



COURT OF APPEAL FOR ONTARIO

CITATION: Caja Paraguaya de Jubilaciones y
    Pensiones del Personal de Itaipu Binacional v. Garcia, 2020 ONCA 412

DATE: 20200625

DOCKET:C66070

Pepall, Pardu and Paciocco JJ.A.

BETWEEN

Caja Paraguaya de Jubilaciones y
    Pensiones del Personal de Itaipu Binacional

Plaintiff (Respondent)

and

Eduardo Garcia Obregon a.k.a.
    Eduardo Garcia a.k.a. Eddie Obregon, Claudia Patricia Garcia a.k.a. Patricia
    Garcia a.k.a. Claudia Patricia De Garcia a.k.a. Claudia Santisteban, Ligia
    Ponciano, Managed (Portfolio), Corp., Genesis (LA), Corp.
(Ontario Corporation Number 1653094, Genesis (LA), Corp. (Alberta
    Corporate Access Number 2013145921), FC Int, Corp., First Canadian Int, Corp.,
    Union Securities Limited, Scott Colwell, Marty Hibbs, Hibbs Enterprises Ltd.,
    Columbus Capital Corporation, Antonio Duscio,
Leanne Duscio
, Leanne
    Duscio carrying on business as The Queen St. Conservatory, Catan Canada Inc.,
    Vijay Paul, Greg Baker, Bradley F. Breen, Lou Maraj, 2138003 Ontario Inc.,
    Mackie Research Capital Corporation, First Canadian Capital Markets Ltd., First
    Canadian Capital Corp., FC Financial Private Wealth Group Inc., Jason C.
    Monaco, Daniel Boase, Paolo Abate, Nikolaos Sylianos Tsimids, Genesis Land
    Development Corporation, Limited Partnership Land Pool (2007), and GP LPLP 2007
    Inc.

Defendants (
Appellant)

Kevin Sherkin and Allison Farley, for
    the appellant

Jacqueline L. King and Christopher
    Gaytan, for the respondent

Heard: January 30, 2020

On appeal from the judgment of Justice Sean
    F. Dunphy of the Superior Court of Justice, dated October 12, 2018, with
    reasons reported at 2018 ONSC 5379.

Paciocco J.A.:

OVERVIEW

[1]

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

[2]

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

[3]

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

[4]

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

MATERIAL FACTS

[5]

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

[6]

One of those three Canadian enterprises was
    Union Securities Limited (Union). Ostensibly, Cajubi invested $14,099,000 through
    a managed commodities trading account operated by Union. In fact, just under $11,500,000
    was placed with Union investments.

[7]

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

[8]

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

[9]

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

[10]

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

[11]

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

[12]

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

[13]

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

[14]

Notwithstanding Ms. Duscios legal authority to
    control Catan, the trial judge found that her bankrupt husband, Mr. Antonio Duscio,
    a former business associate of Mr. Garcias, was actually the
de

facto

controlling mind and will of Catan, and made virtually all of the
    financial decisions in relation to Catan, controlled all of its banking,
    arranged for the keeping of its books and records, etc.

[15]

On August 25, 2008, three days after the $3
    million Catan deposit, Columbus Capital was incorporated, with a business
    address in the Catan building. The trial judge found that at all material
    times, Mr. Duscio was also the
de

facto

controlling
    mind and will of this corporation, even though, once again, he held no shares,
    directorships or corporate offices.

[16]

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

[17]

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


[18]

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

[19]

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

·

Advances to Mrs. Duscios Dance Studio:
    $19,231;

·

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

·

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

·

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

·

Leanne Duscio: $20,000:

·

Cash Withdrawals ($12,500);

·

John Duscio ($8,000);

·

BMW (shareholder advance): $25,890;

·

Tony Duscio cheque: $5,000;

·

Home Improvements: at least $32,000 identified.

[20]

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

THE TRIAL JUDGES DECISION

[21]

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

[22]

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

[23]

The basis for Mr. Duscios personal liability arising
    from the Catan deposit was simple and compelling. Mr. Duscio was the
de

facto

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

[24]

It is helpful to set out with more specificity
    comments made by the trial judge relating to Mr. Duscios
de

facto

control over Catan because they bear on Ms. Duscios appeal.

