A law firm deposited a fraudulent bank draft into its trust account and subsequently issued a certified trust cheque for $600,000 to the responding party, an innocent third party who was owed a significant debt by the law firm's client.
The law firm's insurer, having covered the bank's loss, brought a motion to recover the funds from the responding party, arguing mistake of fact.
The court dismissed the motion, holding that as between two innocent parties, the law firm must bear the loss because it was in a position to prevent the fraud through basic diligence but acted carelessly.
