



COURT OF APPEAL FOR ONTARIO

CITATION: Healthy Body Services Inc. v. 1261679 Ontario Ltd.
    (Raytek Communications), 2015 ONCA 516

DATE: 20150709

DOCKET: C57889

Juriansz, MacFarland and Lauwers JJ.A.

BETWEEN

Healthy Body Services Inc.

Plaintiff (Appellant)

and

1261679
    Ontario Ltd., formerly c.o.b. as

Raytek
    Communications
, Utpal Bhogilal Patel,

Milton L. Ramsawak
and Jignashaben Utpal Patel

Defendants (
Respondents
)

J. Thomas Curry and Brian Kolenda, for the appellant

Simon Schneiderman, for the respondents

Heard: April 21, 2015

On appeal from the judgment of Justice Sandra Chapnik of
    the Superior Court of Justice, dated October 11, 2013.

ENDORSEMENT

[1]

Healthy Body Services Inc. (HBS) appeals from
    the dismissal of its action in which it sought to recover monies of which it
    was defrauded. It sought to recover those monies from the fraudster, Patel, as
    well as from an earlier victim of Patel, 1261679 Ontario Ltd. (Raytek), and from
    Mr. Ramsawak, a Raytek shareholder/director. Patel pleaded guilty to stealing
    CAD$670,000 from Raytek. Patel has been deported, and Raytek is no longer in
    operation. This appeal concerns HBS claim against Mr. Ramsawak.

[2]

Pursuant to an arrangement made on his
    sentencing, Patel made restitutionary payments of CAD$390,000 to Raytek through
    the Crowns office. Some of those payments benefited Mr. Ramsawak. In its
    action, HBS claimed Patel made the restitutionary payments with funds he stole
    from it. At trial, HBS limited its claim to CAD$282,000 of the restitutionary
    payments.

[3]

The trial judge found that the money that Patel
    stole from HBS could not be traced to the money received by Raytek. The trial
    judge did not stop there. Instead, she continued her analysis on the assumption
    that the HBS funds could be traced to Raytek. In that continued analysis, she
    found that Raytek and Mr. Ramsawak were not in knowing receipt of the funds,
    and that Mr. Ramsawak was not unjustly enriched because there was a juristic
    reason for any enrichment.

[4]

On appeal, the appellant limits its claim to two
    payments of CAD$150,000 and CAD$40,000.

Did the trial judge err by excluding Patel statements?

[5]

Patel was not available at trial because he had
    been deported. HBS submits the trial judge erred by excluding Patels
    statements that he used HBSs money to make the restitutionary payments to
    Raytek. In particular, HBS points to the statement Patel made when he pleaded
    guilty to an obstruction of justice charge. HBS submits that the trial judge,
    in her analysis, relied on
R. v. Starr
, 2000 SCC 40, [2000] 2
    S.C.R. 144, and failed to apply the principles set out in
R. v.
    Khelawon,
2006 SCC 57, [2006] 2 S.C.R. 787.

[6]

The trial judge considered whether Patels
    statements were made against interest and carefully reviewed all the
    circumstances in which they were made. She noted Patels abundant dishonesty;
    that he had made the contradictory statements about the source of the
    restitutionary payments; and that there was evidence the CAD$100,000 he said
    was paid out of funds from HBS actually came from a different source.

[7]

We are not persuaded there is any basis to
    interfere with the trial judges decision to admit only the fact of Patels
    guilty pleas and nothing more.

The CAD$150,000 payment

[8]

HBS claims that a restitutionary payment in the amount of CAD$150,000,
    deposited into Rayteks bank account on April 24, 2008, came out of its funds.

[9]

HBS led evidence that Patel deposited a forged cheque drawn on its
    account in the amount of USD$175,198.13 into his ICICI account on February 25,
    2008; that on April 10, 2008, Patel made a withdrawal of USD$165,000 from his
    ICICI account; and that on April 10, 2008, Patel provided the Crowns office
    with an ICICI bank draft in the amount of CAD$150,000 as a restitutionary
    payment. The Crown provided that bank draft to Raytek on April 24, 2008. On May
    5, 2008, CAD$150,000 was paid out of the Raytek bank account to reduce Mr.
    Ramsawaks personal line of credit held jointly with his wife.

[10]

HBS
    called an expert who testified that on these facts, he was satisfied that the
    CAD$150,000 paid to Raytek through the Crowns office was funded by the forged
    HBS check for US$175,198.13.

[11]

The
    trial judge did not accept the experts opinion and found HBS had failed to
    establish on a balance of probabilities that the CAD$150,000 bank draft came
    from its funds. The trial judge explained that although there was a symmetry
    of date and amounts, there is no clear evidence as to the actual funds used
    for the bank drafts as there were two pools of funds available to Patel at the
    relevant time.

