COURT OF APPEAL FOR ONTARIO
DATE: 20000322
DOCKET: C32077
ROSENBERG, FELDMAN AND MACPHERSON JJ.A.
B E T W E E N :
NESBITT BURNS INC.
Kenneth A. Dekker
for the Plaintiff/Respondent
Plaintiff
(Respondent))
and
CANADA TRUSTCO MORTGAGE
John D. Marshall and
May J. Sproat
for the Defendant/Appellant
Defendant
(Appellant))
Heard: November 30, 1999
Appeal from endorsement of Wilson J. dated April 15, 1999.
FELDMAN J.A.:
[1] This appeal raises two issues, one procedural, the other
substantive. The procedural issue is whether the respondent
should have been denied the opportunity to bring this pleadings
motion under Rule 21 of the Ontario Rules of Civil Procedure,
R.R.O. 1990, Reg. 194, on issues which it had already raised in a
pending Rule 20 summary judgment motion on which many procedural
steps had been taken and costs expended. The substantive issue is
whether the motions judge was correct in striking out certain
defences from the Statement of Defence as disclosing no
reasonable defence in law, based on the Supreme Court of Canada
decision in Boma Manufacturing Ltd. v. Canadian Imperial Bank of
Commerce (1996), 1996 149 (SCC), 140 D.L.R. (4th) 463 (S.C.C.)
OVERVIEW OF THE FACTS
[2] James Bruce was an employee of Nesbitt Burns Inc. and a
customer of Canada Trustco Mortgage Company. In the Statement of
Claim it is alleged that he caused his employer to draw cheques
made out to Nesbitt clients, then fraudulently endorsed the
cheques to himself and presented them for payment at his own
bank. Nesbitt’s action is a claim for damages for conversion
against Canada Trustco in respect of the payment on those forged
cheques.
[3] Canada Trustco raises several defences in the Statement of
Defence. First it denies that the endorsements were forged.
Second it states that it became a holder in due course and relies
on s. 165 of the Bills of Exchange Act, R.S.C. 1985, c. B-4. It
also relies on the following defences raised in paragraphs 7 to
12 of the Statement of Defence which are set out in full as
follows:
If the payees’ endorsements on the Cheques were forged or
placed thereon without their authority, which is not
admitted but expressly denied, Nesbitt is precluded from
denying the genuineness of the endorsements and from
relying upon the alleged forgeries. Nesbitt failed to
notify Canada Trustco of the alleged forgeries within a
reasonable time of learning of the alleged forgeries.
Canada Trustco pleads and relies upon section 49 of the
Bills of Exchange Act.In the alternative, Nesbitt owed a duty and obligation to
Canada Trustco to ensure that the Cheques were properly
endorsed by the payees and negotiated by the person or
persons entitled to receive payment of the Cheques within
a reasonable time of receiving its bank statements from
its banker. Nesbitt failed to notify its banker and Canada
Trustco of the forged endorsements within the time
prescribed by its banker. Accordingly, Canada Trustco
states that Nesbitt is estopped from relying upon the
alleged forged endorsements.Alternatively, Canada Trustco states that:
(a) Nesbitt was in better position to determine whether
the Cheques were properly endorsed; and
(b) Nesbitt knew or ought reasonably to have known that
the Cheques were not properly endorsed by the payees;
Accordingly, Nesbitt voluntarily assumed the risk that the
Cheques did not bear authentic endorsements or
endorsements placed thereon with the payees’ authority.
- In the further alternative, Canada Trustco claims that
Nesbitt owed a duty of care to Canada Trustco, as a
collecting bank, to ensure that the Cheques were delivered
to the payees and that the Cheques bore authentic
endorsements. Nesbitt breached its duties to Canada
Trustco by:
(a) permitting Bruce to have access to the Cheques;
(b) cloaking Bruce with actual or ostensible authority to
deliver the Cheques to the payees;
(c) failing to establish a system or any system or take
any steps to ensure that Bruce did not exceed his
authority with respect to the control of the Cheques;
(d) supervise and monitor its customers’ accounts;
(e) failing to make timely enquiry as to the alleged
unauthorized dealings with the Cheques;
(f) failing to carry out proper auditing procedures with
respect to its banking and financial affairs;
(g) failing to discover the alleged fraud in a timely
manner and within the time prescribed in Nesbitt’s
operation of account agreement with its banker; and
(h) failing to notify Canada Trustco of the alleged fraud
or unauthorized dealings and alleged forgeries in a
timely fashion.
In addition or in the alternative, Nesbitt breached a duty
to Canada Trustco to ensure that it put into place an adequate
means or system to ensure that Bruce did not have the ability,
means and opportunity to fraudulently or improperly intercept the
Cheques, in the event that it is found that the Cheques were
fraudulently and improperly intercepted by Bruce and to ensure
that the endorsements were not forged. Canada Trustco states
that Nesbitt, by the nature of its business as an investment and
securities brokerage firm, was placed under such a duty to
protect the general public, including Canada Trustco, from such
risks.Had Nesbitt informed Canada Trustco of the alleged forged
endorsements within a reasonable time, Canada Trustco could have
recovered the amount of the Cheques from Bruce. As a result of
Nesbitt’s delay, Canada Trustco cannot charge the Cheques back to
Bruce’s account. Accordingly, Canada Trustco has detrimentally
relied upon Nesbitt’s implied or express representation that the
endorsements on the Cheques were proper and valid endorsements.
