ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
The Toronto-Dominion Bank
Ross F. Earnshaw and Rachel Cooper,
Counsel for the Plaintiff
Plaintiff
- and -
Vincenzo Storr, a.k.a. Jeffrey Painter,
Vincenzo Cihula and Jeffrey Thomas Storr;
Thomas Storr, a.k.a. Thomas A. Storr, Carol
Storr, Tomas Cihula, Western Ontario
Intercity Bowling League, T.A. Storr
Holdings Inc. and Shane Storr
Defendants
W. Gerald Punnett, Counsel for the Defendant,
Vincenzo Storr, a.k.a. Jeffrey Painter,
Vincenzo Cihula and Jeffrey Thomas Storr
Peter Madorin, Counsel for the Defendants,
Thomas Storr, a.k.a. Thomas A. Storr,
Carol Storr, Tomas Cihula, Western Ontario
Intercity Bowling League, T.A. Storr
Holdings Inc. and Shane Storr
HEARD: June 9, 10, 11, 12 and 13, 2014
GLITHERO J.
REASONS FOR JUDGMENT
Introduction
1The plaintiff bank seeks to recover the sum of $494,425, plus interest and costs, as well as profits earned on some of this principal amount while held in accounts owned by some of the above defendants.
2As pleaded, the claim is for damages for conversion, fraud and as well seeks a declaration that the defendants fraudulently conspired to defraud the plaintiff, and a declaration that the funds received are subject to a constructive trust in favour of the plaintiff.
3Reduced to its most basic essentials, the plaintiff’s allegation is that the defendant, Vincenzo Storr, a.k.a. Jeffrey Painter, Vincenzo Cihula and Jeffrey Thomas Storr, herein after referred to as “Vincenzo”) fraudulently obtained cash advances from the plaintiff bank in the amount of at least $758,445 using two Bank of America Visa credit cards. The plaintiff bank alleges that he then used those advances to purchase bank drafts made out to various financial institutions. The plaintiff further alleges that through a series of complicated transfers of funds through some 56 different accounts, the majority of the monies ended up in accounts in the names of the various defendants. Of the $ 758,445 advanced by the plaintiff, the sum of $264,020 was recovered by the plaintiff from the Bank of America. When that sum is deducted from the original sum of $758,445, the difference is the amount claimed by the plaintiff, $494,425.
4The Toronto-Dominion Bank had a branch on Fischer-Hallman Road in Kitchener. The defendant Vincenzo had accounts at that branch of the plaintiff bank and as well had two Bank of America Visa credit cards in his name.
5The defendants, Thomas Storr a.k.a. Thomas A. Storr (Thomas) and Carol Storr (Carol), are married to each other and are the parents of Vincenzo. At all material times they were the signing officers of the Western Ontario Intercity Bowling League, an unincorporated association which had bank accounts at a branch of the plaintiff bank in Guelph, Ontario.
6The defendant, T.A. Storr Holdings Inc., is a corporation with its head office in Guelph, Ontario and Thomas and Carol are the officers and directors of the company. Shane Storr is the son of Thomas and Carol and the brother of Vincenzo. Tomas Cihula is the former partner and roommate of Vincenzo and at the relevant times had accounts at branches of the plaintiff bank in Guelph and in Cambridge, Ontario.
The Evidence on behalf of the Plaintiff
-The Obtaining of the Money
7Mr. Salvatore Rosati investigated these impugned transactions on behalf of the plaintiff bank. He has almost 40 years’ experience with the bank and with a company formed by the plaintiff bank and two others to handle the investigation of fraudulent schemes, identity theft problems and internal employee dishonesty situations.
8He testified that where a customer wishes to obtain a cash advance on a Visa card, the customer presents his card and makes a request to a teller. His or her card is usually processed through a point of sale terminal which in turn creates a slip that is then signed by the customer. The procedure is basically the same if the Visa card is from an American bank or a different Canadian bank. In this case, all of the transactions in question were done without utilizing the point of sale terminal. Rather the customer’s Visa card was processed using the old style of embossing machine where the card is placed on the machine and part of the machine rolls over the card and embosses the information on the documents necessary for the transaction. The customer is required to provide satisfactory identification. If everything else is in order, then the teller is required to call a TD Visa office if it is a Visa card being used in order to obtain approval to advance the requested amount of cash based on the state of the account. He explained that the use of the older style embossing machine process is perfectly valid, and still used if for some reason the system is down. The important thing, insofar as the facts of this case are concerned, is that the teller must call the Toronto-Dominion Visa processing centre to obtain approval of the cash advanced, based on the circumstances of the Visa account. The teller making the call is then given approval in the form of an authorization number.
9By means of formal agreements and controls existing as between banks, if a bank makes a cash advance on the strength of a Visa card from another bank, there exists routines through which the former recovers the amount advanced from the card-issuing bank. If irregularities are discovered in the process, they have a fixed period of time during which they can call on the bank who issued the Visa card and who holds the account on which the money was advanced to make good on the amount advanced to the customer. If the monies are repaid but thereafter the card-issuing bank discoveries irregularities, it can seek to recover what it has paid if it moves to do so within industry stipulated time periods. Here, the amount advanced by the TD Bank and forming the basis of its claim is the $494,425 advanced by the plaintiff on the strength of two Bank of America Visa cards is that portion of the total advance which it could not recover payment from the Bank of America.
10There were 12 cash advances in this case which combined to form the $494,425 claim. There are many similarities in the 12 transactions. All were cash advances done on the basis of the manual embossing machine system, rather than utilizing the modern point of sale terminal which automatically, by computer, obtains a legitimate authorization number for the process. In all these cases, the identification provided was a Quebec driver’s licence. All of the advances were on the strength of one or the other of two Bank of America Visa cards in the name of Vincenzo Storr. In all of them, the authorization number for the transaction was obtained in the old way, namely by a teller’s telephone call. The difficulty is that as it turns out, the authorization number was in fact not one generated from the TD Bank Visa Centre and these authorization numbers were not legitimate.
11In a normal transaction, the documentation produced using the embossing terminal would make three copies, one of which would be for the bank data centre, which would be the documentation through which the TD Bank, which advances the funds, would get their money back from the Bank of America, the issuer of the Visa card on which the cash advance was based.
12The illegitimacy of the transactions in question here came to light when it became apparent that the authorization numbers obtained by the bank tellers were not legitimate authorization numbers. Some of the purported authorization numbers were in fact repeated during the series of transactions, which cannot happen if they are legitimate.
13Videotape evidence of the client attending before the teller in these transactions was obtained. The client was Vincenzo. In each case, he either passed his cell phone to the teller, who then spoke to someone at the other end of the phone, understanding them to be with the bank’s Visa centre, and the teller was provided with what was in fact a bogus authorization number. In other cases, the teller telephones a number provided by Vincenzo, who indicated that it was the number of the Bank of America authorization centre. The teller then phoned that number. In each case, the person with whom the teller speaks is obviously an unidentified accomplice of Vincenzo and knows enough about the situation to provide an authorization number which on its face appears as though it could be legitimate. Sometimes the teller noted the name given as the identity of the person with whom they spoke at the Visa authorization centre. Investigation showed there was no person by that name.
14Exhibit 14 in these proceedings is a list of the 12 cash advances and of the bank drafts obtained on the basis of the cash advances fraudulently advanced.
15Mr. Rosati admitted during his evidence that the bank employees in question did not follow proper protocol. They should have used the point of sale terminals as they were working at the time of all these transactions. They should have known better than to accept Vincenzo’s suggestion that because his request was based on Bank of America Visa cards they had to process the transactions using the manual embossing machines. The reason this instruction was given, it is clear, is because that bypasses the computerized method of obtaining a valid authorization number which flows automatically if a point of sale terminal is used for these transactions.
16Mr. Rosati also learned during his investigation that Vincenzo had struck up an acquaintance with a manager of the TD branch in question. When tellers would make any inquiries as to the propriety of what they were requested to do, they would receive approval from the manager.
17There was no attack during cross-examination by Vincenzo’s counsel on the description given by Mr. Rosati of the transactions in question. Under cross-examination by Mr. Madorin, on behalf of the rest of the defendants, Mr. Rosati agreed that his investigation did not show any of the other defendants to be involved in the obtaining of the cash advances or the bank drafts based upon them. Mr. Rosati agreed the only apparent involvement of the other defendants relates to the fact that monies appear to have gone through their accounts or to have ended up in their accounts. Mr. Rosati also acknowledged that the tellers, or customer service representatives as they are called, working for the plaintiff bank are trained as to the proper way in which these advances are to be made and as to how the authorization numbers are to be obtained. He agreed that accepting a phone number from Vincenzo as the number to be called for purposes of obtaining a valid authorization number was a breach of policy and duty on the part of the tellers in question. He also agreed that if they had followed the appropriate policy and instructions they had received, these transactions would not have happened. He further agreed that the manager of customer service at the branch in question had been trained in the appropriate policies for these types of transactions and acted in breach of his duty in indicating they should be approved. The bank investigated but could not find any information about the phone numbers that had in fact been used when the phone calls were made seeking authorization numbers.
18Karen Boulay-Kerr was called by the plaintiff. She has been an employee of the plaintiff for over 28 years, the past six of which has been in the capacity of a Regional Operations Advisor. Her evidence entailed an explanation of various banking documents, and how they are produced, that related to the transactions in question and the accounts within the TD Bank that were affected. Counsel for Vincenzo asked to be excused, indicating it was with his client’s instructions, during her evidence and hence had no cross-examination. Mr. Madorin cross-examined but, with no disrespect, nothing was uncovered that is material to the disposition of this case.
19Olga Ferreira testified in greater detail as to the sequence of events that occurs in a transaction such as those perpetrated here by Vincenzo. She confirmed that if a transaction like these is done utilizing the normal machinery now in use, the point of sale machine, the generation of the paperwork is all done automatically including the obtaining of the valid authorization number.
20As explained earlier, but in less detail, if an embossing machine is used for a cash advance, the TD teller runs the Bank of America Visa card through the embossing machine which then records the particulars of the customer and the Bank of America account on the appropriate form. The TD Bank teller is then to call the TD authorization centre, which in turn gets an authorization number for the transaction from the Bank of America, and then the authorization number is relayed back to the teller who records it on the cash advance slip. The cash advance slip comes in three parts. One for the customer, one for the TD Bank, and a third which goes through a bank clearing process with the Bank of America. In the normal course, when the Bank of America gets the copy of that slip, they reimburse the TD Bank for advancing the cash, on the strength of the Bank of America Visa card, to the customer. If it is determined that there is a problem with the transaction, then what happens is referred to as a “charge back”. When TD gets paid by Bank of America, but Bank of America then discovers an irregularity in the procedure, such as no valid authorization number from Bank of America, then the Bank of America asked TD Bank for a return of the money – that is the “charge back”. There are timelines within which such a charge back can be made. After the expiration of the timeline, Bank of America does not have the right to recover the money. These rules and regulations are governed by the International Operating Regulation which governs charge backs.