[12]

HBS
    submits that the trial judge made an overriding and palpable error in failing
    to infer that the restitutionary payment of CAD$150,000 had come from funds
    stolen by HBS. It seems to me HBS invites us to follow the approach put forward
    by Bastarache J. in dissent in
Housen v. Nikolaisen
, 2002 SCC 33,

[2002]
    2 S.C.R. 235. At para. 103 he said:

In reviewing the making of an inference, the
    appeal court will verify whether it can reasonably be supported by the findings
    of fact that the trial judge reached and whether the judge proceeded on proper
    legal principles ... While the standard of review is identical for both
    findings of fact and inferences of fact, it is nonetheless important to draw an
    analytical distinction between the two. If the reviewing court were to review
    only for errors of fact, then the decision of the trial judge would necessarily
    be upheld in every case where evidence existed to support his or her factual
    findings. In my view, this Court is entitled to conclude that inferences made
    by the trial judge were clearly wrong, just as it is entitled to reach this
    conclusion in respect to findings of fact.

[13]

The
    majority found two problems with the dissents approach. It said at paras.
    21-22:

First, in our view, the standard of review is not to verify
    that the inference can be
reasonably supported
by
    the findings of fact of the trial judge, but whether the trial judge made a
palpable and overriding
error in coming to a factual
    conclusion based on accepted facts, which implies a stricter standard.

Second, with respect, we find that by drawing an analytical
    distinction between factual findings and factual inferences, the above passage
    may lead appellate courts to involve themselves in an unjustified reweighing of
    the evidence. Although we agree that it is open to an appellate court to find
    that an inference of fact made by the trial judge is clearly wrong,
we
    would add the caution that where evidence exists to support this inference, an
    appellate court will be hard pressed to find a palpable and overriding error
.
    As stated above, trial courts are in an advantageous position when it comes to
    assessing and weighing vast quantities of evidence. In making a factual
    inference, the trial judge must sift through the relevant facts, decide on
    their weight, and draw a factual conclusion.
Thus, where evidence exists
    which supports this conclusion, interference with this conclusion entails
    interference with the weight assigned by the trial judge to the pieces of
    evidence
. [Underlining emphasis in original; italicized emphasis added.]

[14]

In
H.L. v. Canada,
2005 SCC 25, [2005] 1 S.C.R. 401, Fish J., writing for the
    majority, explained at para. 74:

Not infrequently,
different
inferences may reasonably be drawn from facts found by the trial judge to have
    been directly proven. Appellate scrutiny determines whether inferences drawn by
    the judge are "reasonably supported by the evidence". If they are,
    the reviewing court cannot
reweigh the evidence
by
    substituting, for the reasonable inference preferred by the trial judge, an
    equally - or even more - persuasive inference of its own. [Emphasis in
    original.]

[15]

Here,
    given the exclusion of Patels admission, there was no direct evidence that
    HBSs money had been used to make the restitutionary payments to Raytek.
    Indisputably, there was evidence before the trial judge that Patel had a pool
    of money available to him other than the money he stole from HBS. Only
    CAD$77,000 of the CAD$670,000 he had stolen from Raytek had been recovered, and
    he had made a restitutionary payment of CAD$100,000 that had not come out of
    HBS funds.

[16]

There
    was no evidence connecting the ICICI bank paid in restitution and Patels ICICI
    account, into which he deposited the forged HBS cheque for USD$175,198.13. The
    bank statement of his account shows a withdrawal for USD$165,000, but does not
    show what happened to it. There is no evidence of how Patel paid for the bank
    draft. The amounts of the withdrawal and the bank draft do not match, though
    the withdrawal is sufficient to cover the bank draft. Both transactions, the
    withdrawal and the purchase of the bank draft, took place on the same day, but
    the evidence does not indicate which transaction took place first. HBSs expert
    admitted he did not know that the CAD$150,000 did not come from the CAD$670,000
    stolen from Raytek.

[17]

Different
    inferences may reasonably be drawn from these facts. HBS invites us to reweigh
    the evidence. For example, HBS submitted that the trial judge placed too much
    weight on its experts concession that he did not know where the CAD$150,000
    had come from and on his comment that it could have come from the money Patel
    had stolen from Raytek. It was for the trial judge to weigh the experts testimony
    in the light of all the evidence. In our view, the trial judge could reasonably
    decline to make the inference the CAD$150,000 came from HBSs funds.

[18]

The
    trial judges finding that HBS had not established the CAD$150,000 could be
    traced back to its funds completely disposes of HBSs claim for the
    CAD$150,000. It is unnecessary to consider the other arguments advanced.

The CAD$40,000 payment

[19]

Patel
    deposited CAD$48,735.40 he stole from HBS into a TD bank account on September
    11, 2008. He provided the Crown with a TD bank draft dated September 16, 2008
    in the amount of CAD$40,000 as a restitutionary payment. The banking records
    indicate that the cost of the bank draft was debited to Patels TD account. On
    October 6, 2008, Mr. Ramsawak was advised that the restitution cheques had been
    fraudulently obtained and that there would be no more restitutionary funds
    coming to him. On October 7, 2008, Raytek made a payment of CAD$40,000 to the
    CRA towards its outstanding tax liability created by Patels earlier fraud.

