Court File and Parties

COURT FILE NO.: CV-21-669581

DATE: 20220906

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: SASE AGGREGATE LTD. Applicant

AND:

MICHELLE LANGDON Respondent

BEFORE: Pollak J.

COUNSEL: Christine G. Carter, for Sase Aggregate Ltd.

John W. Montgomery, for the Respondent

HEARD: January 31, 2022

ENDORSEMENT

[1] The Applicant, Sase Aggregate Ltd (“Sase”) brings this application is for payment of funds to it in the amount of $2,318,434.19 plus accrued interest from the funds in the trust account of Turner, Winter on September 7, 2021, pursuant to the order of Justice Black dated September 2, 2021. These funds are the net proceeds of sale from a property at 460 Wagg Rd (the “Property”).

[2] At the time of the sale, the Property was in the name of the Respondent Ms. Michelle Langdon (“Ms. Langdon”). Sase claims a constructive trust over these funds, as it claims that its funds (greater than $2.1 million), can be directly traced to the purchase and improvement of the Property. Further, Sase claims that the Respondent knowingly received its funds in excess of $2.1 million and which she used to purchase and improve the Property.

[3] Sase also submits that Ms. Langdon knowingly received their funds in excess of $2.1 million, which she used to purchase and improve the Property and that she knowingly assisted her husband, Jamie Showers (“Mr. Showers”) in perpetrating a fraud and depriving it of its funds. She knowingly allowed cheques payable to Sase to be deposited into one or more bank accounts under her control and then using those funds for the purchase and improvement of the Property.

[4] Ms. Langdon and Mr. Showers have been charged with fraud and money laundering in connection with these transactions.

[5] Mr. Showers, the former pit manager of Sase, was invoicing customers of Sase, without their knowledge by issuing invoices that appeared to be generated by them but did not have proper invoice numbers. Mr. Showers then personally picked up the cheques made payable to Sase and deposited them into 2 accounts at the Bank of Nova Scotia which were identified pursuant to a Norwich order issued in March 2021. These accounts were in the name of 2 companies incorporated by Mr. Showers and Ms. Langdon: Complete Property Maintenance Limited (“Complete”) and 2117039 Ontario Limited (“2117039”).

[6] It is alleged that these funds were then transferred into joint accounts in the name of Ms. Langdon and Mr. Showers and used to purchase and renovate the Property, which was sold on September 7, 2021.

[7] The Applicant submits that in total, Jamie Showers deposited 45 cheques payable to them totalling $2,054,577.54, and 12 cheques payable to Sase totaling $60,492.01 for a total of $2,115,069.55 into account numbers 61002 004613 in the name of 2117039 and 61002 0019615.

[8] Further, Sase submits that Jamie Showers invoiced a company called Velosolutions for gravel he supplied the Town of Uxbridge for a pump track and skate park built by the Town from Sase’s pit without Sase’s knowledge for a total of $7,494.53. He also deposited this cheque to the 2117039 account at BNS. He invoiced 2 companies (Feddervale Farms and Slabown Cidery) on Complete Property Maintenance letterhead invoices for gravel he took from the pit without paying Sase. The 2 invoices are dated November 1, 2020, one is in the amount of $11,949.74 addressed to Feddevale Farms and the other is in the amount of $11,110.71 addressed to Slabtown Cidery. The BNS statement confirms that a cheque in the amount of $11,949.74 for the stolen gravel taken from Sase was deposited into the Complete bank account at BNS in November 2020.

[9] To date of this hearing, the total of Sase funds allegedly deposited to accounts controlled by Mr. Showers and Ms. Langdon is $2,134,513.82.

[10] In addition, Mike Jones of Jones Pools (“Mr. Jones”), advised Sase that Mr. Showers bartered with him for the building of the pool at the Property. Mr. Showers provided gravel from Sase’s pit to Mr. Jones for which he did not seek payment but received a personal benefit. Mr. Showers asked pit employees to remove gravel from the pit which he then stockpiled at the Property. Sase has not been able to determine whether Mr. Showers then sold this gravel to third parties or used it for his own personal benefit but submits that a significant amount of gravel (estimated to be worth approximately $40,000) was used in the construction of the driveway at the Property.