21Mrs. Ferreira became involved because of the charge backs initiated by the Bank of America with respect to these transactions. Such charge backs can occur where the money is advanced even though the authorization request was declined, or were advanced where no valid authorization had been obtained. If a charge back comes through of this type then Mrs. Ferreira’s department is responsible for researching the entire transaction to see if the charge back is correct and if anything can be done about it by the TD Bank. She verified during her investigation that the charge backs were in accordance with the International rules, and that there was nothing further the plaintiff bank could do by way of redress against the Bank of America.
22What it comes down to in this case, Mrs. Ferreira explained, is that her investigation concluded that the Bank of America was correct in maintaining the position that the authorization numbers allegedly provided in this case were not legitimate and had not been provided by Bank of America personnel. She was also able to confirm that the TD Visa branch was never called in this case for assistance in obtaining a valid authorization number. She also testified that the bogus authorization numbers provided to the tellers in these transactions, as recorded by them, were in fact fictitious authorization numbers in respect of these transactions as verified by a central record of authorization numbers maintained within the industry.
-The Tracing Evidence
23Mr. Paul M. Ross was retained by the plaintiff to trace the funds obtained using the cash withdrawal and bank draft transactions referred to earlier. Mr. Ross is a chartered accountant, a partner in KPMG, a senior vice-president in its forensic section, is a chartered business evaluator, has been designated by the Canadian Institute of Chartered Accountants as a specialist in investigative and forensic accounting and maintains memberships in six different professional organizations, including the Association of Certified Fraud Examiners and the Alliance for Excellence in Investigative and Forensic Accounting. His qualifications and experience are outlined in Exhibit 16. There were no questions asked by way of cross-examination as to his qualifications and he was acknowledged by Mr. Madorin to be an expert qualified to give opinion evidence. Mr. Punnett, counsel for Vincenzo Storr, asked to be and was excused from attending court for the evidence of Mr. Ross, assuring the court that he had his client’s instructions to do so. In my opinion, Mr. Ross was eminently qualified to give opinion evidence relating to the tracing of the funds obtained from the Toronto-Dominion Bank.
24Mr. Ross was originally engaged in 2006. His work involved a detailed consideration of over 56 bank accounts and hundreds of transactions that went through them.
25Mr. Ross prepared a report dated July 25, 2007, with an accompanying volume of schedules. Redacted copies of those two documents were filed on consent as Exhibits 26A and 26B. The redacted portion of 26B is a summary of the various bank accounts through which funds had to be traced, listing them by the name of the institution, the account number, the account type, the account holders and the period of time during which the information about those accounts was received.
26Blackmont Capital is an investment vehicle used by the Storr family to manage investment assets. It manages 34 investment accounts, which are in turn held in individual defendant’s names.
27The redacted version of the 2007 report, marked as Exhibit 26A, contains the conclusion that the amounts transferred from the TD Bank drafts obtained by Vincenzo in 2006 to Blackmont totalled $350,000 and ended up in two Blackmont accounts held in the name of Carol. At page 27 of that exhibit is a list of the 34 investment accounts held in Blackmont and shows the account numbers, the type of account, the account holders and the balance in each account as at April 30, 2006 and as at July 31, 2006.
28In section 11.1 of Exhibit 26A, Mr. Ross describes the approaches to tracing and the general approach that was used. Where possible, direct or specific tracing is the most reliable route and in Mr. Ross’s analysis, $77,450 could be specifically or directly traced into Blackmont accounts from the Bank of America Visa cash advances which were not charged back by the Bank of America and were used to purchase Toronto-Dominion Bank drafts. The balance of the $350,000 traced to Blackmont accounts by Mr. Ross using what in his opinion are appropriate equitable tracing principles also originated in Bank of America cash advances, which went into TD Bank drafts which were charged back and hence not recovered by the TD Bank.
29Exhibit 23 is a letter by Mr. Ross dated December 5, 2013 which explains the efforts he made to assist the court in understanding the tracing of funds at trial. Attached to his letter are 15 charts which trace the proceeds of each of the Toronto-Dominion Bank drafts in question through often several intermediate accounts and through to their destination in the hands of one or more of the defendants. The first chart is an overall summary of the tracing of all of the bank drafts. There then follows charts tracing the flow of funds from each bank draft, or a combination of bank drafts, into the hands of individual defendants. Often these tracing efforts follow the funds through “hub” accounts in which proceeds from various drafts are deposited and then further disbursed from there. Many of the transactions shown in these individual charts are transactions that are admitted by Vincenzo because he did not reply to the notice to admit and admitted by Mr. Madorin on behalf of his clients. Those transactions which are not admitted have, in my opinion, been proven on a balance of probabilities to have occurred in the manner suggested and interpreted by Mr. Ross.
30By way of further assistance to the court, and counsel, are five books prepared by Mr. Ross, numbered books 1 through 5, and marked at trial as Exhibits 18 through 22, inclusive. Each book relates to the activities flowing from one or more particular TD drafts. For example, Book 1 deals with the proceeds of TD draft #29111666 at Tab A, draft #29111791 at Tab B, and TD draft #29111991 at Tab C. After the summary chart, which in the case of Tab A traces the funds to Tomas Cihula, there appear eight tabs, each of which contains copies of the cheques, deposit slips, drafts or other financial information which form the basis of the tracing outlined in the summary which appears as the first document under that tab. On each of the documents, the relevant entries are marked and cross-referenced.
31I must admit that I am at a loss as to how I could describe in words all of the information contained in these books. It is the type of information which is much better explained and portrayed in charts and the supporting marked exhibits as has been done by Mr. Ross.
32The defence called no expert evidence to challenge the evidence of Mr. Ross.
33Having listened to his detailed evidence, which took the court through each of the transactions and all of the supporting documentation, and taking into account his qualifications, and taking into account that the cross-examination of him, in my respectful opinion, did nothing to undermine his opinion, but rather sought clarification of certain items, I am of the opinion, and I find, that the proceeds of each of the bank drafts, insofar as they can be traced, are accurately traced by Mr. Ross in these five exhibits.
34Accordingly, in respect of Exhibit 18, which is Book 1, at Tab A, $29,000 can be directly traced from TD Bank draft #29111666 through to a TD line of credit in the name of Tomas Cihula and was used to pay off his pre-January 2006 loan on that account.
35As to Exhibit 18, Book 1, Tab B, I accept that by direct tracing, $29,500 is proven to have come from TD Bank draft #29111791 and was used to pay off a line of credit in the name of Shane Storr, which existed as of January 2006.
36On the basis of Exhibit 18, Book 1 at Tab C, I conclude that by means of direct tracing, $77,450 from TD Bank draft #29111991 can be traced through various accounts through to Blackmont account #215-200-E1 held in the name of Carol . These funds form part of the funds totaling $350,000 traced into Blackmont. This $77,450 sum is the amount that can be so directly traced.
37Based on Exhibit 19, which is Book 2, I am satisfied that from TD Bank draft #28327906, $5,000 can be traced using acceptable equitable tracing methods to a cash withdrawal by Thomas through Western Ontario Intercity, and that $5,000 can be properly traced through to paying on a line of credit in the name of Tomas Cihula.
38On the basis of Exhibit 20, being Book 3, at Tab A, I am satisfied that from the sum of $29,569 can be equitably traced from TD Bank drafts #29111887, #29111888 and #29111889 through to CIBC account #81-99930, which is a hub account, in Mr. Ross’ terminology. Based on the contents of Exhibit 20, Book 3, Tab B, I am satisfied that from TD Bank draft #29111889 the sum of $4,970 can be equitably traced to a Canadian Tire MasterCard account in the name of Thomas , which in Mr. Ross’ terminology is a hub account. I am also satisfied that from the same TD Bank draft #29111889 the sum of $20,000 can be traced through accounts held in the name of Tomas Cihula, Vincenzo , and Vincenzo, Thomas and Carol through to CIBC account #77-97532 held in the name of Carol Storr, which is another CIBC hub account in Mr. Ross’ terminology.
39On the basis of the materials found in Exhibit 21, being Book 4, at Tab A, and based upon Mr. Ross’ evidence with respect to those items, I am satisfied that from CIBC account #8199930, being a CIBC hub account held in the name of Vincenzo, the sum of $90,183 has been shown to be properly traced to Blackmont account #215-200-E2 held in the name of Carol.
40Based on Exhibit 21, being Book 4, and the contents of Tab B, as testified to by Mr. Ross, I find that from TD Bank draft #29111792 the sum of $8,000 has been properly traced to pay off the balance of a line of credit owed by Shane Storr in Royal Bank account #22118293. I am also satisfied that from that same TD Bank draft the sum of $15,634 has been properly traced through to Blackmont CIBC account #81-99930, which is another hub account.
41Based on the documentation at Tab C of Exhibit 21 and the evidence of Mr. Ross respecting those items, I am satisfied that from TD Bank draft #29111886 the sum of $29,980 has been properly traced to CIBC account #81-99930 held in the names of Vincenzo, Thomas and Carol , that account being another hub account.
42Based on the contents of Tab B of exhibit 22, being Book 5, and upon the evidence of Mr. Ross, I am satisfied that from CIBC account #81-99930, being another hub account, held in the name of Vincenzo, Thomas and Carol, the sum of $247,500 can be traced to that CIBC account #20-64936, the hub account dealt with under Tab A of this same Exhibit 22.
43From the same Exhibit 22 and the contents of Tab C, as testified to by Mr. Ross, I am satisfied that from TD Bank draft #29111929 the sum of $75,200 has been proved to have been traced through and into the CIBC account #81-99930, the second hub account, held in the names of Vincenzo, Thomas and Carol .
44Based on the contents of Tab D in Exhibit 22 and the evidence of Mr. Ross, I am satisfied that from TD Bank draft #29111990 the sum of $77,350 has been proved to have gone into CIBC hub account #8199930 held by Vincenzo, Thomas and Carol .