[20]

In
    the case of the CAD$40,000, the direct evidence shows that stolen HBS funds can
    be traced into Patels bank account where it was mixed with other funds. We
    accept HBSs argument that trust funds may be traced into mixed accounts.
    Nevertheless, we still find it unnecessary to address HBSs arguments about
    knowing receipt and about unjust enrichment in relation to the CAD$40,000.
    Assuming the $40,000 are traced into Rayteks account, there is no basis for
    finding liability on the part of Mr. Ramsawak personally. At the time Raytek
    paid out those funds towards its own tax indebtedness, Mr. Ramsawak was not
    liable for that indebtedness.

[21]

Raytek
    is no longer operating, and HBS did not seek judgment only as against Raytek.

Conclusion

[22]

The
    appeal is dismissed with Mr. Ramsawaks costs fixed in the amount of $25,000 as
    agreed by counsel.

R.G.
    Juriansz J.A.

J.
    MacFarland J.A.

Lauwers J.A. (Dissenting):

[23]

I
    have read the reasons of my colleague and dissent for the reasons set out
    below.

[24]

The
    fraudster, Patel, stole $670,000 from his employer, Raytek, pleaded guilty to
    the crime and was sentenced. Under a scheme administered by the Crown, Patels
    sentence would be reduced if he repaid the money he stole. Patel then stole
    $490,000 from his next employer, HBS, some of which he allegedly paid as
    restitution to Raytek. On this appeal, HBS pursues $190,000 of this amount.

[25]

I
    would grant judgment to the appellant in the amount of $190,000. In my view,
    the trial judge made reviewable errors in dismissing HBSs claim.

A.

the $40,000 payment

[26]

It
    is common ground that on October 6, 2008, Mr. Ramsawak, the directing mind of
    Raytek, was advised that the restitutionary funds received from Patel had been
    fraudulently obtained and that no more funds would be forthcoming. The very
    next day, Mr. Ramsawak caused Raytek to pay $40,000 to the CRA towards its
    outstanding tax liability.

(1)

Tracing

[27]

I
    agree with my colleague that the direct evidence shows that stolen HBS funds
    can be traced into Patels bank account where [they were] mixed with other
    funds. I also agree that it is appropriate to accept HBSs argument that trust
    funds may be traced into mixed accounts. My colleagues statement that it is
    permissible to trace funds into a mixed account corrects the trial judges
    legal error, at para. 99, that this was not possible.

[28]

The
    trial judge relied on
Citadel General Assurance Co. v. Laurence Bank Canada
[1997] 3 S.C.R. 805, at para 58, but the Supreme Court made it clear in
BMP
    Global Distribution Inc. v. Bank of Nova Scotia
, 2009 SCC 15, [2009] 1 SCR
    504, at para. 85, that mixing of funds is not a bar to recovery if it is
    possible to identify the funds, as it is in this case: See Mitchell McInnes,
The
    Canadian Law of Unjust Enrichment and Restitution
(Markham, Ontario: LexisNexis,
    2014), at p. 1376.

[29]

The
    tracing evidence proves that the $40,000 restitutionary payment was stolen from
    HBS and was used by Mr. Ramsawak to pay down Rayteks tax liabilities.

(2)

Knowing Receipt

[30]

A
    consideration of the principles of the knowing receipt cause of action
    exposes a significant gap in the trial judges reasoning, although she stated
    the law correctly at paras. 90-93, citing
Holmes v. Amlez International
    Inc.
[2009] O.J. No. 4513 (S.C.J), at para. 12, and
Citadel General
    Assurance Co. v. Lloyds Bank Canada
,

[1997] 3 S.C.R. 805, at
    paras. 44-49.

[31]

As
    noted by the trial judge, at para. 90, the first element of knowing receipt is
    that strangers to the trust receive or apply trust property for their own use
    and benefit. This is indisputably what happened here with respect to the
    $40,000.

[32]

Since
    that money was obtained by fraud, a constructive trust is imposed on it: Peter
    D. Maddaugh & John D. McCamus,
The Law of Restitution
, looseleaf
    (Toronto: Canada Law Book, last updated 2014), at pp. 7-12  7-13, citing
Goodbody
    v. Bank of Montreal
(1974), 4 O.R. (2d) 147 (H.C.J.) and
Simpsons-Sears
    Ltd. v. Fraser
(1974), 7. O.R. (2d) 61 (H.C.J.).