[11] In response to the Norwich order, BNS produced bank statements for 4 accounts:

a. Account number 61002 00436 13 in the name of 2117039 Ontario Limited

b. Account number 61002 00196 15 in the name of Complete Property Maintenance

c. Account number 95612 00214 82 in the name of Jamie Showers and Michelle Langdon, and

d. Account number 95182 00223 81 in the name of Jamie Showers and Michelle Langdon

[12] Sase submits that its funds were used to purchase and improve the Property. Some of Sase’s funds were used to pay the deposit for the purchase, some were advanced on closing, some were used to pay the insurance on the property, some were used to pay down 2 mortgages and the balance were used to pay the general contractor, We R Building, and the balance of Sase’s funds were used to pay the trades who improved the Property.

[13] Sase therefore submits that this is an appropriate case for the imposition of a constructive trust, arguing that the Respondent has clearly been enriched by the deposit of over $2.1 million dollars into her bank accounts.

[14] Sase relies on the doctrine of knowing receipt, the doctrine of knowing assistance and a tracing remedy to support its request for an order for payment of the proceeds of the sale to it.

[15] The causes of action claimed, require a finding that Mr. Showers obtained property in breach of trust or in breach of a fiduciary duty. He was employed by Sase as a gravel pit manager. The test on whether an employee is a fiduciary of their employer, is:

(a) the employee has scope for the exercise of some discretion or power;

(b) the employee can unilaterally exercise that power or discretion so as to affect the employer`s legal or practical interests;

(c) the employer is peculiarly vulnerable to, or at the mercy of, the employee holding the discretion of power; and

(d) the employee has undertaken to act in the best interest of the employer.

[16] There is no evidence in this Application on Mr. Showers’ relationship with Sase, the nature of his duties, or the scope of his permitted activities. Sase’s description of Mr. Showers as a “former pit manager” does not provide the required evidentiary foundation for a finding that Mr. Showers was a fiduciary of Sase.

[17] The Court of Appeal set out the test for imposing a remedy for knowing receipt of funds in the decision of Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Garcia, 2020 ONCA 412, as follows:

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

[57] The legal test for knowing receipt therefore requires that: (1) Ms. Langdon receives trust property (2) for her own benefit or her personal capacity, (3) with actual or constructive knowledge that the trust property is being misapplied. In addition to actual knowledge, including wilful blindness or recklessness, requirement (3) can be met where the recipient, having “knowledge of facts which would put a reasonable person on inquiry, actually fails to inquire as to the possible misapplication of the trust property”: Citadel, at para. 49; Gold v. Rosenberg, 1997 CanLII 333 (SCC), [1997] 3 S.C.R. 767, at para. 74; see also Paton Estate v. Ontario Lottery and Gaming Corporation (Fallsview Casino Resort and OLG Casino Brantford), 2016 ONCA 458, 131 O.R. (3d) 273, at para 62.

[58] Where liability is imposed, the “measure of the restitutionary recovery is the gain the [defendant] has made at the [plaintiff’s] expense”: Citadel, at para. 30, citing Air Canada v. British Columbia, 1989 CanLII 95 (SCC), [1989] 1 S.C.R. 1161, at pp. 1202-03.”

[18] Ms. Langdon’s defence is that Sase has not met its burden of proof in this Application. The evidence is only that cheques payable to Sase were deposited into an account controlled by Mr. Showers, and then transferred to an account held jointly by Mr. Showers and Ms. Langdon. In the vast majority of cases, the funds were then transferred out of the joint account, usually on the same day that they were deposited. There is no evidence as to where the funds went when they were transferred out of the joint account.

[19] Ms. Langdon submits that:

• The alleged thefts took place between May 2016 and November 2020. In March 2019, she bought a residential property at 460 Wagg Road, Uxbridge, ON. In the summer of 2019, she began a substantial renovation of the Property. Although Sase claims that the purchase and renovation of the Property was funded by the money allegedly stolen by Mr. Showers. In response to this Application, the Respondent has produced detailed, comprehensive evidence to prove on a balance of probabilities that all of the payments that she arranged, including the deposit and down payment, and all payments to her primary contractor, WE R Building, were funded from independent sources that she arranged, and are not connected with the funds allegedly stolen by Mr. Showers.