45Based on the contents of Exhibit 22, being Book 5 at Tab A and the evidence of Mr. Ross, I am satisfied that from CIBC account #20-64936, a hub account, the sum of $112,350 has been accurately traced to President’s Choice Financial account #44391209 held in the name of Carol.
46It appears that by the conclusion of the plaintiff’s case, there was no longer an issue as to whether the monies ended up in the accounts to which Mr. Ross traced them. The defence called only 2 witnesses, Vincenzo and Thomas, and it seems that based on their evidence that the live issues are that of alleged contributory evidence on the part of the plaintiff’s employees, and whether the defendants Thomas and Carol should be found liable to the plaintiff for all or a portion of the monies traced to their accounts, and if so, whether the plaintiff is entitled to any profits made by these 2 defendants through their possession of such funds.
The Defence as Pleaded
47On behalf of Vincenzo, it is admitted that the plaintiff is who it claims to be and that this defendant’s parents are who they claim to be. Everything else is denied.
48The defendant, Thomas, admits that the plaintiff, his son, and that he and his wife are who the plaintiff claims them to be, but denies all other allegations. In his original statement of defence he denies that he deposited or permitted to be deposited any of the funds fraudulently obtained by his son. Specifically, he pleads that he has not received nor benefitted from any of the funds obtained from the plaintiff. Of interest, in this original statement of defence, Thomas denies receiving any of the funds, rather than pleading that he received them but they were received in payment of legitimate loans owing by his son, Vincenzo, which was his position at trial. It must be noted that an amended statement of defence filed on consent at trial pleaded that the funds were received in payment of a debt owing by Vincenzo, and it was agreed by Mr. Earnshaw that this new position had been disclosed to him in April, 2013, shortly before scheduled discoveries.
49On behalf of the defendant, Carol, it is pleaded that she dealt with monies going into and coming out of her accounts believing all such transactions to be legitimate and she denies receiving any benefit from funds that went through her accounts. She also filed an amended defence at trial, on consent, advancing her new position that the monies received as a result of Vincenzo’s dealings were in payment of pre-existing debts owed by him to her.
50Both Thomas and Carol also cross-claim against Vincenzo for any amounts they are found liable.
51The defendant, Tomas Cihula, denies all allegations in the statement of claim, except the one alleging his address, and specifically pleads that he did not authorize the defendant Vincenzo to place any money into his accounts and denies receiving any benefit from such monies.
52The defendant, Western Ontario Intercity Bowling League, admits who it is as pleaded by the plaintiff, but denies all other allegations and specifically denies authorizing or knowing of any monies deposited into its accounts or any withdrawal of any such amounts, and denies benefitting from any of the funds fraudulently obtained.
53The defendant, T.A. Storr Holdings Inc., admits who it is pleaded to be by the plaintiff, but denies everything else in the statement of claim and specifically denies authorizing the deposit into or transfer from its accounts of any monies obtained by fraud. It denies that Vincenzo obtained any funds from the plaintiff fraudulently.
54The defendant, Shane Storr, admits that he is who the plaintiff pleads him to be, but denies the balance of the statement of claim and in particular denies receiving any benefit from any monies that Vincenzo obtained from the plaintiff.
55Thomas and Carol admitted, in their response to a request to admit, that between January 1 and August 11, 2006, they had no knowledge of their son Vincenzo being employed, no documents indicating that he was employed, and no witnesses indicating that he was employed. They further admit that they are not aware of any visible means of their son Vincenzo to support himself, or any visible means that he had to earn the income that would allow him to deposit the funds that he did into their bank accounts.
The Defence Evidence Relating to Vincenzo Storr
56Vincenzo Storr was the only witness called in his part of the case. He is 37 years of age, admits being the son of Thomas and Carol, and claims to have attended Conestoga College and completed courses in business accounting, and to have taken one year courses at Windsor University in the same field.
57After school, he claims to have worked for his father doing the household books and that his father left it up to him to deal with the accounts.
58Remarkably, although his statement of defence denies any wrongdoing, denies any fraudulent transactions, alleges that the monies were properly received on proper authorization from the Bank of America, in his evidence in chief he was not asked a single question about the fraudulent transaction or the dealings with the Toronto-Dominion Bank that involved the cash advances and the bank drafts – not one question.
59As I see it, the main point in him testifying was to try and assist the defence of the case advanced by the plaintiff against his parents. He testified that he came to owe his parents over $500,000 in and about 2003. Neither his lawyer or he had advised counsel for the plaintiff of this position prior to trial, although plaintiff’s counsel knew through counsel for Thomas and Carol and the other defendants of the claimed defence. Mr. Vincenzo Storr, through his lawyer, did not reply to the notice to admit, and did not produce the documents which then came to be relied upon in support of his claimed defence that the monies provided by him to his parents went to pay off legitimate debts that he owed them. Vincenzo, through his counsel, came to rely on copies of the documents claimed to support his position by means of asking Mr. Madorin to provide his copy. Those documents are in a four-tab book marked as Exhibit 27. At Tab 1 is a Canada Trust line of credit in the name of Thomas and Carol, which indicates that in the month ending September 30, 2003 the sum of $135,551.76 was paid on the line of credit, thereby reducing the outstanding balance to $253.03.
60At Tab 2 is another bank statement from Canada Trust for the period ending September 30, 2003 regarding a different line of credit account in the name of Thomas and Carol listing a payment in the amount of $33,240.48 on the line of credit and reducing the outstanding balance to $26,649.85.
61At Tab 3 is a photocopy of a cheque written in favour of V. Storr on December 30, 2003 in the amount of $120,000, signed by Carol Storr and drawn on Canada Trust account #8490-4503727, which according to the printing on the cheque is an account in the name of Thomas and Carol.
62Tab 4 is another Canada Trust line of credit statement for the period ending April 30, 2004 and relating to the same line of credit as previously described under Tab 2. The statement indicates that a payment of $60,505.13 was received during that period and reduced the outstanding balance on the line of credit to $59,822.75. By then, that is by the April 30, 2004 statement, the address of Thomas and Carol had been changed to Post Office Box 42, Lewiston, New York, whereas in the September 2003 statement, the address was the family home on Oak Street in Guelph.
63Vincenzo testified that he ran up the lines of credit in Tabs 1 and 2, and then continued to run up the line of credit afterwards as shown in the statement at Tab 4 and that once the bank discovered the balances, and once his father became aware of them, his father felt obliged to make those payments so as to satisfy the amounts owing to the bank, but told Vincenzo that he in turn owed those amounts to his father.
64There is absolutely no other documentation tendered to support the claim that the line of credit payments constituted a loan to Vincenzo by his father. There are no cheques, withdrawal documents, cheques, I.O.U.s, promissory notes or other memoranda – nothing. Similarly, there is no documentation produced whatsoever that explains the circumstances of the $120,000 cheque found at Tab 3, and no documentation confirming that that advance was understood to be a loan, and no documentation explaining what the money was for.
65Vincenzo testified that it was he who changed the address on the line of credit to Lewiston, New York and that he did so because he wanted the bank statements to go to him, rather than to his parents’ home. I note that he claimed that the Lewiston post office box was his address.
66He also testified that he owed his parents another $28,000 on a loan that he took out in his father’s name on a MasterCard account and that his father paid it off for him. There is no documentation produced with respect to that claim, nor does his father mention it during his evidence.
67This defendant testified in chief that no monies went from Toronto-Dominion Bank drafts into the President’s Choice Financial account #44391209, held in his mother’s name. Rather, he claims that that money was provided by him from a line of credit he had at the CIBC. No documentation is produced. Mr. Ross was not cross-examined on his evidence that traced the money into the P.C.F. account as having come from three different TD Bank drafts.
68Vincenzo testified that TD Bank draft #29111929, dated June 24, 2006 in the amount of $75,520 and payable to the CIBC was deposited into his line of credit and that it reduced his line of credit to almost nothing. That is in accordance with Mr. Ross’ findings.
69He also testified that from Toronto-Dominion Bank draft #29111887, the sum of $29,975 was deposited to a Canadian Tire MasterCard account that he owed money on.
70None of those transactions, as described by Vincenzo, differ from the evidence of Mr. Ross, insofar as they go, the difference is that Mr. Ross then traced what happened to the funds after they had gone into the accounts as admitted by Vincenzo in his evidence. Mr. Ross produces the back-up documentation in his exhibits which justify the further flow of the monies. Mr. Vincenzo’s evidence would suggest that once the payments were deposited into the accounts as he claims, that was the end of them. He produces no documentation to justify his apparent assertion to the effect that nothing further was done with those funds.
71In part this may be explained by the fact that Vincenzo Storr didn’t bother attending the trial to hear the evidence of Mr. Ross, nor did his counsel.
72He claims that TD Bank draft #29111792 dated May 31, 2006 was payable to Western Ontario Intercity and hence seems to quarrel with Mr. Ross’ finding that part of the proceeds of that draft went into the Blackmont account #215-200-E2. What Vincenzo’s evidence neglects is the balance of Mr. Ross’ evidence that after the funds went into the Western Ontario Intercity account, they were then used to purchase two further bank drafts, and the funds then went through several more transactions but ended up in the Blackmont accounts held by Carol . He further testified that in respect of TD Bank draft #29111888 the sum of $29,960 went to an RBC account on which he was an authorized user and he argues that that amount could have been reduced or used to have reduced the amount he owed on that account.
73He produces no documentation. Mr. Ross produced the documentation tracing the funds after they left the RBC account.
74During the cross-examination of Vincenzo by Mr. Madorin, the only new development was the claim that the $60,000 payment made as referred to in Tab 4 of Exhibit 27 was explained to be a transfer from that line of credit to a fixed credit account because it had a lower interest rate, but the claim remains that Vincenzo didn’t pay it off, his father did, and that that constituted part of the debt. There is no further documentary support for this claim.
75In cross-examination by Mr. Earnshaw, Vincenzo admitted that he had difficulties with the TD Bank in 2004, as a result of opening a line of credit at that institution in the name of Jeffrey Painter, which was just a name he was using. He admits that he discussed that problem at the bank with his father at the time.
76In cross-examination, he confirmed that it was he who changed the line of credit account address from Oak Street in Guelph to Lewiston, New York, an account he said he had for his cross border shipping and receiving. He didn’t tell his parents about his changing the address for the line of credit at the time, but did when an order was obtained from the court on August 16, 2006 essentially freezing the assets of the defendants.
77He admitted in cross-examination that in 2006 he had no regular job except for the work he did in dealing with his father’s business accounting. He saw his father about once a week. He claims his father knew that he was in the stock market, but he agrees he had no regular pay cheque and that his father knew that. He agreed he never earned more than $105,000 in a year.
