Court of Appeal Decision Welcome News for Victims of Fraud

Written By Jim Patterson and Amanda C. McLachlan

The Ontario Court of Appeal’s decision in Wescom Solutions Inc v Minet, 2019 ONCA 251 released on April 1, 2019, provides helpful guidance for victims of fraud seeking to pursue civil recovery against third parties.

Nadia Minetto, the central defendant in Wescom, used a company credit card to fraudulently obtain iPhones and iPads (the "Apple Products"). Using a Kijiji advertisement, Minetto caught the attention of Gabriel Fung, who, after responding to the advertisement, met her for the first time in a parking lot in Yorkdale Mall in November 2011 to make a purchase of the Apple Products. Thereafter, Minetto continued to sell the Apple Products to Fung, who, over a two and a half year period, purchased a total of 4,942 iPhones and 5,321 iPads from Minetto. The transactions initially took place in the Yorkdale Mall parking lot, followed by an Ikea parking lot. Eventually Minetto began to direct the products to a virtual office rented by Fung, with sales ultimately totaling $6.2 million before the scheme was uncovered. The Apple Products were always purchased by Fung in cash. Fung would then resell the Apple Products through an electronics store he operated. Fung also sold to wholesalers and to companies in Hong Kong.

Following the initial trial, the trial judge found that Fung was not wilfully blind during the initial stages of the fraud, where he occasionally met Minetto in the Yorkdale Mall parking lot. However, when the fraud escalated to meetings in the parking lot of an Ikea store, and during the period of time in which the Apple Products were delivered to Fung’s virtual office, the court concluded he was wilfully blind, and awarded damages in the amount of approximately $5.094 million.

On appeal, Fung argued that the trial judge had erred by applying an objective, rather than a subjective standard, to his wilful blindness analysis. The respondent, by contrast, argued that the objective analysis was appropriate because it was a case involving allegations of “knowing receipt”.

In this regard, the Court of Appeal confirmed that knowing receipt can be proven not only by establishing actual knowledge or wilful blindness, but also by establishing “constructive knowledge”, based on the application of objective criteria. Specifically, the Court of Appeal confirmed that knowing receipt can be established where the defendant:

• had knowledge of circumstances that would indicate the facts to an honest and reasonable person; or
• had knowledge of circumstances that would put an honest and reasonable person on inquiry.

Notwithstanding its findings with respect the application of objective criteria to a finding of knowing receipt, the Court of Appeal further clarified that in this particular case, the agreed issue before the trial judge had been "whether the defendant [Fung] knew or was wilfully blind to the fact that he was purchasing stolen goods or goods fraudulently obtained by Minetto."

Articulating the test from R. v. Makfara, the Court of Appeal clarified that a finding of wilful blindness requires a subjective focus on the workings of the defendant's mind. Where wilful blindness is in issue, the Court must ask whether the accused "was in fact suspicious"—not whether the accused should have been suspicious.

Although the Court of Appeal found that the trial judge had erred in law in his articulation of the concept of wilful blindness, the Court of Appeal concluded that Fung was wilfully blind and upheld the trial judge’s decision to award damages against Fung in favour of Minetto’s former employer. In doing so, the Court of Appeal pointed to findings made by the trial judge that established that subjectively, Fung was wilfully blind. This includes a finding that Fung had “made a conscious choice not to seek verification or further information about the source of the Apple products he was purchasing…He choose to remain deliberately ignorant as to the source of those products”.

In doing so, the Court of Appeal has confirmed that a person who makes a “deliberate choice not to investigate” in the face of “knowledge that products were probably stolen by fraud” will meet the definition of wilful blindness articulated by the Supreme Court of Canada in R. v. Sansregret. In Sansregret, the Supreme Court defined wilful blindness as arising when “a person who has become aware of the need for some inquiry declines to make the inquiry because he does not wish to know the truth”.

The Court of Appeal’s decision presents welcome news for victims of fraud seeking to pursue civil recovery against third parties to an alleged theft or fraud, particularly in circumstances where the primary rogue lacks sufficient assets to provide full recovery to the victim.