4 STAR VENTURES (2012) LTD. PLAINTIFF v. YAAKOV EIZICOVICS and GROPPER, 2023 SKKB 121

KING’S BENCH FOR SASKATCHEWAN Citation: 2023 SKKB 121 Date: 2023 06 13 Docket: QBG-SC-00114-2019 Judicial Centre : Swift Current BETWEEN: 4 STAR VENTURES

(2012) LTD. PLAINTIFF -and- YAAKOV EIZICOVICS and GROPPER LAW PC DEFENDANTS -and- 1983283 ONTARIO INC. o/a SECURE DIGITAL MARKETS DEFENDANTS (Plaintiff by crossclaim) -and- INNOVATION CREDIT UNION DEFENDANT (Plaintiff by crossclaim) CORRECTED JUDGMENT: The text of the original judgment has been changed per the corrigendum released June 27, 2023 and September 5, 2023. (A copy of the corrigendum is appended to this corrected judgment.) Counsel: Jean-Pierre Jordaan for the plaintiff Janine L. Lavoie-Harding and Cole J.N. Wilson for Secure Digital Markets Paul D. Olfert for Innovation Credit Union JUDGMENT KEENE J. JUNE 13, 2023 I. INTRODUCTION [ 1 ] The plaintiff, 4 Star Ventures

(2012) Ltd. [4 Star], banked with one of the defendants, Innovation Credit Union [ICU]. On October 16, 2019 the plaintiff noticed that a payment of $110,672.97 was made to R&B Mechanical from its account held at

ICU. The plaintiff did not authorize this payment and the payment was made entirely without the permission or knowledge of the plaintiff. [ 2 ] I will pause here to explain how the court will characterize the role of the person behind “R&B Mechanical” and this unauthorized withdrawal. I was advised by counsel for ICU (and accepted by all the other lawyers for the appearing parties) that R&B Mechanical while originally named as a defendant did not exist and was subsequently dropped from the style of cause.

The person behind the unauthorized transfer was never sued by the plaintiff or any other party and therefore was never made a party to these proceedings and accordingly, never presumably received notice. The original statement of claim’s style of cause referred to this individual as “John Doe”. The name “John Doe” was subsequently removed from the style of cause when the plaintiff filed its amended statement of claim. However, this person’s identity became known to the parties—particularly the defendant, 1983283 Ontario Inc. O/A Secured Digital Markets [SDM] as Denzel Blackett. It appears that Mr.

Blackett was on March 29, 2020 arrested by the Durham Ontario Regional Police and charged with defrauding Laurie Lloyd, one of the principals of 4 Star as a result of the unauthorized withdrawal of the $110,672.97 (Ryan Mueller’s affidavit sworn November 25, 2022, paras. 24, 25, 26, 31 and 31). The appearing parties both in their legal briefs and oral arguments proceeded on the basis that the criminal fraud charge had resulted in Mr. Blackett’s conviction. However, I was not provided with a certificate of conviction or otherwise advised of the disposition of the criminal prosecution. Therefore, as a result of Mr.

Blackett not being named as a defendant party and the court not receiving definitive information of the outcome of the criminal prosecution—the court will approach his role as the protagonist in the civil law sense only. However, I hasten to add that based on the civil standard I am satisfied on the evidence before me that he was the person who orchestrated the unauthorized withdrawal and transfer of the $110,672.97 to R&B Mechanical and then used the money for his own purposes. [ 3 ] The appearing parties state that Mr.

Blackett then used a portion of the unauthorized withdrawal of $110,927.97 being $103,932.50 [Funds], to purchase cryptocurrency [Bitcoin] from SDM. The Bitcoin vanished into the vast uncharted world of the internet. 4 Star decided to sue SDM, Gropper Law PC (a law office that SDM retained for trust deposits), Yaakov Eizicovics (a lawyer), ICU and the Toronto-Dominion Bank [TD] that provided a trust account for the law office to hold the Funds deposited by Mr.

Blackett. 4 Star obtained a court order directing that the Funds on deposit in the TD/Gropper Law PC trust account be paid into court. 4 Star, SDM and ICU are now in a dispute over who is entitled to the funds. Gropper Law PC and Mr. Eizicovics were noted for default and seemingly take no position. This dispute has generated quite a bit of litigation—an amended statement of claim, defences, cross claims and defences to cross claims,

summary judgment applications, extensive affidavit evidence, striking applications and examinations. [ 4 ] This has been distilled out to the present application brought by SDM for a

summary judgment for the Funds along with costs. 4 Star opposes this. ICU has also brought a

summary application to strike SDM’s cross claim which was returnable on the same day SDM’s

summary application was heard. No other parties have made any representations. It is to be noted that as soon as TD deposited the Funds from the trust account into court; the plaintiff discontinued its action against the TD. II. DECISION [ 5 ] The court will grant

summary judgment in favour of SDM as a bona fide purchaser for value without notice that acquired the Funds in the ordinary course of business via a commercial transaction and dismiss 4 Star’s claim against SDM. This means SDM is entitled to the Funds held in court and the Local Registrar shall pay the Funds plus any accumulated interest to the McKercher law office in trust for SDM. SDM shall receive costs as set out below. ICU’s striking application against SDM is dismissed. The cross claims brought by SDM and ICU are also dismissed. III.

