Public Guardian and Trustee v. Cherneyko et al, 2022 ONSC 2757

COURT FILE NO.: CR-20-0226-00 DATE: 2022-05-09

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

Public Guardian and Trustee

Applicant

• and -

Jean Cherneyko and Kristina Munson

Respondents

COUNSEL: J. Lester, for the Applicant K. Munson and R. Naidoo, appearing unrepresented

HEARD: April 7, 2022, at Thunder Bay, Ontario Via Zoom

Mr. Justice W. D. Newton

Motion for Direction

Overview

1The applicant, the Public Guardian and Trustee (“PGT”), seeks direction from the court with respect to the return of property purchased by the respondent Ms. Munson using funds of Jean Cherneyko.

The Facts

2Ms. Munson is the former Attorney for property for Jean Cherneyko.

3For reasons delivered January 5, 2021, Public Guardian and Trustee v. Cherneyko et al, 2021 ONSC 107, Fitzpatrick J. terminated the Continuing Power of Attorney for property dated August 15, 2019, in favour of Ms. Munson and appointed the PGT as permanent guardian of property for Jean Cherneyko.

4On August 15, 2019, Ms. Munson and Ms. Cherneyko attended before a lawyer and Ms. Cherneyko made Ms. Munson her estate trustee and residual beneficiary of her estate. She also appointed Ms. Munson as her attorney for property and personal care.

5On August 27, 2019, Ms. Munson and Ms. Cherneyko went to a bank and Ms. Cherneyko transferred $250,000 to Ms. Munson and almost $200,000 to Ms. Cherneyko’s niece.

6On August 31, 2019, Ms. Cherneyko was admitted to hospital with acute delirium.

7Justice Fitzpatrick ordered Ms. Munson to repay to Ms. Cherneyko the sum of $334,289.65 comprised of the following amounts:

a. $250,000 not proven “gift”; b. $70,573.06 not proven as “gifts”; and c. $13,716.59 unknown expenses.

8As of the hearing of the motion, no funds have been repaid.

9On March 25, 2021, Ms. Munson was examined under oath at an Examination in Aid of Execution. She admitted the following purchases or expenditures of funds she received from Ms. Cherneyko:

a. $12,000 to pay for landscaping to her father’s, Mr. Holmquist, home; b. $3,000 to purchase herself new appliances; c. $68,000 to purchase a 2019 GMC Elevation pickup truck for her common-law partner, Mr. Naidoo; d. $5,000 given to her sisters for elective surgery; and e. approximately $400 to purchase herself diamond rings.

10Although not ordered to do so, Ms. Cherneyko’s niece voluntarily repaid the fund she received, less currency conversion fees to Ms. Cherneyko’s estate.

11This motion for the opinion, advice or direction of the court, was served on Ms. Munson, her father, Mr. Holmquist and her common-law spouse, Mr. Naidoo. As indicated, Ms. Munson and Mr. Naidoo appeared unrepresented. Ms. Munson advised that her father was served but did not intend to attend.

Positions of the Parties

12Counsel for the PGT argues that the “doctrine of knowing receipt” applies. The doctrine and its application to other parties is succinctly explained in the decision of Homes v. Amlez International Inc. as follows:

Knowing Receipt

9The “receipt” requirement is met when a stranger to trust property receives trust property for his or her own benefit. This principle applies whether the money is ostensibly received to discharge a debt owed to the recipient, or for some other purpose.

10The “knowledge” requirement includes both actual and constructive knowledge. Constructive knowledge arises where the recipient fails to make proper inquiry in circumstances where an honest and reasonable person would realize that the funds transferred were from a suspicious or improper source. Thus the recipient of trust property may be liable as a constructive trustee if she fails to make reasonable inquiry as to the source or character of the funds, even though she acted in good faith. As held by Sopinka J.,

[i]n order to establish that the respondent was in “knowing” receipt, the appellant must establish one of the following: … (i) actual knowledge; (ii) willfully shutting one’s eyes to the obvious; (ii) willfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would put an honest and reasonable man on inquiry.

11Liability for “knowing receipt” of trust property arises on the basis of unjust enrichment. The general principles for establishing liability on this basis are:

(a) the defendant is enriched by receiving funds obtained through fraud or breach of trust; (b) the plaintiff has been correspondingly deprived by the enrichment of the defendant; and (c) there is no juristic reason for the defendant to be enriched at the expense of the plaintiff in this fashion.

12The requisite level of knowledge need not arise prior to or at the time of receipt. Even if the property is 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. [Emphasis added.]

13The underlined last sentence was approved and adopted by another decision of this Court in Sarhan v. Chojnacki, 2012 ONSC 747 at para. 28.

14Counsel for the PGT argues that, since the decision of Justice Fitzpatrick is known to the third party beneficiaries, Mr. Naidoo and Mr. Holmquest, as they were, at a minimum, served with the decision with this motion record, the doctrine applies and, even if they received the property innocently, they are liable to return any of that property that they hold.

15The respondents question how this doctrine could apply to persons who did not know the source of the funds but otherwise made no submissions.

Disposition

16I am satisfied that the doctrine applies in the circumstances and, as Mr. Naidoo and Mr. Holmquist are aware of the decision of Justice Fitzpatrick they are obliged, even if they received the funds innocently, to reimburse the estate.

17As to the pickup truck, the PGT asks for an order vesting title to that truck in Ms. Cherneyko and that Mr. Naidoo deliver up possession within 15 days. I make those orders. If further direction of the court is required, then the parties may re-attend.

18With respect to the appliances and diamond earrings, these items shall be delivered up or alternatively Ms. Munson is to pay to the estate an amount equal to the purchase price based on any receipts she has, as agreed by counsel for the PGT, within 30 days.

19With respect to the landscaping work done at Mr. Holmquist’s property, I order that he is to pay $12,000 to the estate within 30 days or an alternate amount based on actual receipts for landscaping work, as agreed by counsel for the PGT.

20If further direction is sought then the parties can appear before me at a time fixed by the trial coordinator.