78Vincenzo admits that he was charged with the criminal offences of fraud over $5000 , arising from each of the two Bank of America credit cards, and on the eve of trial, he pled guilty to one count of fraud in respect of each credit card. He received a custodial sentence, together with a restitution order in January of 2011. It was not until April 19, 2012 that he brought a motion for an extension of time to appeal from the conviction which resulted from his guilty plea, and the sentence. That application for an extension of time has been adjourned from time to time since being filed. As of the trial date, the latest adjournment was to a date in the week after his scheduled trial date. I reserved this decision following submissions. Vincenzo’s appeal process was then adjourned yet again to a date later in the summer. Pursuant to s. 22(1) of the Evidence Act, R.S. O. 1990, c E. 23 convictions, including those based on guilty pleas are prima facie proof of the commission of the offence in a subsequent civil proceeding. But that prima facie presumption does not apply when the convictions are under appeal, as is the case here. The number of times the appeal application had been adjourned is somewhat mystifying, but is seems likely that it will continue to be adjourned until this civil case is determined.
79He admitted in cross-examination that he had no documentary support for his claim that he owed money to his parents on loans. When asked why he didn’t just repay his parents with cheques, rather than depositing the money into the Blackmont account, he answered that he just told them he was putting money into the Blackmont account, without specifying amounts except that one was for $50,000 and one was for $100,000. He testified that his parents asked him where he got the money, he believes, and that he believes he answered that it came from his line of credit. He had no real explanation as to why, if the moneys were to repay a debt owed as a result of his father making the payments on the line of credit, why he chose to allegedly repay the debt by putting the money into Blackmount investment accounts, thereby altering without consultation his parents financial planning. No supporting documentation is produced. He claims that even after telling his parents of his 2004 troubles with the bank over using the name Painter, his parents still left him with control over their accounts. When he realized how unrealistic that sounded, he then added “I may not have been too specific”. He reconfirmed on cross-examination that after his father found out about the amount of money he had run up on the lines of credit, his father felt obliged to pay them, and did, and that his father told him “you owe me” yet even after that, he claims his father still left him with control over his parents’ accounts and that he continued to run up further amounts owing on the lines of credit.
80As to his claim that he did stock market trading in the United States, with various brokerage companies, he produced no documentation and gave no particulars as to amounts allegedly earned. He agreed that not even his father provided him with a regular pay cheque. When questioned about how his father could not notice the apparent disparity between his lack of a regular job and apparent lack of regular income as compared to the lifestyle he was leading, his answer was that “he (his father) didn’t want to talk about it”.
81Counsel for the plaintiff delivered a request to admit regarding the transactions giving rise to this action. Mr. Punnett, counsel for Vincenzo, did not respond to the request to admit and accordingly Vincenzo is deemed to have admitted the facts and the authenticity of the documents referred to in the request to admit. Mr. Madorin, on behalf of all other remaining defendants, admitted some of the facts, but not others, and admitted the authenticity of the documents.
82In my opinion Vincenzo’s evidence was made up as he went along, was inconsistent with the detailed evidence of Mr. Ross, and was inconsistent with common sense. His own counsel did not even attempt to have him deny the circumstances under which he obtained the funds. He is in my view a deliberate and calculating cheat and his dishonesty continues to be exhibited in his testimony. I don’t believe his evidence.
Evidence Led on Behalf of the Remaining Defendants
83Thomas Storr was the only witness called. He is age 74, husband of Carol, father of Vincenzo, and lives in Guelph. Mr. Storr testified that he was a vice-president for many years of the Western Ontario Intercity Bowling League, but claims that in and around 2006, he had the only signing authority. He testified that T.A. Storr Inc. is his holding company and that Shane Storr is another son who now lives in the Cayman Islands, and has for the past five or six years. He testified that his son Vincenzo did not have signing authority on his accounts. He claims that he did not receive any bank statements in 2006, but it was as a result of the fact that he didn’t know how to go online to get them. He claims that he was not using the line of credit accounts at the TD Bank. He says he first became aware of his son’s impugned transactions when he went to the TD Bank to look at something in his safety deposit box and a bank employee gave him a phone number to call, which he did, which turned out to be Mr. Rosati, who told Mr. Storr that he would go to the bank and wait for him there so Mr. Storr could come and examine the contents of his safety deposit box. He explained that Mr. Rosati said he could not get into the box by normal procedures because there had been some fraudulent transactions going on. He testified that as Mr. Rosati explained, he was on holidays at the time Mr. Storr rejected his offer as his need to see the safety deposit box was not urgent. I suggest it is curious and unrealistic that Thomas react with immediate alarm and seek to find out the details, if indeed he knew nothing of his son’s actions.
84Thomas Storr testified that he was not involved in the acquisition of the bank drafts from TD Bank using the Bank of America credit cards as done by his son, and that he didn’t know about how the money was being moved around.
85He explained that the Blackmont account is an investment account of he and his wife. He testified that he thinks about $300,000 went into that account, but it was just payments made by his son to pay he and his wife back for money that Vincenzo had taken from their lines of credit. He added he did not know how his son was paying the money back. When questioned about the Western Ontario Intercity Bowling League transaction, Mr. Storr offered that he remembered one occasion when his son Vincenzo had put money into the Western Ontario account and then phoned and asked his father to get a bank draft drawn on that account because Vincenzo needed to use it to pay a bill that he owed. He doesn’t remember any more of the details except that the bank draft was for something in the neighbourhood of $10,000 - $15,000. No documentation was produced.
86When asked whether or not Vincenzo was employed in the period May through August 2006, Thomas testified that he really wasn’t involved, he knew his son did some accounting work and some part-time teaching at Conestoga and that Vincenzo did some part-time work for Thomas and was paid as a part-time employee.
87In respect of the lines of credit payments at Tabs 1, 2 and 4 of Exhibit 27, he testified that the amounts borrowed on the lines of credit were done by his son. He says that he did not know when he learned about the amounts owing. Although he says he didn’t know about the amounts being taken or when he found out about them, he later testified that Vincenzo took the money for his investments but that he (Mr. Storr) never questioned that Vincenzo would pay him. Thomas offered no documentation to support the claim that the amounts paid on the lines of credit as reflected at Tabs 1, 2 and 4 were paid by him or his wife, as opposed to Vincenzo using accounts over which he had authority, and produced no documentation supporting the claim that there was an agreement that the payments made would constitute a loan owing by Vincenzo to his parents.
88As to Tab 3, the $120,000 cheque from mother to son, Mr. Storr could only say “I thought he wanted it to invest in a property”. In cross-examination by Mr. Earnshaw he testified that Vincenzo would do some investing for his parents and that he would use the lines of credit. He maintained he didn’t know where Vincenzo got the authority to sign on his parents’ bank accounts and claims that Mr. Storr never gave him such authority. He agreed that a question arose in 2004 about some funds at the bank and the funds could be “back charged”. He was shown details of many of his bank accounts and claimed not to know how some of those accounts ended up as being accounts of he and his wife and his son Vincenzo. He denied that it seemed suspicious to him that his son would ask his father to obtain a bank draft from the Western Ontario Intercity Bowling League in order to pay some account that his son owed. After claiming that a payment of $23,500 was made by him from account #4170, he then was shown that in fact the account holder of that account was Tomas Cihula and admitted he must be wrong about that one.
89He was questioned again about the $120,000 cheque found at Tab 3, and was shown that in fact the account on which the cheque was drawn was in the names of both Carol and Vincenzo, so he didn’t know why she would be writing Vincenzo a cheque on an account that Vincenzo jointly held with her. Vincenzo could write it himself.
90In terms of the Lewiston post office box address, Thomas Storr testified he didn’t know why the statements were sent there, but he also testified that that Lewiston post office box address was one that he and his wife have for their use, which is inconsistent with his son’s claim that it was his box.
91When questioned again about the $350,000 paid into Blackmont, his evidence was that he knew it was not his money going in there, and said that he knew that Vincenzo was putting that money in and that he thought it was coming from the sale of “some property investment”.
92Thomas testified that his wife did all the banking, but he couldn’t explain why she would not tell him if she stopped receiving any bank statements during this relevant time period.
93In my assessment Thomas professed to recollect matters, albeit in general terms, if they were favourable to his position, but somewhat conveniently had no recollection as to other matters which potentially undermined his position or that of his wife.
94None of the defendants Carol, Tomas Cihula, or Shane Storr testified or called any evidence. Nor did Western Ontario Intercity Bowling League or T. A. Storr Holdings Inc. call any witnesses.
The Contributory Negligence Issue
95Mr. Madorin accurately submits that Mr. Rosati’s evidence made it clear that the plaintiff’s tellers had a duty to follow the appropriate procedure in this type of transaction, which if to be done by means of an embossing machine, required the teller to telephone the TD Visa centre who would then obtain an authorization number and relay it to her. As those procedures were not followed here for the 12 transactions in question, Mr. Madorin submits the plaintiff is contributorily negligent. He points out that Mr. Rosati admitted that if proper procedures had been followed here it would have prevented these losses.
96In support of his submission, Mr. Madorin relies on Vitalaire v. Bank of Nova Scotia et al as authority for the proposition that a bank can owe a duty to a non-customer. That case, however, was the ruling on a motion to strike on the grounds that a statement of claim showed no cause of action and the conclusion at para. 6 simply stands for the proposition that there was sufficient authority to support a proposition that a bank may owe a duty to non-customers, so there was a genuine issue for trial and accordingly that it was inappropriate to strike the claim on a Rule 21 motion.
97He also relied on the Treaty Group Inc. v. Drake International. That is a case where the plaintiff business was defrauded by a bookkeeper hired by them through the defendant personnel company. The bookkeeper had a criminal history of fraud which the defendant personnel company had not been made aware of and the plaintiff sued the defendant for negligent misrepresentation, breach of contract and negligence. The defendants argued that the plaintiff was contributorily negligent in that it had poor control systems which allowed the bookkeeper to defraud the plaintiff. The plaintiff was found contributorily negligent on the basis of shortcomings in its control systems. At paras. 69-71 it was held that in a contract action, it was best to refer to contributory fault rather than contributory negligence, but the case held that damages could be reduced by the percentage of contributory fault as found by the trial judge. Finally, he cites the case of 124329 Canada Inc. v. Banque Nationale du Canada, 2011 QCCA 226. It is clear that an article of the Quebec Civil Code was instrumental in the determination of whether a duty was owed. For that reason, I don’t think this case to be of use in this case.