SDM’S APPLICATION TO STRIKE AFFIDAVIT EVIDENCE [ 6 ] SDM has brought two applications to strike affidavit evidence filed by 4 Star. I make the following rulings. (

a) Affidavit of Lori Lloyd sworn April 18, 2023 [ 7 ] SDM applies pursuant to Rule 13-30 of The Queen’s Bench Rules to strike the entirety of paras. 3, 4, 5, 6, 7, 8 and 9 of Ms. Lloyd’s affidavit. Counsel for SDM has provided a convenient chart for addressing the concerns in this striking application. I have considered the arguments presented by 4 Star that essentially are that there is nothing improper with the impugned affidavit material. I disagree. The court accepts the arguments presented by SDM. Since the exclusion of Ms.

Lloyd’s evidence renders Ryan Mueller’s affidavit evidence more cogent; I will sacrifice brevity to reproduce the chart provided as follows: 9. The entirety of paragraphs 3, 4, 5, 6, 7, 8, and 9 of the Lloyd Affidavit are inadmissible as follows: Para Portion Struck Grounds for Admissibility 3 “I deny that the Applicant, Secure Digital Markets (SDM), have suffered a loss.” Opinion, and argumentative, statements of legal conclusions to be drawn by the Court. Conclusionary without basis stated for the conclusion.

3 “SMD alleges that they paid an amount for Bitcoin to a Mr. Blackett with a value equivalent to $103,932.50. Allegedly, Mr. Blackett’s Bitcoin address is “1Lk…” (I have been advised by my legal representative, which advice I accept that these addresses are case sensitive). The address mentioned Mr. Mueller’s affidavit could not be found. The actual amount of Bitcoin transferred is not stipulated in Mr. Mueller’s affidavit and the transaction does not seem to be reflected in his affidavit. Statement of purported facts outside Ms.

Lloyd's personal knowledge, without the source of the information being expressly stated or Ms. Lloyd stating she verily believes that information to be true. Opinion, and argumentative, as it amounts to advocacy or statements of legal conclusions to be drawn by the Court. 3 "A copy of the wallet statement for the correct address is attached as Exhibit "A". The wrong address report is attached as Exhibit "B". These documents were generated on a website blockchair.com which is a Bitcoin blockchain explorer website." Statement of proposed facts outside Ms. Lloyd's personal knowledge, without Ms.

Lloyd stating she verily believes that information to be true. Opinion, and argumentative, as it amounts to advocacy or statements of legal conclusions to be drawn by the Court. 4 "From Exhibit A, the lLk address received two payments. One for 9.68220000 Bitcoin on October 17, 2019 at 15:57 UTC (9:57 AM Saskatchewan Time) valued at about $77,473.87 USD. Another transaction at the same time of 0.00010000 Bitcoin for about $0.80 USD." Statement of purported facts outside Ms. Lloyd's personal knowledge, without the source of the information being expressly stated or Ms.

Lloyd stating she verily believes that information to be true. Conclusionary without basis stated for the conclusion, opinion. 5 The 9.68220000 Bitcoin was transferred out of the wallet about 90 minutes later by whomever has cotrol [ sic ] over the lLk address,…" Statement of purported facts outside Ms. Lloyd's personal knowledge, without the source of the information being expressly stated or Ms. Lloyd stating she verily believes that information to be true. Conclusionary without basis stated for the conclusion, opinion. 5 "…allegedly Mr.

Blackett." Opinion, and argumentative, as it amounts to advocacy or statements of legal conclusions to be drawn by the Court. 6 "The 9.6822000 Bitcoin was paid into the 1Lk address from 5 wallets which allegedly belong to SDM. A receipt of the transaction is attached hereto as Exhibit "C"." Statement of purported facts outside Ms. Lloyd's personal knowledge, without the source of the information being expressly stated or Ms. Lloyd stating she verily believes that information to be true. Opinion, argumentative.

7 "The reason I deny that SDM has suffered damages is that they have failed to prove the following: a. That they own or control the 5 wallets from which the Bitcoin was paid to the 1Lk address. In other words, they cannot prove they paid the Bitcoin to the 1Lk address; b. That that 1Lk address belong [ sic ] to Mr. Blackett and was paid to that address upon his instruction. The documentation received from Mr. Blackett by SDM confirming his Bitcoin address as the 1Lk address has not been provided. In other words, SDM has not proved that the Bitcoin was paid to Mr. Blackett;” Statement of purported fact outside Ms.

Lloyd's personal knowledge, without the source of the information being expressly stated or Ms. Lloyd stating she verily believes that information to be true. Conclusionary without basis stated for the conclusion. Opinion, and argumentative, as it amounts to advocacy or statements of legal conclusions to be drawn by the Court. 8 "My legal representative questioned the representative of SDM about the above. The questions are on Page 19 to 22 of his questioning by Jean Jordaan." Irrelevant evidence, and unhelpful expressions of opinion, based upon questioning transcripts not before the Court.

