



COURT OF APPEAL FOR ONTARIO

CITATION: Arrow ECS Norway AS v. John Doe, 2017 ONCA 664

DATE: 20170822

DOCKET: C63205

Sharpe, Lauwers and Roberts JJ.A.

BETWEEN

Arrow ECS Norway AS

Plaintiff
(Appellant)

and

John Doe and
Yongqiang Tian

Defendants
(
Respondent
)

David R. Wingfield and David Robins, for the appellant

Richard Worsfold, for the respondent

Heard: July 20, 2017

On appeal from the judgment of Justice Michael Penny of
    the Superior Court of Justice, dated December 13, 2016.

REASONS FOR DECISION

[1]

The appellant appeals from the dismissal of its summary judgment motion
    and the granting of the respondents summary judgment motion, declaring the
    respondent to be the legal and beneficial owner of the amounts of CDN$100,000 and
    US$300,000, which the appellant had paid out under mistake to a third party
    fraudster.

[2]

The appellant was defrauded of over US$66 million. In particular, between
    January 18 and 22, 2016, the appellant was fraudulently induced to forward about
    US$23 million to an account under the name of HongKong JYC Limited (JYC) at
    the Shanghai branch of the Bank of Communications (BoComm), a Chinese bank.
    The appellant recovered some $6 million of the stolen funds. However, over
    US$17 million of the stolen funds flowed through the JYC account into other
    bank accounts throughout the world.

[3]

The respondents uncontroverted evidence is that he is a highly
    successful businessman who transferred monies to Canada to support his
    grandchildrens education and to purchase real estate. He maintained in his
    affidavit and during his cross-examination that he had no knowledge of and did
    not participate in the defrauding of the appellant. He also stated that he was
    unaware of the source of the monies at the time that he had purchased them through
    his intermediary, Li Wang.

[4]

There are two transfers in issue on this appeal: the first is the
    transfer of CDN$100,000 on January 20, 2016, to the respondents former employee,
    Hong Yao, to repay monies that he had borrowed from her in November 2015; the
    second is the transfer of US$300,000 on January 21, 2016 to the respondents US
    dollar bank account with the Royal Bank of Canada.

[5]

The respondent borrowed CDN$100,000 from his former employee, Hong Yao.
    She deposited this amount to the respondents Canadian dollar RBC account on November
    25, 2015. On the same day, this sum was used to purchase a GIC held in the
    respondents account. The GIC was subsequently redeemed on January 27, 2016,
    prior to service of the
ex parte
order freezing the respondents
    accounts which the appellant obtained on that day.

[6]

In order to repay Hong Yao, the respondent arranged to purchase
    CDN$100,000 through Li Wang. On January 20, 2016, CDN$100,000 was transferred
    from Sunny Stable Ltd.s HSBC account to Hong Yaos RBC account.

[7]

The respondent arranged to purchase US$300,000 through Li Wang. On
    January 21, 2016, US$300,000 was ordered to be transferred by JYC from the
    Sunny Stable HSBC account to the Royal Bank of Canada (RBC). RBC deposited
    the funds to the respondents US dollar account on January 25, 2016.

[8]

Between January 21 and 22, 2016, US$1.1 million was transferred from the
    JYC BoComm account to the account held by Sunny Stable at the Hongkong and
    Shanghai Bank (HSBC).

[9]

After he had received confirmation of the receipt of the Canadian and US
    dollar transfers, the respondent paid for the CDN$100,000 transfer to Ms. Yaos
    bank account and the US$300,000 transfer to his bank account by sending the
    equivalent in Chinese currency respectively on January 21 and 22, 2016, to accounts
    with the Agricultural Bank of China, as instructed by Li Wang. It was later
    discovered that these accounts were also held in the name of Sunny Stable.

[10]

The motion judge held that the appellant had failed to trace its stolen
    monies to the respondent. Regardless, the motion judge was satisfied that the
    respondent was innocent and ignorant of the fraud perpetrated on the appellant,
    and that the respondent was a
bona fide
purchaser for value of the
    stolen funds. As a result, the motion judge held that the respondent was
    entitled to the funds.

[11]

The appellant submits that the motion judge made the following errors:

(i)

the motion judge erred in
    failing to find that the appellant had traced the stolen funds to the
    respondent;

(ii)

the motion judge erred in
    finding that the respondent was a
bona fide
purchaser for value of the
    funds stolen from the appellant.

[12]

With respect to the CDN$100,000, we see no error with the motion judges
    conclusion that the appellant had not traced that amount from the appellants
    account to the respondent. The transfer of the CDN$100,000 from Sunny Stable
    was made on January 20, 2016, prior to the transfer of the stolen funds from
    JYC to Sunny Stable on January 21 and 22, 2016. There was no evidence before
    the motion judge that the CDN$100,000 transferred from Sunny Stable to Hong Yao
    came from the appellant.

[13]

The motion judges finding about the US$300,000 is a different matter. We
    agree with the appellants submission that the motion judge made an overriding
    and palpable error in finding that the appellant had not traced US$300,000 of the
    stolen funds to the respondent.

