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Appellate Litigation

When it comes to fraud, people sometimes think that they can claim innocence if they remain unaware of the details. However, a finding of willful blindness, or deliberate ignorance of what should be obvious, is not enough to escape liability in the case of fraudulent activities. A recent decision demonstrated that a defendant deliberately chose not to inquire about the source of stolen goods was still liable for fraud.

The defendant/appellant “F” purchased 6.2 million dollars of Apple products from an employee of the plaintiff/respondent company, Wescom. F paid cash. The sales took place in the parking lots of various retail businesses. The employee had used her corporate credit card to purchase the products and then sold the products for her personal gain.

The agreed-upon issues between the parties, and what the trial judge was asked to decide, was whether F had actual knowledge or was willfully blind to the fact that he was purchasing stolen goods or products obtained fraudulently.

The sales took place in three different stages and/or locations. From November 2011 to mid-April 2013, the parties arranged meetings in the parking lots of two specific retail locations, where they would exchange Apple products for cash. From mid-April 2013 to July 2014, the defendant had rented a virtual office, and the plaintiff directed Apple Inc. to ship products directly to that address.

At trial, the judge found that the defendant was not willfully blind during stage one but became willfully blind during stage two (when the location shifted to a second retail store) and had actual knowledge that the goods were stolen or fraudulently obtained. The defendant appealed to the Ontario Court of Appeal (ONCA).

Subjective vs. Objective Standard

The position of the appellant was that the trial judge erred by:

(i) applying an objective standard to the willful blindness analysis rather than a subjective standard; and

(ii) making credibility findings against F, while at the same time noting that his evidence was unshaken and consistent, and in the face of evidence that the employee was concealing her illegal activities from F.

The Test for Willful Blindness

The ONCA found that the trial judge had erred in his analysis of willful blindness. They did so relying on their decision in R. v. Malfara (2006) which held that

Where willful blindness is in issue, the question is not whether the accused should have been suspicious, but whether the accused was in fact suspicious. In short, a finding of willful blindness, which is the same standard in criminal and civil proceedings, involves a subjective focus on the workings of a defendant’s mind.

In addition, The ONCA relied on the decision of the Supreme Court of Canada (SCC) in R. V. Sansregret (1985) which held that willful blindness includes the situation where the buyer is suspicious or probably knew about the provenance of the goods, and makes a deliberate choice not to investigate.

The ONCA also rejected the plaintiff/respondent’s “knowing receipt” argument. That argument put forth an objective test based on the ONCA’s decision in Paton Estate v. Ontario Lottery and Gaming Corp (2016) as follows:

[K]nowing receipt can be proven by showing that the defendant: (i) had knowledge of circumstances that would indicate the facts to an honest and reasonable person; or (ii) had knowledge of circumstances that would put an honest and reasonable person on inquiry.

The argument was rejected because of the framing of the issue as agreed to by the parties and which was before the trial judge.

In the end, the ONCA dismissed the appeal. They did so despite the error as the findings made by the motions judge clearly showed that the defendant/appellant knew that the products were likely stolen or obtained by fraud. The court found that F had given contrary evidence more than once that demonstrated he was aware the products were likely stolen. Further, F made a deliberate choice not to inquire about the source of the goods he was purchasing. He chose to remain ignorant, despite the evidence before him.

If you have a question about civil fraudemployee fraud, or similar issues, the highly skilled Toronto corporate lawyers at Milosevic & Associates can help. We can provide you with advice and guidance suited to your unique situation. Call us at 416-916-1387 or contact us online to learn more about how we can help.