Statement of purported facts outside Ms. Lloyd's personal knowledge, without Ms. Lloyd stating she verily believes that information to be true. 9 "My legal representative sent a letter to the representative of SDM expressing the above shortcomings and received no reply. A copy of the letter is attached as Exhibit "D"." Scandalous, irrelevant to the action, included for an improper purpose. Argumentative, put forward to suggest a legal conclusion. Statement of purported facts outside Ms. Lloyd's personal knowledge, without Ms.

Lloyd stating she verily believes that information to be true. (Notice of application to strike brought by SDM, pages 3-6) [ 8 ] I accept the above arguments. A drafter of affidavits must exercise care in preparing affidavit material to avoid offending Rule 13-30. Therefore, the above passages in Ms. Lloyd’s April 18, 2023 affidavit are struck for the reasons set out by counsel for SDM and accepted by the court and the court will not consider those portions of that affidavit. (

b) Affidavit of Emily Kroeker, sworn April 18, 2023 [ 9 ] Ms. Kroeker appears to be a legal assistant employed by the law office retained by 4 Star in this action. The purpose of the affidavit is to exhibit a copy of a letter sent by email on May 11, 2022 from SDM’s lawyer to the lawyer for ICU that was copied to the law office representing 4 Star. This affidavit was filed on April 18, 2023.

SDM objects to this affidavit being filed because it was improperly filed ( i.e. not in accordance with the scheduling order granted January 11, 2023 requiring all opposing affidavits be filed on or before 26 days prior to the hearing date, May 17, 2023) and because the exhibit is irrelevant in any event. 4 Star opposes this on the basis that the affidavit is the only way 4 Star’s law office could get the exhibit before the court since a lawyer actively representing a party is not supposed to file evidence ( i.e. become a witness) and the exhibit is germane to the

summary judgment application brought by SDM. [ 10 ] I agree with SDM and find that Ms. Kroeker’s affidavit should not have been filed. I say this because 4 Star would have known of this letter dated May 11, 2022 for over a year before the May 17, 2023 scheduled hearing date. The purpose of scheduling orders is to bring some semblance of order to applications, especially when it is likely the parties will be busy serving and filing affidavits. Accordingly, on that basis, the affidavit of Ms. Kroeker is struck entirely and the Local Registrar shall remove the

affidavit and return the document to counsel for 4 Star. [ 11 ] Additionally, I find that the exhibit displays at least double hearsay and the probative value of what Mr. Eizicovics is purported to have said suffers accordingly. I would have also placed little weight on his comments as the wording is rather vague. (

c) Costs [ 12 ] SDM seeks costs against 4 Star’s lawyer for the application to strike Ms. Lloyd’s affidavit pursuant to Rule 13- 30(5) or in the alternative against 4 Star. SDM was put to considerable work to advance its successful application and as stated, greater care is required in drafting affidavits. However, upon considering all of this, I will order that 4 Star shall pay to SDM costs fixed at $500.00 in any event of the cause. I have decided not to order further costs regarding Ms. Kroeker’s affidavit. IV.

FACTS [ 13 ] I agree with SDM that as a result of my above ruling on the striking application regarding Ms. Lloyd’s and Ms. Kroeker’s affidavits; what is left is the affidavit evidence provided by Mr. Mueller’s two affidavits of November 25, 2022 and April 27, 2023 and to a degree, the pleadings. I note Mr.

Mueller has deposed he is the chief compliance officer of SDM. [ 14 ] 4 Star is a bank account holder with ICU. 4 Star uses ICU’s Customer Automated Funds Transfer [CAFT] system, being an online system in which payee accounts are set up to facilitate payments (statement of defence of ICU at para. 5; Exhibit “I” – Affidavit of Mr. Mueller, sworn November 25, 2022 [Mueller affidavit]). On October 15, 2019, “D&B General Mechanical Services” was added as a payee to 4 Star’s CAFT system (Exhibit “I” of Mueller affidavit).

On October 15, 2019 $110,672.97 was transferred from 4 Star’s bank account with ICU to D&B General Mechanical Services’ bank account with Bank of Montreal [BMO bank account] (Exhibit “I” – Mueller affidavit). 4 Star did not become aware of the unauthorized transfer of the $110,672.97 to the BMO bank account until October 16, 2019 (Exhibit “I:” – Mueller affidavit; para. 7 of the plaintiff’s amended statement of claim).

The plaintiff reported the unauthorized transfer of funds to ICU in the afternoon of October 16, 2019 (Exhibit “I” – Mueller affidavit). [ 15 ] The BMO bank account is a business account held by Mr. Blackett operating as D&B General Mechanical Services (para. 8 and Exhibit “C” – Mueller affidavit). [ 16 ] SDM is a corporation engaged in the private purchase and sale of cryptocurrency in Canada (para. 2, Mueller affidavit; SDM’s statement of defence, para. 4).

SDM was contacted in October 2019 by GlobalxChange (an online exchange system for digital assets, such as cryptocurrency (para. 3, Mueller affidavit)) about brokering a transaction on behalf of Mr. Blackett who wanted to buy from SDM cryptocurrency Bitcoin (para. 5, Mueller affidavit). GlobalxChange had acted as a broker on behalf of clients purchasing cryptocurrency from SDM on numerous occasions through the ordinary course of business (para. 5, Mueller affidavit).

