Court File No. 36918 IN THE SUPREME COURT OF (ON APPEAL FROM THE COURT OF APPEAL FOR )

B E T W E E N:

TEVA CANADA LIMITED APPELLANT (Appellant)

- and -

TD CANADA TRUST and OF NOVA SCOTIA RESPONDENTS (Respondents)

APPELLANT’S FACTUM (TEVA CANADA LIMITED, APPELLANT) (Pursuant to Rule 42 of the Rules of the Supreme Court of Canada)

FRED TAYAR & ASSOCIATES SUPREME ADVOCACY LLP Professional Corporation 340 Gilmour St., Suite 100 Barristers and Solicitors Ottawa, Ontario K2P 0R3 65 Queen St., West, Suite 1200 , Ontario M5H 2M5 Marie-France Major Tel.: (613) 695-8855 Colby Linthwaite Fax: (613) 695-8580 Fred Tayar Email: [email protected] Tel. (416) 363-1800 Fax. (416) 363-3356 Ottawa Agent for Counsel for the Email: [email protected] Appellant, Teva Canada Limited [email protected]

LANGLOIS LAWYERS LLP 1250, René-Lévesque Blvd. West, 20th Floor Montréal QC H3B 4W8

Karen M. Rogers Danielle Ferron Daniel Baum Tel.: (514) 842-9512 Fax: (514) 845-6573 Email: [email protected] [email protected] [email protected]

Counsel for the Appellant BORDEN LADNER GERVAIS LLP BORDEN LADNER GERVAIS LLP Barristers & Solicitors Suite 1300, 100 Queen Street Scotia Plaza, 40 King Street West Ottawa, ON K1P 1J9 Toronto, Ontario M5H 3Y4

Martin Sclisizzi Nadia Effendi Tel: (416) 367-6027 Tel.: (613) 787-3562 Fax: (416) 361-2765 Fax: (613) 230-8842 Email: [email protected] Email: [email protected]

Counsel for the Respondent, Ottawa Agent for Counsel for the The Bank of Nova Scotia Respondent, The Bank of Nova Scotia

McCARTHY TETRAULT LLP BORDEN LADNER GERVAIS LLP 66 Wellington Avenue, Suite 4700 Suite 1300, 100 Queen Street Toronto Bank Tower Ottawa, ON K1P 1J9 Toronto, Ontario M5K 1E6

Frank McLaughlin Nadia Effendi Tel.: (416) 601-7531 Tel.: (613) 787-3562 Fax: (416) 868-0673 Fax: (613) 230-8842 Email: [email protected] Email: [email protected]

Counsel for the Respondent, TD Canada Ottawa Agent for Counsel for the Trust Respondent, TD Canada Trust

TABLE OF CONTENTS PAGE PART I –STATEMENT OF FACTS ...... 1 I. OVERVIEW ...... 1 II. STATEMENT OF FACTS ...... 3 III. PROCEDURAL HISTORY...... 4 a) The Attempt to Plead Negligence ...... 4 b) The Decision of the Motion Judge (Whitaker J.) ...... 4 c) The Decision of the Ontario Court of Appeal (Laskin, Weiler and Cronk, JJ.A.) ...... 6 PART II – THE QUESTION IN ISSUE...... 8 PART III – STATEMENT OF ARGUMENT ...... 8 (A) THE COURT BELOW MISDIRECTED ITSELF IN PRINCIPLE...... 9 (i) The strict liability tort of conversion, and the policy behind it ...... 9 (ii) The section 20(5) defence, and the policy behind it ...... 11 (B) THE COURT BELOW INTRODUCED A DEFENCE OF DRAWER’S NEGLIGENCE INTO A STRICT LIABILITY TORT ...... 12 (i) The Decision ...... 12 (ii) The Context and Effect of the Decision...... 13 (C) THE COURT BELOW ERRED IN ITS INTERPRETATION OF SECTION 20(5) ...... 17 (i) The Established Interpretation of Section 20(5) ...... 17 (a) Fictitious Payees ...... 17 The pre-codification rationale ...... 17 The BEA and the Requirement of Fraudulent Intent ...... 19 The Proper Interpretation of Section 20(5): Concrete Column, Boma, and Fok Cheong ...... 21 Fictitious Payees in the Decision Below ...... 23 The Motion Judge’s Findings of Fact ...... 25 (b) Non-Existing Payees ...... 26 The evolution of “non-existing” ...... 27 Non-Existing Payees in the Decision Below ...... 29 Stare Decisis ...... 32 ii

CONCLUSION: THE DECISION BELOW UNDERMINES COMMERCIAL CERTAINTY, UPON WHICH THE BILLS OF EXCHANGE SYSTEM RELIES ...... 33 PART IV – SUBMISSIONS IN SUPPORT OF ORDER SOUGHT FOR COSTS ...... 35 PART V – ORDER SOUGHT ...... 35 PART VI – TABLE OF AUTHORITIES ...... 36 PART VII – STATUTORY PROVISIONS ...... 38 PART I –STATEMENT OF FACTS

I. OVERVIEW

1. When an employee defrauds its employer by inducing it to issue fraudulent cheques, an innocent party must typically bear the ensuing loss: the employer, or the banks that dealt with the cheques.

2. Under Canadian law, when a bank pays the value of a cheque to a person who is not entitled to possession of the cheque, the bank is strictly liable to the drawer of the cheque for the tort of conversion. The bank cannot absolve itself of liability by proving that the defrauded employer was somehow negligent.

3. Parliament has enacted a narrow defence to the tort of conversion in section 20(5) of the Bills of Exchange Act,1 ("section 20(5)"), which provides that “[w]here the payee is a fictitious or non- existing person, the bill may be treated as payable to bearer”. This "fictitious payee defense" has existed under Canadian law for well over a century.

4. This Court has addressed the defence in Concrete Column2 and then, more recently, in Boma.3 In both cases, majorities of this Court found that unless Parliament intervenes, the BEA requires that the banks bear the risk of such fraudulent employee schemes.4 Parliament has not intervened.

5. This case involves a typical employee cheque fraud scheme. Neil McConachie, an employee in the appellant Teva Canada Limited (“Teva”)’s finance department, fraudulently induced Teva to issue cheques payable to entities with names similar or identical to those of Teva’s actual customers or suppliers. McConachie misappropriated these cheques, and deposited them into accounts he had opened with the respondent banks (“TD” and “” or the “Banks”) The Banks accepted Teva’s unendorsed cheques for deposit and credited McConachie with the funds.

1 Bills of Exchange Act, RSC 1985, c B-4 (“BEA”). 2 Royal v. Concrete Column Clamps (1961) Ltd., [1977] 2 SCR 456 (“Concrete Column”) [Appellant’s Book of Authorities (“ABA”) Tab 31]. 3 Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce, [1996] 3 SCR 727 (“Boma”) [ABA Tab 6]. 4 Concrete Column, p. 484 [ABA Tab 31]; Boma, para. 34-35 [ABA Tab 6]. 2

6. After the fraud was discovered, Teva sued the Banks for converting the cheques. On summary judgment, the Motion Judge ruled in favour of Teva, finding that the Banks were liable for converting the cheques and that the fictitious payee defence did not apply. Applying this Court’s interpretation of section 20(5) in Boma, the Motion Judge found that the payees were not fictitious or non-existent, as “[Teva] believed at the time that each cheque was generated to satisfy a legitimate obligation to a customer”5, as it “did not at any time intend or authorize McConachie or his associates to possess or use the cheques for their own personal use”6 and as “[t]he actual account holders were not intended by [Teva] to be the payees of the cheques.”7

7. The Ontario Court of Appeal (or the “Court below”) overturned the decision of the Motion Judge, and found that the payees were both “fictitious” and “non-existent” and that, as a result, Teva (and not the Banks) must absorb the loss caused by McConachie’s fraud. Essentially, the Court of Appeal found that it could not be that Teva had intended to pay real entities for legitimate obligations, as no directing mind or responsible officer at Teva had reviewed the fraudulent cheques, and as Teva’s internal cheque approval policies had not been followed.8

8. The Appellant submits that the Court below has misstated the policy and altered the law concerning section 20(5). The Court below articulated the purpose of section 20(5) in terms consistent with the policy preferences of the dissents, not the majorities, in Concrete Column and Boma. It effectively introduced a complete defence of drawer's negligence into this strict-liability area of law, contrary to Boma. It interpreted Boma and Concrete Column so as to expand the scope of the section 20(5) defence and restrict the protections available to drawers such as Teva. Employers must now “put in place and follow a policy for approving the issuance of their cheques” failing which, “if they are then defrauded by an employee within their organization, their action for conversion risks being met with a successful fictitious payee defence.”9

5 Teva Canada Limited v. Bank of , 2014 ONSC 828 (“Trial Judgment”), para. 16 [Appellant’s Record (“AR”) Tab 1A]] 6 Trial Judgment, para. 17, [AR Tab 1A]. 7 Trial Judgment, para. 18, [AR Tab 1A]. 8 Teva Canada Limited v. , 2016 ONCA 94, (“Court of Appeal Decision”) at paras. 53, 75, and 84, [AR Tab 1C] 9 Court of Appeal Decision, para. 84 [AR Tab 1C]. 3

9. The decision below requires that parties to a conversion claim endure a protracted factual inquiry into the circumstances surrounding the drawing of fraudulent cheques. The complexity of this inquiry will destabilize the bills of exchange system, which is predicated upon the swift resolution of disputes. The outcomes of such inquiries will often be inequitable, as they will expose many drawers to loss based upon nothing more than the size of the drawer’s business enterprise.

10. Without the involvement of Parliament or this Court, the Court below has profoundly shifted the assignment of risk in the Canadian bills of exchange system. In the interest of upholding the certainty and finality of that system, the Appellant asks that this Court allow the appeal and vacate the decision of the Court below.

II. STATEMENT OF FACTS

11. McConachie drafted false requisitions for Teva cheques payable to entities with names similar10 or identical11 to those of Teva’s real customers or suppliers.12 Due to his position in the organization, and his abuse of Teva's computer system, he was able to send dozens of such cheque requests, over a number of years, to Teva's accounts payable department. Although the cheque requisitions had not been approved in accordance with Teva’s internal policy, cheques were issued and returned to McConachie, who misappropriated them.13

12. McConachie and his accomplices registered a series of sole proprietorships in names identical, or very similar, to the names of legitimate Teva clients. They then opened accounts at the Banks, as well as at banks no longer involved in this matter.14 The Banks collected cheques with an

10McConachie invented the names of two entities, PCE Pharmacare and Pharma Team System. Both the Motion Judge and the Court below accepted that these names were sufficiently similar to those of existing Teva customers (PCE Management Inc. and Pharmasystem) that “Teva could plausibly, though mistakenly, maintain it was writing a cheque to a real person, a real creditor of its business”: Court of Appeal Decision, paras. 50-51 [AR Tab 1C] 11 Phamachoice, London Drugs, Pharma Ed Advantage Inc., and Medical Pharmacies Group were legitimate Teva customers or service providers. (Court of Appeal Decision at para 17 [AR Tab 1C]). 12 Affidavit of Peter Dent, sworn February 8, 2010 (the “First Dent Affidavit”), at paras. 10-13 [AR Tab 3A] 13 Affidavit of Michael Schmid, sworn February 11, 2010 (the “First Schmid Affidavit”), at paras. 4-8 [AR Tab 3B]; Answers to Undertakings given on the Cross-Examination of Schmid, second answer [AR Tab 3E]; First Dent Affidavit at para. 10 [AR Tab 3A]. 14 First Dent Affidavit, at para. 10, [AR Tab 3A]. 4

aggregate value of $5,483,249.40, and disbursed the proceeds to McConachie and his accomplices15. In total, McConachie defrauded Teva of $7,077,693.00.16

III. PROCEDURAL HISTORY

a) The Banks Attempt to Plead Negligence

13. Teva sued the Banks for damages resulting from the conversion. Both banks asserted a counterclaim for damages for negligence, on the grounds that Teva did not have or enforce adequate fraud-prevention systems.17 TD also claimed a right to the equitable set-off of amounts recovered pursuant to the counterclaim against amounts recovered by Teva in the main action, (thus making plain that the counterclaim was simply a refashioned negligence defence.)18

14. Scotiabank sought leave to amend its statement of defence to assert a defence of “estoppel by negligence”. It was unsuccessful at all levels, including in an application for leave to appeal to this Court19. The Court below refused to recognize the defence in these terms: ... it is not tenable that a court would recognize the new duty of care urged by Scotia Bank, nor would it recognize the availability of a defence of estoppel by negligence which Bank of Nova Scotia seeks to plead. Doing so would change the allocation of risk and affect the certainty with which participants in the banking system now conduct banking transactions.20

b) The Decision of the Motion Judge (Whitaker J.)21

15. Each party subsequently filed a motion for summary judgment before the Ontario Superior Court of Justice.

16. Teva and the Banks agreed that conversion is a strict liability tort and that the BEA precluded a defence of negligence.22 The Banks further accepted that, under the BEA, they were prima facie

15 Ibid, at para. 14, [AR Tab 3A]; Affidavit of Peter Dent, sworn July 28, 2010, at para. 4, [AR Tab 3C]. 16 First Dent Affidavit, at para. 13, [AR Tab 3A]. 17 Statement of Defence and Counterclaim of Scotiabank, paragraphs 21-29 [AR Tab 2B]; Amended Statement of Defence and Counterclaim of TD Canada Trust, paragraphs 38 and 41-44 [AR Tab 2D] 18 Amended Statement of Defence and Counterclaim of TD Canada Trust, paragraph 36 [AR Tab 2D] 19 Teva Canada Limited v Bank of Montreal et al, 2012 ONCA 486, (“Teva 2012”), leave to appeal denied 309 O.A.C. 400 (note) (S.C.C.) [ABA Tab 32] 20 Teva 2012, supra, at para. 20, emphasis added [ABA Tab 32] 21Trial Judgment, herein [AR Tab 1A]. 5 liable for conversion.23 The Banks relied on section 20(5)24, arguing that the cheques issued by Teva/McConachie were issued to “fictitious or non-existing” payees, and that they could therefore negotiate the cheques without endorsement as being “payable to bearer”, and so defeat Teva’s action.25