98Mr. Earnshaw points out that in the Treaty Leather case the fraudster was the employee of the plaintiff. In our case, the fraudster was not an employee or under control of the plaintiff bank.
99Mr. Earnshaw relies on the case of Century Services Inc. v. New World Engineering Corp., [2013] O.J.No. 2372. In that case, the plaintiffs were investors seeking damages for fraud as a result of the dishonest dealings of the defendants. The trial judge concluded that the evidence would justify a finding that the plaintiffs had been negligent in failing to carry out due diligence as to the principals of the defendant. At para. 89, however, it was held that the preponderance of authority supports a conclusion that want of care (or contributory negligence) is no defence to fraud. It further holds that “it would be wholly unjust and highly inappropriate in this case to allow these defendants (the fraudsters) to shift any portion of liability for their fraudulent conduct onto the plaintiffs or other defendants”. The Ambico decision is relied on, and I refer to it next.
100In Ambico Ltd. v. Loeb Inc., [1993] 13 O.R. (3d) 423, the Ontario Court of Appeal. There the plaintiff owned a fleet of vehicles and was provided with a credit card by the defendant which Ambico’s employees were to use when they attended at the defendant’s station for fuel. Some of employees of Ambico committed fraud in connection with their use of the credit card. At trial the action was dismissed on the basis that Ambico was negligent in failing to utilize acceptable control systems. An appeal was allowed. It was held on appeal that the plaintiff was not obliged to assume it would be victimized by a fraudulent scheme and not responsible for creating controls to make such a scheme impossible. Reliance was placed on United Services Funds v. Richardson Greenshields of Canada Ltd. (1988), 22 B.C.L.R. (2d) 322 where at page 336 it was held that “once the plaintiff knows of the fraud, he must mitigate his loss but, until he knows of it, in my view, no issue of reasonable care or anything resembling it arises at law”.
101In that Richardson Greenshields case, there the plaintiffs were trustees of a mutual fund who sued the defendant as a result of fraud on the part of an employee of the defendant. The defendant sought to have the damages reduced on the basis of contributory negligence on the part of the plaintiff for failing to have proper or any internal controls and failure to exercise proper care in hiring employees. At page 8, the court rejected the contention that the contributory negligence section of the British Columbia Act created an obligation on the part of plaintiffs, victims of fraud, to take care of themselves, or stated conversely, that no matter what cause of action arises against a defendant, he can defend himself, at least partially, by showing that the plaintiff failed to exercise reasonable care to prevent the loss and hence contributed to it. Further, at page 13 it is held that “carelessness on the part of the victim has never been a defence in an action for fraud”. As a matter of policy, at page 14, it is noted that applications of contributory negligence principles in such circumstances would in fact just contribute to dishonesty as it would do nothing more than to play into the hands of the dishonest rogue.
The Plaintiff’s Position
102The plaintiff concedes that there is insufficient evidence before the court to support a finding of conspiracy to defraud amongst the various defendants and accordingly the claim at paragraph 1 (a) of the statement of claim and that portion of the claim in paragraph 1 (h) are not being pursued. The plaintiff does claim a declaration that the defendants receive the proceeds from the fraudulent credit card advances on the basis of a constructive trust for the benefit of the plaintiff and that that constructive trust continues to apply to the funds through the various transactions into the hands of the holders. Secondly, the plaintiff seeks an order for equitable tracing of these funds. Thirdly, and in the alternative, the plaintiff seeks judgment for damages for conversion or fraud.
103The fact that Vincenzo’s guilty pleas and convictions cannot constitute prima facie evidence of his fraudulent actions is, in my opinion, of little moment. The evidence led by the plaintiff in this case clearly establishes that Vincenzo obtained the funds advanced by way of cash advances and placed into bank drafts by deceit, falsehood or other fraudulent means. By such means, he tricked the plaintiff’s tellers into believing that they were dealing with the Toronto-Dominion Visa centre and through them obtaining from the Bank of America valid authorization numbers for the requested transfers. The evidence demonstrates that the numbers dialed for the tellers, or the telephone numbers provided to be used by them were not valid and in fact resulted in the teller speaking to someone of Vincenzo Storr’s choosing, who was then sufficiently schooled to provide authorization numbers which sounded genuine. They weren’t.
104It is important to note that when Vincenzo testified, he was not asked a single question in chief about the bank transactions and was only questioned about what happened to the funds after they were obtained. Similarly, in cross-examination, he did not directly deny the transactions at the bank or that he was the perpetrator. He made a vague suggestion that in fact the Bank of America did authorize the transactions but offered no particulars, and offered no supporting documents or witnesses. I found him to be an incredible witness and a cheat. His failure to respond the Notice to Admit is and admission of his actions at the bank.
105I have no hesitation in finding that the plaintiff has established that Vincenzo obtained the cash advances, and based upon them, the bank drafts, by fraud and deceit.
106As indicated earlier, the primary submission of the plaintiff is that the funds thereby obtained are impressed with a constructive trust that follows such funds through and into the hands of the other defendants.
107The plaintiff relies in part on excerpts from Peter D. Maddaugh and John D. McCamus, The Law of Restitution, Volume 1, loose-leaf (current to 2012, Release 9) (Toronto: Canada Law Book, 2012), chapters 5, 6 and 7. Those chapters deal with equitable remedies, tracing at law and tracing in equity.
108At chapter 5, at section 5:200.30, the court deals with constructive trusts arising in circumstances where the proceeds have been obtained by fraud. No pre-existing fiduciary relationship is required. As a matter of equity, the party who commits a fraud is converted into a trustee for the party who is injured by his fraud. As held in Westdeutche Landesbank Girozentrale v. Islington L.B.C., [1996] A.C. 669 (H.L.) at page 716: “When property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity”. The authors note that the justification for the principle is to prevent the unjust enrichment of the fraudulent party. In Pahara v. Pahara, [1946] S.C.R. 89 a wife deceived her husband in circumstances which Rand J. as “fraud” and it was held that that fraud gave rise to unjust enrichment and an equitable right to restitution in the form of a constructive trust follows.
109In appropriate circumstances, the profits derived from the use of the property obtained by fraud can be impressed with a trust. If the fraudster, or constructive trustee, gives the property to a third party, then that third party would normally be required to yield the property to the plaintiff in whose favour the constructive trust lies.
110As indicated at section 5:200.10 of the same text, there are three situations in which a stranger can be held liable to the constructive trustee. The first one arises where the stranger was part of the wrongful act. The second is where the stranger assisted in the fraud. The third situation is where the stranger or a third party is in “knowing receipt” of the property. For “knowing receipt”, it is made out if it can be shown that the property subject to the trust was received with either actual or constructive knowledge of facts which “would have put an honest and reasonable person on notice”.
111As held in Citadel General Assurance Co. v. Lloyds Bank Canada, [1997] 3 S.C.R. 805 at pp. 837-8, “Relief will be granted where a stranger to the trust, having received trust property for his or her own benefit and having knowledge of facts which would put a reasonable person on inquiry, actually fails to inquire as to the possible misapplication of trust property. It is this lack of inquiry that renders the recipient’s enrichment unjust.”
112The authors continue at section 5:200.10 that “Hence, it is with respect to cases of knowing receipt that the constructive trust remedy is typically imposed. As Iacobucci J. observed in Gold. v. Rosenberg, [1997] 3 S.C.R. 767 at p.784:
The essence of a knowing receipt claim is that, by receiving the trust property, the defendant has been enriched. Because the property was subject to a trust in favour of the plaintiff, the defendant’s enrichment was at the plaintiff’s expense. The claim, accordingly, falls within the law of restitution.
113The authors then continue “Given this proprietary element, knowing receipt cases are closely related to those involving a tracing order” and has authority again refer to Citadel General Assurance at pp. 842-3
114Accordingly, the plaintiff’s position is that if I find a fraud against Vincenzo, then the funds he obtained from the bank are impressed with a constructive trust in favour of the plaintiff bank.
115Mr. Earnshaw then turns to chapter 6 of the aforementioned text, dealing with tracing at law, which really equates to the direct tracing established by Mr. Ross, that is situations where the actual funds can be traced into the hands of a recipient without co-mingling or mixing. In such cases, legal title to the money has remains with the plaintiff throughout and not in the holder defendant.
116The case of Holmes v. Amlez International Inc., [2009] O.J. No. 4513 provides recent jurisprudence on these issues. In that case, the plaintiff had been defrauded by his bookkeeper and sought to recover funds in the hands of other third parties as a result of the bookkeeper’s fraudulent actions. It was held at para. 7 by Justice Corbett that “The court will impose a constructive trust to permit a fraud victim to recover property lost as a result of the fraud. This recovery may arise against third parties if it is shown that the third party provided knowing assistance to the fraudster, was in knowing receipt of proceeds of the fraud, or if the proceeds of the fraud may be traced to that third party.” Goodbody v. Bank of Montreal (1974), 47 D.L.R. (3d) 335 at 339-340, and Citadel General Assurance, supra, are cited as authority.
117At para. 10, Justice Corbett repeats that constructive knowledge arises in circumstances where the recipient of information fails to make proper inquiry in circumstances where a reasonable and honest person would recognize that the funds arose from a suspicious or improper source and fails to make reasonable inquiry. At para. 12, Justice Corbett holds that the required level of knowledge need not arise at the time of receipt of the funds but even if the funds are received innocently “once the recipient learns of the fraud or breach of trust, whether actually or constructively, he is liable to return any of the property that he then still holds.” and cites D.W.M. Waters, Waters’ Law of Trusts in Canada (3d) ed. 2005 at 492-498. Interestingly, in that case, one of the third party holders of the funds failed to provide any documentary evidence to support his position that he received the funds legitimately, in good faith, and for proper consideration and without any knowledge of the fraud or suspicious circumstances. That defendant was alleging that the money was owed to him as a debt and that the bookkeeper was simply repaying it. As noted in that case, there was no evidence to support the bald assertion to that effect, and not a single piece of documentary evidence tendered.
118In this case, Mr. Earnshaw’s position on behalf of the plaintiff is that the defendants, Thomas and Carol, were in “knowing receipt” of the funds from Vincenzo in that they knew of his circumstances which were sufficient to cause any reasonable person to make inquiry about the circumstances surrounding the payments alleged to be made in retirement of a legitimate debt. Mr. Earnshaw points to the admission of Vincenzo, when questioned about what his parents knew or what his father knew, answered to the effect that between he and his father, the arrangement was “don’t ask, don’t tell”. In Citadel General Assurance (supra), at para. 58, Justice LaForest holds that “A tracing order at common law, unlike a restitutionary remedy, is only available in respect of funds which have not lost their identity by becoming part of a mixed fund. Further, the imposition of liability as a constructive trustee is wider than a tracing order in equity. The former is not limited to the defence of purchaser without notice and “does not depend upon the recipient still having the property or its traceable proceeds”; see in re: Montague’s Settlement Trusts, supra, at p.276.”