[25]

When recounting the material transactions in the
    course of his reasons for decision the trial judge said:

Whatever the public record shows regarding
    ownership and control of Catan, the defendant Mr. Anthony Duscio was at all
    material times the
de

facto

controlling mind and will
    of Catan. Mr. and Mrs. Duscio both agree that Mr. Duscio made virtually all of
    the financial decisions in relation to Catan, controlled all of its banking,
    arranged for the keeping of its books and records, etc. Mrs. Duscio was advised
    by her husband from time to time what needed signing and, when asked, did so
    with little apparent curiosity. She had little to no direct information about
    any of the business undertaken by Catan. There is no evidence that she invested
    anything in it or played anything but a passive role. Catan was for all intents
    and purposes Mr. Duscios
alter

ego
, an
alter

ego
whose usefulness was greatly enhanced following his
    bankruptcy.

[26]

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

[27]

The trial judges brief reasons for imposing
    liability on Mrs. Duscio warrant complete reproduction:

As officers and directors 
de

jure

in the case of Ms. Leanne Duscio and
de

facto

in
    the case of Mr. Anthony Duscio  of Catan, the liability of Catan for breach of
    constructive trust by which it was bound falls equally upon the shoulders of
    Leanne Duscio and Anthony Duscio. These two both provided knowing assistance in
    Catans breach of trust:
Air

Canada
.

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

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

[28]

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

[29]

When summarizing his disposition, the trial
    judge said:

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

THE GROUNDS OF APPEAL

[30]

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

A.

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

B.

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

C.

Did the trial judge base Ms. Duscios liability alternatively on the
    doctrine of knowing receipt?

A.

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

[31]

The doctrine of knowing assistance is a
    mechanism for imposing liability on strangers to a fiduciary relationship who
    participate in a breach of trust by the fiduciary. Strangers to a fiduciary
    relationship who are made liable on this basis are held responsible because of
    their want of probity, meaning lack of honesty:
Air Canada v. M & L
    Travel Ltd.
, [1993] 3 S.C.R. 787, at p. 812;
Bikur Cholim Jewish
    Volunteer Services v. Penna Estate
, 2009 ONCA 196, 94 O.R. (3d) 401 at
    para. 43.

[32]

Accordingly, the preconditions of knowing
    assistance liability have been structured to identify dishonest participation
    in a dishonest breach of trust. In
DBDC Spadina Ltd. v. Walton
, 2018
    ONCA 60, 419 D.L.R. (4th) 409, at para. 211, van Rensburg J.A., in a dissenting
    opinion adopted by the Supreme Court of Canada as its reasons on appeal, 2019
    SCC 30, 435 D.L.R. (4th) 379, identified the elements of knowing assistance in
    a fiduciary breach 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 fiduciarys fraudulent and dishonest conduct; and (4) participation by or
    assistance of the stranger in the fiduciarys fraudulent and dishonest conduct.

[33]

Two points relating to the actual knowledge
    requirement warrant elaboration, given the issues in this appeal. The first is
    that the actual knowledge of the stranger must include knowledge of a
    fiduciary relationship and the fiduciarys fraudulent and dishonest conduct
:
    DBDC Spadina,
at para. 211;
Harris

v. Leikin Group Inc
.,
    2011 ONCA 790, at para. 8. It is not enough for the stranger to know or suspect
    in some unspecified way that the fiduciary was up to no good. In this case, Ms.
    Duscio would be liable as a knowing assister only if she had actual knowledge
    that Catan held funds as trustee, and that she was participating or assisting Catan
    in fraudulent and dishonest conduct relating to those funds.

[34]

Second, the concept of actual knowledge is
    more expansive than the term actual knowledge denotes. Although actual
    knowledge by the stranger of the fiduciary relationship and of the fiduciarys
    fraudulent and dishonest conduct will satisfy this requirement, so, too, will
    recklessness or wilful blindness to the fiduciary relationship and the
    fiduciarys fraudulent and dishonest conduct:
Air

Canada
,
    at p. 811; see also
Harris
, at para. 8.

[35]

I need say nothing more about the concept of
    recklessness, since the trial judge imposed knowing assistance liability based
    on wilful blindness. Wilful blindness, the concept of interest in this appeal,
    is well developed in the criminal law. It has been described as deliberate
    ignorance and exists where the subject suspects the relevant facts but
    deliberately chooses not to inquire because they do not wish to know the truth:
R. v. Morrison
, 2019 SCC 15, 375 C.C.C. (3d) 153, at paras 98, 100. A
    finding of wilful blindness can therefore be made where an affirmative answer
    can be provided to the question, Did the accused shut his eyes because he knew
    or strongly suspected that looking would fix him with knowledge?:
R. v.
    Briscoe
, 2010 SCC 13, [2010] 1 S.C.R. 411, at para. 21.