17. The Motion Judge disagreed with the Banks’ submissions and found that the statutory defenses advanced by the Banks were not available. He dismissed the Banks’ counterclaims for negligence.26

18. Relying on the majority decision of this Court in Boma, the Motion Judge found that a real payee (i.e. not a “fictitious” or “non-existing” payee) is one who, having regard to all the facts and circumstances might “plausibly” be identified as real by the drawer in the context of the transaction.27

19. The Motion Judge found that “[t]here is a rational basis for concluding that cheques were apparently made payable to existing clients [of Teva]”28 and that “the payees could plausibly be understood to be real entities and customers of [Teva].”29

22 Trial Judgment, para. 21, [AR Tab 1A]. 23 Trial Judgment, para. 24, [AR Tab 1A]. 24 The Banks also raised a statutory defence under section 165(3) of the BEA. This defence was dismissed by the Ontario Superior Court of Justice, and the dismissal was not disturbed on appeal. 25 Trial Judgment, paras. 26-29 [AR Tab 1A]. In banking terminology, the “collecting bank” is the bank in which a cheque is deposited, in this case the Banks; the ”drawer” is the entity on whose account a cheque is drawn, in this case Teva; the “drawee” or “drawing bank” is the bank on which a cheque is drawn and which is directed to pay the cheque, in this case Teva’s bank; the “payee” is the person to whom the cheque is made payable; a “bearer” is a person delivering a cheque to a bank; a cheque payable “to order” has been made payable to a specified payee; and a cheque payable “to bearer” is payable to the person delivering it to the bank. (See Court of Appeal Decision at paragraph 23 [AR Tab 1C]). The significance of a cheque that is payable to bearer, rather than to order, is that it can be negotiated by simple delivery to the bank; endorsement is not required. The presence or absence of a legitimate or forged endorsement is irrelevant to a bearer cheque. A bank becomes the lawful holder of a bearer cheque simply through delivery. By contrast, in order for a bank to become the lawful holder of a cheque that is payable to order, not only must the cheque be delivered to effect negotiation, but the cheque must also be endorsed by the payee. (Boma at paragraphs 45 and 67 [ABA Tab 6]). 26 Trial Judgment, para. 35-39 [AR Tab 1A]. 27 Trial Judgment, para. 28, [AR Tab 1A]. 28 Trial Judgment, para. 33, [AR Tab 1A]. 29 Trial Judgment, para. 34, [AR Tab 1A]. 6

20. In support of his conclusions, the Motion Judge found that “[Teva] believed at the time that each cheque was generated to satisfy a legitimate obligation to a customer”30, that Teva “did not at any time intend or authorize McConachie or his associates to possess or use the cheques for their own personal use”31 and that “[t]he actual account holders were not intended by [Teva] to be the payees of the cheques.”32

c) The Decision of the Ontario Court of Appeal (Laskin, Weiler and Cronk, JJ.A.)33

21. The Banks appealed to the Ontario Court of Appeal, where the determinative issue was whether the payees were “non-existing” or “fictitious” as per section 20(5). (The Banks did not appeal the dismissal of their counterclaims for negligence.)

22. The Banks argued that Teva could not have “intended” to make legitimate payments to real entities because the cheque requisitions had not been properly approved, the cheques had not been considered by a “signing officer or directing mind of the company”, and the cheques had been mechanically processed and signed.34

23. Teva argued that the payees whose names were similar to those of its customers and suppliers were not “non-existent”, as defined in Boma, since Teva had a plausible belief that they were in fact legitimate payees. Teva further argued that the payees who were actual customers were not “fictitious”, as Teva had intended that they be paid.35

24. In a unanimous decision written by Justice Laskin, the Court below accepted the arguments of the Banks, allowed the appeals, and dismissed Teva's action.

25. With respect to the “non-existing” payee issue, the Court below held that the Motion Judge had erred by not making a finding as to whether Teva had “an honest, though mistaken belief that the

30 Trial Judgment, para. 16, [AR Tab 1A]. 31 Trial Judgment, para. 17, [AR Tab 1A]. 32 Trial Judgment, para. 18, [AR Tab 1A]. 33 Court of Appeal Decision, [AR Tab 1C]. 34 Court of Appeal Decision, para. 46 [AR Tab 1C]. 35 Court of Appeal Decision, para. 47 [AR Tab 1C]. 7

named payee was a real customer or service provider.”36 The Court of Appeal also held that the Motion Judge had erred in not finding that two payees on the Teva cheques were non-existing, because:  Teva had not shown on the evidence that “[a]t the time each cheque was drawn, Teva considered the name of the payee on the cheque and, because of the similarity in name, had an honest, though mistaken, belief that the named payee was a real customer or service provider”37; and  No person in authority at Teva had possessed that belief when considering the requisitions or the cheques at the time that they were drawn.38

26. The Court below further found that the Motion Judge had erred in not finding that all six payees on the Teva cheques were “fictitious”, for the following reasons.39  While the Court of Appeal did not rule on the adequacy of the Motion Judge’s reasons,40 it nevertheless found that “the motion judge’s finding that the payees were not fictitious not entitled to any deference on appeal.”41  The Motion Judge had made no finding on whether Teva had intended to make payments to those entities.42  The evidence adduced by Teva did not support its claim that it intended to pay those entities.43  To the extent that Teva could rely upon a presumption of such intent, that presumption has been rebutted by Teva’s failure to follow its own cheque approval process.44  A general corporate intent to pay only legitimate payees could not be inferred from the evidence, as no one in authority at Teva had scrutinized the cheques, and its internal approval policies had not been followed.45

27. Crucially, the Court below found that Boma did not stand for the proposition that a corporate drawer’s intention to make cheques payable to legitimate payees should be presumed. This finding was made on the basis that in Boma, the drawer’s “guiding mind” (Mr. Mange) had actually

36 Court of Appeal Decision, paras. 50-52 [AR Tab 1C]. 37 Court of Appeal Decision, paras. 50-52 [AR Tab 1C]. 38 Court of Appeal Decision, paras. 52-53 [AR Tab 1C]. 39 Court of Appeal Decision, para. 88 [AR Tab 1C]. 40 Court of Appeal Decision, para. 7 [AR Tab 1C]. 41 Court of Appeal Decision, para. 62 [AR Tab 1C]. 42 Court of Appeal Decision, para. 62 [AR Tab 1C]. 43 Court of Appeal Decision, paras. 65-66 [AR Tab 1C]. 44 Court of Appeal Decision, para. 69 [AR Tab 1C]. 45 Court of Appeal Decision, paras. 73-75 [AR Tab 1C]. 8

considered and approved nine of the 155 fraudulent cheques, and had thereby demonstrated that he “had intended only to make payments to his legitimate customers.”46

28. The Court below found that Teva’s technicians, who mechanically prepared the cheques and mechanically applied the signatures of the signing officers, could not be equated with Teva’s intent. The Court distinguished Concrete Column on the basis that the signing officer who had mechanically prepared and signed the cheques in that case could have represented the intent of the drawer company.47

PART II – THE QUESTION IN ISSUE

29. This appeal raises the following question.

(I) What is the proper scope of the defence provided by section 20(5)?

PART III – STATEMENT OF ARGUMENT

30. Teva submits that section 20(5) is a narrow defence to the strict liability tort of conversion. The defence can be successful when the evidence establishes that the drawer of the cheque knew at the time of drawing that the named payee would not receive payment in accordance with the terms of the cheque. Stated differently, if the Court can presume (because there is no evidence of fraudulent intent in the drawer) that the drawer intended the cheque to discharge a legitimate obligation to the payee, the defence should fail.

31. The decision of the Court below therefore represents a significant departure from the established law, as articulated in the precedents of this Court. The Court below misstated the policy underlying section 20(5) and thereby misdirected itself in principle (A), erred by introducing a drawer’s negligence defence into a strict-liability tort (B), and erred by failing to follow this Court’s binding interpretations of section 20(5) (C).

46 Court of Appeal Decision, paras. 53-54, 67-68 and 72-74 [AR Tab 1C]. 47 Court of Appeal Decision, paras. 77-79 [AR Tab 1C]. 9

(A) THE COURT BELOW MISDIRECTED ITSELF IN PRINCIPLE

(i) The strict liability tort of conversion, and the policy behind it

32. In Boma, this Court affirmed that where a bank, however innocently, pays the amount of a cheque to a person who is not entitled to it, that bank is strictly liable to the owner of the cheque for the tort of conversion, i.e. the “wrongful interference with the goods of another.”48 The bank’s liability extends to the face value of the converted instrument.49

33. As the tort is one of strict liability, the plaintiff need not prove the bank’s fault, be it intentional or negligent.50 There is no inquiry into whether the bank paying the cheque had knowledge of a defect in interest or title affecting the cheque.51 Similarly, the bank cannot absolve itself by proving that a third party, such as an employer defrauded by one of its employees, was negligent in allowing the cheque to be prepared and stolen.52

34. Strict liability for the conversion of cheques is a key manifestation of the BEA’s stable regime for the allocation of liability in the bills of exchange system. It facilitates quick, predictable assignments of liability among the participants in that system. The decisions of this Court in each of Boma, Concrete Column, and CP Hotels v. Bank of Montreal53 expressly supported this stable regime.54

35. The policy behind allocating liability to the bank in conversion cases is a matter twice considered by this Court. In each case, the bank argued that the drawer was better positioned to prevent the fraud, and so should bear the loss.55 In each case, the majority of this Court disagreed. In

48 Boma, supra, para. 31 [ABA Tab 6]; see also 373409 Alberta Ltd. (Receiver of) v. Bank of Montreal, 2002 SCC 81(“373 v BMO”) at paras. 8-10 [ABA Tab 1] 49 Boma, supra, para. 37 [ABA Tab 6] 50 Boma at paragraph 31-32 [ABA Tab 6]; see also Westboro Flooring & Décor Inc. v. Bank of Nova Scotia (2004), 2004 CanLII 59980 (ON CA), 71 O.R. (3d) 723 (C.A.), at para. 14 (“Westboro”) [ABA Tab 35]. 51 Boma, supra, para. 31 [ABA Tab 6]; Marfani & Co. Ltd. v. Midland Bank Ltd., [1968] 1 W.L.R. 956 (“Marfani”) at pp. 970-971 [ABA Tab 21] 52 Boma, supra, paras. 32 and 34-35 [ABA Tab 6]. 53 [1987] 1 S.C.R. 711, (“CP Hotels”) [ABA Tab 7] 54 Boma, supra, at paragraphs 35 and 80 [ABA Tab 6]; Concrete Column, supra, at page 484 [ABA Tab 31]; CP Hotels, supra, at paragraph 62 [ABA Tab 7] 55 Concrete Column, supra, at page 466 [ABA Tab 31]; Boma, supra, at paragraphs 34, 80 and 95 [ABA Tab 6] 10

Concrete Column, Pigeon J., writing for the majority, held:

By making banks responsible for cheques cashed on a false endorsement, our Bills of Exchange Act certainly has the effect of making it more difficult to cash a cheque fraudulently. It is common knowledge that as a result, public agencies and private enterprises rely heavily on the responsibility of those who pay the cheques they issue, to counteract all kinds of fraud and at the same time to protect those for whom the payments are intended.56

36. In Boma, the majority of this Court held: To some, the allocation of risk in the bills of exchange system may seem arbitrary, but in my view a necessary and coherent rationale sustains this allocation. With respect to forged endorsements, for example, no party in particular is in any better position to detect the fraud than any other. It is a risk that all parties must bear, including collecting banks. It is a price that must be paid if one wishes to enjoy the significant benefits of the bills of exchange scheme, not the least of which is, from the bank's perspective, the facilitation of huge numbers of financial dealings conducted rapidly, and without overwhelming transaction costs. While the banks are accorded the important advantage of holder in due course status in many situations, it would not be appropriate, as the respondent would have it, to exempt any party, including collecting banks, from all exposure to the risk and consequence of fraud.57

37. This policy decision has been explicitly applied and endorsed by appellate courts. In Khosla,58 the appellant bank sought to convince the Court below that a lawyer acting for the purchaser in a fraudulent real estate transaction should bear the loss on a fraudulent cheque, on the basis that he had been in the best position to detect the fraud. The Court below held:

[In] Boma, the court makes clear that the tort of conversion is one of strict liability. Thus, neither contributory negligence by the drawer nor his or her relative ability to discover the fraud are relevant. This reflects the policy of certainty that underpins the relevant provisions of the Bills of Exchange Act…59

38. In Bank of Montreal v Charlottetown (City)60, the P.E.I. Court of Appeal held:

While there may be good public policy reasons for making an employer vicariously liable for the fraudulent actions of its employee, there are equally good policy reasons, as identified

56 Concrete Column, supra, at page 484, emphasis added [ABA Tab 31] 57 Boma, supra, at paragraph 80, emphasis added [ABA Tab 6] 58 Khosla v. Korea , 2009 ONCA 467, (“Khosla”) at paras 3 and 6 [ABA Tab 19]. 59 Khosla, supra, at paragraph 6 [ABA Tab 19]; see also Teva 2012, supra, at para. 20 [ABA Tab 32] 60 (2006) 794 A.P.R. 155 (P.E.I.C.A.), at para. 41, emphasis added [ABA Tab 3] 11

by the Supreme Court of Canada, for treating the failure of the bank to ensure the validity of the bill of exchange before collecting on it and before debiting the funds in the drawer’s bank account.

