Court File and Parties

Court File No.: CV-21-00670934-0000 Date: 2023-05-09 Superior Court of Justice - Ontario

Re: Canadian Imperial Bank of Commerce, Plaintiff And: Yohance Parsons and Yohance Parsons operating as Hiclass Union Music Business, Defendants

Before: Justice A.P. Ramsay

Counsel: Reid Lester, for the Plaintiff

Heard: In Writing

Endorsement

A. Overview

[1] This matter arises out of a fraud perpetuated against one of the plaintiff’s (“CIBC’s”) clients. Unknown individuals stole some $59,120 from a CIBC client’s account and transferred these funds into a CIBC business account maintained by the defendant, Yohance Parsons (i.e., the Hiclass Account). CIBC has since made the client whole by repaying the full amount of the client’s loss. CIBC brings this subrogated claim to recover the stolen funds. The funds were traced to the defendant’s bank account. Some of the funds were withdrawn before CIBC froze the account.

B. Nature of the Motion

[2] CIBC moves for default judgment as against the defendants, Parsons and Hiclass on the basis that the defendants are the recipients of stolen funds in the amount of $59,120, which funds can be directly traced to monies stolen from a CIBC client’s account.

[3] CIBC is a chartered bank which carries on business across Canada and around the world.

[4] The defendant, Parsons, is an individual who resides in North York (Toronto). The plaintiff pleads that “Hiclass Union Music Business” (“Hiclass”) is an unincorporated entity owned and controlled by Parsons.

[5] The motion materials have been served on the defendants in accordance with the best practices endorsed by this Court: see Elekta Ltd. v. Rodkin, 2012 ONSC 2062, at para. 10; Casa Manila Inc. v. Iannuccilli, 2018 ONSC 7083, at paras. 11-17.

[6] The defendants did not respond. I am also satisfied that the defendants were served with the statement of claim but failed to deliver a statement of defence within the time prescribed by the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”), and was noted in default as a result.

C. Disposition

[7] I am satisfied, on the evidence, that default judgment should be granted to the plaintiff for the following reasons.

D. Analysis

[8] The defendants are deemed to admit that unknown individuals stole approximately $59,120 from a CIBC client’s account and transferred the funds into a CIBC business account maintained by the defendant Parsons (i.e., the Hiclass Account).

[9] Pursuant to the provision of r. 19.02(1) of the Rules, a defendant who is noted in default “is deemed to admit the truth of all allegations of fact made in the statement of claim.” However, there is an onus on the plaintiff to prove their claim for damages on a balance of probability: Fuda v. Conn, at para. 16. As noted by D.M. Brown J., as he then was, r. 19.06 therefore requires that a trial judge should inquire into whether the deemed factual admissions resulting from a default are adequate to support a judgment on liability as well as damages: see Elekta Ltd., 2012, at para. 12.

[10] In this case, the defendant Parsons is deemed to admit the facts in paragraph 5 of the statement of claim which states:

In June of 2021, an unknown person attended at the Toronto Branch, falsely representing that he was the Client. In fact, this person was an imposter (“the imposter”). The imposter then fraudulently induced representatives of the plaintiff at the Toronto Branch to debit the Client account in the amount of at least $59,120 (“the Stolen Funds”) and to effect a transfer of the Stolen Funds to the defendant business account (“the fraudulent transfer”). In fact, the Client owed no money to Parsons or to Hiclass and in fact, the imposter orchestrated a theft of the Stolen Funds from the Client Account.

[11] The “defendant business account” is defined in paragraph 4 of the statement of claim as follows: “Parsons maintained business account no.------- at the Kingston Branch (“the defendant business account”) in the name of Hiclass.” Parsons is therefore also deemed to admit the facts in paragraph 6 of the statement of claim which states, in part: “By that time, $12,799.77 had been withdrawn from this account by or for the benefit of Parsons.” Based on these admissions, the money can be traced to the Hiclass account controlled by Parsons.

