December 5, 2023
If you are the unfortunate victim of fraud (and it can happen to anybody), you probably want to recover your loss.
Tracing the funds into the hands of someone other than the fraudster is often the only way to recover, as fraudsters often try to hide or launder the money so you cannot recover directly from them.
Tracing is an identification process. The common law rule is that the claimant must demonstrate that the assets being sought in the hands of the recipient are either the very assets in which the claimant asserts a proprietary right or a substitute for them.
The Ontario Court of Appeal in Sase Aggregate Ltd. v. Langdon reviews the requirements to trace or follow the funds into the hands of another (in that case, a house in the name of the fraudster’s wife).
First, in order to trace funds into the hands of another, that person must be guilty of either :
- Knowing assistance in the commission of the fraud, or
- Knowing receipt of money they knew was the proceeds of fraud.
The significance of Sase is that because the wife had a plausible story about where she thought the money came from, the victim largely could not recover.
This was mainly a matter of evidence. Both sides prepared tracing charts attempting to explain the trail of the funds into the home. The victim could not explain the link to the home. Mrs. Langdon could, if she was believed, and the victim was unable to damage her credibility through cross-examination or contradictory evidence.
The Court pointed out their concern that the victim’s choice of an application over an action was ill suited to a situation with disputed facts and did not allow the judges to properly assess credibility.
The Court was also concerned that the document trail was incomplete. In a tracing action, it is up to the victim to find the evidence. Though they tried in this case, they failed. Mrs. Langdon, however, explained what she could, and admitted that there was a small amount that may have flowed into a joint account as a result of the fraud, without her knowledge. This made her appear less like a villain deserving of being the target of the tracing.
Couple that with the victim’s unsuccessful efforts at a tracing chart, and no wonder Mrs. Langdon was largely successful in her defence, overcoming the usual “moral high ground” theory.
Bottom line, the onus to succeed in tracing is on the victim.
- The “moral high ground” is about facts. Facts are about evidence. What Justice Laskin meant in his famous article was that if you show evidence of the right facts, the court will use equity to “bend the rules” to find in your favour.
- Actions and applications continue to have distinct advantages and disadvantages. Selecting the wrong one affects not only your cost of litigation. It may influence the outcome of the litigation.
- Tracing is a difficult process.
- The onus is on the person seeking tracing.
- Credibility is an important factor, but complete evidence is more important.
HOW WEILERS LLP CAN HELP YOU
Weilers LLP has considerable experience advising and representing clients in complex litigation, including cases involving fraud that affect their businesses and personal lives. We understand the evidence required, the law and equitable principles, and the advocacy necessary to achieve the nest possible results.
If you want lawyers who thrive on complex challenges, give us a call, and see if we are the right lawyers for you.