(ii) The section 20(5) defence, and the policy behind it

39. Again, section 20(5) states that “[w]here the payee is a fictitious or non-existing person, the bill may be treated as payable to bearer.” When a cheque is payable “to bearer”, the bank is entitled to negotiate it by delivery and without the endorsement of the payee. The effect is that a drawer’s conversion action against the bank must fail.61

40. The section is therefore a statutory exemption to liability for the violation of the rights of the drawer. As such, it must be interpreted “in light of [its] underlying rationale and not be used to undermine the broad purpose of the legislation62”. Indeed, “an exception should not be construed more widely than is necessary to fulfil the values which support it”63, and those seeking to invoke the exception “must establish clearly that they come within its terms.” 64

41. In Boma, Iacobucci J. described the underlying rationale of section 20(5): the policy underlying the fictitious person rule seems to be that if a drawer has drawn a cheque payable to order, not intending that the payee receive payment, the drawer loses, by his or her conduct, the right to the protections afforded to a bill payable to order.65

42. In Concrete Column, Pigeon J. emphasised that the duty to “to counteract all kinds of fraud and at the same time to protect those for whom the payments are intended” lay with the banks, not the drawer.66

43. The Court below described the policy behind the section very differently:

The purpose of s. 20(5) is to protect the bank from fraud on the drawer, committed by a third party, including an insider in the drawer’s organization. The section

61 Boma, supra, para. 45 [ABA Tab 6] 62 Sullivan on the Construction of Statutes (6th ed. 2012) at ss. 15.54 [ABA Tab 44]. 63 Sullivan on the Construction of Statutes (6th ed. 2012) at ss. 15.54 [ABA Tab 44]. 64 Sullivan on the Construction of Statutes (6th ed. 2012) at ss. 15.53 [ABA Tab 44]. 65 Boma, supra, para. 46, emphasis added [ABA Tab 6]. 66 Concrete Column, supra, at page 484 [ABA Tab 31] 12

allocates the loss to the drawer, who typically is better positioned to discover the fraud or insure against it.67

44. To support this interpretation, Laskin J.A. cited his own decision in Rouge Valley68 and an article by the author Benjamin Geva criticizing this Court’s decision in Boma.69

45. Laskin J.A.’s statement of policy appears to have been drawn directly from the dissenting opinions in Concrete Column and Boma. In Concrete Column, Laskin C.J.C. stated in dissent:

I have already referred to the policy considerations which, in my view, make it more equitable that the employer, the drawer in this case, should bear the loss rather than the drawee bank, unless it has been negligent or is otherwise precluded from invoking s. 21 (5) of the Bill of Exchange Act.70

46. In Boma, La Forest J. stated in dissent:

As between the employer/drawer and the accepting bank, the questions are who should bear the risk of any loss and who is in the best position to minimize that risk. The answer to both these questions must, I suggest, be the employer/drawer.71

47. The Court below has therefore misstated the policy underlying section 20(5), so as to alter it from a narrow exception to a drawer’s “right to the protections afforded to a bill payable to order”72 to a broad protection for banks that deal with fraudulent cheques. Teva submits that the Court below thereby misdirected itself in principle.

(B) THE COURT BELOW INTRODUCED A DEFENCE OF DRAWER’S NEGLIGENCE INTO A STRICT LIABILITY TORT

(i) The Decision

48. In keeping with Boma, the Court below found that the Banks were prima facie liable to Teva

67 Court of Appeal Decision, para. 34 emphasis added [AR Tab 1C]. 68 Rouge Valley Health System v. TD Canada Trust, 2012 ONCA 17, (“Rouge Valley”) at para. 11 [ABA Tab 30]. 69 Geva, Benjamin, “Conversion of unissued cheques and the fictitious or non-existing payee – Boma v. CIBC”, 28 CBLJ #2 177, p. 195 [ABA Tab 41]. 70 Concrete Column, supra, p. 481 [ABA Tab 31]. 71 Boma, supra, para. 95 [ABA Tab 6]. 72 Boma, supra, para. 46, emphasis added [ABA Tab 6]. 13

for conversion,73 and held that “any alleged negligence by Teva gives the banks no relief.”74

49. Paradoxically, the Court below then interpreted section 20(5) in a manner that imposes a positive duty on employer companies to “put in place and follow a policy for approving the issuance of their cheques”, failing which, “if they are then defrauded by an employee within their organization, their action for conversion risks being met with a successful fictitious payee defence.”75

50. Perhaps conscious of this paradox, the Court below stated that Teva’s liability stemmed not from its “negligence”, as demonstrated by its failure to follow its cheque requisition policies, but instead its “lack of corporate knowledge” as demonstrated by its failure to follow its cheque requisition policies.76 The Court below fails to explain how these concepts differ from one another. Teva submits that they do not.

(ii) The Context and Effect of the Decision

51. The dissents in Boma and Concrete Column preferred an apportionment of loss based on the relative negligence of the drawer company and the banks.77 The legislatures in the U.K. and the U.S. have adopted such a rule. The Court below has taken a considerable step further.

52. In 1957 the Parliament of the U.K. promulgated the Cheques Act.78 Section 4 of the Act immediately became an English bank’s primary defence to a conversion claim,79 as it relieved the bank of liability to a defrauded company if the bank had paid a cheque in good faith and without

73 Court of Appeal Decision, para. 25 [AR Tab 1C]. 74 Court of Appeal Decision, paras. 26, 28 [AR Tab 1C]. 75 Court of Appeal Decision, para. 84 [AR Tab 1C]. 76 Court of Appeal Decision, paras. 84-86 [AR Tab 1C]. The Banks’ counterclaims had alleged that Teva was negligent because it did not have or enforce adequate fraud-prevention systems. The counterclaims were struck by the Motion Judge, (Trial Judgment, at paras. 38 and 39 [AR Tab 1A]) and that aspect of his decision was not appealed. Teva submits that the Court below simply refashioned the abandoned negligence defence into a complete defence under section 20(5). 77 Boma, supra, at paragraph 95 and 103 (per LaForest J.) [ABA Tab 6]; Concrete Column, supra, at page 481, (per Laskin CJC) [ABA Tab 31] 78 1957 c. 36 (Regnal. 5 and 6 Eliz 2) 79 See, for example, Marfani at pp. 971-973 [ABA Tab 21] 14 negligence.80 The U.K. Parliament later supplemented the protection of the Cheques Act in section 47 of Banking Act 197981, so as to add contributory negligence to a banker’s defences.

53. In the United States, the fictitious payee rule in section 9(3) of the Uniform Negotiable Instruments Law82 was replaced by provisions of the Uniform Commercial Code that explicitly assign the risk of employee cheque fraud to the employer.83 As with the Cheques Act, the bank’s protection is substantial but not absolute. §3-404 and §3-405 of the UCC both introduce a contributory negligence analysis into the allocation of loss: a bank can be liable for some share of the loss if it “fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from the fraud”.

54. Banks have twice asked this Court to follow the legislatures of the U.K. and the U.S. by introducing a negligence analysis into the law of bills of exchange. This Court has carefully considered these requests and the U.K. and U.S. law generally.84 The response of this Court has been

80 The test adopted by the U.K. Courts for the negligence referred to in this section was “whether the paying in of any given cheque, coupled with the circumstances antecedent and present, was so out of the ordinary course that it ought to have aroused doubt in the banker’s mind, and caused him to make inquiries: Marfani, supra, at page 962 [ABA Tab 21] 81 1979 c. 37, section 47 82 “The instrument is payable to bearer... (3) when it is payable to the order of a fictitious or non-existent person ... and such fact was known to the person making it so payable...." 83§3-420 – Conversion of Instrument establishes that a drawer does not have an action in conversion, as the cheque “represents an obligation of the drawer rather than property of the drawer” (contra a basic principle of U.K. common law). §3-110 – Identification of Person to Whom Instrument is Payable states that “[t]he person to whom an instrument is initially payable is determined by the intent of the person, whether or not authorized, signing as, or in the name or behalf of, the issuer of the instrument.” (This is essentially the position adopted by the Court of Appeal for , and rejected by this Court in Boma.) §3-404- Imposters; Fictitious Payees, absolves of liability “a person who, in good faith, pays the [fraudulent] instrument or takes it for value or for collection”. §3-405- Employer’s Responsibility for Fraudulent Endorsement by Employee also places the loss on a defrauded employer where that employer had “entrusted a [fraudulent] employee with responsibility with respect to the instrument…[and] an indorsement by any person in the name of a named payee is effective if...(c) an agent or employee of the maker or drawer has supplied him with the name of the payee intending the latter to have no such interest.” 84 Laskin C.J.C. and Iacobucci commented on the discontinuity between the forged-endorsement laws of the U.K. and Canada in Concrete Column and Boma, respectively (Concrete Column, supra, at page 464 [ABA Tab 31]; Boma, supra, at paragraph 48 [ABA Tab 6]). Laskin C.J.C. discussed §3-405 of the Uniform Commercial Code in Concrete Column, supra, at page 475 [ABA Tab 31]. Iacobucci J. cited Marfani as a main source during his discussion of the common law of conversion of cheques (at paragraphs 31-32); the bulk of that case is given over to an analysis of the defence provided by the Cheques Act. In CP Hotels, this Court was urged to adopt a negligence analysis prescribed by the Uniform Commercial Code but unknown in Canadian law (at paragraph 19) [ABA Tab 7]. In Canada Life Assurance Company v The Canadian Imperial 15

to observe the supremacy of Parliament. Pigeon J., speaking for the majority in Concrete Column, held: The argument of counsel for the appellant, based on references to legislation in other countries relieving banks of this responsibility, is unconvincing. It is not for this Court to judge the results of such legislation, no attempt was even made to show that they were favourable. If appellant believes they were, it is to Parliament that it should apply to have the Bills of Exchange Act amended. I can see no justification for changing the interpretation of this Act, because a different rule has been established by legislation elsewhere.85

55. This Court has similarly refused to innovate radically. Iacobucci J. held as follows in Boma: If the contributory negligence approach is to be introduced into this area of the law, I would leave that innovation to Parliament because such a change would be more appropriate for the legislative branch to make. As I see it, the strict liability feature of conversion is well engrained in the jurisprudence concerning bills of exchange.86

56. The test imposed by the Court below is a more radical innovation than even a contributory negligence analysis: in cases where the defrauded employer does not meet the requisite threshold of corporate knowledge, the test denies any possibility of recovery to the company, without regard to the conduct of the bank, no matter how egregious.87

57. Negligence cannot exist without a duty of care. The English Court of Appeal has observed that the U.K. Cheques Act introduced a “purely statutory” duty imposed on the banker in favour of the true owner of the cheque.88 In Canada there is no such statute, and the decision below has

Bank of Commerce ,[1979] 2 S.C.R. 669, (“Canada Life Assurance”), this Court observed that “[i]f the law of Canada applies, the Bank has no defence, but if the law of New York [the Uniform Commercial Code] applies, the Bank may succeed” (see paragraphs 3, 5 and 27) [ABA Tab 9]. 85 Concrete Column, at page 484, emphasis added [ABA Tab 31]. This passage was quoted by Iacobucci J. for the majority in Boma, at paragraph 48 [ABA Tab 6] 86 Boma, at paragraph 35, emphasis added [ABA Tab 6] 87 In this case, the Respondent Banks collected large cheques payable to four businesses that actually existed, and then disbursed the funds to individuals in circumstances that should have aroused suspicion. Had someone at Scotiabank done a simple internet search, for example, she would have discovered that “London Drugs” is a chain of 77 pharmacies in Western Canada. Why the bank was accounting to an individual in Ottawa for hundreds of thousands of dollars payable to “London Drugs” should have been questioned. The Court below treated these facts and similar facts as irrelevant to the assignment of loss: Second Dent Affidavit at paras. 9- 10, [AR Tab 3C]; Answers to Undertakings given on the Cross-Examination of Dent, at Question 93, para. 24, [Tab 4F]. 88 Marfani, at pages 964-965, quoting Bissel & Co v Fox Brothers & Co,(1885) 51 L.T. 193, C.A. (which referred to section 82 of the UK Act) [ABA Tab 21] 16

implicitly introduced the converse duty of care, owed by the true owner to the collecting bank. That duty is to follow a cheque-approval policy,89 with that policy to include informed consideration of outgoing cheques by someone in authority.90 Yet in an earlier decision concerning the same parties and the same facts, the Court below had, citing Boma, explicitly rejected the possibility that such a common-law duty could exist.91

58. Further, in CP Hotels, this Court held that a customer does not (in the absence of a contract to that effect) owe a duty to its own bank (much less to any bank in Canada that happens to collect the customer’s cheque) “to maintain an adequate system of internal accounting controls for the prevention and minimization of loss through forgery”.92 CP Hotels concerned a series of fraudulent cheques drawn by an employee in CP’s Flight Kitchen operation at the Toronto International Airport.93 The company’s cheque-approval processes had not been followed,94 yet this Court did not treat this as relevant to its disposition of the matter in favour of the plaintiff.

59. The Court below has effectively introduced drawer’s negligence as a complete defence to a cheque conversion claim. Such a defence exists nowhere else. This Court has held that such a change could occur only through an “innovation of Parliament”.95 The BEA has been amended six times since Concrete Column was released,96 yet Parliament has not changed section 20(5) and it has not expanded the protections provided to those that convert cheques.97 Parliament does not wish to alter the law so as to shelter banks from liability for conversion.