[36]

Wilful blindness has similar meaning in knowing
    assistance cases. In
Air

Canada
, at pp. 811-812, quoting
    from
Carl-Zeiss-Siftung v. Herbert Smith & Co
.
(No. 2)
,
    [1969] 2 All E.R. 367 (C.A.), at p. 379, Iacobucci J. described the alternative
    basis for knowing assistance liability where the stranger does not have both
    actual knowledge of the trusts existence and actual knowledge that what is
    being done is improperly in breach of that trust by saying of course, in both
    cases a person wilfully shutting his eyes to the obvious is in no different
    position than if he kept them open.

[37]

To be clear, wilful blindness is a subjective
    standard of fault that depends on the strangers actual state of mind. This
    distinguishes wilful blindness from objective standards of fault based on what
    the subject ought to have known, such as negligence:
Sansregret v. The
    Queen
, [1985] 1 S.C.R. 570, at pp. 581-82, 584.

[38]

This distinction is crucial given the underlying
    theory of liability. In
Air

Canada
, Iacobucci J.
    commented that carelessness involved in constructive knowledge does not
    normally amount to a want of probity, and will therefore be insufficient to
    bind the strangers conscience, as required in knowing assistance cases: at p.
    812. In
Citadel
, La Forest J. described the kind of insufficient, constructive
    knowledge Iacobucci J. was referring to as knowledge of facts sufficient to
    put reasonable people on notice or inquiry: at para. 48. Rosenberg J.A.,
    discussing
Air

Canada
, observed that want of probity
    is necessary to capture the notion of being privy or party to a fraud and that
    [i]t cannot be enough that the trustee was simply negligent or ought to have
    known that the co-trustee was committing a fraud or fraudulent breach of
    trust:
Bikur
, at para. 43.

[39]

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

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

[40]

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

[41]

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

As officers and directors 
de

jure

in the case of Ms. Leanne Duscio and
de

facto

in
    the case of Mr. Anthony Duscio  of Catan, the liability of Catan for breach of
    the constructive trust by which it was bound falls equally upon the shoulders
    of Leanne Duscio and Anthony Duscio. These two both provided knowing assistance
    in Catans breach of trust:
Air

Canada
.

[42]

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

[43]

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

[44]

It must be remembered when reading the decision
    as a whole that the trial judge made numerous factual findings that would work
    against a finding of subjective knowledge or suspicion on Ms. Duscios part.
    Specifically, he found that Mr. Duscio was at all material times the
de

facto

controlling mind and will of Catan; that he controlled all
    of its banking, [and] arranged for the keeping of its books and records; that
    he and Mr. Garcia had arranged for the deposit of the Cajubi funds; that he was
    responsible for the wire transfers paid from the account; that Ms. Duscio had
    little to no direct information about any of the business undertaken by Catan;
    and that [t]here is no evidence that she invested anything in it or played
    anything but a passive role. Nor was there evidence of any event that triggered
    a need for inquiry into a possible breach of trust that she shut her eyes to;
    there was no evidence that Ms. Duscio was even made aware that the money had
    been deposited, or that wire transfers had occurred. This was not a slam-dunk
    case for subjective wilful blindness. It is not the kind of case, in my view,
    where it is appropriate to infer that the trial judge applied the appropriate
    subjective standards of fault, notwithstanding that in his analysis he focused
    solely on an objective standard of fault.

[45]

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

B.

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

[46]

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

[47]

Specifically, the trial judge found:

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

[48]

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

[49]

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

[50]

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

[51]

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

[52]

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

[53]

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

[54]

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

C.

Did the trial judge base Ms. Duscios liability
    alternatively on the doctrine of knowing receipt?

[55]

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

[56]

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

[57]

The legal test for knowing receipt therefore
    requires that: (1) the stranger receives trust property (2) for his or her own
    benefit or in his or her personal capacity, (3) with actual or constructive
    knowledge that the trust property is being misapplied. In addition to actual
    knowledge, including wilful blindness or recklessness, requirement (3) can be
    met where the recipient, having knowledge of facts which would put a
    reasonable person on inquiry, actually fails to inquire as to the possible
    misapplication of the trust property:
Citadel
, at para. 49;
Gold
    v. Rosenberg
, [1997] 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
    [plaintiffs] expense:
Citadel
, at para. 30, citing
Air Canada v.
    British Columbia
, [1989] 1 S.C.R. 1161, at pp. 1202-03.