• Secondly, all of Sase’s claims against the Respondent on the basis of knowing assistance, knowing receipt, and unjust enrichment are based on a breach of a fiduciary duty owed by a third party (Mr. Showers) to Sase.

a. “Liability for knowing assistance does not require only that the defendant receive the funds, but requires actual knowledge on the part of the defendant of both the alleged fiduciary relationship and the breach.

b. Liability for knowing receipt is receipt based. It requires that funds obtained through breach of a fiduciary relationship be actually received by the defendant to her benefit, and that the defendant have either actual knowledge of the breach, or constructive knowledge. Constructive knowledge is defined as “knowledge of facts sufficient to put reasonable people on notice or inquiry” as to the source of the funds so received.

c. Unjust enrichment will be found where the plaintiff has suffered a deprivation, the defendant has been correspondingly enriched, and there is no juristic reason for the enrichment of the defendant.”

[20] Ms. Langdon’s evidence is that she had no idea about the alleged activities of Mr. Showers. Sase has not provided evidence that she did. She did not receive the funds allegedly stolen from Sase as those funds briefly passed through an account of which she was a joint holder with Mr. Showers. As there is no evidence that any of the funds were used for her benefit and she did not receive any of the allegedly stolen funds, there is no basis for a claim that she was enriched by them, and no grounds for a finding of unjust enrichment.

[21] Sase has not taken action against Mr. Showers and he has not testified in this hearing.

[22] I accept the evidence of Ms. Langdon that she obtained funds from entirely legitimate sources to buy and renovate the Property. Sase has not traced the allegedly stolen funds into the purchase or improvement of the Property. Further, I find that the evidence does not support the claims for knowing assistance or knowing receipt, or enrichment at Sase’s expense. There is no evidence that Ms. Langdon knew of Mr. Showers’ alleged theft, or that she received any property obtained in breach of trust.

[23] I find that Ms. Langdon is entitled to the release of the proceeds on that basis. This Application is dismissed.

[24] Mr. Showers incorporated a numbered company, 2117039 Ontario Limited, as a holding company for his interest in the Sase pit property and operation. Ms. Langdon had no involvement in this business. Although a corporation profile report for this company lists Ms. Langdon as an officer, her evidence is that she had no idea at any time of this. This evidence was not challenged on cross-examination.

[25] Ms. Langdon provides details about all of the bank accounts that she is aware of that were in her name in the period from 2016, when Sase claims the thefts started, to March 2021, when accounts were frozen and the Norwich order was sought by Sase. She has also produced full statement records for all of these accounts. The accounts are:

a. “A joint bank account at The Bank of Nova Scotia (“BNS”), account number 95182 0223 81 (“22381”). This account is in both Ms. Langdon’s and Mr. Showers names. It is the account that they use as the primary household bank account, for day to day banking, grocery shopping, bill payments and the like.

b. A joint account at BNS, number 95612 00241 82 (“24182”). This account is also in both Ms. Langdon and Mr. Showers’ names. Ms. Langdon rarely uses this account.

c. A personal savings account at BNS, in Ms. Langdon’s name only, account number 61002 00828 80 (“82880”).

d. At the time that Ms. Langdon received the first amount from her father’s estate, in November 2017, staff at BNS suggested to her that she open another type of account, which they call “Momentum Plus”, which provides a higher interest rate for savings. This account permits users to move balances into sub-accounts and hold them for longer periods to obtain higher interest. Ms. Langdon opened a Momentum Plus account under the general account number 94949448, which had three sub-accounts, with the following numbers: 95612 00047 58 (“4758”), 95612 00047 74 (“4774”), and 95612 00144 51 (“4451”).

e. A tax free savings account, which was also opened in November 2017 on the advice of BNS, under the account number 66311318 (“11318” or the “TFSA”).”

[26] Exhibit “R” to the affidavit of Mario D’Orazio sworn September 30, 2021 contains a list of payments made towards the purchase and construction of the Property, which Sase claims were funded with the money from the cheques payable to Sase that were deposited by Mr. Showers into the account of his numbered company, 2117039 Ontario Limited. These payments total $1,993,928.24. Ms. Langdon has reviewed her bank records and has set out in detail in her affidavit the sources of all of those payments in Exhibit R that she can trace to their source. These payments, which total $1,642,725, were funded from independent sources that she arranged, and are not connected with the funds allegedly stolen by Mr. Showers.