[33]

Although
    the trial judge assumed the $40,000 constituted trust funds, she found that Mr.
    Ramsawak did not apply them for his own use and benefit. My colleague takes the
    position that Mr. Ramsawak did not benefit from these trust funds because he
    was not liable for Rayteks tax indebtedness at the time he used the trust
    funds to pay it down. I would disagree. Mr. Ramsawak testified that in reducing
    Rayteks indebtedness, he was also reducing his personal exposure. Therefore,
    in my view, both Raytek and Mr. Ramsawak benefitted from the $40,000
    restitutionary payment stolen from HBS. The first element of knowing receipt is
    made out.

[34]

The
    trial judge identified the second element of knowing receipt, at para. 91:
    [T]he defendant must be shown to have had knowledge of facts that would have put
    a reasonable person on notice or inquiry as to the source of the funds. Error
    crept into her consideration of this second element.

[35]

The
    trial judge accurately noted, at para. 124, that Mr. Ramsawak did not have
    constructive knowledge of any facts that would have put a reasonable person on
    notice or inquiry prior to October 6, 2008. But the real problem is raised in
    the immediately following paragraphs, where she noted that on October 6, 2008,
    the Crown Attorney, David Fisher, told Mr. Ramsawaks lawyer, Michael Title,
    that the restitutionary funds received had been obtained by fraud and no more
    funds would be forthcoming. Mr. Title transmitted this information to
    Mr. Ramsawak. The trial judge then asked herself the right questions about
    this evidence, at para. 127:

Was this sufficient information to have put a reasonable person
    on an inquiry? Did the defendants dissipate property in the face of actual
    knowledge, as alleged?

[36]

However,
    the trial judges negative answers to these questions do not withstand scrutiny.
    There are at least two places in her reasons where an unresolved contradiction
    is manifest. First, at para. 67, the trial judge pointed out the timing
    coincidence:

When [Mr. Ramsawak] learned of the second fraud on October 6,
    2008 from Mr. Title, he was also told there would be no more restitutionary
    funds coming to him as expected. Then on October 7, 2008 Raytek made a payment
    to CRA of $40,000.

[37]

The
    trial judge did not reconcile this evidence with an exchange she recorded three
    paragraphs before, at para. 64, and on which she relied. Mr. Ramsawak was
    asked this question and gave this answer:

Question:     Was there any reason to question the source of
    the restitution?

Answer:       No.

With respect, the trial judge was obliged to explain
    how she could accept this evidence in the face of the evidence she noted at
    para. 67. Mr. Ramsawaks answer was clearly unsupportable and unreliable.

[38]

Second,
    the trial judges reluctance to confront the implausibility of
    Mr. Ramsawaks testimony was repeated, at paras. 130-31 of her decision,
    where she noted that Mr. Ramsawaks belief that the $40,000 he paid to CRA
    belonged to Raytek was not challenged in cross-examination. But Mr. Ramsawak
    was challenged, as shown by the testimony she quoted in the immediately
    preceding paragraph 129:

Question:     You just said you had no idea where the monies
    had come from, but you will agree with me, Sir, that you knew by October 6,
    though, that the Crown was alleging at that point, that the monies had come
    from a fraud of my client?

Answer:       Yes

In other words, Mr. Ramsawak plainly admitted knowing
    by October 6, the day before he caused the funds to be paid to CRA, that the
    restitutionary money was the result of a fraud. Despite this evidence, the
    trial judge concluded, at para. 133:

As noted, a recipient of trust funds is not expected to be
    unduly suspicious. In my view, it has not been shown that Ramsawak went ahead
    without further inquiry and circumstances of which an honest and reasonable
    person would have realized that monies taken were probably trust monies and
    were being misapplied.

[39]

With
    respect, this conclusion simply does not follow from the evidence outlined by
    the trial judge. I am compelled to find she made a palpable and overriding
    error. At the moment that Mr. Ramsawak caused Raytek to pay $40,000 to CRA, he
    knew that the funds had been obtained by fraud. They were impressed with a
    constructive trust, a trust that he and Raytek both breached.

[40]

In
    my view, both elements of knowing receipt were made out by the appellant with
    respect to the $40,000 payment, and the funds were correctly traced to Raytek.
    Accordingly, Raytek and Mr. Ramsawak personally should each be liable for
    breach of trust.

(3)

Unjust Enrichment

[41]

If,
    as McInnes suggests, at pp. 296-97, the appellant must also demonstrate that
    Raytek was unjustly enriched under the three-part test set out in
Garland
    v. Consumers' Gas Co
., 2004 SCC 25, [2004] 1 S.C.R. 629, 2004 SCC 25 at para.
    30, that is easily done with respect to the $40,000 sum.

[42]

First,
    Raytek was enriched by that sum, which it expended for its own purposes.
    Second, HBS was correspondingly deprived. Third, once Mr. Ramsawak,
    Rayteks directing mind, was told by Mr. Title that the money was tainted by
    fraud, any juristic reason for Rayteks enrichment instantly vanished. The
    finding of the trial judge, at para 137, that the factors she listed at para.
    136 combined to constitute a valid juristic reason, is simply wrong in law.
    Mr. Ramsawak knew the money belonged to someone else, making him a
    constructive trustee over it: McInnes, at p. 293.