[59]

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

·

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

·

The trial judge analyzed Ms. Duscios liability based
    on wilful blindness, a mental state that is not required for knowing receipt;

·

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

·

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

·

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

[60]

Cajubi argues that the trial judge found Ms.
    Duscio to be liable for knowing receipt when he said:

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

[61]

This is not a finding of liability against Ms.
    Duscio based on knowing receipt. As paragraph 11 of the formal order confirms,
    the trial judge was advising the parties that
should

constructive
    trust funds be shown in the future by as yet uncovered evidence to be in the
    hands of Ms. Duscio, a further application may be made on the basis of such
    additional evidence of knowing receipt of funds subject to a constructive
    trust.

[62]

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

[63]

One final point. None of what I say affects the
    validity of the contingent tracing order that trial judge made. Not only is the
    tracing order contingent, a tracing order does not depend upon a finding of
    liability for knowing receipt. Liability in tracing flows from the fact of
    receipt, and the extent of liability is dependent on the amount received:
B.M.P.
    Global Distribution Inc. v. Bank of Nova Scotia
, 2009 SCC 15, [2009] 1
    S.C.R. 504, at paras. 78-79. A party holding identifiable property that another
    has a superior legal or equitable right to possess can be compelled under the
    rules of legal or equitable tracing to transfer that property to the party with
    the superior legal or equitable right, without the need for a finding of
    liability for knowing receipt, and without a finding of that the holder is a
    constructive trustee of that property. As La Forest J. emphasized in
Citadel
,
at para. 57, [t]he imposition of liability as a constructive trustee on
    the basis of knowing receipt is a restitutionary remedy and should not be
    confused with the right to trace assets at common law or in equity. He further
    said, at para. 58:

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

[64]

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

CONCLUSION

[65]

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

[66]

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

[67]

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

David
    M. Paciocco J.A.

I
    agree. G. Pardu J.A.




Pepall J.A. (Dissenting):

[68]

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

[69]

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

[70]

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

[71]

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

Trial Judges Reasons

[72]

In
    extensive reasons for decision, 107 pages in length, the trial judge addressed
    the case against the Garcia Defendants, as he called them.
[4]

Along with others, the Garcia Defendants
    orchestrated a massive fraud against the Cajubi pension fund in Paraguay.
However, the Duscios were not mere bystanders to this fraud.

[73]

Mr.
    Duscios then company, Universal Settlements Inc. (USI), hired Mr. Garcia as
    a salesman around 2002. USI was in the viaticals businessit found investors to
    purchase life insurance policies from owners. Sadly, for the pension fund,
    through his work with USI, Mr. Garcia came into contact with Cajubi in 2005.

[74]

The
    trial judge introduced the Duscios in paragraph 14 of his reasons:

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

[75]

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

[76]

Catan owned a heavily-mortgaged property on Queen Street in
    Kitchener, which it acquired in 2006. This building had no tenants, so Mrs.
    Duscio moved her dance studio, described by her as a hobby and for which she
    got paid $1000  $1500 a month, into the building. Mrs. Duscio testified that
    the dance studio lost money each year.

[77]

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

[78]

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

[79]

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

[80]

The
    trial judge found at para. 333 of his reasons that Mr. Duscio was the
de

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

[81]

The
    trial judge described the Duscios circumstances at paras. 335 and 336 of his
    reasons:

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

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

[82]

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

[83]

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

[84]

In addition, $400,000 was spent by Catan. Some of the details of
    these disbursements in favour of the Duscios are described at para. 19 of my
    colleagues reasons.

[85]

As
    the trial judge observed at para. 395 of his reasons:

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

[86]

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

[87]

Having
    outlined the facts, the trial judge correctly described the elements of
    fraudulent misrepresentation, breach of fiduciary duty, knowing assistance, and
    knowing receipt. He relied on
Air Canada v. M & L
    Travel Ltd.
, [1993] 3 S.C.R. 787, and
DBDC
    Spadina Ltd. v. Walton
, 2018 ONCA 60, 419 D.L.R. (4th) 409, revd,
Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd.
,
    2019 SCC 30.

