Clarification of requirements of knowing receipt
Updated: Dec 2, 2021
If a husband benefits from his wife’s misappropriation of funds, to what extent can he be held liable to account for those funds?
The British Columbia Court of Appeal provided answers in Vancouver Coastal Health Authority v. Moscipan, 2019 BCCA 17.
Over a period of 9 years, the wife misappropriated more than $500,000 from her employer. She used this money to pay household expenses and pay off credit card balances. After the wife's death, the wife’s employer sought to recover the misappropriated funds from the husband.
The Court of Appeal reviewed statements on the essence of a knowing receipt claim from cases of the Supreme Court of Canada:
By receiving the trust property, the defendant has been enriched at the expense of the trust beneficiary.
Non-participation in a fraudulent breach is irrelevant because liability essentially turns on whether the defendant has “taken property subject to an equity in favour of the plaintiff.”
“Unlike knowing assistance, there is no finding of fault, no legal wrong done by the defendant and no claim for damages. It is, at base, simply a question of who has a better claim to the disputed property.” (at para. 57)
To recover disputed property on the basis of knowing receipt, the plaintiff must prove:
That the property was subject to a trust in favour of the plaintiff;
That the property, which the defendant received, was taken from the plaintiff in breach of trust; and
That the defendant did not take the property as a bona fide purchaser for value without notice. The defendant will be taken to have notice if the circumstances were such as to put a reasonable person on inquiry, and the defendant made none, or if the defendant was put off by an answer which would not have satisfied a reasonable person. (at para. 58)
The constructive knowledge required is not knowledge of breach of trust. However, knowledge of excess money is also insufficient. There must be something that would trigger a reasonable inquiry (at para. 62).
In this case it was sufficient that the trial judge found that the husband was suspicious and had asked questions of his wife, and concluded that the husband has constructive knowledge of his wife’s illegal activities (at paras. 62-3).
The receipt requirement requires “actual receipt for one's personal use and benefit” (at para. 65).
In this case, the trial judge had taken a family expenses approach, and held the husband 50% liable for any funds that were spent on family expenses (at paras. 68-9). However, this approach failed to account for the fact that the family had three separate sources of income., and therefore the monies were not impressed solely or entirely with a trust in favour of the plaintiff employer (at para. 72). Moreover, the trial judge failed to limit the liability of the husband to amounts actually received by him (at para. 73).
The Court of Appeal awarded the plaintiff employer $130,295.74, the total amount of stolen monies that were used to pay off the balance on the husband’s credit card.