having trial managed the case beforehand. It was open to the trial judge to conclude that Mrs. Duscio was wilfully blind, particularly given her affidavit sworn on behalf of Catan that detailed its activities. This included Catan's alleged entitlement to the $513,931.92 she stated that Catan had lent to Columbus Capital and her knowledge of her husband's bankruptcy. Moreover, she had a modest income, she received extensive benefits from the company of which she was the sole officer, director and shareholder, and maintained an opulent lifestyle. She permitted her company to be used, signed Catan's documents, and accepted the substantial fruits of her efforts. The trial judge understood the requirements of wilful blindness, determined that they were met, and did not simply apply a constructive knowledge standard to Mrs. Duscio's conduct. Carelessness this was not.

(2) Cheques and authorizations

[118] Dealing with the second argument, my colleague writes that the trial judge had no evidence that could ground a finding of liability relating to cheques and authorizations that were linked to Cajubi's funds. He states that there is no evidence that Mrs. Duscio played any role in wire transfers. My colleague also states that no evidence was presented that linked Mrs. Duscio to the cheques or authorizations relevant to Cajubi funds. For the following reasons, I would not allow the appeal on this basis.

[119] First, I do not see this as a ground of appeal in the appellant's notice of appeal. There is no mention of a palpable and overriding error relating to the cheques and authorizations. Rather, the grounds enumerate inconsistent factual findings, Mrs. Duscio's liability for knowing receipt, and the misapprehension of the law in Air Canada. See Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 61.08(2). [page562]

[120] Second, I have already addressed the linkage between Mrs. Duscio's knowledge and the fraud and breach of trust by Catan. With respect, my colleague's analysis appears to subtract Catan from the equation. All the trial judge had to conclude was that Mrs. Duscio was wilfully blind to Catan's receipt and disbursement of fraudulent funds and its breach of constructive trust, and that she participated in that breach.

[121] Recall that Mrs. Duscio was the sole officer, director, and shareholder of Catan; her husband was an undischarged bankrupt;[^10] and Catan carried on virtually no business. Furthermore, there is no suggestion that Catan's cheques were improperly admitted into evidence,[^11] nor any argument that the numerous cheques that were filed in evidence before the trial judge were not signed by Mrs. Duscio. (This helps explain why the cheques were not the subject matter of the notice of appeal.) Moreover, Mrs. Duscio was also the recipient of many of them. Based on the business records, the cheques appear to have been deposited into her bank account. There can be no question that she knowingly permitted her company to be used for improper purposes. In spite of Mrs. Duscio's more limited role than that of her husband, I do not see the trial judge's statements that she continued to sign as needed cheques and authorizations to transit money through Catan as a palpable and overriding error. I would not allow the appeal on this basis.

Conclusion

[122] Lastly, in closing, I would also observe that knowing assistance is an equitable remedy. While I do not ground my dissent on equity, with respect, my colleague's reasons ignore the equitable underpinning of the tort of knowing assistance. This case presented the trial judge with a Paraguayan pension fund that was defrauded of millions of dollars with the benefits accruing to the appellant and her husband along with the Garcias. The trial judge did his job, applied the correct legal principles, and reached a decision that was both equitable and legally sound. I would not disturb his decision. Given my decision, nor would I compel the parties to [page563] expend the time and expense on a new trial on the issue of knowing receipt.

Disposition

[123] I would dismiss the appeal with costs of $30,000, as agreed by the parties, inclusive of disbursements and applicable tax, to be paid by the appellant to the respondent.

Appeal allowed; new trial ordered.

Notes

[^1]: The trial judge identified the amounts as $2,079,136 paid before June 1, 2009, plus $513,931.92 transferred to Columbus Capital on that date. The actual amounts paid on Columbus Capital's behalf may in fact have been nearly $100,000 higher than this. The trial judge achieved his figures by simply adding together disbursements from Catan's Canadian and US accounts, apparently without accounting for exchange differences. Two transfers totalling $1,874,430 CDN were made from Catan's Canadian account to its US account that can be linked to funding the $1,779,140.94 USD that was paid on Columbus Capital's behalf out of the US account, producing an exchange differential of slightly less than $100,000 CDN. On this basis, the breakdown may, in fact, be over $2.6 million attributable to Columbus, and slightly over $300,000 remaining with Catan.