[88]

He
    wrote at paras. 441 and 442:

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

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

[89]

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

[90]

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

As officers and directors 
de

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

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

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

[91]

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

[92]

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

Analysis

(1)

Wilful Blindness

[93]

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

(a)

The trial judges language and Mrs. Duscios affidavit

[94]

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

[95]

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

[96]

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

[97]

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

(b)

The appellants receipt of benefits

[98]

Second,
    receipt of a benefit may also ground an inference that Mrs. Duscio knew of the
    fraud and the breaches:
Air

Canada
, at p. 812. The trial judge found that
    there was
no evidence that Catan had any business beyond owning
    the 20 Queen Street building from which a small amount of rental income was
    derived and that all or substantially all of the funds spent by Catan from
    August 22, 2008 until June 1, 2009 went to personal expenditures of either Mr.
    Duscio or Mrs. Duscio. This of course was Cajubis money. To use the trial
    judges language, Cajubis money, once deposited at Catan, became a piggy
    bank for the Duscios.
Recall that at this time, Mr. Duscio was
    bankrupt. At the time of trial, Mr. Duscio had very recently obtained modest
    employment working in a factory, while Mrs. Duscio worked as a sales assistant
    in a retail store at a low hourly wage. She reported income of $25,500 and
    $22,437.08 for the years 2008 and 2009, yet the cheques to her from Catan,
    which based on the business records, appear to have been deposited into her
    Bank of Montreal bank account, far exceeded those amounts. In the years 2007,
    2008 and 2009, on behalf of Catan, she reported losses of $95,981, $130,266 and
    $79,211 respectively. Catans taxable income was noted as zero and she is
    identified as the Companys President and contact person. The electronic tax
    filing appears to certify that she has examined the return and that the
    information is accurate and complete. In her cross-examination, Mrs. Duscio
    reiterated that Catan didnt have much day-to-day business other than
    collecting rent. A review of all of the account statements and Catans general
    ledger, which were before the trial judge, show that other than the fraudulent
    funds, no other material amounts were deposited into Catan.

[99]

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


(c)

The trial judges finding of wilful blindness

[100]

Third, it cannot be ignored that the trial judge did make a
    finding that Mrs. Duscio was wilfully blind. This is unlike the Supreme Courts
    decision in
Citadel General Assurance Co. v. Lloyds Bank
    Canada
, [1997] 3 S.C.R. 805, where, in concluding that the trial
    judge had improperly restricted her findings of knowing assistance to
    constructive knowledge, the court noted that there was no finding of wilful
    blindness or recklessness: at para. 23. This is not that case.

[101]

In essence, my colleague disregards this finding. Rather, relying
    on one sentence in the trial judges reasons, he concludes that the trial judge
    failed to understand the concept of wilful blindness and only applied an
    objective standard, based on Mrs. Duscios carelessness, to ground his finding.
    With respect, this is an overly narrow reading of the trial judges decision.
    As mentioned, stating that Mrs. Duscio ought to have been on inquiry does not
    preclude a finding of wilful blindness. Indeed, the fact that someone ought to
    have been on inquiry may be a factor to consider in whether they were wilfully
    blind:
Trustees of the IWA v. Leroy
, 2017 BCSC 158, 44 C.B.R. (6th) 221, at
    paras. 121-122. In
Trustees of the IWA
, the trial judge applied a subjective
    standard for wilful blindness, but also inferred wilful blindness from a
    combination of what the personal defendant subjectively knew and what she ought
    to have known about the corporate defendants breach of trust.

[102]

In the paragraph on Mr. Duscios liability, the trial judge
    explained that Mr. Duscio was one of the architects of the fraud who knowingly
    authorized and directed the dissipation of the funds received by Catan. The
    trial judge then went on to say that Mr. Duscio knew
or ought to have known

    that those funds were subject to a constructive trust in Cajubis favour
    (emphasis added). No one in this case suggests that the trial judge applied an
    objective standard for Mr. Duscio. It is clear that the trial judge considered,
    correctly, that what someone ought to have known may be a factor to consider in
    determining whether they were wilfully blind.

[103]

Moreover,

in closing
    argument at trial, the trial judge was specifically referred to a decision that
    he had authored two months earlier in
1169822 Ontario
    Limited v. The Toronto-Dominion Bank
, 2018 ONSC 1631, involving
    knowing assistance and wilful blindness. In that decision, the trial judge
    noted that actual knowledge is required for the equitable tort of knowing
    assistance and observed that this included wilful blindness and recklessness.
    He wrote at paras. 128 and 132-137 of that decision:

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

Canada

at paras. 39-41.



