Colin Taylor

In an addendum to a previous decision, the Court of Appeal for Ontario determined the issue of costs for the application and the appeal.

Agreeing with the submissions of the respondent Director, the court ordered that each party bear its own costs.

A real estate broker became insolvent after its principal misappropriated trust funds for day-to-day operations.

The Director, representing the trust claimants, asserted priority over the broker's assets, including accounts receivable collected by a secured bank and funds remaining in trust accounts.

The Court of Appeal held that the accounts receivable were not impressed with a constructive trust because there was no clear connection between the misappropriated funds and the generated receivables, allowing the bank to realize its security.

Furthermore, the funds remaining in the trust accounts were not restored trust funds, giving the Crown priority over those funds pursuant to the deemed trust provisions of the Income Tax Act.

The drawee bank certified a forged cheque drawn on its customer's account.

The collecting bank accepted the cheque for deposit into an account with a similar name to the payee, without obtaining an endorsement.

The drawee bank sued the collecting bank for the unrecovered proceeds, arguing the collecting bank was liable under the Canadian Payments Association Clearing Rules for failing to provide the missing endorsement.

The Court of Appeal allowed the collecting bank's appeal, holding that the fictitious payee rule in s. 20(5) of the Bills of Exchange Act applied, making the cheque a bearer instrument that could be negotiated by delivery alone.

The Court further held that the Bills of Exchange Act prevails over the CPA Clearing Rules.