89 Court of Appeal decision, at paragraph 84 [AR Tab 1C] 90 Court of Appeal decision, at paragraph 75; see also paragraph 59 [AR Tab 1C] 91Teva 2012, supra, at paragraph 19-20 [ABA Tab 32]; see also Cash House Inc. v. Choy, 2013 ONSC 7181, (“Cash House”) at para. 93 [ABA Tab 10], aff’d 2015 ONCA 584, at para. 5 [ABA Tab 11], and Bank of Montreal v Charlottetown (City), (2006) 794 A.P.R. 155 (P.E.I.C.A.), at para. 4-7, 14-44 [ABA Tab 3] 92 CP Hotels, supra, at paragraph 54 [ABA Tab 7] 93 CP Hotels, supra, at paragraphs 3-5 [ABA Tab 7] 94 CP Hotels, supra, at paragraphs 4-5 and 56 [ABA Tab 7] 95 Boma, supra, para.35, emphasis added [ABA Tab 6] 96 S.C. 1980-1981-1982-1983, c40 (Bill C-6) (32nd Parliament, First Session); S.C. 1984, c40 (Bill c-58) (32nd Parliament, Second Session); S.C. 1999, c28 (Bill C-67) (36th Parliament, First Session/32nd Parliament, Second Session); S.C. 2000, c12 (Bill C-23) (36th Parliament, Second Session); S.C. 2001, c9 (Bill C-8) (37th Parliament, First Session); S.C. 2007, c6 (Bill C-37) (39th Parliament, First Sesson/39th Parliament, Second Session) 97 None of the bills which amended the BEA, in their form at first reading, contained provisions relevant to the conversion of cheques. Hansard does not record the use of the terms “fictitious payee”, “fictitious person”, 17

60. Teva submits that it is not for the Court below to innovate on behalf of Parliament.

(C) THE COURT BELOW ERRED IN ITS INTERPRETATION OF SECTION 20(5)

61. The Court below has expanded the section 20(5) defence in a matter inconsistent with the guiding jurisprudence and the governing purpose of the BEA. In so doing, the Court below erred by imposing a new evidentiary burden on drawer companies victimized by employee fraud. The drawer must now demonstrate that, at the time of drawing the misappropriated cheques, it actually intended those cheques to discharge legitimate obligations, and that it honestly believed that the named payees were existing creditors. If it cannot meet this burden, the result will be as if the drawer had deliberately participated in the fraud.

(i) The Established Interpretation of Section 20(5)

62. The terms “fictitious” and “non-existing” are not defined under the BEA or its English precursor. They have, however, developed clear meaning in the jurisprudence.

(a) Fictitious Payees

The pre-codification rationale

63. In the late 18th century, before the codification of negotiable-instrument law, some English trade firms had adopted the deceitful practice of circulating bills of exchange payable “to the order” of invented payees. This was done to artificially inflate the firms’ apparent creditworthiness vis-à-vis third parties.98

64. When a number of these firms became bankrupt, English Courts were faced with a dilemma, as illustrated by the leading case, Minet v. Gibson99. One such firm had drawn a bill of exchange

“non-existing payee”, “non-existing person”, “conversion of cheques”, or “good faith and without negligence” in either debates or journals of the House or Senate from 1976 to 2016: Canadian Parliamentary Historical Resources, http://parl.canadiana.ca/, search results for ““fictitious payee”, “fictitious person”, “non-existing payee”, “non-existing person”,“conversion of cheques”, or “good faith and without negligence”, date range from 1976 to 2016 [ABA Tab 37] 98 J.S. Rogers, The Early History of the Law of Bills and Notes (Cambridge: Cambridge University Press, 1995) at p. 232-233 [ABA Tab 43] 99(1791) 1 H. Bl.568 (H.L.) [ABA Tab 26] 18

payable to the order of certain “John White”, who did not exist. The bill was fraudulently endorsed in the name of John White and, through a series of transactions, wound up in the hands of the innocent plaintiffs. When the plaintiffs presented the bill for payment, the drawer firm had already become bankrupt. Other creditors of the bankrupt estate argued that because the bill was payable to order, the plaintiffs had the burden of proving the authenticity of the first endorser’s signature, which was impossible, as John White did not exist.100

65. A majority of the House of Lords found that the bill should be treated as being payable to bearer, thereby relieving the plaintiffs from having to prove the payee’s endorsement. For several Lords, it was plainly unjust that the estate of the bankrupt drawer could escape liability on the basis of its own fraudulent scheme. According to Baron Hotham, the bankrupted entity was “palpably endeavouring to avail themselves of their own fraud; an attempt, which the law will in no case endure, much less assist.”101 Baron Perryn found that it was “contrary to justice, and not to be endured, that fraudulent drawers and acceptors should receive benefit by their own acts, and their estates be exonerated from the demands of their just creditors.”102

66. Thus, prior to codification:

the exception that bills drawn to the order of a fictitious or non-existing payee might be treated as payable to bearer was based uniformly upon the law of estoppel, and applied only against the parties who at the time they became liable on the bill were cognizant of the fictitious character or of the non-existence of the supposed payee.103

67. The original rationale for the “fictitious person” rule was therefore that drawers (and acceptors) of negotiable instruments were estopped from benefiting from the protections accorded bills payable to order when they themselves had inserted the payee’s name to facilitate a fraud,

100 J.S. Rogers, The Early History of the Law of Bills and Notes (Cambridge: Cambridge University Press, 1995) at p. 233-234 [ABA Tab 43] 101Minet v Gibson, supra, at page 335 [ABA Tab 26] 102 Minet v Gibson, supra, at page 337 [ABA Tab 26] 103Per Justice Bowen of the English Court of Appeal in Vagliano Bros. v. Bank of England, 23 Q. B. D. 243 (C.A.), at p. 260, emphasis added [ABA Tab 33]. See also: Editors of the University of Chicago Law Review, The Fictitious Payee and the UCC: The Demise of a Ghost, (1951), 18 U. of Chi. L. Rev. 281, (“The Demise of a Ghost”), at p. 282 [ABA Tab 40]: before codification, the rule was generally accepted to be that “a bill payable to a fictitious person or his order is in effect a bill payable to bearer, and may be declared on as such, in favor of a bona fide holder...against all the parties knowing that the payee was a fictitious person.” 19

which is to say when they knew that the payee would never receive payment in accordance with the bill. (This is the “Underlying Rationale”). The concern with the drawer’s “intent” which developed in the cases began as, and remains, an expression of this principle: if the drawer inserts a payee name not intending that the payee receive payment, then the drawer is part of the fraud.

The BEA and the Requirement of Fraudulent Intent

68. The U.K. Bills of Exchange Act was enacted in 1882. Section 7(3) stated that “[w]here the payee is a fictitious or non-existing person the bill may be treated as payable to bearer.” In 1890, the Canadian Parliament enacted the BEA, which contained an identical provision, now section 20(5).

69. This Court has observed that “what Parliament sought to do by the [BEA] was to codify the pre-existing law.”104 Accordingly, after codification the Underlying Rationale guided the interpretation of section 20(5). This was especially so in the case of cheques, because the drawer of a cheque is invariably the debtor in the transaction, and so naturally intends to pay the person designated, unless the drawer himself is perpetrating a fraud.105

70. The House of Lords first interpreted section 7(3) of the U.K. BEA in Bank of England v. Vagliano Bros.106, a decision concerning a unique set of facts. Vagliano (the acceptor) was an English merchant who held an account at the Bank of England (the drawee). Vagliano’s foreign associate, Vucina (the drawer), had frequently drawn bills payable to the order of C. Petridi and Co. (the payee). Vucina’s clerk forged bills supposedly drawn upon Vagliano by Vucina and payable to C. Petridi and Co. Vucina’s clerk then obtained Vagliano's acceptance and presented the bills for payment. The House of Lords found that the payee was fictitious, and that the bills were treated as being payable to bearer. According to Lord Herschell: “whenever the name inserted as that of the payee is so inserted by way of pretence merely, without any intention that payment shall only be made in conformity therewith, the payee is a fictitious person within the meaning of the statute, whether the name be that of an existing person, or of one who has no existence.”107

104 CP Hotels, supra, at paragraph 62 [ABA Tab 7]; see also Canada Life Assurance, supra, at paragraph 20 [ABA Tab 9] 105 See Laskin CJC in Concrete Column, supra, at page 465 [ABA Tab 31] 106 [1891] A. C. 107 [ABA Tab 2] 107 Vagliano, supra, at p. 153, emphasis added [ABA Tab 2]. 20

71. In Fok Cheong,108 the majority of this Court approved Lord Herschell’s statement of the law. In Boma, the majority emphasized that it is “the intention of the drawer, in the sense of the entity from whose account the cheques will be drawn, that is of relevance.”109 The modern law is thus wholly consistent with the Underlying Rationale.110

72. The commercial practice of making cheques payable to order became more widespread at the end of the 19th century. It was then that courts were presented with a new type of case: cheque fraud by a dishonest clerk. The archetypal case has been described as follows:

A trusted clerk, charged with preparing checks, would make out a few payable to nonexistent payees, or to real customers who had no present claims. The unsuspecting employer, signing many checks daily, would sign these too. The clerk then stole the checks, indorsed them, and the drawee bank, recognizing the drawer's signature, paid without question. When the fraud was discovered the indignant employer demanded the recrediting of his account. The bank resisted.111

73. Vinden v. Hughes112 addressed such a scheme. The King’s Bench interpreted the term “fictitious” as meaning that “the drawer drawing the cheque puts into it the name of the person who exists, but whose name is inserted by mere pretence.”113 The Court found that as the defrauded drawer had believed “that those cheques were being drawn in the ordinary course of business for the purpose of the money being paid to the persons whose names appeared on the face of the cheques”,114 the payees were not fictitious, and that the drawer should recover.115 In North and South Wales Bank v. MacBeth116, the defrauded drawer also succeeded. In the House of Lords, Lord Robertson interpreted the term “fictitious person” as meaning “a “feigned or imaginary” person”, and found for the drawer on the basis that the payee was “a living man, in business, known to the drawer of the cheque, and intended by him to receive the proceeds.” 117 In dismissing the argument

108 Fok Cheong Shing Investments Ltd. v Bank of Nova Scotia , [1982] 2 S.C.R. 488 (“Fok Cheong”) at paragraphs 4-5 [ABA Tab 13] 109 Boma, supra, at paragraphs 50 and 58 [ABA Tab 6] 110 See also Iacobucci J’s statement of policy in paragraph 46, quoted above. 111The Demise of a Ghost, at p. 282 [ABA Tab 40]. 112 [1905] I K.B. 795 [ABA Tab 34] 113 Vinden v. Hughes, supra, at p. 802 [ABA Tab 34] 114 Vinden v. Hughes, supra, at p. 802 [ABA Tab 34] 115 Vinden v. Hughes, supra, at p. 802-803 [ABA Tab 34] 116 1908 AC 137 [ABA Tab 28] 117 North and South Wales Bank v. MacBeth, supra, at page 140 [ABA Tab 28] 21

of the appellant bank, Lord Loreburn held: It would follow, as it seems to me, that every cheque to order might be treated as a cheque to bearer if the drawer had been deceived, no matter by whom, into drawing it. To state such a proposition is to refute it.118

74. Following a short period of uncertainty119, Canadian courts followed Vinden and MacBeth, as in Harley v. Bank of Toronto120and v. Smith.121 By this point, then, the U.K. and Canadian courts had settled upon an interpretation of the term “fictitious” which was consistent with the Underlying Rationale.122

The Proper Interpretation of Section 20(5): Concrete Column, Boma, and Fok Cheong

75. This Court has considered section 20(5) three times. In each case, the result was consistent with the Underlying Rationale.

76. In Concrete Column, a dishonest clerk induced a company signing officer to mechanically sign a large number of cheques, without verifying that the payees existed or that the amounts were due.123 The employee then cashed the cheques. Before this Court, the collecting bank argued that such cheques should be treated as payable to bearer unless the drawer or signing officer was shown to have had knowledge of the existence of the payees.124 The argument was rejected by this Court, who found for the drawer.125

77. In Boma, a fraudulent employee caused a series of cheques to be issued in names similar or identical to persons that the company dealt with, but for amounts that were not due. The collecting

118 North and South Wales Bank v. MacBeth, supra, at page 139 [ABA Tab 28] 119 In London Life Insurance Co. v. Molsons Bank (1904) 8 O.L.R. 238 (O.C.A.) [ABA Tab 20] and Metropolitan Life Insurance Company v. Bank, (1916), 50 C.S. 214 (Q.S.C.) [ABA Tab 25] the courts did not consider the intention of the drawer in deciding whether the payee was fictitious, instead relying on an interpretation of Vagliano whereby fictitiousness was determined in relation to the purposes of the transaction. See the discussion of these cases in Concrete Column, supra, at pages 468-469 [ABA Tab 31]. 120 (1938) O.R. 100 (C.A.) [ABA Tab 15]. 121 (1950) 3 D.L.R. 169 (O.C.A) [ABA Tab 5]. 122 Laskin C.J.C. observed in Concrete Column that “later Ontario cases and others in this country have rested more generally on Vinden v. Hughes” (at page 469) [ABA Tab 31]. Pigeon J., speaking for the majority, distinguished: “a few ancient Quebec and Ontario cases in which a different conclusion was arrived at on a certain view of the Vagliano case” (at pages 483-484) [ABA Tab 31]. 123 Concrete Column, supra, p. 481 and 485. [ABA Tab 31] 124 Ibid, p. 466 [ABA Tab 31]. 22

bank received the cheques from the employee, and collected on them from the employer’s bank.126 This Court confirmed that it is the intention of the drawer company, i.e. the entity from whose account the cheques will be drawn, that is significant for the purpose of s. 20(5), rather than the intention of the signatory of the cheque.127 The vast majority of the fraudulent cheques (146 of 155) had not been seen, considered, or signed by the “guiding mind” of the company, Mr. Mange.128 This Court found that this fact did not provide the collecting bank with a defence under s. 20(5).129 For all the cheques at issue, this Court found for the defrauded employer.130

78. In Fok Cheong, by contrast, the drawer did not succeed, because it had known of the fraud: the present appeal must proceed on the basis that the $20,000 cheque drawn by Chan who was the president of the appellant company upon whose account the cheque was drawn at the respondent bank, was never intended by the drawer to be paid to the payee Looing Weir and that he fraudulently endorsed the cheque in her name so that when cashed by the bank the proceeds were paid to him personally. […] [T]he finding of fraudulent intent on the part of Chan in drawing the instrument in question makes the payee of this cheque a fictitious person within the meaning of the authorities…131