The process used between GlobalxChange and SDM is that SDM deals with GlobalxChange as a broker and not the customer (para. 6, Mueller affidavit). [ 17 ] Prior to engaging in the transaction ( i.e. selling Bitcoin to Mr. Blackett) SDM requested from GlobalxChange Mr. Blackett’s personal information to perform customer identification verification (paras. 7-10, Mueller affidavit). This consisted of receiving, reviewing and verifying Mr. Blackett’s identity as follows:

a) Receiving a copy of Mr. Blackett’s valid province of Ontario issued photo identification card setting out his name, expiry date, address and date of birth;

b) Mr. Blackett’s valid and existing BMO bank account statement for the month of September 2019;

c) Mr. Blackett’s cellular phone number, which was confirmed to be a mobile cellular number, with an Ontario area code under the carrier, Bell Cellular; and

d) Mr. Blackett’s email address. (Paras. 7-10, Exhibit “B” & “C”, Mueller affidavit) [ 18 ] Mr. Mueller deposed that all of the above checked out and as of October 2019, SDM complied with all legislatively imposed customer identity verification and reporting requirements (para. 11, Mueller affidavit). I have reviewed the brief provided by counsel for SDM and in particular the

section “SDM Complied With Applicable Legislation” (pages 29-32, SDM’s brief of law) and I am satisfied that the required steps taken under the applicable legislation were completed by SDM. [ 19 ] Mr. Mueller further deposed that after confirming Mr. Blackett’s identity, SDM provided GlobalxChange with its bank account information in order to receive the purchase price funds via wire transfer, being Gropper Law PC’s bank account with TD (paras. 12 & 16, Mueller affidavit). [ 20 ] I will pause here in the fact

summary to address an issue that arose during oral argument. Counsel for 4 Star points to para. 16 of the Mueller affidavit that states “SDM deposited the Wire Transfer Funds into the trust account of Gropper Law PC, SDM’s legal counsel at the time, which is held by the TD bank”. 4 Star believes this is critical because this seems to indicate Mr.

Mueller is deposing that SDM had the Funds first, and then transferred the money into the law office trust account. [ 21 ] However, when this came to light during the oral argument, counsel for SDM candidly admitted that there had been an error made in the drafting of paragraphs 14 and 16 of the Mueller affidavit and also in paragraph 34 of SDM’s brief of law dated May 5, 2023. SDM counsel stated that paragraph 16 should have read that Mr. Blackett (and not SDM) deposited the wire transfer funds into the trust account of Gropper Law PC.

SDM’s counsel asked the court to turn to Exhibit “D” of the Mueller affidavit that clearly proves that it indeed was Mr. Blackett who requisitioned on October 15, 2019 the transfer of the Funds via his BMO bank account into Gropper Law PC’s TD trust account.

[ 22 ] I accept SDM’s counsel’s explanation that this was a mistake and that Exhibit “D” sets out the actual transaction. Mr. Blackett sent the money from his BMO bank account directly to the Gropper Law PC trust account. [ 23 ] To clarify this further, I am satisfied that Gropper Law PC received into that law offices’ TD trust account on October 16, 2019, the money sent by Mr. Blackett (para. 15, Mueller affidavit). [ 24 ] Mr. Mueller deposed that on October 17, 2019, SDM told GlobalxChange that Mr. Blackett’s money had arrived and that SDM would sell to Mr.

Blackett, an equivalent market value of Bitcoin being 9.6823 Bitcoin for the Funds he had deposited in Gropper Law PC’s TD trust account (para. 3(3), Exhibit “A” – Mueller reply affidavit sworn April 17, 2023). The Bitcoin went to Mr. Blackett’s “wallet” (para. 3d, g and Exhibit “A”, Mueller affidavit). [ 25 ] I will comment briefly on what appears to be a central theme of 4 Star’s argument, taking up much of the brief provided by counsel, that SDM did not actually transfer any Bitcoin to Mr.

Blackett or that the transferring of Bitcoin is not made out by SDM and for reasons not clear, SDM is now advancing a claim for the money in court. Frankly, that makes no sense. Why would SDM engage a reputable law firm to defend, crossclaim and bring this

summary judgment application when SDM supposedly knew it had not lost any money or possibly the recipient of the Bitcoin is controversial. Secondly, I accept Mr. Mueller’s evidence that SDM paid out the Bitcoin to Mr. Blackett and thought all was well and at this point, just wants to be paid the Funds held in trust. Finally, since much of Ms. Lloyd’s evidence has been struck, there is nothing to support 4 Star’s argument contained in it’s brief of law that seems to be an attempt to provide expert evidence instead of legal argument. In the end, I find this approach to have no merit. [ 26 ] Mr.

