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Too Good to be True? May be your Wilful Blindness

 Apr 9, 2019 6:45 PM
by Kathleen O'Hara

The Facts

This sordid tale begins with an employee going rogue with a company credit card. The Defendant Fung began purchasing iPhones and iPads from the Defendant Minetto in November 2011. The first transaction was seemingly innocent. The two met in the parking lot at Yorkdale Mall. Fung purchased one iPad from Minetto and paid in cash.

Over the course of the next 2.5 years, Minetto sold Fung over 4,900 iPhones and 5,300 iPads in increments of 10 to 20 pieces at a time. Initially, Fung and Minetto met in parking lots to exchange cash for the Apple Products. Eventually, they set up a virtual office where Minetto had Apple Inc. ship the Apple Products directly to Fung.

As it turns out, Minetto was using her employer Wescom’s corporate credit card to purchase the Apple Products and then selling the Apple Products for her own personal gain. Minetto’s actions went undiscovered for so long because she was the employee responsible for paying the corporate credit card invoices. In the end, Minetto defrauded her employer out of $6.8 million over 5 years. Some of her expenditures were for other unrelated personal items. Over $6.2 million was spent on Apple Products which Minetto later sold. Wescom ultimately discovered the fraud and terminated Minetto immediately.

Wescom obtained a Judgment on consent against Minetto for the full $6.8 million, plus interest. In a separate decision, Wescom was granted leave to sell Minetto’s home after a Judge found that Minetto committed multiple material breaches of their settlement agreement.

Superior Court Decision

An action was brought by Wescom based on Fung’s alleged unjust enrichment at the expense of Wescom. On consent, the Trial proceeded on the issues of: (1) Whether Fung knew or was wilfully blind to the fact that he was purchasing stolen goods or goods fraudulently obtained by Minetto; and, if yes (2) Did this apply to all transactions or just transactions after a certain date?

Fung admitted that he did not initially ask Minetto where or how she obtained the Apple Products. Later, he asked her if they were stolen and Minetto told him they were “legit”. Fung could detect no sign that the Apple Products were stolen. He was not concerned about the cash transactions or lack of documentation for the purchase or resale of the Apple Products.

What Fung knew or ought to have known was analyzed over three distinct stages:

Stage 1: November 2011 to early 2012 – Yorkdale Mall parking lot transactions

During the initial timeframe, Fung purchased 30 iPhones and 400 iPads from Minetto. The Judge held that there was no basis to find that Fung knew, or that the circumstances were sufficiently strong to arouse his suspicions, that the Apple Products had been stolen or obtained through fraud.

Stage 2: Early 2012 to April 2013 – Ikea parking lot transactions

The Judge found it important that Fung again questioned Minetto during Stage 2 whether the Apple Products were legitimate. He had already asked. If he believed her, and there had been no reason to suspect otherwise, why ask again? He found that Fung made a conscious choice not to seek verification or further information about the source of the Apple Products. Fung chose to remain deliberately ignorant. The Judge held that Fung was wilfully blind to the fact that the Apple Products were stolen or fraudulently obtained during Stage 2.

Stage 3: April 2013 to July 2014 – where Minetto shipped products directly to Fung’s virtual office

By this time, the business relationship had evolved. Products were being shipped directly from Apple to Fung’s virtual office. Fung ordered products from Minetto by email. Minetto would send him a shipping notification provided by Apple. Fung could track the shipment. Shipping was being paid by Wescom. The Judge held that this level of sophistication removed the probability that Fung was wilfully blind to the nature of how Minetto was procuring products. He held that Fung had actual knowledge of the source and nature of the Apple Products he was purchasing from Minetto.

Judgment was granted in the amount of $5 million against Fung. Fung’s crossclaim against Minetto for contribution and indemnity was granted in the same amount. Fung appealed.

Court of Appeal

Fung submitted that the Trial Judge erred by applying an objective standard to the wilful blindness analysis (rather than a subjective standard). The Court of Appeal agreed with Fung’s submission that the Trial Judge erred in law in his articulation of the concept of wilful blindness when he engaged in an objective analysis. The Trial Judge was not asked to consider whether Fung as a ‘reasonable person’ would have been alerted to a potential breach of trust.

A finding of wilful blindness, which is the same standard in criminal and civil proceedings, involves a subjective focus on the workings of a defendant’s mind.

Notwithstanding the mischaracterization, the Court held that the Trial Judge was correct in his application of the wilful blindness analysis when he found that Fung was wilfully blind. It was clear the Trial Judge made findings of fact establishing that Fung was wilfully blind from a subjective standard. Fung knew that the Apple Products were probably stolen or obtained by fraud, but made a deliberate choice not to investigate.

Fung’s appeal was dismissed by the Court.

This case highlights that, in the civil context, wilful blindness in is to be assessed on a balance of probabilities. The test is a subjective one. The Court held that Fung’s conduct met the definition of wilful blindness articulated in R. v. Sansregret (SCC), which “arises when a person who has become aware of the need for some inquiry declines to make the inquiry because he does not wish to know the truth. He would prefer to remain ignorant.” Once suspicions about certain facts are aroused, a duty to inquire is raised. A party cannot simply bury his head in the sand or look the other way. Failure to make those inquiries can turn what may seem like ‘harmless’ parking lot transactions into a successful claim for unjust enrichment.

See: Wescom Solutions Inc. v. Minetto, 2019 ONCA 251.


Kathleen was called to the bar in 2009. Over the years, she has developed an insurance defence practice with a particular focus on fraud. Read more ...


  

 

 
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