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

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

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

Wilful blindness or recklessness requires proof
    of culpable conduct that goes beyond mere negligence or laziness underlying a
    failure to inquire. It requires a combination of knowledge and conduct of a
    level that can fairly be equated to actual knowledge. The additional element I
    have described as culpability was described by Iacobucci J. in
Air

Canada
as being want of probity. He described this as the element that
    differentiates wilful blindness or recklessness (either of which will bind the
    strangers conscience) from constructive knowledge (which normally will not):
Air

Canada
at para. 41.

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

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

[104]

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

[105]

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

(d)

The appellants testimony at trial

[106]

Fourth, Mrs. Duscios
    cross-examination at trial, peppered with I dont know and I cant recall
    answers, did not detract from the trial judges finding of wilful blindness.
    The following is an example of one of her answers:

Q: Tony Duscio, okay, so you just signed the papers, you had no
    idea what was happening?

A: Well, Im not going to say I had no idea. He probably told
    me what was happening, and I  Im not going to dispute him or disagree with
    anything hes doing. I dont know why I would, so I would have signed the
    papers, yes.

Q: Okay.

A: And probably not given it a lot of thought either.

[107]

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

[108]

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

[109]

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

(e)

The test for knowing assistance of breach of trust

[110]

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


[111]

The relevant test for
    knowing assistance of breach of trust is from
Air

Canada
: (1) there must be a trust;
[8]
(2) a fraudulent and
    dishonest breach of that trust; (3) actual knowledge by the stranger of the
    fraudulent and dishonest breach of trust (wilful blindness or recklessness will
    also suffice) and (4)
participation by or assistance of the
    stranger in the fraudulent and dishonest breach of trust
. In
Air Canada
, the Supreme Court explained that the method
    by which a trust is created has
an impact on the question of
    the strangers knowledge of the trust. The decision in
Air

Canada
concerned a trust created by contract, so the Supreme Court stated that
    whether the stranger knew of the trust will depend on his or her familiarity
    or involvement with the contract:
Air

Canada
, at p.
    812. There was no mention in
Air

Canada

of
    fiduciaries or fiduciary relationships. In circumstances of breach of
    constructive trust, the trustee does not necessarily owe fiduciary obligations:
    Oosterhoff, at p. 1132. Fiduciary relationships therefore do not always play a
    role in a case of knowing assistance of breach of constructive trust.

[112]

From
Air

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

[113]

Again, based on how
    the
Air

Canada

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

[114]

Against this backdrop, the trial judge found Mrs. Duscio wilfully
    blind to the fraudulent means by which Catan received the funds. Her passivity
    did not preclude a finding of wilful blindness. A wide range of factors can be
    taken into account in inferring wilful blindness.
In
Sorrel 1985 Ltd.
    Partnership v. Sorrel Resources Ltd.
, 2000 ABCA 256, for example, the Alberta Court of
    Appeal considered the respondents subjective knowledge of a depressed market
    to be relevant in determining whether they were wilfully blind. The issue was
    whether the personal respondents were liable for knowingly assisting a breach
    by Sorrel Resources Ltd. (Sorrel) of a trust relationship it had with the
    appellant, Sorrel 1985 Limited Partnership (the Sorrel Partnership). This
    turned, in part, on whether the personal respondents knew that Sorrel Partnership
    funds were at risk of being seized by creditors because of Sorrels
    vulnerability. The Alberta Court of Appeal held that they were wilfully blind
    or reckless of the fact even if they did not have actual knowledge. This was
    because [t]hey had subjective knowledge that Sorrel had a serious working
    overdraft, the market was depressed and they were refinancing:
Sorrel
, at
    para. 72. Knowledge of general facts like a depressed market, and of certain
    surrounding circumstances reflecting the financial health of a company, may be
    relevant to a wilful blindness assessment.