Mueller deposed that SDM was “not a party to Mr. Blackett’s fraudulent scheme, nor had knowledge of the fraudulent scheme” (para. 32, Mueller affidavit). Mr. Mueller went on to depose that “on October 23, 2019, six days after the funds were deposited and the Transaction was completed, SDM was notified by BMO that the Funds wire transferred to Gropper’s TD account were being recalled as being possible fraudulent” (para. 18, Mueller affidavit). [ 27 ] In my view, the above facts are not in issue.

I find SDM did not have notice of the theft until well after the horse had left the barn—October 23, 2019—and there is no evidence that SDM in any fashion colluded with Mr. Blackett to perpetrate a fraud on 4 Star. I also conclude that SDM sold to Mr. Blackett 9.6823 Bitcoin for a sale price being the same amount as the Funds. Finally, I am satisfied that all the Bitcoin went into Mr. Blackett’s hands and unfortunately, has disappeared into the untraceable world of cryptocurrency. V. ISSUES (

a) Should the court grant SDM’s request for

summary judgment? (

i) Can disputes in the evidence be justly and proportionately resolved through the

summary judgment process? (ii) Is there any genuine issues for trial? [ 28 ] It appears none of the parties raised much opposition to SDM’s application for

summary judgment under Rules 7-2 and 7-5 of The Queen’s Bench Rules . The parties appear anxious to receive a ruling on the issue of entitlement to the money paid into court. In my view, this application will permit the court to make a fair and just determination by making efficient use of the court’s resources while at the same time, saving the parties significant time and expense. As I will develop below, I find there are no genuine issues in this case requiring a trial. I will now move on to the issues. (

b) Should 4 Star’s claim against SDM be dismissed? (

i) Does the principle of unjust enrichment apply? [ 29 ] SDM contends that 4 Star’s claim against SDM should be dismissed and the Funds in court should be paid out to SDM. 4 Star pled a couple of trust doctrines, but in my opinion only the doctrine of unjust enrichment remains as a live issue. I come to that conclusion based on 4 Star’s pleadings set out in the amended statement of claim, reproduced as follows: Claim against Toronto-Dominion Bank 11.

The Funds being held by TD Bank belongs to the Plaintiff, and the Plaintiff says that the receipt of the Funds gave rise to constructive trust alternatively a resulting trust [ sic ]. 12. TD Bank is holding the funds in trust for the benefit of the Plaintiff. 13. In the alternative or in addition, the Plaintiff claims an interest in the funds. 14. The Plaintiff pleads and relies on Section 437(2) of the Bank Act S.C. 1991, c. 26. 15.

The Plaintiff says that the Funds should not be paid out to the depositor or the order of the depositor. [ 30 ] The plaintiff pleads as follows in the amended statement of claim: Alternative Claim for Unjust Enrichment 16. Should it be found that no trust exists between the Plaintiff and the Defendant, TD Bank, in the alternative of the Plaintiff’s claim described above, the Plaintiff says that one or more of the Defendants were enriched and that such enrichment did not correspond to a deprivation suffered on behalf of the Plaintiff.

[31] The “constructive trust” plea remerges in the plaintiff’s “Prayer for Relief” penultimately at para. 19 of 4 Stars’amended statement of claim, reproduced as follows: Prayer for Relief 19. In light of the foregoing, the Plaintiff, therefore, claims against the Defendants: a. A declaration of a constructive trust or the benefit of the Plaintiff; b. An order against TD Bank not to pay the Funds to Gropper or its order or any other person save the Plaintiff; c.

An order that TD Bank pays the Funds to the Plaintiff; [32] However, as a result of TD paying the disputed Funds into court on December 4, 2019, 4 Star filed on February27, 2020 a discontinuance of claim against the defendant, TD. It appears essentially that TD was named as a party only to facilitate theapplication to get an order to pay the Funds into court. [33] All of the above means that the plea of constructive and/or resulting trusts, even though still set out in the prayerfor relief, could only have applied to TD and the plaintiff has discontinued any claim against that defendant.

This leaves only the unjustenrichment claim against SDM. [34] However, despite the foregoing, the doctrine of constructive trust still has to be considered because ultimately itappears 4 Star alleges ownership of the Funds by virtue of a constructive trust—the unjust enrichment claim.

The court recognizes that aconstructive trust does not arise by express or implied agreement but rather by operation of law as an equitable remedy to compensateunjustly deprived claimants: Mauri Gwyn Developments Ltd. v Larson Manufacturing Company of South Dakota, Inc., 2019 SKQB 200 at para 33; see also Semchyshen v Semchyshen, 2016 SKCA 108 at paras 43 and 45, 402 DLR (4th) 623. [35] Justice McLachlin (as she then was) discussed the circumstances in which a constructive trust may arise inSoulos v Korkontzilas, (SCC), [1997] 2 SCR 217 (QL) at para 19 [Soulos] as follows: 19 The situations in which a constructive trust was recognized in England include constructive trusts arising on breach of a fiduciaryrelationship, as well as trusts imposed to prevent the absence of writing from depriving a person of proprietary rights, to prevent apurchaser with notice from fraudulently retaining trust properties, and to enforce secret trusts and mutual wills… 20 Canadian courts have never abandoned the principles of constructive trust developed in England.

