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Attacks on Fraud

Posted on April 1, 2024 | Posted in Collections

When a defrauded creditor realizes it has been defrauded and that the fraudster has seemingly moved the proceeds of the fraud to his spouse, what actions can the creditor take, in what form should it take them, and what evidence does it need to prove where its funds went? These questions were discussed in Sase Aggregate Ltd. v. Langdon, a 2023 decision of the Ontario Court of Appeal.

Two piggy banks, one red and one yellow.


The fraudster was the creditor’s former pit manager. He issued false invoices to the creditor’s customers and deposited the payments into his own bank accounts. He managed to defraud the creditor of more than $2.1 million over several years before the creditor discovered the fraud.

The creditor traced the stolen funds into two bank accounts belonging to the fraudster’s corporations and then into two joint bank accounts of the fraudster and his spouse. During this time, the spouse had purchased (in her own name) and renovated a residential house (the “Wagg Property“).

The spouse had agreed to sell the Wagg Property, but the creditor was able to register a caution before completion of the sale. The spouse and the creditor agreed to allow the completion of the sale, subject to the net proceeds being paid into court.


The creditor commenced an application, seeking a constructive trust over the net proceeds. It alleged that the spouse was liable based on the doctrines of knowing receipt, knowing assistance, and unjust enrichment.

We are not sure why the creditor commenced an application. Although there were affidavits and cross-examinations, an application does not result in full documentary disclosure or allow for examinations for discovery and oral testimony in court. All of these are available in an action.


The creditor provided banking records and corporate profile reports, which showed that the creditor’s defrauded funds went into the bank accounts of the fraudster’s two corporations and that one of these corporations had listed the spouse as an officer. The creditor relied on the coincidental timing between the siphoning of its money and the spouse’s purchase and renovation of the Wagg Property.

The fraudster and the spouse had two joint bank accounts. The spouse testified that she never dealt with joint account #1; she only used joint account #2. Joint account #2 was the recipient of $178,000 of the fraudulently-obtained money; Joint account #1 was the recipient of all the rest.

The spouse did not merely swear that she had nothing to do with any of the fraudulently-obtained funds, she produced all of the banking statements for all of the accounts and then provided details and documents tracing all of the money that she used to purchase and renovate the Wagg Property. When she completed this exercise, she acknowledged that $178,000 had gone into joint account #2, albeit without her knowledge, and was quite willing to reimburse the creditor for that amount. All other money that went into joint account #2 came from legitimate and known sources that she outlined in her affidavit.

In essence, the spouse demonstrated that the money that she used to purchase and renovate the Wagg Property did not come from the creditor’s funds. Although the creditor was able to show that its funds went into joint account #1, the creditor was not able to trace the money out of that joint account. It did not obtain that information. It could not demonstrate that the money from that joint account went into the purchase and renovation of the Wagg Property. The joint account #1 statements showed that, when money hit that joint account, it was gone the next day. For purposes of the application, no one knew where it went. It certainly never went into joint account #2.

As to the one corporation for which the corporate records showed the spouse as an officer, the spouse swore that she knew nothing of that corporation or that she was an officer. The creditor had no evidence to contradict this statement.

Knowing Assistance Or Receipt

Although the fraudster’s actions constituted a breach of the fraudster’s fiduciary duty to the creditor, which is required for either knowing receipt or knowing assistance, it did not matter. By their very definitions, in order for someone to be liable for assisting a fraud or breach of trust or receiving money from the fraud or breach of trust, the person has to know about it.

The motion judge held that the creditor had adduced no evidence to show that the spouse knew anything about the fraudster’s improper actions or had any knowledge of the fraudulently-obtained money that went into either of the joint accounts. The motion judge further held that there was no evidence that the spouse had used any of that money for her own use and benefit.

Accordingly, the motion judge dismissed the claims of knowing receipt and knowing assistance and the Court of Appeal agreed with her decision.

Constructive Trust

In order to demonstrate a constructive trust, which is the equivalent to a claim for unjust enrichment, the creditor had to show that (i) the spouse received a benefit from the fraudulently-obtained funds, (ii) the creditor suffered a corresponding detriment, and (iii) there was no juridical reason (such as contract or statute) for the spouse’s enrichment. A breach of a fiduciary duty, even though there was one, is not a required element for unjust enrichment.

The motion judge held that there was unjust enrichment for the $178,000 that went into joint account #2 (which the spouse did use), but refused to grant a constructive trust with respect to the balance, which went into joint account #1. She held that the creditor had not met its burden to show that its money was used in the purchase and renovation of the Wagg Property. Again, the Court of Appeal agreed. The court noted that the creditor did not seek a constructive trust over the money in joint account #1 – for good reason; no money remained in the account. Rather, the creditor sought a constructive trust regarding the proceeds of the sale of a property into which it could not prove the impugned funds had flowed.

The court stated that the creditor had the burden of proving that the spouse had received the proceeds of the fraud. For her part, the spouse only needed to show that the funds she used to purchase the Wagg Property were not the creditor’s money. One cannot have an unjust enrichment without a benefit that (i) has enriched the defendant at the claimant’s expense and (ii) can be restored to the donor either in specie or by money. If the creditor’s money did not enrich the spouse, the spouse had nothing to return.

Fact Suit

As in most cases, the result of the court proceeding was wholly dependent on the facts adduced and the creditor failed to adduce enough of them. The court was sympathetic to the creditor, but noted that the application procedure that it used was ill-suited to the determination of the issues between the parties because (i) there were disputed facts and questions of credibility and (ii) the documentary record was incomplete, resulting in (iii) an unsatisfactory account of what happened to the fraudulently-obtained funds and their ultimate destination. The court noted the creditor’s downfall resulted from its willingness to proceed without oral evidence on a record that was not fully developed. The creditor brought a knife to a gun fight and paid the price.


Image courtesy of JamesQube.

Jonathan Speigel


Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.


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