[115]

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

[116]

Even if it were the
    case that the trial judge grounded his wilful blindness finding on an objective
    standard, which I do not accept, this court is permitted to review the record
    in order to determine if the finding of wilful blindness was open to the trial
    judge. In
Wescom Solutions Inc. v. Minetto
, 2019 ONCA 251, for example, the trial judge
    mistakenly applied an objective standard for wilful blindness, but this court
    nevertheless held that the trial judges error in law in his articulation of
    the concept of wilful blindness did not mean that the trial judge was wrong to
    conclude that the appellant was wilfully blind:
Wescom
, at para. 10. The trial judges mischaracterization
    of wilful blindness was not fatal because he had made findings of fact that
    established that the appellant was wilfully blind on a subjective standard.
    Again, my colleague agrees that
there was evidence on the record that
    could have supported a finding of subjective knowledge on Mrs. Duscios part.

(f)

Conclusion on wilful blindness

[117]

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

(2)

Cheques and Authorizations

[118]

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

[119]

First, I do not see
    this as a ground of appeal in the appellants Notice of Appeal. There is no
    mention of a palpable and overriding error relating to the cheques and
    authorizations. Rather, the grounds enumerate inconsistent factual findings,
    Mrs. Duscios liability for knowing receipt, and the misapprehension of the law
    in
Air

Canada
.
    See
Rules of Civil Procedure
, R.R.O. 1990,
    Reg. 194, r. 61.08(2).

[120]

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

[121]

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

Conclusion

[122]

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

Disposition

[123]

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

Released: JUN 25, 2020 S.E.P.

S.E.
    Pepall J.A.





[1]

The trial judge identified the amounts as $2,079,136 paid
    before June 1, 2009, plus $513,931.92 transferred to Columbus Capital on that
    date. The actual
amounts paid on Columbus Capitals behalf may
    in fact have been nearly $100,000 higher than this. The trial judge achieved
    his figures by simply adding together disbursements from Catans Canadian and US
    accounts, apparently without accounting for exchange differences. Two transfers
    totalling $1,874,430.00 CDN were made from Catans Canadian account to its US
    account that can be linked to funding the $1,779,140.94 USD that was paid on
    Columbus Capitals behalf out of the US account, producing an exchange
    differential of slightly less than $100,000.00 CDN. On this basis, the
    breakdown may, in fact, be over $2.6 million attributable to Columbus, and
    slightly over $300,000 remaining with Catan.



[2]

This panel recently denied the appeal from these decisions
: Caja Paraguaya de
    Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Garcia
,
    2020 ONCA 124.



[3]

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



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



[5]
As my
    colleague notes, the trial judge found that Catans Canadian dollar account had
    a balance of $292,238 prior to its receipt of Cajubi funds, and Catans US
    dollar account had a balance of $13,469.37 prior to its receipt of Cajubi
    funds: see para. 391. These amounts were used by the trial judge as benchmarks
    to determine how much of Cajubis money was funnelled through Catan to Columbus
    Capital, and how much of Cajubis money was spent by Catan itself: see paras.
    392-394. In her cross-examination, Mrs. Duscio was not asked about these sums.
    She was asked about the mortgages registered on title of the 20 Queen Street
    building, to which she testified that she knew nothing. My colleague now
    attempts to infer either that Mrs. Duscio knew of this balance or that the
    trial judge did not take these amounts into account when making a finding of
    wilful blindness against Mrs. Duscio. None of the parties gave these amounts
    any significance during Mrs. Duscios cross-examination.



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



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



[8]
In
Commercial Union Life Assurance Co. of Canada v.
    John Ingle Insurance Group Inc.
(2002), 61 O.R. (3d) 296 (C.A.), Weiler
    J.A. suggested, in obiter, that a constructive trust is not sufficient for
    knowing assistance. In
Transamerica
    Occidental Life Insurance Co. v. Toronto Dominion Bank

(1999), 44
    O.R. (3d) 97 (C.A.), however, this court specifically sent the issue of whether
    TD can, in law, assist in the breach of a constructive trust on the basis of
    actions that took place before the constructive trust was declared to exist to
    trial. The decision in
Transamerica
    Occidental

was a summary judgment motion so the court could have
    decided that a constructive trust is not sufficient for knowing assistance. In
    my view, there is no principled basis why, in appropriate circumstances, the
    doctrine of knowing assistance cannot be extended to cases of breach of
    constructive trust. See also Oosterhoff,
supra
note 7.



[9]

In this context, dishonest and fraudulent conduct
    [signifies] a level of misconduct or impropriety that is morally reprehensible
    but does not necessarily amount to criminal behaviour:
Enbridge Gas v. Marinaccio
,
    2012 ONCA 650, 355 DLR (4th) 333, at para. 27.



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



[11]

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