(4)

Change in Position

[43]

At
    para. 138, the trial judge stated, Ramsawak changed his position in good faith
    by applying the restitutionary funds to the financed shortfalls caused by
    Patel's fraud on Raytek. With respect, Mr. Ramsawaks claim to have acted in
    good faith evaporates once he is found to be in knowing receipt, as I believe
    he must have been for the reasons set out above. In any event, McInnes points
    out, at p.1509, that the defence does not apply where the funds are used to defray
    debt:

Liability will not be reduced merely because the defendant has
    used an enrichment to discharge debts that arose regardless of the impugned
    transfer. Since debts must be satisfied in any event, such expenditures do not
    constitute a change of position.

[44]

McInnes
    cites
RBC Direct Investing Inc. v Khan
, 2010 ONSC 3100, [2010] O.J.
    No. 2241, which states, at para. 13, that the party who received the funds by
    mistake cannot expect to be able to profit from their receipt by a reduction in
    a debt it would otherwise have. Put another way, at para. 21:

It stands to reason that if a person is the recipient of funds
    he, she or it know it should not have, but spends it anyway, they cannot then
    rely on a materially-changed circumstance to claim they should not be compelled
    to return the funds.

[45]

In
    my view, for these reasons, neither Raytek nor Mr. Ramsawak can escape their
    obligation, as constructive trustees in knowing receipt, to repay the $40,000
    by which they were unjustly enriched to the appellant.

B.

The $150,000 Payment

[46]

The
    issues with respect to Patels $150,000 payment also involve tracing, knowing
    receipt, unjust enrichment and change of position.

(1)

Tracing

[47]

The
    following facts relevant to tracing are not in dispute:

·

February 25, 2008  Patel deposited a forged cheque drawn on
    HBSs account in the amount of USD $175,198.13 into his ICICI account;

·

No other significant deposits or withdrawals were made from
    Patels ICICI account until April 10, 2008;

·

April 10, 2008  Patel withdrew USD $165,000 from his ICICI
    account;

·

April 10, 2008  Patel provided the Crowns office with an ICICI
    bank draft in the amount of $150,000 as a restitutionary payment to Raytek;

·

April 24, 2008  the Crown provided the ICICI bank draft to
    Raytek;

·

May 5, 2008  Mr. Ramsawak caused Raytek to pay $150,000 to
    reduce the personal line of credit he held jointly with his wife, secured
    against their home;

·

October 6, 2008  Mr. Ramsawak was told that the restitutionary
    funds had been obtained by fraud and no more funds would be forthcoming; and

·

October 29, 2008  Mr. Ramsawak borrowed $309,000 from the
    personal line of credit.

·

October 31, 2008  Mr. Ramsawak paid $309,000 to CRA.

[48]

The
    appellant relied on the evidence of James B. Hoare, a Certified Chartered
    Accountant who was qualified as an expert in forensic accounting. Mr. Hoare
    provided a written report in which he tracked the cash flows carefully. He
    linked them to the accounts in his evidence. Mr. Hoare gave the expert opinion
    that the $150,000 ICICI bank draft delivered by Patel to the Crown came from
    the USD $175,198.13 that Patel had taken from the appellants and deposited into
    his ICICI account. He explained his reasoning in chief and in
    cross-examination.

[49]

The
    trial judge was not satisfied that the appellant had proven the connection through
    Mr. Hoares evidence and the documents. She relied particularly heavily on a
    snippet of Mr. Hoares cross-examination, which she clearly considered
    important, since she quoted it at para. 59, and again at para. 106:

Regarding the $150,000 bank draft that went to Raytek, Mr.
    Hoare opined that it came out of the ICICI account in the sum of $165,000. He
    pointed out that the bank draft and the date of withdrawal were the same; and
    he concluded that the $150,000 bank draft delivered to the Crown on April 10,
    2008 must have come from the $175,000 USD that went into the account on
    February 25, 2008. The following exchange in cross-examination is telling:

Q.      But we do know, do we not, Mr. Hoare, that Mr. Patel
    had stolen other money, right?

A.      From HBS?

Q.      From my client [Raytek], $670,000.

A.      Yes.

Q.      How do you know that the $150,000 didn't come from
    my client's 670,000 that was stolen from him?

A.      I don't know that.

Q.      You don't.

A.      That's correct.

[50]

The
    trial judge also referred, at para. 107, to the evidence of Mr. Fisher, the
    Crown Attorney who had carriage of the criminal fraud proceedings against
    Patel. She stated, The fact that Mr. Fisher understood that Patel had received
    a cheque for $175,000 purportedly from a rich uncle, and had taken $25,000 to
    pay other debts, does not support the conclusion that the plaintiffs money
    funded the restitution. The possible existence of a rich uncle was also
    referred to by the trial judge at paras. 39, 42, 54, and 86.