79. In summary: a payee cannot be “fictitious” unless the drawer deliberately inserted the name of that payee on the cheque “by way of pretence merely”, as part of a fraudulent scheme. This remains the case when the drawer’s directing mind did not see the cheques, when the cheques were mechanically signed, or when the internal policies and controls of the drawer were not followed prior to the issuance of the cheques.132

125 Ibid, p. 484 [ABA Tab 31]. 126 Boma, supra, para. 3-7 and 41 [ABA Tab 6]. 127 Boma, supra, para. 55 [ABA Tab 6]. 128 Boma, supra, para. 4 and 7 [ABA Tab 6] 129 Boma, supra paras. 4, 7, 55-61 [ABA Tab 6]. 130 Boma, supra paras. 85 [ABA Tab 6] 131 Fok Cheong, supra, at paragraphs 1 and 5, emphasis added [ABA Tab 13] 132 Boma, at paragraph 4-7 and 59 [ABA Tab 6]; Concrete Column at p. 481, 484 and 485[ABA Tab 31]; Metroland Printing, Publishing and Distribution Ltd. v Canadian Imperial Bank of Commerce, [2001] O.J. No. 1695, (Sup. Ct.), (“Metroland”), at paragraphs 2-3, 18 and 42-43 [ABA Tab 22], aff’d (2002), 158 O.A.C. 11, (O.C.A.) [ABA Tab 23], leave to appeal dismissed (2003), 180 O.A.C. 400 (note), (S.C.C.) [ABA Tab 24] 23

Fictitious Payees in the Decision Below

80. Teva did not insert any of the payee names into the relevant cheques by way of pretence only, not intending that those payees receive payment. Yet the Court below found that because Teva did not have positive evidence of its actual intent to pay only existing payees, it had to bear the entire loss. Here, by contrast, there is no evidence from which a corporate intent could be inferred. Neither Teva’s directing mind nor any of its responsible officers scrutinized or even looked at any of the fraudulent cheques. Its sensible cheque approval policies were not followed. Instead, the only person within Teva’s organization who considered the identity of the payees on the cheques and the legitimacy of the payments was an employee who had no signing authority, and no authority even to requisition cheques or approve CE payments. On these unchallenged facts, no inference of a corporate intent to pay legitimate creditors should be drawn. To hold otherwise would render the fictitious payee defence under s. 20(5) of the BEA meaningless.133

81. Teva submits that the Court below erred in by applying this burden of proof: on the established test, it is the absence of intention to defraud that is determinative, not proof of an actual intent to pay the named payee.

82. In Boma, both the majority and the dissent retrospectively presumed the drawer’s intent to pay legitimate creditors.134 In Concrete Column, the Court of Appeal and this Court (majority and dissent) implicitly adopted the same presumption, as made by the trial judge.135 The presumption of intent is the logical corollary of the Underlying Rationale. This Court was concerned with the absence of certain knowledge and intent in the drawer, not the presence of other knowledge and intent. As the majorities were satisfied that the drawers were not aware of the frauds when the cheques were drawn, (i.e. that culpable knowledge was absent), then section 20(5) had no application, and nothing turned on the knowledge of the cheques the drawers did possess, if any, at the time of drawing. Iacobucci J. for the majority in Boma:

The validity of the cheques is not challenged; therefore, it must be presumed that the drawer intended the payees to receive the proceeds of the cheques. Clearly, the

133 Court of Appeal Decision, paragraph 75, emphasis added [AR Tab 1C] 134 Boma, supra, para. 57 and 101 [ABA Tab 6]. 135 Concrete Column, supra, at pages 460, 461, 470-471, 480, 481, 482 and 487 [ABA Tab 31] 24

appellants had no intention of transferring over $90,000 to Alm, rather than the payees, for no reason and via the circuitous route of third party cheques.136

83. Writing in dissent in Concrete Column, Laskin C.J.C. also expressed the idea:

Subject to the relevance of the knowledge of the drawer (or the signing officer) at the time the cheque is issued, that is at the time the fraud is perpetrated, the discovery of the real or imaginary character of the payee is post facto; and ordinarily the drawer, induced by the fraud, would intend that the cheque take its effect in favour of the named payee. [...]

The bank will, of course, escape liability if it is shown that the drawer or signing officer knew of the fraud when issuing or signing the cheques.137

84. The Court below nevertheless held that Boma did not assist Teva. Mr. Mange’s evidence regarding the nine cheques he did consider and his belief regarding these cheques, taken together with Alm’s role and authority within the companies, leads to the reasonable inference that Mr. Mange, as the company’s directing mind, intended only to make payments to his legitimate customers.

Here, by contrast, there is no evidence from which a corporate intent could be inferred. Neither Teva’s directing mind nor any of its responsible officers scrutinized or even looked at any of the fraudulent cheques.138

85. Respectfully, the inference made by the Court below cannot be supported, as nowhere in Boma did Iacobucci J. link Mr. Mange’s evidence concerning the nine cheques with this Court’s broader presumption of corporate intent.139 Iacobucci J. explicitly based that presumption upon the

136 Boma, supra, at paragraph 57, emphasis added [ABA Tab 6] 137 Concrete Column, supra, at page 465, emphasis added. See also page 470-471 [ABA Tab 31]: “[i]f the question of the existence of the named payee is to be ascertained post facto, without reference to the knowledge of the drawer at the time of issue of the cheques, should not the intention of the drawer as to payment also be determined post facto? If that were the case, there would be no doubt that he would not intend payment to a person not entitled thereto.” 138 Court of Appeal Decision, paras. 68, 74-75 [AR Tab 1C], emphasis added 139 Iacobucci J’s statement that “when Mange approved the cheques payable to “J.Lam” and “J.R. Lam” he honestly believed that the cheques were being made out for an existing obligation” (at paragraph 60 of Boma [ABA Tab 6]) was based on that element of the agreed statement of facts which said that Mange “knew that the appellants engaged a subcontractor named Lam, but had either forgotton, or never knew, his first name or initials” (see paragraph 105). Of the 114 cheques payable to “J.Lam”, “J.R. Lam” and “D. Lam”, Mange signed only six. The fraudster signed the remaining 109 (see paragraph 90). As he found for the plaintiff in respect of all the cheques, Teva submits that Iacobucci J cannot have been saying that only those cheques explicitly considered, approved and signed by Mange could be converted. Nor did Iacobucci J. hold that consideration of some cheques was a necessary precondition to a denial of the section 20(5) defence in respect 25

fact that the cheques were valid bills of exchange.140 The Cheques in this case were valid bills of exchange.

86. This Court has already rejected the test applied by the Court below. The bank in Concrete Column had argued, unsuccessfully, that in balancing the elements involved in such fraud cases, the balance should be struck “in favour of giving protection to the bank by treating the cheques resulting from the padding as payable to bearer unless the drawer or signing officer is shown to have knowledge of the existence of the payees.141

87. There being no allegation of fraudulent purpose in Teva, it should have received the benefit of the presumption of legitimate intent.

The Motion Judge’s Findings of Fact

88. The Court below reweighed the evidence and then distinguished Boma and Concrete Column using its own factual findings. The re-weighing occurred because the Court below held that the Motion Judge had not made certain findings of fact concerning Teva’s corporate knowledge and its intent to pay legitimate payees.142

89. This critical holding was erroneous, as the Motion Judge had made a series of findings on these issues. The Motion Judge found that “[Teva] believed at the time that each cheque was generated to satisfy a legitimate obligation to a customer,”143 that it “did not at any time intend or authorize McConachie or his associates to possess or use the cheques for their own personal use”144 and that “[t]he actual account holders were not intended by [Teva] to be the payees of the cheques.”145

of other cheques. 140 Boma, supra, para. 57 [ABA Tab 6] 141 Concrete Column, supra, at page 466, emphasis added [ABA Tab 31]; see Laskin C.J.C.’s discussion of how this test might be applied in practice at page 477; see page 484 for the reasons of the majority. 142 Court of Appeal Decision, paras. 52, 62 [AR Tab 1C]. 143 Trial Judgment, para. 16, [AR Tab 1A]. 144 Trial Judgment, para. 17, [AR Tab 1A]. 145 Trial Judgment, para. 18, [AR Tab 1A]. 26

90. Moreover, these findings were explicitly made in the context of the Motion Judge’s reliance upon (and comparison of this case to) Metroland.146 In Metroland, an employee without signing authority, but with access to her employer’s cheque issuing system, had created a series of fraudulent cheques with payee names resembling those of company employees.147 As in this case, the thief was, as a result of her role in the organization, able to circumvent the “usual practice” for the production of cheques. No directing mind or responsible officer saw the cheques, and no cheque approval process was observed, yet the Court inferred a general corporate intent to make legitimate payments and rejected the banks’ section 20(5) defence.148 This decision was upheld on appeal, and this Court denied leave to appeal.149

91. Teva’s corporate beliefs and intent were issues of fact, or of mixed fact and law. The Motion Judge’s findings on these matters were not reviewable absent palpable and overriding error. The Court below does not appear to have located such an error, and owed deference to the Motion Judge.150 Teva submits that had it shown this deference, the appeal would have been dismissed.

(b) Non-Existing Payees

92. The Court below held that two of the payees on the impugned cheques (PCE Pharmacare and Pharma Team System) were, in addition to being fictitious, also non-existing. It based this conclusion on its finding that Teva had led insufficient evidence to show that “[a]t the time each cheque was drawn, Teva considered the name of the payee on the cheque and, because of the similarity in name, had an honest, though mistaken, belief that the named payee was a real customer or service provider”.151

93. In its treatment of non-existing payees, as in its treatment of fictitious payees, the Court below departed from the established judicial interpretation of the term, and improperly added a novel evidentiary burden to Teva.

146 Trial Judgment, para. 30, [AR Tab 1A]. 147 Metroland, supra, paras. 1-2 [ABA Tab 22]. 148 Ibid, paras. 1-3, 34, 42-3 and 45 [ABA Tab 22]. 149 (2002), 158 O.A.C. 11, (O.C.A.) [ABA Tab 23], leave to appeal dismissed (2003), 180 O.A.C. 400 (note), (S.C.C.) [ABA Tab 24] 150 Housen v. Nikolaisen, [2002] 2 S.C.R. 235, para. 10, 25 and 102 [ABA Tab 16]; Hryniak v. Mauldin, 2014 SCC 7, at paragraphs 80-81 [ABA Tab 17] 27

The evolution of “non-existing”

94. Following codification of the U.K. BEA, the English courts initially treated the terms “fictitious” and “non-existing” as synonymous. Justice Bowen in Vagliano152 found that the word "non-existing" had probably been added to the U.K. BEA only to ensure that drawers who deliberately made cheques payable to dead men would be estopped from profiting by their fraud.153 Professor Crawford observed that the House of Lords viewed the “terms [as] used interchangeably, or to reflect slightly different shades of unreality”, and that “[i]t seems very likely that no such whimsical distinction [between names that are pure invention, and names of persons that actually exist] was ever intended…154” As discussed above, the key for the House of Lords was the insertion of a name by way of pretence merely, “without any intention that payment shall only be made in conformity with” the cheque as written.155

95. In subsequent cases, however, the courts treated non-existence as a distinct notion.156 By the time the trial court in Concrete Column issued its judgment, the weight of authority required a differential treatment of “non-existent” payees (those whose names were unknown to the drawer). Non-existence was “a simple question of fact, not depending on anyone's intention”157, and cheques payable to such payees, unlike those payable to “fictitious” former employees, were payable to bearer, with the result that the employer absorbed the loss.158 (This aspect of the decision was not appealed, and was not before this Court.)159

96. This distinction between “fictitious” and “non-existing” payees was not uniformly accepted. It had dubious policy foundations: if the law protected a drawer when a fraudulent clerk induced him to make the instrument payable to a real person, there was no clear reason why the same protection

151 Court of Appeal Decision, paragraphs 50, 52-53 [AR Tab 1C] 152 23 Q. B. D. 243 (C.A.) [ABA Tab 33] 153 Ibid, at page 260 [ABA Tab 33] 154 Crawford and Falconbridge, Banking and Bills of Exchange , Eighth Edition, p. 1264 [ABA Tab 38] 155 Vagliano, supra, at page 153 [ABA Tab 2] 156 See Clutton v. George Attenborough & Son, [1897] A.C. 90 [ABA Tab 12], discussed at page 464-465 of Concrete Column, supra [ABA Tab 31]. 157 Boma, supra, at paragraph 46, quoting Professor Falconbridge [ABA Tab 6]. 158 Concrete Column, supra, at pages 460 and 461 [ABA Tab 31] 159 Concrete Column, supra, at page 460-461 [ABA Tab 31] 28

should not be afforded when the payee was in fact imaginary, even though the drawer would reasonably have thought him to be real. Laskin C.J.C. put it this way: If the intention of the drawer is to govern in determining, in the padded payroll cases, whether the payee is to have an interest in the cheque, and, consequently, whether the cheque will or will not be treated as payable to bearer, I can see no reason in principle to protect the drawee bank where the payee is in fact non-existent and yet to hold it liable for paying on a forged endorsement where the intended payee is in fact an existing person.160

97. In fact, in 1963 the Québec Court of Appeal161 found that a certain “Léo Maher” was not a non-existing person for the purposes of the section, despite his lack of objective existence, because the drawer had intended to pay a person with a similar name (Léo Maheu).

98. In Boma, this Court largely eliminated the differential treatment of fictitious and non-existing payees, and established the authoritative test for a “non-existing” payee. Boma implicitly applied the Underlying Rationale to all fraudulent cheque transactions, regardless of whether the payees would have been regarded as “non-existent” or “fictitious” according to early-20th century jurisprudence. It did this by affirming that if the payee is the name of a real person, or a name that plausibly might be identified by the drawer as a real person with a connection to the drawer’s business, intended by the drawer to receive payment, the payee is neither fictitious nor non-existing.162 The identification of a payee as plausible could be done ex post facto by the Court.163 Stated differently, if the drawer did not know of the fraud, (“intended by the drawer to receive payment”), then, where at all possible, (“that plausibly might be identified”), the Court would allow the drawer to recover.