119And at para. 59 he states “Despite these distinctions there appears to be a common thread running through both “knowing receipt” and tracing cases. That is, constructive knowledge will suffice as the basis for imposing liability on the recipient of misdirected trust funds. Notwithstanding this, it is neither necessary nor desirable to confuse the traditional rules of tracing with the restitutionary principles now applicable to “knowing receipt” cases. This does not mean, however, that a restitutionary remedy and a tracing order are mutually exclusive. Where more than one remedy is available on the facts, the plaintiff should be able to choose the one that is most advantageous. In the present case, the plaintiff did not seek a tracing order. It is therefore unnecessary for me to decide whether such a remedy would have been available on the facts of the present appeal, and I have not explored the issue.”
120Mr. Earnshaw next refers to chapter 7 of The Law of Restitution, supra at chapter 7 dealing with equitable tracing. At section 7:100, the authors note that “Hence, tracing in equity is, in reality, a means to a remedy rather than being a remedy in and of itself and go on to explain that it is in fact a process and may be utilized where the plaintiff seeks a judgment in personam or a judgment in rem.
121Goodbody et al v. Bank of Montreal et al, [1974] O.J. No. 1932 is a High Court of Ontario case in which the plaintiff was claiming the proceeds of sale of or the return of unsold share warrants which had been stolen from his premises and fraudulently acquired by the defendant Lester. Lester claimed to have purchased the warrants from an individual in the Bahamas for cash and hence be a bona fide purchaser for value without notice. The court looked to the vagueness and evasiveness of his answers at discovery, which was the basis of his evidence, in the absence of records in a transaction of that size and to the fact there was no corroboration as the existence of this seller in the Bahamas and rejected Lester’s assertions and Lester was found to have fraudulently converted the property. At para. 15, the court held that the property was subject to establish a fiduciary relationship and that the plaintiffs were entitled to trace the money in equity. It was held that whether the wrongdoer mixes such funds with his own money or retains it separately, or puts it all in a bank, or invests it in securities, effect is given to the real owner’s rights by allowing him a first charge on the whole of the property. The trial judge held that the amount of money held by Lester in the bank account in question, prior to the property in question being deposited, was insubstantial and that the onus was on the account holder, Lester, to prove what part of the funds indeed belonged to him as opposed to being impressed with the constructive trust.
121In Treaty Group Inc. (c.o.b. Leather Treaty) v. Simpson, [2001] O.J. No. 725, an employer sued his employee bookkeeper for theft of monies and also sued the bookkeeper’s husband, on the strength of forensic accounting evidence indicating that stolen funds had been used to buy items for him, to furnish the home he shared with his wife, and to finance their luxurious lifestyle. Amongst other remedies, the husband was ordered to pay one-half of the stolen amount on the basis that it was reasonable to conclude on the evidence that the husband had benefitted to that extent from the stolen funds. The evidence did not show the husband to be a participant in the fraud. The court found that the husband either knew or was wilfully blind to his wife’s continuing theft and that he turned a blind eye to what were obvious, but otherwise unexplained improvements, to their financial situation. It was found that he benefitted and had knowledge which would have triggered enquiry by a reasonable person aware of those circumstances. As the amount of the husband’s betterment could not be precisely determined because many of the funds had been dissipated, court found it reasonable to conclude that he benefitted by one-half of the amount and judgment was awarded against him accordingly. Because the wife did not concede that she owed any money until closing submissions, despite the fact that she had earlier pleaded guilty to fraud, which necessitated the employment of a forensic accountant by the plaintiff, the court ordered that the plaintiff was entitled to full reimbursement for all reasonable costs incurred for the investigation, report and trial attendance of the forensic accountant.
122In Leather Treaty, at para. 15, the court relied on the Citidel case at page 836 as authority for the proposition that there is a different threshold of knowledge for liability in assistance as opposed to receipt cases. In knowing assistance cases, the threshold of knowledge is higher on the part of a stranger to the constructive trust and constructive knowledge is excluded in the case of knowing assistance cases. However, in knowing receipt cases, which deal with the receipt of trust property for one’s own benefit, there is a lower threshold of knowledge required and constructive knowledge (that is, knowledge of facts sufficient to put a reasonable person on notice or enquiry) will suffice as the basis for restitutionary liability.
123Further in Citidel (suprA) at page 842, the court held:
“In my view, a distinction should be made between the imposition of liability in “knowing receipt” cases and the availability of tracing orders at common law and in equity. Liability at common law 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 (ie: receipt of trust property) but also on the unjust nature of that enrichment (ie: the stranger’s knowledge of the breach of trust). A tracing order at common law, unlike a restitutionary remedy, is only available in respect of funds which have not lost their identity by becoming part of a mixed fund. Further, the imposition of liability as a constructive trustee is wider than a tracing order in equity. The former is not limited to the defence of purchaser without notice and “does not depend upon the recipient still having the property or its traceable proceeds.”, see in re Montagu’s Settlement Trusts, supra, at page 276.”
124In Century Services Inc. v. New World Engineering Corp., [2013] O.J. No. 2372, there, two creditors sued to recover damages for fraud, conversion and other grounds. Two principals of the main defendant corporation had misrepresented the nature of its business, and misrepresented what was to happen to the funds advanced by the defendants. The funds advanced had been traced to the two principals, and to a partner of one of them. The court concluded that the plaintiffs had been defrauded by the two principals of the defendant corporation, with the knowing assistance of the partner of one of them. The funds were found to have passed to and through entities controlled by the two principals, and the partner of the one, and to persons related to them. The plaintiffs recovered damages for fraud, conversion and on other grounds. It was a case of “knowing assistance” on the part of the partner of the one principal, and not a case of “knowing receipt”.
125At para. 89 in Century, it was held:
“Although there may be some rare circumstances in which persons found liable in fraud may take advantage of and rely on the provisions of the Negligence Act or any common law right to seek contribution and indemnity from other parties, in my opinion the preponderance of authority supports the proposition that want of care is no defence to fraud (see: United Services Fund v. Richardson Greenshields Canada Limited (1988), 22 BCLR (2nd) 322 (BCSC); Ambico Ltd. v. Loeb Inc. et al, 13 O.R. (3d) 423 (Ont.C.A.)). ”
126In Re: Ontario Securities Commission and Greymac Credit Corp. (1986), 55 O.R. (2nd) 673, the Ontario Court of Appeal dealt with competing claims by two beneficiaries for whom funds had been deposited into the same account by a trustee. From the mingled funds the trustee disbursed some payments, hence that there was insufficient money left in the fund to satisfy the claims of both beneficiaries.
127From Maddaugh and McCamus, The Law of Restitution, Volume 1, loose-leaf (current to 2012, Release 9) (Toronto: Canada Law Book, 2012), at chap. 7 entitled “Tracing in Equity”, at section 7:200 it is pointed out that just as the authorities determine that the victim of a theft retains both the equitable and legal title to the property stolen from him, the same should apply in cases of property obtained by fraud.
128In the same section, the authors deal with the case of Goodbody v. Bank of Montreal (1974), 4 O.R. (2nd) 147 where the High Court imposed a constructive trust on property obtained by fraud which thereby permitted equitable tracing of the money even though there was no pre-existing trust or fiduciary relationship. The authors conclude at page 717 that:
“For purposes of the law of restitution in Canada, it is submitted that it is necessary only for a claimant to establish an equitable proprietary interest in the property in question as a pre-requisite for an equitable tracing order. This principle is not limited to situations where legal and equitable proprietary interests are divided. Thus, the absolute legal and beneficial owner of property, such as the victim of a theft, is able to trace that property into its product. No pre-existing fiduciary relationship need be established – or, for that matter, fictionally imposed – in order for the claimant to assert equitable proprietary rights. Indeed, since the Supreme Court of Canada’s unequivocal recognition of the constructive trust as a general remedial device in Pettkus v. Becker (citation, [1980] 2 S.C.R. 834) added, and it must now be concluded that any requirement for a trust or a fiduciary relationship as a pre-condition to the right to trace in equity has been completely abandoned in Canada.”
129The authors go on in section 7:400 to discuss remedies available in circumstances of equitable tracing. Successful tracing of the property entitles the claimant to the option of a judgment in personam or an in rem remedy. The former is often chosen where the defendant is solvent. Where the claimant’s property has been comingled with other property of the defendant, the claimant has the option of claiming that his property is being held on a constructive trust in his favour, or can argue that he is entitled to an equitable lien against the property. The authors point out that under English law, where the plaintiff’s property had been comingled or become part of a mixed fund, the claimant can only claim an equitable lien. Americans developed their law differently and permitted the claimant to claim a constructive trust or an equitable lien regardless of whether the monies belonging to the plaintiff had been comingled with those of the defendant. As the authors point out at page 730:
“The advantage of the constructive trust remedy, of course, is that the claimant is entitled to all the profits earned with the misappropriated money while in the hands of the wrongdoer.”
130The authors conclude that the Canadian position is somewhat uncertain, however, suggest that in the case of comingled or mixed funds, the appropriate result is that the profits made on the comingled funds belonging in part to the defrauded claimant and in part to the wrongdoing defendant should be shared pro rata as between them. This pro rata sharing relates only to the profits, and not to the portion of the mixed fund traced by the plaintiff as being his. If you like, the plaintiff receives the return of the principal amount taken from him and mixed in the fund, together with the pro rata share of the profits earned on the entirety of the mixed fund. Benjamins v. Chartered Trust Co., [1965] S.C.R. 251; B.C. Teachers’ Credit Union v. Betterly (1975), 61 D.L.R. (3d) 755.
131In Teledyne Industries, Inc. v. Lido Industrial Products Ltd. (F.C.T.D.) while it was held that where a person obtains property by fraud, and is required to account to the rightful owner, the onus is on the fraudster to account for the monies made from the use of the property.
