Law Times

Law Times • march 5, 2018 Page 11 www.lawtimesnews.com 'Frustration' expressed in the dissent Payments lawyers disappointed by SCC ruling BY DALE SMITH For Law Times I n a decision delivered in Octo- ber 2017, the Supreme Court of Canada ruled that banks that had been the victims of a fraudulent cheque scheme were required to repay the company whose employee drew up the false cheques. The decision in Teva Cana- da Ltd. v. TD Canada Trust, 2017 SCC 51 was of particular interest to payments lawyers, who were hoping that the court would finally move to update the jurisprudence of the Bills of Exchange Act. In Teva, a Teva employee's scheme involved drafting false cheque requisition forms for businesses with similar names to those of Teva's real customers but to whom no debt was owed. The cheques were issued with mechanically applied signatures, and the employee deposited them in bank accounts belong- ing to the false businesses, which he had registered as sole propri- etorships. In total, he deposited 63 fraudulent cheques totalling $5,483,249.40, which Teva then sued the banks to recover. The SCC majority ruled that the existing jurisprudence and that the test established in Boma Manufacturing Ltd. v. Cana- dian Imperial Bank of Com- merce, 1996 CanLII 149 (SCC) sufficed, so both TD Canada Trust and the Bank of Nova Sco- tia had to foot the bill for the fraudulent cheques. "Banks are well-situated to handle the losses arising from fraudulent cheques, allowing those losses to be distributed among users, rather than by po- tentially bankrupting individu- als or small businesses which are the victims of fraud," said the ruling. The SCC decision involved allocating fault between inno- cent parties, says Tracy Molino, counsel at Dentons Canada LLP in Toronto. As a payments lawyer, her sympathies lie with the dissent- ers on the SCC, who focused on the orderly functioning of the payments system and placed the onus on detecting fraud on the company drawing the cheque. "[The dissenters on the SCC] talk repeatedly about negotiabil- ity, certainty and finality of pay- ment — all of those principles being necessary for the smooth operating of the payment sys- tem," says Molino. "Cheques are not as common [an] instrument as they used to be, but they're still a very im- portant payment instrument to businesses." Colby Linthwaite, a partner with Fred Tayar & Associates in Toronto who represented Teva at the Supreme Court, says if the dissent had been adopted, it would have accepted a state of law that hasn't existed in the United Kingdom since 1908. The SCC ruling clarifies the Bills of Exchange Act, which was enacted in Canada in the 1890s but encoded much older common law principles from the United Kingdom. The act states that where "the payee is a fictitious or non- existing person, the bill may be treated as payable to bearer," while courts have been strug- gling to interpret the difference between the two. In Teva, the majority upheld a two-pronged test regarding fictitious payees that was further refined and narrowed within the subjective analysis of whether or not there was an intent to pay. "There were certain dis- agreements with the technical elements of the test — disagree- ments [that] have now been re- solved by the court in a fashion that makes the law clearer," says Linthwaite. Molino, however, says she needed to draw a f low chart to understand the fictitious payee reasoning contained in the SCC decision. She says that while she understands that subjective tests are used throughout the com- mon law, she is troubled by the majority's decision. If followed to its logical con- clusion, she says, it would create a scenario where the directing mind of a company could be found not to have the intent to pay. "There are a few reasons why the courts struggle with it [the act]," says Molino. "It's complicated and overly technical . . . the relationships that the Bills of Exchange Act sets out are ones that we don't look at all that regularly, but they tend to have a profound impact on us from a business perspec- tive." Molino says that, when read- ing the SCC decision, "you could feel that frustration in the dis- sent." "I think the courts have lost the bigger policy issues in trying to interpret the Bills of Exchange Act in a vacuum, but that may be in part because it's been so long and it hasn't been amended," she FOCUS Medico/Legal Your case is too important. You deserve the right EXPERT WITNESS. Unparalleled expertise from our award-winning national team of experts CONNECTMLX.COM EXPERTS@CONNECTMLX.COM TOLL FREE: 855-278-9273 ✔ More than 2,000 medical malpractice, personal injury and class action cases. ✔ More than 300 lawyer clients assisted. ✔ Direct access to hundreds of specialists from all areas of healthcare expertise. ✔ A top provider of cost of care reports for your most catastrophically injured clients. Since 2001, we've become a leader in Expert Witness Services in Canada. ntitled-4 1 2017-10-24 2:41 PM There were certain disagreements with the technical elements of the test — disagreements [that] have now been resolved by the court in a fashion that makes the law clearer. Colby Linthwaite See Banks, page 12 The Canadian Lawyer InHouse Innovatio Awards is the preeminent award program recognizing innovation by members of the in-house bar within the Canadian legal market. These awards celebrate in-house counsel, both individuals and teams, who show leadership by becoming more efficient, innovative and creative in meeting the needs of their organizations. The Innovatio awards program draws on a panel of in-house counsel judges to determine the winners, based on a range of criteria. Accepting nominations from large, small and public sector/non-profit legal departments. 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