[27] Her evidence describes how she arranged for each of these payments, and specifies the original source of the funds used for each payment, and how those funds went from where they were originally deposited and ended up in her main joint account 22381, from which she made these payments, for the purchase of the Property and to the contractor WE R Building. She has created a spreadsheet summarizing the evidence on the source of these payments.

[28] Ms. Langdon’s evidence is that she discovered four payments, which Mr. Showers had arranged independently, which total $177,362.38, that were made from the account of his numbered company, 2117039 Ontario Limited, which is the account into which Sase claims that its funds were deposited. She acknowledges that Sase may have a claim to these funds.

[29] Sase has claimed that the cheques payable to it by Central Sand & Gravel and by Jones Pools were deposited into accounts “controlled by” Ms. Langdon. These cheques were deposited into the account of 2117039 Ontario Limited at BNS, account number 61002 00436 13 (the “613 account”). Sase claims that this account was “controlled” by Ms. Langdon on the basis of the corporation profile report showing that on the initial return filed in 2007, Ms. Langdon was designated as an officer. There is no other evidence. As mentioned above, Ms. Langdon’s evidence is that this company was used by Mr. Showers to hold his interest in the gravel pit operation between 2008 and 2012, and that she had no idea that her name was on the company’s records. She has testified that she never saw the company’s bank records. This evidence has not been challenged or contradicted. I accept Ms. Langdon’s evidence.

[30] I also accept the uncontradicted documentary evidence produced by Ms. Langdon which shows that between August 2017 and March 2021, she received and had access to the following legitimate, independent funds:

Her father’s estate:

$ 379,703

Adams mortgage payout:

$ 608,902

Forfeited deposit on Simcoe, January 2020

$ 50,000

Mortgage on Simcoe Property, March 2020:

$ 246,923

Sale of Simcoe Property net proceeds:

$ 350,550

Mortgage on The Pines/Wagg, July 2020:

$ 466,430

Sale of The Pines net proceeds:

$ 469,200

Sale of sports cards:

$ 86,500

Mortgage on Wagg Property, March 2021:

$ 496,295

$3,154,503

[31] The elements of a claim for knowing assistance were described succinctly in DBDC Spadina Ltd. v. Walton, 2018 ONCA 60:

“The elements of knowing assistance in a breach of fiduciary duty were described by this court in Harris v. Leikin Group Inc., at para. 8, as: (1) a fiduciary duty; (2) a fraudulent and dishonest breach of the duty by the fiduciary; (3) actual knowledge by the stranger to the fiduciary relationship of both the fiduciary relationship and the fiduciary’s fraudulent and dishonest conduct; and (4) participation by or assistance of the stranger in the fiduciary’s fraudulent and dishonest conduct.”

[32] Sase submits that Ms. Langdon “knowingly assisted [Mr. Showers] in layering the transactions in Ms. Langdon’s Momentum Plus bank account. However, every credit entry in the Momentum Plus accounts has been accounted for with specific documentary evidence proving the legitimate source of the funds. There is no evidence to show that Ms. Langdon knew anything about Mr. Shower’s alleged improper actions. There is no basis whatever for a finding of liability for knowing assistance.

[33] Similarly, the elements of knowing receipt have not been established. Sase must prove that the Respondent received trust property, for her own benefit or in her personal capacity. The evidence shows that cheques payable to Sase from Central Sand & Gravel and Jones Pools were deposited into the 613 account. This account is held by 2117039 Ontario Limited. Although the Respondent’s name appears in the corporate filings as an officer, there is no dispute in the evidence that she did not know of that fact. There is no evidence as to ownership of the company. The funds deposited into the 613 account were not received by Ms. Langdon for her own benefit or in her personal capacity. She had no knowledge of the deposits and no involvement in any transfers of money from the 613 account. There is no evidence to indicate that she was a signing officer on the 613 account, or that she was a shareholder of 2117039 Ontario Limited.

[34] There is evidence that funds were transferred from the 613 account into the joint account 21482. These funds were then transferred out to an unknown destination, often on the same day. For a defendant to be liable in knowing receipt, she must receive the property in her own right, to be applied for her own use and benefit. Although she was a joint owner of account 21482, the funds that were transferred into and then out of that account from the 613 account only passed through the account. The stolen funds were not used for Ms. Langdon’s benefit. She was not aware of these deposits and was not involved in any of the transactions transferring the funds out of account 21482.