[51]

The
    trial judge concluded, at para. 108:

As previously noted, a tracing order at common law is only
    available in respect of funds that have not lost their identity by becoming
    part of a mixed fund. In this case, the plaintiff has been unable to identify
    the restitutionary funds paid to Raytek as trust funds taken from the
    plaintiff, on a balance of probabilities. Although there is symmetry of date
    and amounts in some cases, there is no clear evidence as to the actual funds
    used for the bank drafts as there were two pools of funds available to Patel at
    the relevant time.

[52]

There
    are, in my view, palpable and overriding errors in the trial judges reasoning
    process, quite apart from the legal error she made concerning mixed funds,
    which I addressed above. The errors are that the trial judge:

(i)      took
    Mr. Hoares cross-examination evidence out of context;

(ii)      imposed
    a higher standard of proof on the appellant than the      civil standard of the
    balance of probabilities; and

(iii)     took
    into account information that was not evidence.

[53]

I
    address each of these in turn.

(i)

The trial judge took Mr. Hoares cross-examination evidence out of
    context

[54]

The
    uncontradicted evidence is that Patel stole $670,000 from Raytek, but only
    about $70,000 in assets were recovered from Patel. The trial judge relies on
    the notion that Patel has the balance of the money he stole hidden somewhere
    and that it is somehow available to him.

[55]

The
    trial judges focus on the cross-examination snippet excerpted above was
    misplaced. As an expert witness, Mr. Hoare was obliged to testify in an
    impartial way and to answer questions fairly. He did so when he said that he
    did not know for sure if the funds for the $150,000 payment came from a secret
    fund, rather than Patels ICICI account, which he had already identified as the
    likely source of the money. He would have given the same answer to any
    cross-examination question requiring him to identify the source of the funds
    with one hundred per cent certainty, such as How do you know the $150,000 didnt
    come from my clients rich uncle? or How do you know the $150,000 didnt come
    from my clients lottery winnings?

[56]

In
    my view, these are all logically equivalent questions and answers. There is no
    evidence, but only speculation, that a secret fund exists under Patels
    control. The same is true of the putative rich uncle.

[57]

In
    my view, Mr. Hoares answer to the cross-examination question does not
    undermine, in the slightest, the expert tracing evidence that he put forward in
    his report and in his evidence. At no point did the cross-examination undermine
    the substance of his evidence, as I explain below. This snippet was taken out
    of context by the trial judge.

(ii)

The trial judge imposed a higher standard of proof on the appellant than
    the civil standard of the balance of probabilities

[58]

It
    is trite law that in a civil case, the plaintiff is obliged to prove his or her
    case on the balance of probabilities. This burden does not increase in cases
    involving misfeasance or fraud:
F.H. v. McDougall
, 2008 SCC 53, [2008]
    3 S.C.R. 41, at para. 40.

[59]

However,
    the trial judge did not apply this standard to Mr. Hoares evidence. By relying
    so heavily on the cross-examination snippet, she effectively imposed on the
    appellant the requirement of certainty. Mr. Hoare said that he did not know
    that the $150,000 did not come from Patels stolen funds. He could never know
    that without being beside Patel as he was implementing the transactions.

[60]

All
    Mr. Hoare could do is what he did: undertake the expert task of tracing. On the
    balance of probabilities, he demonstrated that the $150,000 came from the ICICI
    bank account, which contained HBS funds stolen by Mr. Patel. As acknowledged by
    the trial judge, there is both symmetry of date and sufficiency of funds
    between Mr. Patels withdrawal of funds and $150,000 restitutionary payment.
    Further, and importantly, the bank draft used to make the $150,000 payment was
    issued by the same bank from which Mr. Patel withdrew $165,000.

[61]

There
    is no suggestion in the evidence or in the argument that Mr. Hoare failed to
    apply the presumptive rules of tracing. See Peter D. Maddaugh & John D. McCamus,
    at pp. 7-21 to 7-27; Bradley Crawford,
The Law of Banking and Payment in
    Canada
,
vol. 2, looseleaf (Canada: Reuters
    Thomson, 2013) at pp. 3-73 - 3-76; Paul McGrath,
Commercial Fraud in
    Civil Practice
, 2d ed. (New York: Oxford University Press, 2014), at pp.
    465-79.

[62]

The
    trial judges requirement of clear evidence in para. 108 relates back to her
    expectation that the expert must know with certainty where the money came
    from. That, however, was not the burden on the appellant.

