CANADA Law and Practice Contributed by: John Pirie, Matthew Latella, Michael Nowina and Bryan Hsu, Baker McKenzie
1.3 Claims Against Parties Who Assist or Facilitate Fraudulent Acts Actions against third parties are based on the doc - trines of knowing assistance and knowing receipt that permit a court to impose a constructive trust for the purposes of asset recovery. These two doctrines allow victims to recover misappropriated assets or their val - ue from third parties who were not directly involved in the original fraud. Knowing assistance applies when a third party know - ingly helps someone commit a dishonest breach of trust or fiduciary duty. To succeed, the claimant must show that the third party had actual knowledge of the fraudulent conduct and actively participated in it. This is a fault-based claim focused on the third party’s involvement. Knowing receipt applies when a third party receives property or funds for their use that that were misap - propriated through a breach of trust or fiduciary duty, and the third party knew or ought to have known that the assets were wrongfully obtained. Those who assist in committing fraud can also be charged under the Criminal Code for aiding and abet - ting. The Criminal Code also has offences that apply to third parties who knowingly receive or handle the proceeds of fraud, including offences like possession, trafficking or possession for the purpose of trafficking property obtained by crime. Liability generally requires knowledge that the property was criminally obtained. 1.4 Limitation Periods Limitation periods differ between criminal and civil legal regimes. Under the Criminal Code, fraud is cat - egorised based on the amount involved. Fraud over CAD5,000 is an indictable offence with no limitation period. Fraud under CAD5,000 is a hybrid offence; if prosecuted summarily (as a less serious crime), there is a one-year limitation from the date of the offence. Offences under the CFPOA are also indictable and not subject to any limitation period, allowing charges to be laid at any time. In the civil context, most provinces and territories impose a two-year limitation period from the date the fraud is discovered or reasonably should have been
discovered. Quebec allows three years. Additionally, many jurisdictions have an ultimate limitation period typically between six and 15 years – which bars claims regardless of discovery. In some circumstances, the doctrine of fraudulent concealment can suspend these periods to ensure that concealment does not shield a wrongdoer from liability. 1.5 Proprietary Claims Against Property A proprietary claim allows a victim of fraud to recover specific property or its traceable proceeds, rather than simply receiving compensation. This type of claim is based on the principle that the property still belongs to the victim, even if it has changed form. Proprietary claims can arise under common law, equity or statu - tory provisions such as the Fraudulent Conveyances Act or the Bankruptcy and Insolvency Act. Courts often use equitable remedies like constructive trusts to recognise the victim’s continuing ownership. Fraud judgments (and some breach of fiduciary duty or trust judgments) will also typically survive any bankruptcy proceeding that the fraudster(s) might undertake. Tracing Misappropriated Property Tracing is the legal process used to follow misap - propriated property or funds as they change form or move through different accounts or hands. It allows a victim to identify and claim substitute assets – such as when fraudulently obtained funds are used to buy a piece of art or invest in stocks. Equitable tracing, which is more flexible than common law tracing, can follow property even when it has been mixed with oth - er funds, if the victim can show a clear and continuous link between the original asset and its current form. A “bona fide purchaser for value without notice” who buys the property in good faith, pays fair value and has no knowledge that it was obtained through fraud will break the link such that if such a person acquires the asset, then the original owner cannot recover it, although there will be a claim against the funds paid to acquire the asset. Mixed Funds and Recovery When stolen funds are mixed with other money, in the right circumstances courts will apply equitable rules to protect the victim’s interest. These include the presumption that the fraudster spent their own money first, and the “lowest intermediate balance”
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