99. The Courts have repeatedly applied this test. In Metroland, the drawer was duped by its employee into issuing cheques to payees with names that were similar, but not identical, to actual creditors of the company. The Court found that the payees were neither fictitious nor non-existing, which decision was upheld.

Here, the plaintiff honestly expected that the cheques in question were being created in

160 Concrete Column, supra, at page 465; see also page 481-482; Spence J., in another dissent, also objected that the differential treatment was “unrealistic” (at page 487) [ABA Tab 31]. 161 Bank of Montréal v. Barbeau, (1963) B.R. 755 [ABA Tab 4] 162Boma, supra, at para. 60-61 [ABA Tab 6]. 163 Boma, surpa, at paras. 3-7, 46 and 59-61 [ABA Tab 6]; Westboro, supra, at paragraphs 3-7, 18 and 24-25 [ABA Tab 35]; Metroland, supra, at paragraphs 1-2 and 44 [ABA Tab 22] 29

respect of valid obligations and being paid out to real individuals, i.e. the plaintiff’s truck drivers. The fact that the names were created in reverse does not necessarily mean that these individuals were non-existing or fictitious. Rather, as the names on the cheques were essentially the same names as those of real drivers employed by the plaintiff, it follows that the plaintiff would have honestly believed that these cheques satisfied actual obligations. 164

100. Similarly, in Westboro Flooring, the Court below inferred legitimate corporate intent from the similarity between the name of the payee on the fraudulent cheques and the name of a real creditor of the business:

The trial judge found correctly that Westboro had an existing supplier that it referred to as Ottawa Hull Carpet. Even if the name that Westboro used to refer to its supplier was not precisely accurate, the error was one of misnomer and did not make the payee non-existing under the Falconbridge criteria165.

101. In The Law of Banking and Payment in Canada166, Professor Crawford summarized the state of the law after Boma:

[T]he law appears to be that if the name of the payee is a pure invention of the drawer of a cheque (or the maker of a note), the payee may be “non-existing” within the meaning of BEA, s. 20(5), but only if it is also true that the name is of a person having no real connection with the drawer’s business, or semble, is not a name that plausibly might be identified by the drawer as being a real creditor of his business.167

Non-Existing Payees in the Decision Below

102. The Court below found that Teva had met this Court’s plausibility test.168 Respectfully, this should have ended that element of the analysis. However, the Court below went on to require that Teva demonstrate that at the time each cheque was drawn, Teva had considered the name of the payee and, because of the similarity in name, had an honest, though mistaken, belief that the named

164 Metroland, supra, at paragraph 44 [ABA Tab 22] 165 Westboro, surpa, at paragraph 25 [ABA Tab 35] 166 (Aurora: Canada Law Book, 2008) [ABA Tab 39] 167 Ibid, Vol. 3, at page 22-50, emphasis added [ABA Tab 39]. This passage was cited in the Court of Appeal Decision at paragraph 44 [AR Tab 1C]. 168 Court of Appeal decision at paragraph 51 [AR Tab 1C] 30 payee was a real customer or service provider.169

103. There is no basis for this new test in the precedents of this Court. Justice Laskin therefore cited his own decision in Rouge Valley170, and another recent decision of the Court below, Kayani,171 as his jurisprudential support.172 Like the case at bar, these decisions eroded Boma, and thereby shifted the risk of fraud by employees away from financial institutions and onto the defrauded company.

104. In Rouge Valley, an employee caused his employer to issue cheques payable to a made-up entity, and then cashed the cheques. The motion judge found that because the directing minds of the drawer company had not “actually addressed” the identity of the payee when the cheques were being drawn, Boma was distinguishable.173 In a footnote, however, the motion judge conceded as follows: “I recognize that the law seems to be that the test of a drawer’s intention is determined after the fact based on an objective assessment of what was likely in the drawer’s mind: (Boma, supra note 19 at p. 27 per Laskin C.J.C.; Crawford, supra note 23 at p. 22-32)”.174

105. On appeal, Justice Laskin, speaking for the panel, upheld the decision and endorsed the “directing minds actually addressed” test, rather than the proper “inferred after the fact” test. [40] Third, as the trial judge noted in Boma, Mr. Mange, who ran the companies, actually considered the name of the payee when the cheques in question were drawn. The court could therefore find that he honestly believed he was paying a legitimate creditor of his business. Here, in contrast, no one responsible for running Rouge Valley considered any of the cheques authorized by Marshner. Therefore, no one at Rouge Valley could say that the cheques were being issued to a known entity with whom the hospital had previous legitimate business dealings.175

106. Justice Laskin’s statement that Mr. Mange “actually considered” the name of the payees on the “cheques in question” was mistaken: Mr. Mange saw only nine of the 155 cheques.176

169 Court of Appeal decision at paragraph 50 and 52 [AR Tab 1C] 170 2012 ONCA 17 [ABA Tab 30] 171 Kayani v. Toronto-Dominion Bank, 2014 ONCA 862 [ABA Tab 18] 172Court of Appeal decision at paragraph 50 [AR Tab 1C] 173 Rouge Valley Health System v TD Canada Trust, 2010 ONSC 4717, para. 71 and 80 [ABA Tab 29]. 174 Ibid, footnote 64. 175 Rouge Valley, supra, at para. 40, emphasis added [ABA Tab 30]. 176 Boma, supra, at paragraph 7 [ABA Tab 6] 31

107. In Kayani, the Court below essentially read the plausibility criteria out of the law. It found that to avoid such a defence, the drawer must have actual knowledge of a payee with a real connection to its business (as opposed to that payee being objectively plausible in the circumstances). In that case, the payee did not share the name of a real person known to the drawer at the time it drew the instruments. The Court below held that the plausibility doctrine could not apply and that the payee was non-existing.177 Yet if a drawer has actual knowledge of a payee with a real connection to its business, then that payee is not non-existing on any test, and the plausibility doctrine has no purpose.

108. In this matter, the Court below distinguished the majority decision in Boma on the basis of inferences concerning the evidence that had been before this Court. [54] [I]n Boma, Mr. Mange at least considered the identity of the payees on nine of the fraudulent cheques, and formed an honest, though mistaken belief that they were payable to legitimate customers of his companies. And, it can be inferred from the reasons of Iacobucci J. that because Mr. Mange had viewed and formulated a mistaken belief that each of the names on the nine fraudulent cheques he authorized corresponded to one of his real customers, he would have formulated the same mistaken belief in the names had he viewed them on all 114 cheques payable to the non-existing entities “J.R. Lam” or “J. Lam”. I draw this inference because Iacobucci J. goes on to treat the payees on all the cheques as “real”, and then considers all the cheques in his analysis of the fictitious payee defence.178

109. Again, Teva submits that those inferences are not available in Boma: Justice Iacobucci did not connect Mr. Mange’s review of the nine cheques to the reality of the payees on the other 146. Teva therefore submits that the Court below erred by proceeding from an incorrect interpretation of the guiding precedent.

110. As Teva met this Court’s test for plausibility, neither PCE Pharmacare nor Pharma Team System should have been held to be “non-existing” payees.

177 Kayani, supra, at para. 42-45 [ABA Tab 18]. 178 Court of Appeal Decision, para. 54 [AR Tab 1C], emphasis added. 32

Stare Decisis

111. The divergence between the decision below and the precedents of this Court has been the subject of academic comment. In a recent paper,179 Professor Geva concluded that “Laskin JA expanded the result of Concrete Column Clamps so as to effectively to follow the dissenting view of Laskin CJC”180, that after the decision, “for BEA s. 20(5) to apply to a fictitious payee, suffice it for the corporate drawer’s guiding mind not to intend to pay the designate payee”, which is “quite a stretched application of Boma”181, and that the overall effect of the decision below is to expand “the application of BEA s.20(5) to allocate fraud losses within the drawer’s organization on the drawer.”182

112. Concrete Column and Boma are clear, authoritative precedents on the issue before this Court. Certainty in the law requires that courts follow and apply authoritative precedents: this is the foundational principle upon which the common law relies.183 The Court below should not have departed from those authorities, and there are no “compelling reasons” for this Court to do so.184

179 “The Fictitious Payee after Teva v BMO: Has the Pendulum Swung Back Far Enough?” 31 B.F.L.R. 607 [ABA Tab 42] 180 Ibid, at page 612 [ABA Tab 42] 181 Ibid, at page 616 [ABA Tab 42] 182 Ibid at pages 617 [ABA Tab 42] 183 Canada (AG) v. Bedford, [2013] 3 S.C.R. 1101, at paragraph 38 [ABA Tab 8]. 184 Minister of Indian Affairs and Northern Development v. Ranville et al., [1982] 2 S.C.R. 518, at paragraph 19, quoting Binus v. The Queen, [1967] S.C.R. 594, p. 601 [ABA Tab 27]: “I do not doubt the power of this Court to depart from a previous judgment of its own but, where the earlier decision has not been made per incuriam, and especially in cases in which Parliament or the Legislature is free to alter the law on the point decided, I think that such a departure should be made only for compelling reasons.” (emphasis added). According to Black’s Law Dictionary, “[T]he only cases in which decisions should be held to have been given per incuriam are those of decisions given in ignorance or forgetfulness of some inconsistent statutory provision or of some authority binding on the court concerned.” (at p. 1159) [ABA Tab 36]. See also Fraser v. Ontario (Attorney General), 2011 SCC 20, in which McLachlin CJC and LeBel J, speaking for the majority, held that “[t]he seriousness of overturning two recent precedents of this Court, representing the considered views of firm majorities, cannot be overstated” (at paragraph 57). In the result, those precedents were not disturbed [ABA Tab 14]. 33

CONCLUSION: THE DECISION BELOW UNDERMINES COMMERCIAL CERTAINTY, UPON WHICH THE BILLS OF EXCHANGE SYSTEM RELIES

113. Certainty is the predominant value in the bills of exchange system, and the operation of an efficient banking market requires strict adherence to objective rules for the allocation of risk.185 In CP Hotels, LaForest J. emphasised “the necessity for clear rules of general application186” and held that “uncertainty is out of place in the governance of negotiable instruments”.187 As Iacobucci J. observed in Boma, the sharing of risk among participants in the bills of exchange system “is a price that must be paid if one wishes to enjoy the significant benefits of the bills of exchange scheme, not the least of which is, from the bank's perspective, the facilitation of huge numbers of financial dealings conducted rapidly, and without overwhelming transaction costs.”188

114. The Canadian courts have therefore consistently declined to alter the principles governing the allocation of risk in the bills of exchange system.189 Parliament has also chosen in favour of a stable regime.

115. The Court below has expanded the section 20(5) defence to a degree that will introduce pervasive uncertainty into the system. The decision below imposes cheque-verification duties upon the drawer190 which have no source in legislation or the precedents of this Court, and it introduces a drawer’s negligence defence into a strict-liability area of the law. No longer will the drawer’s participation or non-participation in the fraud be the decisive issue. In fact, there will be no decisive issue: the drawer could apparently be denied recovery for any one of a variety of reasons. It might not have a formal cheque-verification system; if it does, the clerical steps taken to ensure the legitimacy

185 Teva 2012, supra, at paragraph 19 [ABA Tab 32] 186 CP Hotels, supra, at paragraph 58 [ABA Tab 7] 187 CP Hotels, supra, at para. 59; see also paragraph 50 [ABA Tab 7], in which LeDain J., writing for the majority, declined to recognize a broad duty of care, owed by a sophisticated commercial customer to its bank, in part on the basis that to do so “would lead to great uncertainty”; Teva 2012, supra, at para. 21-22 [ABA Tab 32]; The Demise of a Ghost: “In commercial law… above all the rules should allow the game to be played fast and without hesitation” (at page 286) [ABA Tab 40] 188 Boma, supra, at paragraph 80 [ABA Tab 6] 189 Boma, supra, at paragraphs 35 and 80 [ABA Tab 6]; Concrete Column, supra, at page 484 [ABA Tab 31]; CP Hotels, supra, at paragraph 62 [ABA Tab 7]; Teva 2012, supra, at paragraph 19 [ABA Tab 32]; Cash House, supra at para. 93 [ABA Tab 10], aff’d 2015 ONCA 584, at para. 5 [ABA Tab 11]; Khosla, supra, at paragraph 6 [ABA Tab 19] 190 Court of Appeal Decision, para. 84 [AR Tab 1C]. 34 of the cheques (a search for corresponding invoices, etc.) may not suffice; the system might not involve someone sufficiently senior to qualify as a “responsible officer”; the responsible officer may not review the cheques in more than a cursory fashion; if a responsible officer does truly review the cheques, she might not possess knowledge of the companies’ accounts and creditors sufficient to achieve the check-by-check intent and belief required by the Court below191; the verification system may be substantially but not completely followed, and so forth.

116. Further, the Court below has left every element of its new test undefined, and thus open to dispute. What kind of cheque-verification system is adequate to create the necessary corporate intent and belief? Does adequacy vary depending on the size and sophistication of the drawer? How specific must the knowledge of the payee possessed by the reviewing officer be? If a drawer’s cheques are managed and issued by a third party, which is not uncommon in large enterprises, can the drawer ever form the required intent and belief?

117. These matters will all be litigated. In every case, the assignment of loss will require an expensive factual inquiry into the identity and level of corporate responsibility held by the individual who dealt with the relevant cheque, the degree to which a responsible officer’s consideration of a cheque was informed by knowledge of the payee and the company’s obligations thereto, and the nature of the officer’s intent and belief about that cheque. The decision below undermines the core principles of the bills of exchange system, being certainty and finality.

