Sean Cumming

An employee of the respondent perpetrated a large-scale fraud by requisitioning cheques payable to six entities and depositing them into accounts he controlled.

Two of the entities were invented, and four were customers not owed money.

The respondent sued the appellant banks for conversion.

The Court of Appeal allowed the banks' appeal, finding they had a valid defence under s. 20(5) of the Bills of Exchange Act.

The court held that the two invented payees were non-existing, and all six payees were fictitious because the respondent's directing minds never formed an intention to pay them.

The respondent sued the appellant bank in conversion after a fraudulent employee deposited $4,000,000 in forged cheques into accounts at the bank.

The appellant sought to amend its statement of defence to plead estoppel by negligence, arguing the respondent was negligent in failing to detect the fraud.

The Court of Appeal upheld the lower courts' refusal to allow the amendment, confirming that conversion is a strict liability tort and that recognizing a new duty of care or a defence of estoppel by negligence would inappropriately alter the allocation of risk in the banking system.

The appeal was allowed only to the extent of permitting the appellant to plead defences arising from the respondent's actual knowledge of the fraud.