They have, however, modifiedthem. Most notably, Canadian courts in recent decades have developed the constructive trust as a remedy for unjust enrichment. It is nowestablished that a constructive trust may be imposed in the absence of wrongful conduct like breach of fiduciary duty, where threeelements are present: (1) the enrichment of the defendant; (2) the corresponding deprivation of the plaintiff; and (3) the absence of ajuristic reason for the enrichment: Pettkus v.

Becker, [ (SCC), [1980] 2 SCR 834], supra. … 25 I conclude that the law of constructive trust in the common law provinces of Canada embraces the situations in which Englishcourts of equity traditionally found a constructive trust as well as the situations of unjust enrichment recognized in recent Canadianjurisprudence. … 39 Canadian courts also recognize the availability of constructive trusts for both wrongful acquisition of property and unjustenrichment.

Applying the English law, they have long found constructive trusts as a consequence of wrongful acquisition of property, forexample by fraud or breach of fiduciary duty. More recently, Canadian courts have recognized the availability of the American-styleremedial constructive trust in cases of unjust enrichment: Pettkus v. Becker, supra. However, since Pettkus v. Becker Canadian courtshave continued to find constructive trusts where property has been wrongfully acquired, even in the absence of unjust enrichment.

Whilesuch cases appear infrequently since few choose to litigate absent pecuniary loss, they are not rare. 40 Litman [M. M. "The Emergence of Unjust Enrichment as a Cause of Action and the Remedy of Constructive Trust" (1988), 26Alta. L. Rev. 407.], supra, at p. 416, notes that in "the post-Pettkus v. Becker era there are numerous cases where courts have used theinstitutional constructive trust without adverting to or relying on unjust enrichment".

The imposition of a constructive trust in these casesis justified not on grounds of unjust enrichment, but on the ground that the defendant's wrongful act requires him to restore the propertythus obtained to the plaintiff. … 43 I conclude that in Canada, under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful actslike fraud and breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation.

While cases ofteninvolve both a wrongful act and unjust enrichment, constructive trusts may be imposed on either ground: where there is a wrongful actbut no unjust enrichment and corresponding deprivation; or where there is an unconscionable unjust enrichment in the absence of awrongful act, as in Pettkus v. Becker, supra. Within these two broad categories, there is room for the law of constructive trust to developand for greater precision to be attained, as time and experience may dictate. [36] Accordingly, constructive trusts can arise in two situations:

(

a) Where the claimant’s property was acquired by the defendant via wrongful acts or conduct (in the absence of unjust enrichment),such as breach of fiduciary duty, fraud, or acquiring fraudulently-obtained trust properties with notice of the fraud; and (

b) Where the defendant has been unjustly enriched to the detriment of the claimant without juristic reason, regardless as to whetherthe defendant acquired the property via wrongful acts. [37] Justice McLachlin went on to opine that for a constructive trust to arise under the first situation, being “wrongfulacts”, four conditions must be satisfied: Soulos at para 45: 45 …

(1) The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, inrelation to the activities giving rise to the assets in his hands;

(2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant inbreach of his equitable obligation to the plaintiff;

(3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure thatothers like the defendant remain faithful to their duties and;

(4) There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., theinterests of intervening creditors must be protected. [38] In examining the above four conditions, I find the facts do not establish a constructive trust arising from any“wrongful acts”. Firstly, there is no evidence that SDM owed any equitable obligation to 4 Star, such as a duty of loyalty or fiduciaryduty in relation to the purchase by Mr. Blackett of the Bitcoin.

It is clear SDM and 4 Star were strangers to each other. [39] Regarding the second condition, it is clear SDM acquired the Funds in good faith and without any knowledge ofMr. Blackett’s fraud.

Accordingly, SDM did not acquire the Funds in breach of any equitable obligation to 4 Star because no suchobligation existed. [40] The third condition does not apply. [41] Finally, regarding the fourth condition, there is indeed an intervening factor rendering the imposition of aconstructive trust unjust—SDM is a third party that acquired the Funds in good faith, without notice and for valuable consideration.Accordingly, 4 Star has failed to establish a constructive trust under the first situation. [42] The Supreme Court in Pettkus v Becker, (SCC), [1980] 2 SCR 834 provided the criteria for aconstructive trust to arise in the second situation being “unjust enrichment” as follows:

(1) The defendant has been enriched;

(2) The defendant’s enrichment corresponds to a deprivation; and

(3) The absence of any juristic reason for the enrichment. [43] I find that although 4 Star was deprived of the funds because of the unauthorized withdrawal that does not meanthis constitutes an enrichment for SDM. SDM paid out to Mr. Blackett an equivalent market value of Bitcoin in exchange for the Funds.Therefore, I hold that there is no evidence of an enrichment on this basis and therefore 4 Stars’ claim of unjust enrichment must fail.

Thisin my view covers the second criterion as well. [44] The court need not discuss the third criterion in much detail because of the failure of 4 Star on the first twocriterion to establish a constructive trust giving rise to unjust enrichment. I find that there was a juristic reason for the so-calledenrichment—this was a straightforward business transaction where a seller (SDM) sold to a purchaser (Mr. Blackett) Bitcoin for anamount equivalent to the Funds. SDM sent off the Bitcoin.