118. This Court has already considered when an officer’s intent may bind the drawer in a conversion case. In so doing, it adopted the following definition of a corporation’s “directing mind”: “the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. That person may be under the direction of the shareholders in general meeting; that person may be the board of directors itself…”192 That being the law, the effect of the decision below will be the creation of a tiered system for cheque-conversion cases. Only very small businesses, in which company cheques are seen and understood by the company’s directing mind before being

191 Court of Appeal Decision, paras. 53, 60 and 75 [AR Tab 1C] 192373 v BMO, at paragraph 19-20, emphasis added, quoting Lennard’s Carrying Co. v. Asiatic Petroleum Co. [1915] A.C. 705 (H.L.), per Viscount Haldane L.C., at p. 713 [ABA Tab 1]. 35

issued, will be protected from internal cheque fraud. If a business is large enough that its president or board of directors does not actively consider company cheques as they go out, which is to say the great majority of businesses in Canada, then the company will bear the loss. This cannot have been the intention of Parliament.

119. The decision of the Court below should be set aside so as to preserve the efficient, equitable operation of the Canadian system of bills of exchange.

PAll T IV - SUHMISSIONS IN SUPPORT OF ORDE R SOUGHT li OR COSTS

120. The Appellant requests its costs in this appeal and in the courts below.

PART V- ORDER SOUGHT

121. The Appellant respectfully requests that the judgment of the Court below be set aside and the decision of the Motion Judge be restored, as well as costs in this Court and in the Court below.

1 ALL OF WHICH IS RESPECTFULLY SUBMITTED THIS 5 h DAY OF DECEMBER, 2016

/.7 z'\7 /.~.,..._,-Itt, 'JiY cc:> ·o 1 t-;vrr;r ~ll rf1.r-:-e Colby Ltnthwaite Fred Tayar FRED TAYAR & ASSOCIATES P.C.

Counsel for the Appellant, Teva Canada Limited ~~Llf Danielle Ferron Daniel Baum LANGLOIS LAWYERS LLP

Counsel for the Appellant, Teva Canada Limited 36

PART VI – TABLE OF AUTHORITIES AT PARA. Cases 1. 373409 Alberta Ltd. (Receiver of) v. Bank of Montreal, 2002 SCC 81 ...... 32, 118 2. Bank of England v. Vagliano Bros. [1891] A. C. 107 (H.L.) ...... 70, 94 3. Bank of Montreal v Charlottetown (City) (2006) 794 A.P.R. 155 (P.E.I.C.A.) ...... 38, 57 4. Bank of Montréal v. Barbeau, (1963) B.R. 755 (Q.C.A.) ...... 97 5. Bank of Toronto v. Smith(1950) 3 D.L.R. 169 (O.C.A.) ...... 74 6. Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce, [1996] 3 SCR 727 ...... 4, 16, 32-36, 39, 41, 46-47 51, 54-55, 59, 71, 77-79 82, 85, 95, 98, 106, 113-114 7. C.P. Hotels v. Bank of Montreal, [1987] 1 S.C.R. 711 ...... 34-35, 54, 58, 59, 69, 113-114 8. Canada (AG) v. Bedford, [2013] 3 S.C.R. 1101 ...... 112 9. Canada Life Assurance Company v The Canadian Imperial Bank of Commerce ,[1979] 2 S.C.R. 669 ...... 64, 69 10. Cash House Inc. v. Choy, 2013 ONSC 7181 ...... 57, 114 11. Cash House Inc. v. Choy, 2015 ONCA 584 ...... 57, 114 12. Clutton v. George Attenborough & Son, [1897] A.C. 90 ...... 95 13. Fok Cheong Shing Investments Ltd. v Bank of Nova Scotia , [1982] 2 S.C.R. 488 .....71, 78 14. Fraser v. Ontario (Attorney General), 2011 SCC 20 ...... 112 15. Harley v. Bank of Toronto(1938) O.R. 100 (C.A.) ...... 74 16. Housen v. Nikolaisen, [2002] 2 S.C.R. 235 ...... 91 17. Hryniak v. Mauldin, 2014 SCC 7...... 91 18. Kayani v. Toronto-Dominion Bank, 2014 ONCA 862 ...... 103, 107 19. Khosla v. Korea Exchange Bank of Canada, 2009 ONCA 46 ...... 37 20. London Life Insurance Co. v. Molsons Bank 1904) 8 O.L.R. 238 (C.A.) ...... 74 21. Marfani & Co. Ltd. v. Midland Bank Ltd., [1968] 1 W.L.R. 956 (C.A.) ...... 33, 52, 57 22. Metroland Printing, Publishing & Distribution Ltd. v. C.I.B.C. [2001] O.J. No. 1695, (Sup. Ct.) ...... 79, 90, 98-99 23. Metroland Printing, Publishing & Distribution Ltd. v. C.I.B.C. (2002), 158 O.A.C. 11, (O.C.A.) ...... 79, 90 24. Metroland Printing, Publishing & Distribution Ltd. v. C.I.B.C. (2003), 180 O.A.C. 400 (note), (S.C.C.) ...... 79, 90 37

25. Metropolitan Life Insurance Company v. (1916), 50 C.S. 214 (Q.C.A.) ...... 74 26. Minet v. Gibson, (1791) 1 H. Bl. 568 (H.L.) ...... 64, 65 27. Minister of Indian Affairs and Northern Development v. Ranville et al., [1982] 2 S.C.R. 518 ...... 112 28. North and South Wales Bank v. MacBeth 1908 AC 137 (H.L.) ...... 73, 74 29. Rouge Valley Health System v. TD Canada Trust, 2010 ONSC 4717 (Sup.Ct.)...... 104 30. Rouge Valley Health System v. TD Canada Trust, 2012 ONCA 17 ...... 44, 103, 105 31. v. Concrete Column Clamps (1961) Ltd., [1977] 2 SCR 456...... 4, 34-35, 42, 45, 51, 54, 69, 74, 76, 79, 82-83, 86, 95-96, 114 32. Teva Canada Limited v Bank of Montreal et al, 2012 ONCA 486, leave to appeal denied 309 O.A.C. 400 (note) (S.C.C.) ...... 14, 37, 57, 113, 114 33. Vagliano Bros. v. Bank of England, 23 Q.B.D. 243 (C.A.)...... 66, 94 34. Vinden v. Hughes, [1905] I K.B. 795 ...... 73, 74 35. Westboro Flooring and Décor Inc. v Bank of Nova Scotia, [2004] O.J. No. 2464 (C.A.) ...... 33, 100 Books and Articles 36. Black’s Law Dictionary, Seventh Edition, St. Paul: West Group, 1999 ...... 112 37. Canadian Parliamentary Historical Resources, http://parl.canadiana.ca/, search results for ““fictitious payee”, “fictitious person”, “non-existing payee”, “non- existing person”,“conversion of cheques”, or “good faith and without negligence”, date range from 1976 to 2016 ...... 59 38. Crawford and Falconbridge, Banking and Bills of Exchange, Eighth Edition, 1986 ...... 94 39. Crawford, Q.C., Bradley, The Law of Banking and Payment in Canada (Aurora: Canada Law Book, 2008) (Vol. 3) ...... 101 40. Editors of the University of Chicago Law Review, The Fictitious Payee and the UCC: The Demise of a Ghost, (1951), 18 U. of Chi. L. Rev. 281 ...... 66, 72, 113 41. Geva, Benjamin, “Conversion of unissued cheques and the fictitious or non- existing payee – Boma v. CIBC”, 28 C.B.L.J. 177 ...... 44 42. Geva, Benjamin, “The Fictitious Payee after Teva v BMO: Has the Pendulum Swung Back Far Enough?” 31 B.F.L.R. 607 ...... 111 43. Rogers, J.S., The Early History of the Law of Bills and Notes (Cambridge: Cambridge University Press, 1995) ...... 63, 64 44. Sullivan, R., Sullivan on the Construction of Statutes (6th ed. 2012) ...... 40 38

PART VII – STATUTORY PROVISIONS

Banking Act 1979, 1979 c. 37, s. 47 Bills of Exchange Act, RSC 1985, c B-4, ss. 20(5), 165(3) Cheques Act, 1957 c. 36 (Regnal. 5 and 6 Eliz 2), s. 4 Uniform Commercial Code, §3-404, §3-405

Repealed Bills of Exchange Act 1882, 1882 c. 61 (Regnal. 45_and_46_Vict), s.7(3) Uniform Negotiable Instruments Laws, U.S, s. 9(3)

39 Banking Act 1979

CHAPTER 37

ARRANGEMENT OF SECTIONS

PART I CONTROL OF DEPOSIT-TAKING Ambit of control Section 1. Control of deposit-taking and meaning of " deposit ". 2. Exceptions from prohibition in section 1(1).

The system of recognition and licensing by the Bank 3. Recognition and licences. 4. Annual report and list of recognised and licensed institu- tions. 5. Recognition and licences : procedure on applications.

Revocation of recognition or licence etc. 6. Grounds for revocation of recognition or licence. 7. Revocation: powers and procedure. 8. Power to give directions in connection with termination of deposit-taking authority. 9. Duration of directions and direction-making power. 10. Conditional licences.

Appeals 11. Appeals from decisions of the Bank. 12. Regulations with respect to appeals. 13. Further appeal on points of law.

Duties of licensed institutions 14. Duty to notify changes of directors etc. 15. Audited accounts of licensed institutions to be open to inspection.

Powers of the Bank 16. Powers to obtain information and require production of documents. 17. Investigations on behalf of the Bank. 18. Winding up on petition from the Bank. 19. Confidentiality of information obtained by the Bank. 20. Information disclosed to the Bank from other sources. 40 Banking Act 1979 c. 37 49

balance sheet of a registered company), subsection PART Iv (2) (which lays down special requirements for banking companies) ; (d) section 429 of the said Act of 1948 and section 377 of the said Act of 1960 (which, subject to certain exceptions, prohibit the formation otherwise than as a registered company of a company, association or part- nership of more than ten persons for the purpose of carrying on the business of banking),;, (e) section 430 of the said Act of 1948 and section 378 of the said Act of 1960 (which require banking companies proposing to become registered with limited liability to give notice to all persons having an account with them) ; (fl section 431 of the said Act of 1948 and section 379 of the said Act of 1960 (which exclude liabilities in respect of notes issued by a bank in the United Kingdom from the principle of limited liability) ; and (g) in subsection (1) of section 433 of the said Act of 1948 and section 381 of the said Act of 1960 (which require certain companies to post up in their business premises a bi-annual statement of their financial position), the words " a limited banking company or ".

47. In any circumstances in which proof of absence of Defence of negligence on the part of a banker would be a defence in pro- nliibuto y ceedings by reason of section 4 of the Cheques Act 1957, a defence of contributory negligence shall also be available to the ne57 C. 36. banker notwithstanding the provisions of section 11(1) of the Torts (Interference with Goods) Act 1977. 1977 c. 32.

48.-(1) References in this Act to a municipal bank are to a Municipal company within the meaning of the Companies Act 1948 banks. which- 1948 c. 38. (a) carries on a deposit-taking business, (b) is connected with a local authority as mentioned in sub- section (2) below, and (c) has its deposits guaranteed by that local authority in accordance with subsection (5) below. (2) The connection referred to in paragraph (b) of subsection (1) above between a company and a local authority is that (a) the company's articles of association provide that the shares in the company are to be held only by members of the local authority ; and (b) substantially all the funds lent by the company are lent to the local authority. 41

CANADA

CONSOLIDATION CODIFICATION

Bills of Exchange Act Loi sur les lettres de change

R.S.C., 1985, c. B-4 L.R.C. (1985), ch. B-4

Current to November 21, 2016 À jour au 21 novembre 2016

Last amended on April 20, 2007 Dernière modification le 20 avril 2007

Published by the Minister of Justice at the following address: Publié par le ministre de la Justice à l’adresse suivante : http://laws-lois.justice.gc.ca http://lois-laws.justice.gc.ca 42

Bills of Exchange Lettres de change PART II Bills of Exchange PARTIE II Lettres de change Form and Interpretation of Bill Forme de la lettre et interprétation Sections 17-20 Articles 17-20

Instrument payable on contingency Paiement lors d’une éventualité 17 (1) An instrument expressed to be payable on a con- 17 (1) L’effet dont le paiement dépend d’une éventualité tingency is not a bill and the happening of the event does ne constitue pas une lettre, et la réalisation de cette éven- not cure the defect. tualité ne remédie pas à ce vice.

Addressed to two or more drawees Plusieurs tirés (2) A bill may be addressed to two or more drawees, (2) Bien que la lettre puisse être adressée à plusieurs ti- whether they are partners or not, but an order addressed rés, formant ou non une société de personnes, l’ordre to two drawees in the alternative, or to two or more adressé à l’un ou l’autre de deux tirés, ou à deux tirés ou drawees in succession, is not a bill. plus successivement, n’en constitue pas pour autant une R.S., c. B-5, s. 18. lettre. S.R., ch. B-5, art. 18.

Payee, drawer or drawee Preneur, tireur ou tiré 18 (1) A bill may be drawn payable to, or to the order of, 18 (1) La lettre peut être payable soit au tireur ou à son the drawer, or it may be drawn payable to, or to the order ordre, soit au tiré ou à son ordre. of, the drawee.

Two or more payees Plusieurs preneurs (2) A bill may be made payable to two or more payees (2) La lettre peut être payable à plusieurs preneurs jointly, or it may be made payable in the alternative to conjointement, ou elle peut l’être à l’un de plusieurs pre- one of two, or one or some of several payees. neurs ou à quelques-uns des différents preneurs.

Holder of office payee Fonctionnaire preneur (3) A bill may be made payable to the holder of an office (3) La lettre peut être payable au titulaire en exercice for the time being. d’une charge ou d’un emploi. R.S., c. B-5, s. 19. S.R., ch. B-5, art. 19.

Drawee to be named Désignation du tiré 19 The drawee must be named or otherwise indicated in 19 La lettre doit comporter le nom du tiré ou une dési- a bill with reasonable certainty. gnation suffisamment précise de celui-ci. R.S., c. B-5, s. 20. S.R., ch. B-5, art. 20.

