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Knowing Assistance of Trust Property

. Extreme Venture Partners Fund I LP v. Varma

In Extreme Venture Partners Fund I LP v. Varma (Ont CA, 2021) the Court of Appeal consider the fiduciary breach of 'knowing assistance':
(d) Knowing Assistance in Breach of Fiduciary Duty

[74] The constituent elements of the tort of knowing assistance in the breach of a fiduciary duty are that: (i) there must be a fiduciary duty; (ii) the fiduciary must have breached that duty fraudulently and dishonestly; (iii) the stranger to the fiduciary relationship must have had actual knowledge of both the fiduciary relationship and the fiduciary’s fraudulent and dishonest conduct; and (iv) the stranger must have participated in or assisted the fiduciary’s fraudulent and dishonest conduct: Air Canada v. M & L Travel Ltd., 1993 CanLII 33 (SCC), [1993] 3 S.C.R. 787, at pp. 811-13.
. Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Garcia

In Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Garcia (Ont CA, 2020) the Court of Appeal considered the equitable doctrine of knowing assistance of trust property:
[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 CanLII 33 (SCC), [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 fiduciary’s fraudulent and dishonest conduct; and (4) participation by or assistance of the stranger in the fiduciary’s 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 fiduciary’s 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 fiduciary’s fraudulent and dishonest conduct will satisfy this requirement, so, too, will “recklessness or wilful blindness to the fiduciary relationship and the fiduciary’s 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 trust’s 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 stranger’s 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 CanLII 79 (SCC), [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 stranger’s 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.
. Locking v McCowan

In Locking v McCowan (Ont CA, 2016) the Court of Appeal cited the remedial doctrine of 'knowing assistance' of fiduciary breach by a third party as follows:
[15] Relying on the Supreme Court’s decisions in Citadel General Assurance Co. v. Lloyds Bank Canada, [1997] 3 S.C.R. 805, 1997 CanLII 334 (SCC), 1997 CanLII 334, Air Canada v. M&L Travel Ltd., [1993] 3 S.C.R. 787, 1993 CanLII 33 (SCC), 1993 CanLII 33, and Gold v. Rosenberg, [1997] 3 S.C.R. 767, 1997 CanLII 333 (SCC), 1997 CanLII 333, the motions judge correctly stated that for a knowing assistance claim to succeed, the plaintiff must establish:
(i) an act of fraud or dishonesty on the part of the trustee;

(ii) that the defendant had knowledge of the trustee’s dishonest conduct; and

(iii) that the defendant assisted the trustee in perpetrating the dishonest conduct.
. Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd.

In Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd. (SCC, 2020) the Supreme Court of Canada adopted the van Rensburg dissent from the Ont CA (quoted here) on the issue of 'knowing assistance':
B. THE KNOWING ASSISTANCE CLAIM

(1) Elements of the Equitable Wrong

[211] The elements of knowing assistance in a breach of fiduciary duty were described by this court in Harris v. Leikin, at para. 8, 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 fiduciary's fraudulent and dishonest conduct; and (4) participation by or assistance of the stranger in the fiduciary's fraudulent and dishonest conduct.

....

[216] Liability for knowing assistance in a breach of fiduciary duty is fault-based. It requires an intentional wrongful act on the part of the “stranger” or accessory, to knowingly assist in the fraudulent and dishonest breach of fiduciary duty. Participation in a breach of fiduciary duty for the purpose of knowing assistance requires that the accessory “participated in or assisted the fiduciary's fraudulent and dishonest conduct”: Enbridge Gas Distribution Inc. v. Marinaccio, at para. 23.

[217] All of the knowing assistance cases cited by the parties involved specific harmful conduct by the “stranger” that assisted in the breach of fiduciary duty or breach of trust. In Air Canada v. M & L Travel Ltd., the accessory stopped payment of trust funds, opened an account and attempted to transfer the funds into the new account. In Enbridge Gas Distribution Inc. v. Marinaccio, the accessories prepared invoices, opened bank accounts, arranged for wire transfers and accepted cash. In Agip (Africa) Ltd. v. Jackson et al., the accessory concealed a self-interested transaction, and played the role of a disinterested arms’ length vendor. And in Locking v. McCowan, 2016 ONCA 88 (a pleadings case), the accessory was alleged to have set up company structures and controlled the fraudulent movement of money out of the payee companies.

....

(4) The Knowledge Element

[232] As the authorities such as El Ajou instruct, “it is necessary to identify the natural person or persons having management and control in relation to the act or omission in point” (at p. 695). Here, the determination of whether Ms. Walton’s fraudulent intent is to be attributed to a Listed Schedule C Company depends on the wrongful act the company committed. Because of my conclusion on the participation issue, I do not propose to say anything about my colleague’s discussion of the knowledge element, except to indicate that I take issue with two points: the result of applying the three Canadian Dredge criteria for the corporate identification doctrine in this case, and my colleague’s suggestion that the second and third criteria should be approached “in a less demanding fashion”.



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