[^2]: This panel recently denied the appeal from these decisions: Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Obregon, [2020] O.J. No. 670, 2020 ONCA 124.

[^3]: Mr. Duscio was also found liable, along with Columbus Capital, to pay an additional $4,379,958 relating to other fraudulent Columbus notes.

[^4]: The trial judge used the term "Garcia defendants" to refer to Mr. Eduardo Garcia Obregon, his wife Mrs. Claudia Patricia Garcia (and all names used by each) as well as certain companies that played a role in the scheme against Cajubi: Managed (Portfolio), Corp., Genesis (LA), Corp. (Ontario), Genesis (LA), Corp. (Alberta), FC Int, Corp. and First Canadian Int. Corp. The trial judge also used the term "individual Garcia Defendants" to refer to Mr. and Mrs. Garcia. I will adopt the same terminology in my dissenting reasons.

[^5]: As my colleague notes, the trial judge found that Catan's Canadian dollar account had a balance of $292,238 prior to its receipt of Cajubi funds, and Catan's US dollar account had a balance of $13,469.37 prior to its receipt of Cajubi funds: see para. 391. These amounts were used by the trial judge as benchmarks to determine how much of Cajubi's money was funnelled through Catan to Columbus Capital, and how much of Cajubi's money was spent by Catan itself: see paras. 392-94. In her cross-examination, Mrs. Duscio was not asked about these sums. She was asked about the mortgages registered on title of the 20 Queen Street building, to which she testified that she knew nothing. My colleague now attempts to infer either that Mrs. Duscio knew of this balance or that the trial judge did not take these amounts into account when making a finding of wilful blindness against Mrs. Duscio. None of the parties gave these amounts any significance during Mrs. Duscio's cross-examination.

[^6]: Though the majority decision of the Court of Appeal for Ontario in DBDC Spadina was reversed by the Supreme Court on appeal, the legal proposition the majority cited in para. 40, relied upon by the trial judge, is unassailable.

[^7]: See, for example, A.H. Oosterhoff, Robert Chambers and Mitchell McInnes, Oosterhoff on Trusts: Text, Commentary and Materials, 8th ed. (Toronto: Carswell, 2014), at p. 1128, note 2, and p. 1132, note 23.

[^8]: In Commercial Union Life Assurance Co. of Canada v. John Ingle Insurance Group Inc. (2002), 2002 CanLII 45028 (ON CA), 61 O.R. (3d) 296, [2002] O.J. No. 3200 (C.A.), Weiler J.A. suggested, in obiter, that a constructive trust is not sufficient for knowing assistance. In Transamerica Occidental Life Insurance Co. v. Toronto Dominion Bank (1999), 1999 CanLII 3716 (ON CA), 44 O.R. (3d) 97, [1999] O.J. No. 1195 (C.A.), however, this court specifically sent the issue of whether "TD can, in law, assist in the breach of a constructive trust on the basis of actions that took place before the constructive trust was declared to exist" to trial. The decision in Transamerica Occidental was a summary judgment motion so the court could have decided that a constructive trust is not sufficient for knowing assistance. In my view, there is no principled basis why, in appropriate circumstances, the doctrine of knowing assistance cannot be extended to cases of breach of constructive trust. See, also, Oosterhoff, supra note 7.

[^9]: In this context, "dishonest and fraudulent conduct [signifies] a level of misconduct or impropriety that is morally reprehensible but does not necessarily amount to criminal behaviour": Enbridge Gas v. Marinaccio, [2012] O.J. No. 4558, 2012 ONCA 650, 355 D.L.R. (4th) 333 (C.A.), at para. 27.

[^10]: Under the Business Corporations Act, R.S.O. 1990, c. B.16, s. 92, an undischarged bankrupt cannot be a director of a corporation: s. 118(1).

[^11]: This trial proceeded as a hybrid trial, as is now common in civil actions. As such, there were trial management conferences regarding procedure and evidence and much of the evidence-in-chief was adduced by affidavit. Cross-examinations then ensued, followed by evidence given in reply.

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