Transfer words Négociabilité 20 (1) When a bill contains words prohibiting transfer, 20 (1) La lettre qui comporte une clause en interdisant or indicating an intention that it should not be transfer- la cession ou indiquant l’intention de la rendre non ces- able, it is valid as between the parties thereto, but it is not sible est valable entre les parties intéressées, mais n’est negotiable. pas négociable.

Negotiable bill Lettre négociable (2) A negotiable bill may be payable either to order or to (2) Une lettre négociable peut être payable à ordre ou au bearer. porteur.

When payable to bearer Payable au porteur (3) A bill is payable to bearer that is expressed to be so (3) La lettre est payable au porteur lorsqu’elle comporte payable, or on which the only or last endorsement is an une clause à cet effet ou lorsque l’unique ou le dernier en- endorsement in blank. dossement est un endossement en blanc.

Certainty of payee Désignation du preneur (4) Where a bill is not payable to bearer, the payee must (4) La lettre qui n’est pas payable au porteur porte le be named or otherwise indicated therein with reasonable nom du preneur ou une désignation suffisamment pré- certainty. cise de celui-ci.

Current to November 21, 2016 6 À jour au 21 novembre 2016 Last amended on April 20, 2007 Dernière modification le 20 avril 2007 43

Bills of Exchange Lettres de change PART II Bills of Exchange PARTIE II Lettres de change Form and Interpretation of Bill Forme de la lettre et interprétation Sections 20-24 Articles 20-24

Fictitious payee Preneur fictif (5) Where the payee is a fictitious or non-existing per- (5) La lettre dont le preneur est une personne fictive ou son, the bill may be treated as payable to bearer. qui n’existe pas peut être considérée comme payable au R.S., c. B-5, s. 21. porteur. S.R., ch. B-5, art. 21.

Bill payable to order Lettre payable à ordre 21 (1) A bill is payable to order that is expressed to be 21 (1) La lettre est payable à ordre lorsqu’elle comporte so payable, or that is expressed to be payable to a partic- une clause à cet effet ou lorsqu’elle est expressément ular person, and does not contain words prohibiting payable à une personne désignée et ne contient rien qui transfer or indicating an intention that it should not be en interdise la cession ou qui indique l’intention de la transferable. rendre non cessible.

When payable to person or order Payable à une personne ou à son ordre (2) Where a bill, either originally or by endorsement, is (2) La lettre expressément — initialement ou par endos- expressed to be payable to the order of a specified per- sement — payable à l’ordre d’une personne désignée est son, and not to him or his order, it is nevertheless néanmoins aussi payable à celle-ci. payable to him or his order at his option. S.R., ch. B-5, art. 22. R.S., c. B-5, s. 22.

When payable on demand Lettre payable sur demande 22 (1) A bill is payable on demand 22 (1) La lettre est payable sur demande dans les cas suivants : (a) that is expressed to be payable on demand or on presentation; or a) elle stipule qu’elle est payable sur demande ou sur présentation; (b) in which no time for payment is expressed. b) elle n’indique aucune date de paiement.

Endorsed when overdue Acceptation ou endossement après l’échéance (2) Where a bill is accepted or endorsed when it is over- (2) La lettre acceptée ou endossée après son échéance est due, it shall, with respect to the acceptor who so accepts réputée payable sur demande à l’égard de la personne qui it, or any endorser who so endorses it, be deemed a bill l’accepte ou de celle qui l’endosse. payable on demand. S.R., ch. B-5, art. 23. R.S., c. B-5, s. 23.

Determinable future time Lettre payable à un délai à fixer éventuellement 23 A bill is payable at a determinable future time, within 23 Est payable à une échéance susceptible d’être déter- the meaning of this Act, that is expressed to be payable minée — au sens de la présente loi — la lettre qui est ex- pressément payable : (a) at sight or at a fixed period after date or sight; or a) à vue, ou à un certain délai de date ou de vue; (b) on or at a fixed period after the occurrence of a specified event that is certain to happen, though the b) lors de la survenance — ou à un certain délai après time of happening is uncertain. celle-ci — d’un événement spécifié inévitable mais R.S., c. B-5, s. 24. dont la date est incertaine. S.R., ch. B-5, art. 24.

Inland bill Lettre intérieure 24 (1) An inland bill is a bill that is, or on the face of it 24 (1) La lettre intérieure est une lettre qui est ou est purports to be, manifestement censée être :

(a) both drawn and payable within Canada; or a) soit à la fois tirée et payable au Canada;

Current to November 21, 2016 7 À jour au 21 novembre 2016 Last amended on April 20, 2007 Dernière modification le 20 avril 2007 44

Bills of Exchange Lettres de change PART II Bills of Exchange PARTIE II Lettres de change Official Images and Electronic Presentment Image officielle et présentation électronique Sections 163.5-165 Articles 163.5-165

(a) a person’s rights and powers in relation to the eli- a) les droits et pouvoirs conférés à toute personne re- gible bill are not affected by reason only that the per- lativement à la lettre ne sont pas touchés du seul fait son does not possess it; qu’elle n’est pas en possession de la lettre;

(b) the destruction does not affect any person’s rights, b) les droits et pouvoirs conférés et les obligations im- powers, duties and liabilities in relation to the eligible posées à toute personne relativement à la lettre ne bill; and sont pas touchés du seul fait de sa destruction;

(c) the eligible bill is not considered to be lost or to c) la lettre ne doit pas être considérée perdue, inten- have been materially altered or intentionally can- tionnellement annulée ou altérée de façon substan- celled. tielle. 2007, c. 6, s. 398. 2007, ch. 6, art. 398.

Warranty Garantie 163.6 (1) A bank that creates or purports to create an 163.6 (1) La banque qui a créé ou qui paraît avoir créé official image of an eligible bill, or on whose behalf an of- une image officielle d’une lettre admissible, ou au nom de ficial image of an eligible bill is created or purported to laquelle l’image officielle est créée ou paraît avoir été be created, warrants that the official image or the pur- créée, garantit qu’elle a été créée en conformité avec les ported official image, as the case may be, was created in règlements administratifs, règles ou normes pris sous le accordance with by-laws, rules or standards made under régime de la Loi canadienne sur les paiements et qu’elle the Canadian Payments Act and that it accurately repre- représente avec exactitude la lettre admissible. sents the eligible bill.

Damages Dommages-intérêts (2) Any person who has suffered damages as a result of a (2) Quiconque a subi des dommages causés par tout breach of the warranty has a cause of action for damages manquement de la banque à l’égard de la garantie est against the bank. fondé à intenter une action en dommages-intérêts contre 2007, c. 6, s. 398. la banque. 2007, ch. 6, art. 398.

PART III PARTIE III Cheques on a Bank Chèques sur une banque

Definition of “bank” Définition de « banque » 164 In this Part, bank includes every member of the 164 Dans la présente partie, banque s’entend des Canadian Payments Association established under the membres de l’Association canadienne des paiements Canadian Payments Act and every local cooperative créée par la Loi canadienne sur les paiements, ainsi que society, as defined in that Act, that is a member of des sociétés coopératives de crédit locales définies par a central, as defined in that Act, that is a member of the cette loi et affiliées à une centrale — toujours au sens de Canadian Payments Association. cette loi — qui est elle-même membre de cette associa- R.S., 1985, c. B-4, s. 164; 2001, c. 9, s. 586. tion. L.R. (1985), ch. B-4, art. 164; 2001, ch. 9, art. 586.

Cheque Définition de « chèque » 165 (1) A cheque is a bill drawn on a bank, payable on 165 (1) Le chèque est une lettre tirée sur une banque et demand. payable sur demande.

Provisions as to bills apply Applicabilité des dispositions relatives aux lettres (2) Except as otherwise provided in this Part, the provi- (2) Sauf prescription contraire de la présente partie, les sions of this Act applicable to a bill payable on demand dispositions de la présente loi visant la lettre payable sur apply to a cheque. demande s’appliquent au chèque.

Current to November 21, 2016 48 À jour au 21 novembre 2016 Last amended on April 20, 2007 Dernière modification le 20 avril 2007 45

Bills of Exchange Lettres de change PART III Cheques on a Bank PARTIE III Chèques sur une banque Crossed Cheques Chèques barrés Sections 165-168 Articles 165-168

Cheque for deposit to account Chèques destinés à être déposés (3) Where a cheque is delivered to a bank for deposit to (3) Lorsqu’un chèque est livré à une banque en vue de the credit of a person and the bank him with the son dépôt au compte d’une personne et que la banque amount of the cheque, the bank acquires all the rights porte au crédit de celle-ci le montant du chèque, la and powers of a holder in due course of the cheque. banque acquiert tous les droits et pouvoirs du détenteur R.S., c. B-5, s. 165. régulier du chèque. S.R., ch. B-5, art. 165.

Presentment for payment Présentation au paiement 166 (1) Subject to this Act, 166 (1) Sous réserve des autres dispositions de la pré- sente loi : (a) where a cheque is not presented for payment with- in a reasonable time of its issue and the drawer or the a) quand le chèque n’est pas présenté au paiement person on whose account it is drawn had the right at dans un délai raisonnable après son émission, le tireur the time of presentment, as between him and the — ou celui sur le compte de qui il est tiré — se trouve bank, to have the cheque paid, and suffers actual dam- être, s’il avait le droit, au moment de la présentation, age through the delay, he is discharged to the extent of de faire payer le chèque par la banque et subit un pré- the damage, that is to say, to the extent to which the judice réel par suite de ce retard, libéré jusqu’à drawer or person is a creditor of the bank to a larger concurrence de ce préjudice, c’est-à-dire dans la me- amount than he would have been had the cheque been sure où il est créancier de la banque d’un montant plus paid; and élevé que si le chèque avait été encaissé;

(b) the holder of the cheque, with respect to which the b) le détenteur du chèque à l’égard duquel le tireur ou drawer or person is discharged, shall be a creditor, in une autre personne est libéré est subrogé à ceux-ci lieu of the drawer or person, of the bank to the extent comme créancier de la banque jusqu’à concurrence du of the discharge, and entitled to recover the amount montant de cette libération et a le droit de recouvrer from it. cette somme de la banque.

Reasonable time Délai raisonnable (2) In determining what is a reasonable time, within this (2) Pour la détermination du délai raisonnable mention- section, regard shall be had to the nature of the instru- né au présent article, il est tenu compte de la nature de ment, the usage of trade and of banks and the facts of the l’effet, des usages du commerce et des banques et des cir- particular case. constances particulières. R.S., c. B-5, s. 166. S.R., ch. B-5, art. 166.

Authority to pay Autorisation de payer 167 The duty and authority of a bank to pay a cheque 167 L’obligation et le pouvoir d’une banque de payer un drawn on it by its customer are determined by chèque tiré sur elle par son client prennent fin lors de :

(a) countermand of payment; or a) l’annulation de l’ordre de paiement;

(b) notice of the customer’s death. b) la notification de la mort du client. R.S., c. B-5, s. 167. S.R., ch. B-5, art. 167. Crossed Cheques Chèques barrés

Crossed generally Barrement général 168 (1) Where a cheque bears across its face an addi- 168 (1) Est à barrement général le chèque dont le recto tion of est traversé obliquement par :

(a) the word “bank” between two parallel transverse a) soit deux lignes parallèles comportant entre elles la lines, either with or without the words “not nego- mention « banque », accompagnée ou non des mots tiable”, or « non négociable »;

Current to November 21, 2016 49 À jour au 21 novembre 2016 Last amended on April 20, 2007 Dernière modification le 20 avril 2007 46

Cheques Act, 1957 5 & 6 ELiz. 2 CH. 36

ARRANGEMENT OF SECTIONS

Section 1. Protection of bankers paying unindorsed or irregularly indorsed cheques, &c. 2. Rights of bankers collecting cheques not indorsed by holders. 3. Unindorsed cheques as evidence of payment. 4. Protection of bankers collecting payment of cheques, &c. 5. Application of certain provisions of Bills of Exchange Act, 1882, to instruments not being bills of exchange. 6. Construction, saving and repeal. 7. Provisions as to Northern Ireland. 8. Short title and commencement. SCHEDULE-Enactments repealed. 47

CH. 36 Cheques Act, 1957 5 & 6 Eriz. 2

Unindorsed 3. An unindorsed cheque which appears to have been paid by cheques as the banker on whom it is drawn is evidence of the receipt by the evidence of payment. payee of the sum payable by the cheque.

Protection 4.-(1) Where a banker, in good faith and without negligence,- of bankers collecting (a) receives payment for a customer of an instrument to payment of which this section applies; or cheques, &c. (b) having credited a customer's account with the amount of such an instrument, receives payment thereof for himself; and the customer has no title, or a defective title, to the instrument, the banker does not incur any liability to the true owner of the instrument by reason only of having received payment thereof. (2) This section applies to the following instruments, namely,- (a) cheques ; (b) any document issued by a customer of a banker which, though not a bill of exchange, is intended to enable a person to obtain payment from that banker of the sum mentioned in the document; (c) any document issued by a public officer which is intended to enable a person to obtain payment from the Paymaster General or the Queen's and Lord Treasurer's Remem- brances of the sum mentioned in the document but is not a bill of exchange; (d) any draft payable on demand drawn by a banker upon himself, whether payable at the head office or some other office of his bank. (3) A banker is not to be treated for the purposes of this section as having been negligent by reason only of his failure to concern himself with absence of, or irregularity in, indorsement of an instrument.

Application 5. The provisions of the Bills of Exchange Act, 1882, relating of certain to crossed cheques shall, so far as applicable, have effect in provisions relation to instruments than cheques) to which the last of Bills of (other Exchange foregoing section applies as they have effect in relation to cheques. Act, 1882, to instruments not being bills of exchange. 45 & 46 Vict. c. 61. Construction, 6.-(1) This Act shall be construed as one with the Bills of saving and Exchange Act, 1882. repeal. (2) The foregoing provisions of this Act do not make negotiable any instrument which, apart from them, is not negotiable. 2 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63