Vancouver Coastal Health Authority v Moscipan 2019 BCCA 17 dealt with the proceeds of misappropriated funds from the employer of the deceased, in favor of her husband, and the court reviewed the law relating to “knowing receipt” of trust property.
The leading decision is Citadel and Gold v Rosenberg 1997 ( 3) SCR 767, where the court described the essence of a knowing receipt claim at paragraphs 41, 46 and 49:
The essence of unknowing receipt claim is that, by receiving the trust property, the defendant has been enriched. Because the property was subject to a trust in favor of the plaintiff. The defendants enrichment was at the plaintiff’s expense. The claim, accordingly falls within the law of restitution.
A stranger in receipt of trust property is unjustly enriched at the expense of the trust beneficiary. Participation in a fraudulent breach is irrelevant to the plaintiff’s claim. Liability essentially turns on whether or not the defendant has taken property subject to an equity in favor of the plaintiff. The jurisprudence is long held that, in order to take subject to an equity, a person need not have actual knowledge of the equity, notice will suffice. In my view, the same standard applies to cases of knowing receipt.
Rather, the cause of action in knowing receipt arises simply because the defendant has improperly received property which belongs to the plaintiff. The plaintiff’s claim amounts to nothing more than “you unjustly have my property. Give it back.” 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.
In order to prove recovery of the disputed property, the plaintiff must prove the following:
1) That the property was subject to a trust in favor of the plaintiff;
2) 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 man, or if the defendant was put off by an answer which would not have satisfied a reasonable person.
With respect to constructive knowledge, the court referred to Groves-raffin Construction Ltd fee. Bank of Nova Scotia (1975) , 64 DLR (3-D) 78 BC CA were at paragraph 138, the court set out the test:
“ Under what I think is the proper test no necessity to take care arises until either. It is clear that a breach of trust is being, or is intended to be, committed, or until there has come to the attention of the person something that should arouse suspicion in an honest reasonable man and put them on inquiry. The person for his own protection, in the first event should have nothing to do with the improper transaction, then the second event should not continue to be involved in the suspected transaction until his inquiry shows him, or more correctly caught, which will reasonable man, that the suspicion is unfounded”