Tracing is traditionally thought of as a post judgment remedy even though really it is not a remedy at all (it does not result in dollars back in your pockets). Rather, tracing is a process by which a claimant demonstrates what has happened with his property and identifies its proceeds and the persons who handled or received them. A claimant may ask for an equitable remedy, meaning the court weighs all of the competing interests and does what is fair. Tracing does not depend on the establishment of an initial fiduciary relationship. Liability depends on upon receipt by the fraudster of the victim’s money. Identification of the victim’s money in the fraudster’s hands is all that is necessary.
Tracing if often sought by a victim when he or she finds out that the fraudster is insolvent and he or she wishes to seek a remedy against a third party in the form of a personal remedy for participation in the fraud or a proprietary claim because they are in possession of the victim’s property. In other words, tracing may be sought to determine:
a) who else participated in the fraud so that they also can be sued as participants or as those who aided or abetted the fraud;
b) who participated in a breach of constructive trust either by way of knowing assistance or knowing receipt; and
c) what happened to the victim’s property and then making a personal claim against such person.
It is common for fraudsters and their counsel to engage in obstructionist tactics, refusing to disclose documents such as bank statements and transaction records of where a fraud victim’s money went, and the identities of those who received it. The usual excuse for a fraudster’s refusal to comply with their disclosure obligations is because it is a form of judgment debtor examination before the fraudster is declared liable for the fraud (see the decision of Master Dash in LaFarge Canada Inc. v. McAdoo Auto Parts Ltd., [2009] O.J. 298). However, this obstructionist tactic can be overcome if the prayer for relief in a Statement of Claim contains a request for the tracing of funds and the information is sought to identify those who were knowing recipients or knowing assistants in the fraud (see the decision of Justice Newbould in Waxman et al. v. Waxman et al., 2013 ONSC 2790 (Toronto Commercial Court).
Disclaimer
Right to Tracing Documents at a Fraud Examination for Discovery