132Mr. Earnshaw’s last point is that the plantiff is entitled to an in rem judgment in respect of the $167,633 in Blackmont accounts in the name of Carol Storr as that would allow the plaintiff to get the profits earned on those monies. He wants the in rem judgment in terms of what can be traced but wants just an in personam judgment in respect of those monies which cannot be traced. Of the $350,000 admitted to have gone into Blackmont, the accountant traces $167,633of those monies, so the plaintiff seeks an in rem judgment for the $167,633 and an in personam judgment for the difference of $182,367.
The Position of the Defendant Vincenzo
133Submissions in this matter were made on June 13, 2014. Mr. Punnett attended that morning, but at the morning break asked to be excused and indicated that he had instructions to make no submissions as to either liability or damages.
134Despite that position, on June 19, 2014 I received a letter by fax from Mr. Punnett, who also copied Mr. Earnshaw and Mr. Madorin, and the body of the letter reads:
“In this matter when I made my submissions regarding Mr. Vincenzo Storr, I neglected to mention that there is a Judgment against Mr. Vincenzo Storr at present being part of his conviction for fraud in the Superior Court of Justice. My position is that this claim has been subsumed in the conviction that has been registered and the order that has been made for him to pay back the monies.”
135Insofar as the evidence before me, there was indeed a restitution order made on January 31, 2011. Of course, Vincenzo has appealed, or at least is seeking leave for the late filing of an appeal as to conviction and sentence. Vincenzo testified that Mr. Punnett is his lawyer on that appeal. The hearing of the application for leave, according to the evidence of Vincenzo has been repeatedly adjourned and was next to come up after this trial. Accordingly, if Mr. Punnett’s submission had merit, it would have me in effect rolling any finding of liability and damages against his client on this civil case into the matter he has under appeal in the criminal charge, with the result being that the civil trial would have been for nothing insofar as his client is concerned. Section 741(1) of the Criminal Code provides that where a restitution order has been made and not paid without delay, the person to whom restitution was ordered may file the order and enter it as a judgment in any civil court in Canada and then the judgment is enforceable against the offender as though it had been recovered in civil proceedings. I have no evidence that the plaintiff here has chosen to have the criminal restitution order entered as a civil judgment. As well, s.741.2 of the Criminal Code provides that “a civil remedy for an act or omission is not affected by reason only that an order for restitution under s.738 or 739 has been made in respect of that act or omission.” It appears to me that Mr. Punnett’s submission has no logic or merit.
The Position of the Defendants T.A. Storr Holdings and Western Ontario Intercity Bowling League
136In his submissions, Madorin notes that there is no evidence whatsoever against T.A. Storr Holdings Inc. so he asks that the case be dismissed as against that company, and the only evidence regarding Western is that some of the money went through its account but was then traced to accounts of Thomas. Neither of these defendants played any part in the obtaining of the funds. There is no evidence that when some monies passed through Western that its officers knew of that fact. The action should be dismissed as against these 2 defendants.
The Position of the Defendants Tomas Cihula and Shane Storr
137Mr. Madorin in his submissions concedes that there should be judgment as against Tomas Cihula in the amount of $ 34,000 as claimed. He also concedes there should be judgment against Shane Storr in the amount claimed of $37,500 and as against Thomas Storr in the amount of $5000. I agree. These amounts were directly traced to them. No evidence has been led in respect of Cihula or Shane Storr to give rise to any valid reason they would receive money from Vincenzo under the belief that it was being paid for any valid reason, and I have no evidence of any reasonable enquiries being made. As to Thomas, while he testified to the debts allegedly owed to him for the amounts he paid on the lines of credit, he gave no evidence that the $5000 he received was connected to repayment of those alleged debts.
The Position of the Defendants Thomas and Carol Storr
138As to Thomas, as indicated above there should be Judgment against him for that $5000.
139As to his clients Thomas and Carol, Mr. Madorin submits that there is no evidence against either of them indicating that they were involved in the obtaining of the bank drafts or in moving the money around through various accounts. I agree.
140Mr. Madorin claims that of the original amount obtained by Vincenzo, Mr. Ross can only directlt trace $278,483 to Carol plus the $5,000 taken out in cash to Mr. Storr.
141He further submits that there is no evidence that either of these clients knowingly allowed Vincenzo to use their accounts and no evidence that they knew money had gone into their accounts until after the arrests had taken place.
142He submits that if I find liability against his clients Carol and Thomas, then the amount that should be awarded is the $284,983 that has been traced into the accounts of Thomas and Carol Storr. He further submits that in respect of direct tracing, then Shane Storr, Cihula and Western should be found liable in the amounts directly traced to them as set forth in the summary schedule in Exhibit 23.
143There is however no dispute that $350,000 was traced into Blackmont accounts. Thomas and Carol Storr claim that the amounts that went to Carol’s accounts were in payment, or repayment, of the three amounts paid to reduce lines of credit and the cheque for $120,000 so it involves $135,000, plus $33,240, plus the $120,000, plus $60,000 and relies on the documents found in defence brief of documents Exhibit 27. It is their position that these were valid loans totaling $348,240, and that they had no knowledge, actual or constructive, of circumstances surrounding the payment of the money which ought to have caused themto make enquiries.
144Mr. Madorin relies relies on 6 cases as authority supporting the proposition that repayment of valid loans made to a creditor who had no no actual or constructive notice of wrongdoing do not give rise to valid claims of unjust enrichment. In brief these authorities can be summarized as follows.
145Royal Bank v. Harowitz, 1994 17 O.R. (3d) 671 was an unjust enrichment case in which the defendant had lent solicitor Melintzer $250,000 on a promissory note. When she asked for repayment, Melintzer repaid her, but unknownst to her and the bank, Melintzer had obtained the funds using forged documents. The bank brought the action seeking recovery of the $250,000 paid to the defendant by Melintzer using funds obtained fraudulently. It was held that the action failed as the court accepted that there was a juristic reason for the payment of money to the defendant, namely her original contract with Melintzer some years earlier. The defendant was found to be entirely innocent, to have acted in good faith and to have had no knowledge of Melintzer’s fraudulent activities, either in terms of actual knowledge, or knowledge of any circumstances sufficient that she ought to have made inquiries.
146Toronto-Dominion Bank v. Bank of Montreal, 1995 22 O.R. (3d) 362 is another unjust enrichment case in which the plaintiff bank sought to recover from the defendant bank amounts that had been paid by reason of an error by an employee of the plaintiff. The action was dismissed as it was held there was no unjust enrichment as monies were owing by a common client to the defendant bank, and it was held that there was a juristic reason for the payment of the money. It was found that the defendant acted in good faith. The court held that the actions of the employees of the plaintiff bank were the cause of the problem and hence the plaintiff could not show its conduct to be untainted whereas it was found that the defendant bank had no knowledge of any errors or wrongdoing, either actual, or knowledge such to give rise to constructive knowledge of circumstances which ought to have caused it to make inquiries.
147In Ierullo v. Roban, 2000 46 O.R. (3d) 692 the plaintiff paid a tenant by means of a cheque with the payee’s name left blank. The tenant in turn filled in his lawyer’s name and gave the cheque to his lawyer in payment for both past and future services. On learning of the fraud, the plaintiff sued to recover the money from the defendant. The action was dismissed as it was held that the payee lawyer had no knowledge of the breach of trust on the part of his client and was neither willfully blind nor reckless as to the events giving rise to the funds coming into his possession. It was held that the defendant was not unjustly enriched as he received the money in payment of a debt due to him and hence there was juristic reason for the payment and it was also held at para. 28 that he had neither actual knowledge of his client’s wrongdoing, and that he was neither reckless or willfully blind to events that ought to have caused him to ask questions.
148In Canadian Imperial Bank of Commerce v. Melnitzer, [1993] O.J. No. 3021 Melnitzer arranged for large amounts in a line of credit, which he secured using securities later discovered to be fraudulent. The action by CIBC was dismissed. It was held that its constructive trust argument failed because there was no unjust enrichment. That is because there was a juristic reason for the advances of the monies to Melnitzer, as in the circumstances of that case the monies constituted a valid loan. Mr. Madorin points in particular to paras. 133 through 136 in which it is pointed out that “the equitable rules are admittedly somewhat technical and vague in their scope and effect but one such rule is that tracing should not be permitted where the claim arises out of a debtor-creditor relationship.” In para. 135 it is specifically determined that Melnitzer here gave to the plaintiff bank a possessory security interest. So in that case, equitable tracing and remedies did not follow monies advanced by the plaintiff to the defendant pursuant to a valid loan.
149Mr. Madorin also cites Royal Bank v. Harowitz, [1994] O.J. No. 619, another case arising out of the activities of lawyer Melnitzer. It was another action in which a bank sought to recover monies provided to Mr. Melnitzer, who then used them to retire a loan of $250,000, which he owed to the defendant Harowitz. It was held that there was a juristic reason for the payment of the money to the defendant, namely to satisfy a valid debt. It was held that the fact that Melnitzer had obtained the funds used to pay off the loan by fraudulent means was unknown to both the bank, who was defrauded, and to the defendant who received the monies in retirement of the debt owing to her.
150Lastly, Mr. Madorin relies on Lopez v. Bromley, 2012 ONSC 642. In this case, the plaintiffs loaned money to their son-in-law and daughter when they purchased a cottage property. When the loan went into arrears, the plaintiffs sued claiming an equitable mortgage on the cottage property by virtue of the tracing of funds loaned. It was held that tracing is not permitted where the relationship is nothing more than one of debtor and creditor. There was no evidence that the defendants obtained the monies by any type of criminal wrongdoing or deceit. It is just another case holding that in straightforward situations the lender of unpaid monies does not have an equitable claim against the borrower for equitable relief. Rather, his remedy is simply to sue on the unpaid loan.
151In none of these cases is there any suggestion that the third party holder of the monies had any knowledge of fraudulent activities or any knowledge of facts which ought to have given rise to suspicion and caused them to make further inquiries. The opposite was found to be the case. None of these cases fall into the category of “knowledgeable receipt” cases as discussed above. In each of those cases the loan upon which the moneys were paid were expressly found to be valid loans.
152I don’t quarrel with the interpretation advanced as to the legal significance of these cases. But they are only relevant here if I find that (1) the moneys which ended up in Blackmont accounts were in fact in repayment of valid debts, and (2) that the circumstances surrounding the receipt of the money did not give rise to constructive knowledge—namely that the surrounding circumstances would have caused a reasonable person to make enquiries about the payment of the money, and that accordingly the failure to make such enquiries here puts this case into the “knowledgeable receipt” category of cases.
153In reply, Earnshaw says that regarding the allegation of a debt owing by Vincenzo to his parents, Earnshaw doesn’t take the position that he is entitled to a constructive trust because of some unjust enrichment argument, but instead that he is entitled to a constructive trust because of the fraud.