[14]

Based on the uncontroverted evidence before the motion judge, including
    the respondents own evidence, those monies can be clearly traced from their
    withdrawal from the appellants account to their final deposit in the respondents
    account. We reject the respondents submission that the commingling of the
    appellants funds with funds in the accounts of JYC or Sunny Stable prevents
    their tracing. It is irrelevant that the appellants funds may have been mixed with
    other funds in the accounts of JYC or Sunny Stable before they flowed out to
    the respondents account because the appellant can directly trace the amount of
    its own contribution to the monies deposited in the respondents US dollar
    account:
B.M.P. Global Distribution Inc. v. Bank of Nova Scotia
, 2009
    SCC 15, [2009] 1 S.C.R. 504, at para. 85.

[15]

This, however, is not the end of the analysis. As the motion judge
    stated, even if the appellant could trace all of the stolen funds to the
    respondent, the respondent was not implicated in the theft but was merely a
bona
    fide
purchaser for value of the monies that he purchased with Chinese
    currency.

[16]

The appellant submits that the motion judge erred in framing his
    analysis in terms of whether the respondent was a
bona fide
purchaser
    for value.

[17]

First, with respect to the US$300,000, the appellant submits that the
    motion judge should have applied the following test set out in
Barclays
    Bank Ltd. v. W.J. Simms Son & Cooke (Southern) Ltd.
, [1979] 3 All ER
    522 (Q.B.), at pp. 535 and 541, as adopted by the Supreme Court of Canada in
B.M.P.,
at para. 22, about tracing money through the banking system and recovering
    money paid by mistake. The court accepted the test in
Simms
for
    recovering money paid under a mistake of fact (at p. 535): f a person pays
    money to another under a mistake of fact which causes him to make the payment,
    he is
prima facie
entitled to recover it as money paid under a mistake
    of fact. However, the court noted three defences under which the claim may
    fail: first, where: the payer intends that the payee shall have the money at
    all events, whether the fact be true or false, or is deemed in law so to intend;
    second, where the payment is made for good consideration, in particular if the
    money is paid to discharge, and does discharge, a debt owed to the payee (or a
    principal on whose behalf he is authorised to receive the payment) by the payer
    by a third party by whom he is authorised to discharge the debt; and third,
    where the payee has changed his position in good faith, or is deemed in law to
    have done so.

[18]

The appellant submits that having paid the US$300,000 under mistake of
    fact, the appellant was
prima facie
entitled to the return of the
    stolen monies that it traced to the respondent. Moreover, the appellant argues,
    none of the above three defences identified by the Supreme Court in
B.M.P.
was available to the respondent, because the respondent still retained the
    US$300,000 in stolen funds.

[19]

We do not accept these submissions.

[20]

While we agree that the first defence set out in
B.M.P.
has no
    application in the present case, the motion judges findings support the
    availability of the second and third defences. The motion judge accepted the
    respondents evidence that he was innocent of any wrongdoing and unaware of the
    fraud perpetrated against the appellant. The motion judge also found that the
    respondent had paid valuable consideration for the funds that were deposited to
    his US bank account. The motion judge expressly rejected the appellants
    argument that the respondent was not a
bona fide
purchaser for value
    who did not legitimately change his position. These findings were available on
    the record and allowed the motion judge to conclude that the respondent was a
bona
    fide
purchaser for value. That the motion judge did not make specific
    reference to
B.M.P.
is immaterial given that he evidently considered
    and applied the relevant principles concerning the parties competing claims to
    the stolen funds. We see no error here.

[21]

Moreover, we do not read
B.M.P.
as standing for the proposition
    advanced by the appellant that the second and third defences only apply if the
    respondent no longer retains the stolen funds. As noted by the Court at para.
    65 of that decision, it was not because B.M.P. had retained the stolen funds
    but because it had not changed its position or given consideration for them that
    the defences were not available to it:

In conclusion, BMP had not changed its position and the defence
    was available neither to it nor to BNS. It is worth noting that cases in which
    a person who is not a party to the fraud has neither given consideration nor
    changed its position will be rare. However, that is what has happened here
    according to the facts found by the trial judge. In these circumstances, all
    the conditions for recovery of the payment made by mistake are met.

[22]

As we have already noted, that is not what happened in the present case,
    as found by the motion judge: the respondent changed his position and paid
    valuable consideration in Chinese currency for the stolen monies without
    knowledge of their illegal provenance.

[23]

The appellant submits that the motion judge erred in any event in
    finding that the respondent was a
bona fide
purchaser because he had
    obtained access to all of the stolen funds through his knowing participation in
    an illegal underground currency exchange that engaged in money laundering.

[24]

We also reject this submission.

[25]

The motion judge determined that there was insufficient evidence to
    demonstrate that the underground currency exchange was illegal or commonly used
    for money laundering. More important, the motion judge found that there was no
    evidence that the respondent knew or had reasonable grounds to believe that the
    funds that he had purchased had an illicit source. Again, these findings were
    available to the motion judge and contain no error. There is no basis to
    interfere.

Disposition

[26]

Accordingly, the appeal is dismissed.

[27]

The respondent as the successful party is entitled to his partial
    indemnity costs in the agreed-upon amount of $15,000, inclusive of
    disbursements and HST.

Robert J. Sharpe J.A.

P. Lauwers J.A.

L.B. Roberts J.A.