It is not as though the Bitcoin was not sent and SDM simply retained theFunds and the Bitcoin. [45] Therefore, 4 Star has failed to establish a constructive trust based on unjust enrichment. [46] Therefore, the court finds that the Funds in court are not subject to a constructive trust in favour of 4 Star, andthe Funds do not represent an unjust enrichment for SDM. (ii) Does the equitable principle of tracing apply? [47] The plaintiff has pled the Funds stolen from the plaintiff’s account traces directly to the funds held in the trustaccount of Gropper Law PC (4 Star’s amended statement of claim, para. 10).

In a rather circuitous bit of pleading, while 4 Star has pledthat the Funds can be traced back to its account with ICU; it is actually the defendant, ICU, that pleads via its statement of defence thatthe Funds are traceable to 4 Star and thus 4 Star remains the beneficial owner of the Funds on the basis of “the doctrine of tracing” (ICUstatement of defence to claim of 4 Star, para. 8). In short, it is not clear that 4 Star has actually pled tracing other than the generalizedcomment in the statement of claim.

However, to be complete on this topic, I will consider the doctrine of tracing in any event. [48] Justice Sherstobitoff in Agricultural Credit Corp. of Saskatchewan v Pettyjohn (1991), (SKCA), 90 Sask R 206 (CA) at para 55 discussed the principle of tracing as follows: [55] Tracing at common law and equity is a proprietary remedy. It involves following an item of property either as it is transformed

into other forms of property, or as it passes into other hands, so that the rights of a person in the original property way extend to the newproperty. In establishing that one piece of property may be traced into another, it is necessary to establish a close and substantialconnection between the two pieces of property, so that it is appropriate to allow the rights in the original property to flow through to thenew property.

The question has most often arisen in the context of a trust, when the trustee has improperly disposed of the trust assets. [49] Justice Jackson in Flexi-coil Ltd v Kindersley District Credit Union Ltd. (1993), (SK CA),113 Sask R 298 (CA) [Flexi-coil] referenced tracing in her decision as follows: Issue: Whether the Cheques were Taken by the Credit Union free of Flexi-Coil's Interest? (

a) Bona Fide Purchaser for Value 20 I turn then to the Credit Union's first argument: that the interest of Flexi-coil was defeated when the cheques were deposited intoChurchill's bank account because the Credit Union was a bona fide purchaser for value without notice. The basis of this claim is thatFlexi-coil must be able to trace its proceeds into the hands of the Credit Union, and to do so, it is argued, Flexi-coil must rely on theequitable rules of tracing. At Equity, a person seeking to trace property would not be successful if the property came into the hands of abona fide purchaser for value.

It has been said this rule did not form part of the common law rules of tracing, which permitted a plaintiffto follow money as long as the funds were not mingled in a bank account. In Fridman's Restitution, 1992 at p. 417 the author stated: The distinction between legal and equitable titles and between tracing at common law and in equity is of considerable importance.

Onereason for this is that a common law proprietary claim may not be defeated by the fact that the defendant acquired the property in goodfaith and for value; he may still not be able to assert a title that is superior to that of the original legal owner. Only if the common lawrecognizes a situation in which title may be lost involuntarily, for example, through estoppel or under the provisions of a Factors Act,will the owner at law lose his proprietary rights.

In contrast, if the plaintiff's claim is based on equitable title, he may be defeated shouldthe defendant be a bona fide purchaser for value without notice of that title. (footnotes omitted) 21 Clearly, this bar to tracing in Equity extends to situations where it is not goods, but money or its equivalent which is transferred tothe third party for value without notice. As stated by Denning, J. in Nelson et al. v. Larholt, [1947] 2 All E.R. 751 (K.B.) at 752: The relevant legal principles have been much developed in the last 35 years. A man's money is property which is protected by law.

Itmay exist in various forms, such as coins, Treasury notes, cash at bank, cheques, or bills of exchange, but, whatever its form, it isprotected according to one uniform principle. If it is taken from the rightful owner, or, indeed, from the beneficial owner, without hisauthority, he can recover the amount from any person into whose hands it can be traced unless and until it reaches one who receives it ingood faith and for value and without notice of the want of authority. (emphasis added). See also, In re Cohen and Mahlin; Canadian Credit Men's Trust Association Limited v.

Spivak, (AB CA), [1927] 1W.W.R. 162 at 167 and 168 (Alta. C.A.). [50] Justice Jackson highlighted the important “distinction” in approach between legal and equitable titles andbetween tracing at common law and in equity. I find here on the facts and on the pleadings (4 Star obliquely refers to “traces” in para. 10of its statement of claim and ICU directly refers to 4 Star as the “beneficial owner” in para. 8(

b) of its statement of defence to 4 Star’sclaim) that 4 Star was the beneficial owner of the money on deposit with ICU and as such is restricted to equitable relief subject toequitable bars and defences. [51] However, beyond the pleadings, I find that as soon as 4 Star deposited money into its account at ICU—4 Starbecame a mere beneficial owner of the deposited money (M.H.

