BLG had a significant win on behalf of the Bank of Nova Scotia on February 2, 2016 in the Ontario Court of Appeal in Teva Canada Limited v. Bank of Montréal.
The plaintiff pharmaceutical manufacturer Teva and the defendant banks were all victims of a $5M+ fraud perpetrated by a former employee of Teva. BLG acted for one of the defendant banks. The fraudster requisitioned and obtained fraudulent cheques from Teva made out to companies he registered with names similar to customers of Teva. The cheques were negotiated by the defendant banks through accounts opened by the fraudster in the name of the companies he registered. Teva sued the banks for damages for conversion, a strict liability offence under the Bills of Exchange Act ("BEA"), and brought a motion for summary judgment. The Banks brought cross-motions for summary judgment and argued that various statutory defences were available to them under the BEA. Teva was successful on its summary judgment motion.
In the February decision, the Court of Appeal allowed the Banks' appeals and dismissed Teva's action. The Court held that the cheques in question fell within a statutory defence at section 20(5) of the BEA which provides that banks are not liable for converting cheques made to non-existing and/or fictitious payees, and that the motion judge erred in holding that the defence was not available in the circumstances.
This is an important decision for financial institutions because:
- It affirms that non-existing and fictitious payees are distinct from each other, and that whether a payee is non-existing is a question of fact, while whether a payee is fictitious depends on the intention of the drawer.
- It interprets the leading case, a 1996 decision of the SCC (Boma Manufacturing) to stand for the proposition that that the drawer's intention to pay to valid payees will only be presumed or implied where this is supported by the facts in evidence.
- It confirms that while the use of pre-printed cheques is commonplace, companies must put in place and follow a policy for approving their issuance, in order to rely on the BEA to hold banks accountable for losses in conversion.
In this key case, the BLG team comprised of Marty Sclisizzi and Heather Pessione — demonstrated BLG's recognized strength in the area of Banking and Financial Services law, and their strong client advocacy, a hallmark of Borden Ladner Gervais LLP.