[63]

The
    trial judges reasoning led my colleague to conclude:

There was no evidence connecting the ICICI bank [draft] paid in
    restitution and Patels ICICI account, into which he deposited the forged HBS
    cheque for USD$175,198.13. The bank statement of his account shows a withdrawal
    for USD$165,000, but does not show what happened to it. There is no evidence of
    how Patel paid for the bank draft. The amounts of the withdrawal and the bank
    draft do not match, though the withdrawal is sufficient to cover the bank
    draft. Both transactions, the withdrawal and the purchase of the bank draft,
    took place on the same day, but the evidence does not indicate which
    transaction took place first. HBSs expert admitted he did not know that the
    CAD$150,000 did not come from the CAD$670,000 stolen from Raytek.

[64]

I
    agree with my colleague that it is always better to have better evidence. The
    tracing evidence about Patels $40,000 payment and its genesis is of better
    quality than the evidence about Patels $150,000 payment, but that does not
    diminish the actual evidence that Mr. Hoare put forward in support of his
    professional opinion that the $150,000 cheque came from HBS funds. The
    substance of that evidence was not shaken on cross-examination, certainly not
    by the snippet the trial judge relied on.

(iii)

The trial judge took into account information that was not evidence

[65]

I
    readily accept, as the case law requires, that the weighing of evidence is the
    province of the trial judge. But, to be weighed in the balance, the information
    must actually be evidence. In my view, the trial judge took bits of information
    and combined them to counterbalance Mr. Hoares evidence, without pausing to
    consider whether they were facts proven on the balance of probabilities that
    were entitled to any weight whatsoever.

[66]

The
    first, and most obvious, related to Patels putative secret fund. The existence
    of this fund and its accessibility to Patel is a matter of speculation. There
    is no evidence that such a fund exists, only a surmise based on the fact that
    so little of the money he stole was actually recovered. This, in my view, is
    not sufficient to clothe the fund with status as actual countervailing
    evidence.

[67]

The
    trial judge appears to rely on the evidence of Mr. Title, counsel for Raytek,
    who was the primary contact with Crown counsel in the disbursement of
    restitutionary funds. She noted, at para. 35, In his view, based on his review
    of seized documents, Patel maintained control of funds stolen from Raytek
    overseas and could reassemble them when needed. She repeated the reference, at
    para 76: Mr. Title believed that wherever Patel lodged Raytek's funds,
    "he was able to assemble them and repay them" as part of the stated
    restitution. With respect, Mr. Titles belief is not evidence. (I observe too
    that Mr. Titles belief serves his clients interest.)

[68]

The
    trial judge then said, evocatively, Indeed, in July 2008 some of the funds
    were "brought" to the TD bank near Patel's home where he had a bank
    draft issued for $50,000. There is no evidence about the source of the funds
    "brought" to the TD bank near Patel's home.

[69]

The
    trial judge took a similar approach to Mr. Fishers evidence in para. 107 of
    the decision, which I repeat for convenience: The fact that Mr. Fisher
    understood that Patel had received a cheque for $175,000 purportedly from a rich
    uncle, and had taken $25,000 to pay other debts does not support the
    conclusion that the plaintiffs money funded the restitution. This is
    logically true, but Mr. Fishers understanding is logically probative of
    nothing, including the opposite conclusion that the appellants money
did
fund the restitution. Mr. Fishers understanding does not undermine Mr.
    Hoares evidence that the likely source of the funds from which the $150,000
    payment was made was Patels ICICI USD account, where he earlier deposited the
    USD $175,000 stolen from the appellant.

[70]

To the
    extent that the trial judge may be understood to have drawn an inference about
    the existence and accessibility of Patels secret fund, in my view, such an
    inference would not be reasonably supported by the actual evidence and thus
    constitutes a reviewable error.

[71]

In
H.L.
    v. Canada (Attorney General)
, 2005 SCC 25, [2005] 1 S.C.R. 401, the
    Supreme Court reconsidered the standard of review applicable to inferences of
    fact. Justice Fish explained, at paras. 73-74:

These passages from the majority reasons in
Housen
should not be taken to have decided that inferences of fact drawn by a trial
    judge are impervious to review though unsupported by the evidence. Nor should
    they be taken to have restricted appellate scrutiny of the judge's inferences
    to an examination of the primary findings upon which they are founded and the
    process of reasoning by which they were reached.

I would explain the matter this way. Not infrequently,
different
inferences may reasonably be drawn from facts
    found by the trial judge to have been directly proven. Appellate scrutiny
    determines whether inferences drawn by the judge are "reasonably supported
    by the evidence". [Emphasis in original.]

[72]

To
    conclude this section of the reasons, in my view, the trial judge improperly
    applied a higher standard of proof than the balance of probabilities to Mr.
    Hoares expert evidence. She diminished its weight by taking a snippet of
    cross-examination entirely out of context. She relied on spurious items of
    information that were not found as facts on the balance of probabilities, but
    were merely speculative in nature.

[73]

I
    would find that the appellant proved on a balance of probabilities, through Mr.
    Hoares quite conventional expert tracing evidence, that the $150,000 paid by
    Patel came from funds stolen from HBS. There was no evidence to the contrary.