Ogilvie’s Bank and Customer Law in Canada, 2d ed (Toronto: IrwinLaw, 2013) at 187: See also Foley v Hill (1848), 9 ER 1002). [52] Since I have made the above finding, 4 Star’s tracing claim, if indeed properly pled against SDM or otherparties, is based in equity and is subject to the bars and defences available to SDM.

Accordingly, the Funds illegally taken from 4 Star’sbank account could be recovered from any party into whose hands the Funds could be traced “unless and until it reaches one whoreceives it in good faith and for value and without notice of the want of authority” (Flexi-coil at para 21 citing Nelson v Larholt, [1947] 2All ER 751 at 751; City of Saskatoon v Doe, 2019 ONSC 6735 at para 14).

This applies to SDM and acts as a bar to the tracing remedy. [53] In conclusion, I find that the doctrine of tracing is not applicable whether pled by SDM, or for that matter, ICU. (iii) Conclusion on whether 4 Star’s claim against SDM should be dismissed. [54] For the above reasons I order that 4 Star’s claim against SDM is dismissed. (

c) Who should be entitled to the Funds in court? [55] I have come to the conclusion that SDM should be entitled to the Funds in court because:

(1) SDM acquired the Funds for good and valuable consideration;

(2) SDM acquired the Funds in good faith and without knowledge of fraud; and

(3) SDM acquired the Funds in the ordinary course of business, with the reasonable expectation it would enjoy the useand benefit of the funds. (

d) SDM/ICU’s crossclaim applications [56] SDM sues ICU under a crossclaim filed February 12, 2020. In turn ICU sued SDM under a crossclaim filed June3, 2020. These respective crossclaims rise and fall under the principal action brought by 4 Star. Since I have found that SDM has been

successful in this

summary judgment application and will receive the Funds, these two crossclaims become moot. For clarity, I order that both SDM’s and ICU’s crossclaims now stand dismissed without costs. VI. JUDGMENT [ 57 ] For the above reasons, I find that there is no genuine issue requiring a trial. The application by SDM for

summary judgment is granted, and the court orders: 1. The applicant/defendant SDM’s application for

summary judgment is granted; 2. The claim brought by 4 Star against SDM is dismissed; 3. The crossclaims brought by SDM and ICU are dismissed without costs; 4. The Local Registrar of the Swift Current Judicial Centre shall pay out of the court trust account to SDM the sum of $103,932.50 plus any accrued interest. This payment may be made directly to the McKercher law office, in Saskatoon as payment on behalf of its client SDM. There shall be no other interest ordered including any interest under The Pre-judgment Interest Act , SS 1984-85-86, c P- 22.2 ; and 5.

SDM shall receive costs from 4 Star under Column 1 and also the fixed costs of $500.00 as set out regarding the striking of affidavit evidence application. There shall be no order for costs against ICU. J. T.J. KEENE KING’S BENCH FOR SASKATCHEWAN Citation: 2023 SKKB 121 Date: 2023 06 13 Docket: QBG-SC-00114-2019 Judicial Centre: Swift Current BETWEEN: 4 STAR VENTURES

(2012) LTD. PLAINTIFF -and- YAAKOV EIZICOVICS and GROPPER LAW PC DEFENDANTS -and- 1983283 ONTARIO INC. o/a SECURE DIGITAL MARKETS

DEFENDANTS (Plaintiff by crossclaim) -and- INNOVATION CREDIT UNION DEFENDANT (Plaintiff by crossclaim) Counsel: Jean-Pierre Jordaan for the plaintiff Janine L. Lavoie-Harding and Cole J.N. Wilson for Secure Digital Markets Paul D. Olfert for Innovation Credit Union CORRIGENDUM TO THE JUDGMENT KEENE J. DATED June 13, 2023 JUNE 27, 2023 [ 58 ] The Counsel portion of the decision of June 27, 2023 is amended by adding Cole J.N. Wilson as counsel for Secure Digital Markets. J. T.J. KEENE KING’S BENCH FOR SASKATCHEWAN Citation: 2023 SKKB 121 Date: 2023 06 13 Docket: QBG-SC-00114-2019 Judicial Centre: Swift Current BETWEEN: 4 STAR VENTURES

(2012) LTD. PLAINTIFF -and- YAAKOV EIZICOVICS and GROPPER

LAW PC DEFENDANTS -and- 1983283 ONTARIO INC. o/a SECURE DIGITAL MARKETS DEFENDANTS (Plaintiff by crossclaim) -and- INNOVATION CREDIT UNION DEFENDANT (Plaintiff by crossclaim) Counsel: Jean-Pierre Jordaan for the plaintiff Janine L. Lavoie-Harding and Cole J.N. Wilson for Secure Digital Markets Paul D. Olfert for Innovation Credit Union CORRIGENDUM TO THE JUDGMENT KEENE J. DATED June 13, 2023 SEPTEMBER 5, 2023 [ 59 ] Paragraph 3 of the decision of June 13, 2023 is amended by changing “The Bitcoin banished into the vast uncharted world of the internet” to “The Bitcoin vanished into the vast uncharted world of the internet”. J. T.J. KEENE