[12] At paragraph 8 of the statement of claim, CIBC pleads that it was obliged to, and has repaid the Client for the full amount of the Client’s loss of $59,120. Parsons is deemed to admit those facts as well.

[13] The defendant Parsons is further deemed to admit the truth of the facts contained in paragraph 9 of the statement of claim which states, in part “that Parsons and Hiclass did not take possession of the Stolen Funds as bona fide purchasers for value without notice such that the plaintiff’s ownership interest in such Funds has never been extinguished.” The defendants are deemed to admit that they were not bona fide purchasers for value without notice. In addition, the defendant Parsons is also deemed to admit that “the Client owed no money to Parsons or to Hiclass and in fact, the imposter orchestrated a theft of the Stolen Funds from the Client Account.”

[14] Both the pleadings and the evidence before me indicate that the next day a branch manager became aware that the fraudulent transfer had taken place, and thereby alerted responsible persons at the Toronto Branch who then froze the Hiclass account pending further investigation. By that time, $12,799.77 had been withdrawn from this account by or for the benefit of Parsons.

[15] CIBC pleads, and Parsons, is deemed to admit that CIBC reimbursed the Client for the amount stolen and CIBC became subrogated to the Client’s interest.

[16] The defendant, Parsons is deemed to admit that his address and the business address of Hiclass Union Music Business are the same and that he owns and controls Hiclass, which is an unincorporated entity. The balance of the funds remains in the Hiclass account. The recipient of stolen money holds such money in trust for the rightful owner: Simpsons-Sears Ltd. v. Fraser et al. (1974), 7 O.R. (2d) 61 (S.C.), at para. 11; Ward-Price v. Mariners Haven Inc. (2001), 57 O.R. (3d) 410 (C.A.), at para. 20. The recipient or holder of the stolen funds, or any asset into which the funds can be traced, is a “constructive trustee” of the funds or asset to the benefit of the true owner: Re Kolari (1982), 36 O.R. (2d) 473 (Dist. Ct.), at para. 32; Ward-Price, at paras. 20-21; Central Capital Corp. v. Clausi (1993), 13 O.R. (3d) 335 (S.C.).

[17] It has been held that the recovery of stolen funds which can be traced into an asset is not, as a general rule, a matter of discretion. It is a matter of right. Once the tracing is established, there is no discretion vested in the court: see Foskett v. McKeown, [2000] 3 All E.R. 97 (H.L.) at pp. 4 and 22. In this case, the plaintiff has established, on the material before me, that $59,120 was stolen from a CIBC Client account, and that the funds were transferred to the Hiclass account. On the evidence, the plaintiff is able to trace the stolen funds into the Hiclass Account. The plaintiff has now reimbursed the client and is essentially the true owner of the stolen funds, as it has now stepped into the shoes of its client. To establish ownership over the funds, CIBC needs only to show that it can trace the stolen funds into the Hiclass Account. The onus then shifts to the defendant to demonstrate that he received the funds as a bona fide purchaser for value without notice.

[18] In this case, on the materials before me, and the deemed admissions, CIBC has established that it can trace the stolen funds to the Hiclass account. The onus is on the defendants, who were given notice of the motion to show that they were bona fide purchaser for value without (an opportunity afforded to them on this motion despite the deemed admission). The defendants have not done so.

E. Costs

[19] The plaintiff is seeking costs in the amount of $10,000.00, inclusive of HST. No Bill of Costs has been filed. Both the Rules and the Consolidated Practice Direction requires the parties to exchange a Costs Outline before the Hearing and to bring a copy to the hearing (uploaded to CaseLines): see Part V, clause 19 of the Toronto Consolidated Practice Direction. The updated Consolidated Practice direction makes it clear that the court has discretion to deny costs where there is non-compliance. The fact that the motion is without notice does not obviate the necessity of a party complying with their obligation under the Rules and with the requirement imposed by the Practice Directions.

[20] I am prepared to entertain costs given the recent amendments to the Practice Directions. The plaintiff may submit a Costs Outline and computer-generated pre-bill within seven days of the date of this endorsement.

Justice A.P. Ramsay Date: May 9, 2023