[74]

It
    is not in dispute that Mr. Ramsawak used the $150,000 payment from Patel to pay
    down the line of credit held jointly with his wife, and then used his line of
    credit to pay down Rayteks debt to CRA.

[75]

This
    completes the tracing exercise and confirms that the $150,000 Mr. Ramsawak
    paid to CRA was stolen from HBS, and thus impressed with a trust. However, the
    appellants right to restitution further depends on whether the elements of
    knowing receipt and unjust enrichment can be established. For the reasons set
    out below, I find that both claims are proved on the fact of this case.

(2)

Knowing Receipt

[76]

To
    review the pertinent facts briefly, Mr. Ramsawak received Patels bank draft
    for $150,000 through the Crown on April 24, 2008. On May 5, 2008, he caused
    Raytek to pay $150,000 to reduce the personal line of credit he held jointly
    with his wife, which was secured against their home. On October 6, 2008, Mr.
    Ramsawak was told that the restitutionary funds had been obtained by fraud. On
    October 29, 2008, Mr. Ramsawak borrowed $309,000 from the personal line of
    credit. On October 31, 2008 he paid $309,000 to CRA.

[77]

As the
    trial judge accurately observed, at para 92, citing
Holmes
, at para.
    12:

The requisite level of knowledge need not arise prior to or at
    the time of the receipt of the monies. Even if received innocently, once the
    recipient learns of the fraud or breach of trust, whether actually or
    constructively, he is liable to return any of the property he then holds.

[78]

When Mr. Ramsawak
    got the money in April, and used it to pay down his personal debt in May, he
    did not know that the money was tainted. But when he made the payments to CRA
    in October, he was fully aware that it was tainted. Therefore, the knowledge
    requirement of knowing receipt is clearly made out.

[79]

In my
    view, it does not matter that the $150,000 was first used to pay down a line of
    credit taken jointly by Mr. and Mrs. Ramsawak, which was secured by the family
    home, as the trial judge suggested at para. 114. The trial judge refers to this
    fact as the basis for concluding that only a portion of the monies ($150,000)
    used to pay down their joint debt would enure to the benefit of Mr. Ramsawak.

[80]

However,
    the reduction of the joint line of credit is not the benefit at issue in this
    knowing receipt analysis, as Mr. Ramsawak had no reason to question to source
    of the $150,000 when the payment to the line of credit was made. Rather, it is
    the payment of Rayteks CRA debt, at a time when Mr. Ramsawak was aware that
    the $150,000 was obtained by fraud, that is relevant. As explained above with
    respect to the $40,000 payment, a reduction in Rayteks tax liability
    constituted a benefit for both Raytek and Mr. Ramsawak personally. Therefore,
    the use and benefit element of knowing receipt is also met. This has nothing
    to do, with respect, with his wifes liability on the joint line of credit.

(3)

Unjust Enrichment

[81]

The
    three key elements of unjust enrichment are also plainly made out with respect
    to the $150,000. First, Mr. Ramsawak and Raytek were enriched by reducing
    Rayteks debt to CRA, which Mr. Ramsawak admitted also reduced his personal
    exposure. Second, this enrichment corresponds with an equivalent deprivation to
    HBS, from whom the $150,000 was stolen. Third, and finally, there can be no
    juristic reason for the enrichment, since Mr. Ramsawak was fully aware that the
    $150,000 he received was obtained by fraud at the time he paid it to CRA.

(4)

Change in Position

[82]

The
    defence of change in position does not apply to the $150,000 for the same
    reasons that it did not apply to the $40,000 payment.

[83]

By
    using the $150,000 to pay down Rayteks CRA debt, Mr. Ramsawak applied those
    trust funds to his own use and benefit at a time when he had knowledge of facts
    that would have put a reasonable person on notice or inquiry as to the source
    of the funds.

[84]

Mr.
    Ramsawak cannot claim to be an innocent party acting in good faith in paying
    down the CRA debt when he knew the money he used to do so was stolen. Further,
    the debt to CRA would have been due regardless of his receipt of the $150,000
    from Mr. Patel; his position was not meaningfully changed by his receipt of the
    stolen funds.

Disposition

[85]

In this
    case the trial judge was faced with rival claims from two fraud victims. She
    was manifestly sympathetic to the plight of Mr. Ramsawak and his wife, whose
    house was implicated in these proceedings. She described Mr. Ramsawak, at para.
    62, as an older gentleman of retirement age. She noted, at para. 70, that
    Raytek went out of business because, according to Mr. Ramsawak, they couldnt
    afford to continue, largely as a result of Patels predations. (No similar
    details are recorded about the appellant.) But the case must be resolved by the
    application of legal principles, not judicial sympathy.

[86]

For these
    reasons I would grant judgment in favour of the appellant in the amount of
    $190,000 plus interest and costs.

Released:  July 9, 2015 (RGJ)

P.
    Lauwers J.A.