[35] The evidence is that allegedly stolen funds moved briefly through account 21482, on their way from the 613 account to unknown destinations. Ms. Langdon testified that she “rarely used” account 21482. Sase challenges this evidence and relies on the transactions between account 21482 and Ms. Langdon’s Momentum Plus account as evidence that she used the 21482 account, and therefore knew about the deposits from account 613. The evidence, however, is that between November 2017 and March 2021, there were only two (2) deposits into the Momentum Plus account from account 21482, and three (3) transfers of funds from the Momentum Plus account to account 21482. Further, Ms. Langdon has provided transparent particulars of every transfer of funds into the Momentum account, including those from account 21482, all of which come from legitimate sources.

[36] I do not accept that there is evidence that Ms. Langdon, as a reasonable person, should have inquired into the possibility that funds were being received by her and used by her or for her benefit, may have come from questionable sources. The uncontradicted documentary evidence produced by Ms. Langdon establishes that between August 2017 and March 2021, she received legitimate, independent funds.

[37] I agree that there is no evidentiary basis for a finding of liability for knowing receipt. Receipt has not been proven. There is no evidence that any of the allegedly stolen funds were received or applied by Ms. Langdon for her own use and benefit.

[38] With respect to the claim for unjust enrichment, the criteria for a finding of unjust enrichment is finding:

(1) benefit to Ms. Langdon;

(2) corresponding detriment to the plaintiff; and

(3) the absence of any juridical reason for the defendant’s retention of the benefit.

[39] There is no evidence that Ms. Langdon received any of the allegedly stolen funds, with the exception of the $177,632.28, for which Ms. Langdon cannot account for. For that amount, the Applicant’s case for unjust enrichment has been established. There is otherwise, no benefit to her.

[40] Finally, I find that there is no basis for a tracing remedy. Sase claims that funds from the cheques that were payable to it and were deposited into the 613 account “found their way into” the payments made for the purchase and improvement of the Property. However, Sase has not proven a proper tracing analysis to support this claim. Sase has not traced the funds from the 21482 account directly into those drafts and cheques that were issued to pay for the Property.

[41] A tracing analysis must follow the funds through as many steps or transfers as necessary to arrive at the conclusion that they are the same funds, and were used in the way that the plaintiff claims.

[42] The evidence produced by Sase follows the funds from the Central Sand & Gravel cheques and the Jones Pools cheques into the 613 account, and in most instances from that account to joint account 21482. Its tracing analysis stops there. There is no evidence to show that those funds were then used to fund the payments for the Property.

[43] However, as mentioned above, Ms. Langdon has discovered that four payments, totaling $177,632.28, which Mr. Showers arranged by himself, were made directly from the 613 account. These are the only payments for the Property that the evidence links to the allegedly stolen funds. As I have found above, on this basis, the Applicant’s claim for unjust enrichment is justified.

[44] I conclude that the evidentiary record does not show that Ms. Langdon received funds in excess of $2.1 million in funds that were obtained in breach of trust, as Sase claims. It shows that she unknowingly received $177,632.28. The evidentiary record is that the Respondent had no actual knowledge of Jamie Showers’ alleged activities and had no knowledge of any facts sufficient to put her on inquiry, and thus to ground a finding of constructive knowledge. There is no basis for a tracing remedy.

[45] The sum of $2,318,434.19 is held in trust pursuant to the court order in this proceeding. This money represents the net proceeds of sale of the Property. I find that the funds being held must be released to Ms. Langdon, less the amount of $177,632.28, which shall be released to Sase.

Costs

[46] As the Respondent is the successful party on this motion, she is entitled to costs to be paid by the Applicant. If the parties are unable to agree on costs, the Respondent may make submissions of no more than two pages, double spaced sent to the Applicant, uploaded to Caselines with a copy sent to my assistant Roxanne Johnson at Roxanne.Johnson@ontario.ca by 12 p.m. on September 20, 2022. The Applicant may make submissions of no more than two pages, double spaced sent to the Respondent, uploaded to caselines with a copy sent to my assistant by 12 p.m. on October 4, 2022. No reply submissions will be accepted.

Pollak J.

Date: September 6, 2022