Findings
154The claim for apportionment of liability based upon contributory negligence is dismissed on the basis of the authorities previously discussed.
155I find that the plaintiff is entitled to a declaration that the monies obtained by the defendant Vincenzo are subject to a constructive trust in favour of the plaintiff.
156I find that Vincenzo Storr obtained the sum of $ 758,445 from the plaintiff by fraud, of which $494,425 was not recovered by the plaintiff from the Bank of America. The plaintiff is entitled to judgment against him in that amount of $494,425. Within the meaning of s. 178 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 I find that this money was obtained by him by means of his fraudulent misrepresentation to the plaintiff that it was in fact receiving a valid authorization from the Bank of America for the cash advances made by the plaintiff.
157I find that there was no juridical reason for the receipt of the $37,500 by Shane Storr and that it is subject to a constructive trust in favour of the plaintiff and that the plaintiff shall have judgment against Shane Storr for that amount. His claim over against Vincenzo should be allowed and he is entitled to judgment against Vincenzo for any amounts he repays together with interest and costs.
158I find that there was no juridical reason for the receipt of the $34000 by Tomas Cihula, that it is subject to a constructive trust in favour of the plaintiff, and that the plaintiff is entitled to judgment in that amount against him. Tomas Cihula”s claim over against Vincenzo is allowed and he is entitled to judgment for any amounts he repays together with any interest and costs paid.
159I find that there was no juridical reason for the receipt of the $5000 by Thomas Storr, a.k.a. Thomas A. Storr, that it is subject to a constructive trust in favour of the plaintiff, which shall have judgment against him for that amount. His claim over as against Vincenzo is allowed and he shall have judgment against Vincenzo for any amounts he pays together with any interest and costs.
160I find that there is no case established as against T.A. Storr Holdings Inc. and the claim against that defendant is dismissed.
161I find that the action as against Western Ontario Intercity Bowling League has not been proven and accordingly it is dismissed.
162I find that the plaintiff is entitled to judgment in rem against Carol Storr in the amount of $167,633, the amount traced into her accounts. I reject the defence that the amounts were in repayment of valid debts owing by Vincenzo. Even if I had so found, I am satisfied that the circumstances were such as amount to constructive knowledge on her part such as to require the enquiries by made, and hence that the principle of “knowing receipt” applies in her case.
163As to the alleged debt owing by Vincenzo as a result of the payments by his parents on the line of credit against which he claims to have drawn, I reject Vincenzo’s evidence. He is thoroughly dishonest and deceitful. He produces no documentation to substantiate his claims other than the 4 documents in Ex. 27 which are devoid of details as to who drew those amounts owing on the lines of credit, and as to who made the payments on the lines of credit as shown on the monthly statements at tabs 1, 2 and 4. I also reject the evidence of Thomas on this issue. No documentary evidence was produced to support the claim that Vincenzo took the money leading to the amounts owing on the lines of credit, or as to who made the payments on those accounts. I am of the view that it flies in the face of common sense and reason that Thomas, knowing that he and his wife were being sued in this action, apparently failed to remember that these large amounts of money received by them were simply repayment of amounts owing by their son. Their original pleadings denied receipt of the funds. Although the action was commenced in August of 2006, it was not until the eve of discoveries in April 2013 that this allegation of “repayment of a debt” was advanced. It defies logic that if legitimate it would not have been remembered and advanced promptly. As to the cheque at tab 3 of exhibit 27, again there is no supporting evidence to show what it was for or that it was a loan, or that it had not previously been retired. The writer of the cheque did not testify as to the circumstances of the cheque or that it was advanced as a loan. Similarly it was very late in the day that the allegation of the cheque creating a debt owing by her son was advanced.
164Even if the payment of money by Vincenzo into the accounts was in payment of a debt, it my opinion the circumstances as known by the parents were such that they would have caused a reasonable person to make enquiries. They had constructive knowledge. In my view this falls into the category of a “knowing receipt” case. In response to the plaintiff’s request to admit, both Thomas and Carol admitted that at the time of these payments they had no knowledge of their son being employed. This lack of means ought to have raised suspicions as to the origin of substantial amounts paid by their son. This is particularly so as at least the father knew of past problems between the bank and their son when he used a fictitious name. Upon learning from Mr Risoti of fraudulent dealings with their accounts at the bank the father didn’t even go to the bank to find out what Mr. Risoti was talking about. The loans they claim were being repaid arose out of draws made on their joint line of credit. The payments were made by way of deposits into accounts held in their investment management company. This unilateral shuffling of their resources by their son does not appear to have caused any concern, which I think to be inconsistent with common sense. The evidence of Thomas is that his wife looked after the finances yet she is not called to testify as to any of these financial matters. There is no evidence as to why they were not concerned about the fact that they apparently ceased to receive monthly statements from the bank as a result of Vincenzo changing the mailing address to the Lewiston post office box. I conclude that knowledge of past misdealings with a bank, past withdrawals of money from one’s line of credit, on 3 occasions, requiring that you make them good to the bank, sudden cessation of monthly bank statements, and knowledge that you son had no apparent means of laying his hands on amounts of this size, constitute a constellation of circumstances which required that enquiry be made in order to allay one’s suspicions. It amounts to constructive knowledge and brings the case into the category of “knowing receipt” cases.
165For those reasons there shall be judgment against Carol and Thomas Storr jointly and severally for the sum of $182,367, being the difference between the $350,000 that went into the Blackmont accounts and the $167,633 that was directly traced into accounts in Carol’s name.
166The claims over by both Thomas and Carol as against Vincenzo for any amounts they repay to the plaintiff, together with amounts paid for interest or costs, are allowed.
Evidence as to Profits
167As a result of the foregoing cases, it appears to be the law that it is up to the holder of the funds to demonstrate the lack or the amount of any profits made on the monies held with either actual or constructive knowledge of their tainted source.
168The evidence available as to whether any profits were made on the funds traced into the Blackmont accounts is meager. Mr. Earnshaw advises that during a conversation with Mr. Madorin, which was not a privileged conversation, that it was indicated that the value of the funds held in the Blackmont accounts had approximately doubled since 2006. Mr. Madorin does not suggest the conversation to be inadmissible, but indicates that he had indicated that the amounts in all of the Blackmont accounts, rather than those into which funds relevant to this case have been placed.
169Aside from that, the only evidence I have as to the amounts in various Blackmont accounts comes from Schedule 66, which is part of Exhibit 26B, a report of Mr. Ross dated July 25, 2007 which shows the value in the accounts as of July 31, 2006. To contrast with that, I have a consent order of Justice Lafreniere dated April 8, 2009, which continued and extended injunctive and freezing orders originally made August 16, 2006, in which nine numbered Blackmont accounts are listed so as to show the account holder, and so as to show the balance in each of those accounts as of December 31, 2008. When I compare the amount in each of those accounts as established by Mr. Ross as of July 31, 2006, and compare it with the amounts shown in paragraph 1 of the consent order for each of the accounts as at December 31, 2008, eight of the nine accounts have decreased in value in the 29 month period. The total net decrease is in excess of $200,000. As a result of the order, Carol Storr and Thomas Storr were precluded from trading in the securities held in the named Blackmont Accounts. But the balances in the accounts were not frozen and could have increased if the securities held in each of the accounts had increased in value. What the order precluded was trading within the accounts so as to sell less productive securities and replace them with those more productive.
170I have no evidence as to the current balances in each of those accounts.
171The aforementioned order of April 8, 2009 was made on consent of the plaintiffs and the defendants, Thomas Storr, a.k.a. Thomas A. Storr, Carol Storr, Tomas Cihula, Shane Storr, Western Ontario Intercity Bowling League and T.A. Storr Holdings Inc. – in other words all defendants except Vincenzo Storr, in that name or any of his others. The nine Blackmont Accounts specified in paragraph 1 were ordered to stand as security for the claims of the plaintiff as against the defendants, Thomas Storr, a.k.a. Thomas A. Storr, Carol Storr, Tomas Cihula and Shane Storr. Of the nine accounts, eight were held in the name of Carol Storr and one was held in the name of Thomas Storr. The total value of the nine accounts as of December 31, 2008 was said on consent to be $989,945. Of this, $174,043 was the balance as of that date in the account held in the name of Thomas Storr. The balance was in accounts held in the name of Carol Storr.
172In the circumstances of this case I think it appropriate and I order that the defendants Thomas and Carol Storr provide to the plaintiff by the 15th of August,2014 evidence of the balances in each of the nine accounts as of June 30, 2014. The plaintiff shall then have until September 15, 2014 to decide and elect whether to claim any profits made on the monies in those accounts on a pro rata basis with other funds in those accounts prior to any deposit of funds originating from the actions of Vincenzo. In the alternative, the plaintiff within the same time period may elect to recover pre-judgment interest. In my opinion the plaintiff would be entitled to choose either a pro rata share of any profits made on the money, or pre-judgment interest, but not both.
173If the plaintiff chooses to recover pre-judgment interest, the plaintiff may make written submissions by September 30, 2014 as to whether it ought to be entitled to it at a higher rate than that provided for in s. 128 of the Courts of Justice Act, as contemplated in s. 130(1), and the factors enumerated there.
Costs
174If the parties are unable to resolve the issue of costs, they may make written submissions as to the appropriate scale and quantum of costs. Such submission on costs should not exceed 10 typewritten pages, exclusive of bills of costs, offers to settle, and relevant authorities. All such submissions are to be forwarded to my chambers in Kitchener. Those of the plaintiff are to be forwarded by September 15, 2014. Those on behalf of all defendants other than Vincenzo Storr by September 30, 2014, and those of Vincenzo Storr by October 15, 2014. If submissions are not received within these time limits, or within any requested extensions which are granted, the issue of costs will be deemed to have been settled by the parties.
C.S. Glithero J.
Released: July 21, 2014
COURT FILE NO.: C-840/06
DATE: 2014-07-21
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
The Toronto-Dominion Bank
Plaintiff
– and –
Vincenzo Storr, a.k.a. Jeffrey Painter,
Vincenzo Cihula and Jeffrey Thomas Storr,
Thomas Storr, a.k.a. Thomas A. Storr, Carol
Storr, Tomas Cihula, Western Ontario
Intercity Bowling League, T.A. Storr
Holdings Inc. and Shane Storr
Defendants
REASONS FOR judgment
C.S. Glithero J.
Released: July 21, 2014
/lr