[4] Nesbitt commenced the action in November, 1997 and Canada
Trustco defended in January, 1998. Nesbitt took no steps in the
action until October 1998 when it brought a motion for summary
judgment returnable in November. Canada Trustco obtained an
adjournment of the motion and an order for production of
documents to be made prior to the argument of the motion. On the
cross-examinations of witnesses on the motion, Nesbitt refused to
answer questions and provide documents relating to defences which
it said were not available in law, and were the subject of the
summary judgment motion. When Canada Trustco moved for an order
that Nesbitt provide the refused answers and documents, Nesbitt
responded with the Rule 21 motion seeking to strike out the
disputed paragraphs in the Statement of Defence.
[5] Although no reference is made in the Endorsement of Wilson
J. to the issue of delay in bringing the Rule 21 motion, her
disposition of that issue is implicit in the fact that she
proceeded to deal with the Rule 21 motion on the merits, striking
out the defences contained in paragraphs 9,10 and 11 of the
Statement of Defence.
THE PROCEDURAL ISSUE
[6] I agree with the submission of the respondent that Wilson
J.’s refusal to dismiss the Rule 21 motion for delay and her
decision to proceed with it before the summary judgment motion
were matters of an interlocutory nature involving the exercise of
discretion. Any appeal from that decision would go to the
Divisional Court with leave: s. 19(1)(b) of the Courts of Justice
Act, R.S.O. 1990, c. C. 43. Section 6(2) of the Courts of
Justice Act provides:
The Court of Appeal has jurisdiction to hear and
determine an appeal that lies to the Divisional Court
or the Superior Court of Justice if an appeal in the
same proceeding lies to and is taken to the Court of
Appeal.
However, this court has held that that section does not apply to
appeals which require leave of the Divisional Court: Albert v.
Spiegel, (1993), 17 C.P.C. (3d) 90.1 As such no appeal lies to
this court from that order.
THE SUBSTANTIVE ISSUE
[7] Wilson J. stated the issue before her in the following
paragraphs of the Endorsement:
(3)In the statement of defence Canada Trustco pleads in
essence in the relevant paragraphs that Nesbitt was
negligent in hiring Bruce and placing him in a
position of trust, and in failing to have appropriate
safeguards in place to prevent fraud by employees.
The plaintiff seeks to strike these paragraphs
relying upon the Supreme Court of Canada decision in
Boma Manufacturing Ltd. v. Canadian Imperial Bank of
Commerce (1996), 1996 149 (SCC), 140 D.L.R. (4th) 463 (Boma).
(4)The issue raised in this motion is whether the tort
of conversion is one of strict liability or whether
preclusion by way of contributory negligence may be
pleaded.
(5)Is the collecting Bank (the defendant Canada
Trustco), in the case of a valid cheque fraudulently
endorsed to a third party, entitled to rely upon s.
48(1) of the Bills of Exchange Act (R.S.C. 1985 c. B-
4) (the Act) to assert against the drawer of the
cheque (the plaintiff Nesbitt) that by its conduct it
is precluded from asserting a claim in conversion?
The defendant argues that the exception in section
48(1) applies and that preclusion may be properly
pleaded.
(6)Alternatively, is the drawer of the cheque (Nesbitt)
entitled to assert that conversion is a strict
liability tort, and that the exception in s. 48(1) of
the Act and the issue of preclusion have no
application in the case of a valid cheque
fraudulently endorsed? It is the position of the
plaintiff Nesbitt that although s. 48(1) applies,
preclusion by contributory negligence may not be
raised in the case of a valid cheque fraudulently
endorsed. The plaintiff argues that, in accordance
with Boma, conversion is a tort of strict liability,
and therefore those paragraphs of the statement of
defence should be struck.
[8] Section 48(1) of the Bills of Exchange Act provides as
follows:
48(1) Subject to this Act, where a signature on
a bill is forged, or placed thereon
without the authority of the person whose
signature it purports to be, the forged or
unauthorized signature is wholly
inoperative, and no right to retain the
bill or give a discharge therefor or to
enforce payment thereof against any party
thereto can be acquired through or under
that signature, unless the party against
whom it is sought to retain or enforce
payment of the bill is precluded from
setting up the forgery or want of
authority.
[9] The issue as presented to Wilson J. was argued in the same
way in this court: the application of s. 48(1) of the Bills of
Exchange Act, R.S.C. 1985, c. B-4 and whether there is a defence
of preclusion by way of contributory negligence.
[10] However, there is no reference in the Statement of Defence
in this case to s. 48(1) of the Act, nor is there any plea of
contributory negligence in those words. There is reference in
paragraph 7 of the Statement of Defence, set out above, to
Nesbitt being “precluded” from relying on any forged endorsement
because of failure to notify Canada Trustco of the forgeries in a
timely way, relying on s. 49 of the Act. Counsel confirmed in
argument that this was not an error in the pleading and that the
intended reference is to s. 49 and not s. 48, although the term
“precluded” is not used in s.49. In any event, paragraph 7 is not
one of the paragraphs sought to be struck from the pleading.
[11] The crux of the three impugned paragraphs, 9,10 and 11, is
that Nesbitt as the drawer of the cheques voluntarily assumed the
risk that the endorsements were not authentic, that Nesbitt owed
a duty of care to Canada Trustco as collecting bank to ensure
that the endorsements were authentic, and that it owed a duty to
put in place an adequate system to ensure that an employee did
not have the opportunity and means to intercept and corrupt valid
cheques of the company. The Statement of Defence denies liability
for any relief claimed and seeks dismissal of the action. There
is no stated reference to an apportionment of liability on the
basis of contributory negligence.
THE DECISION OF THE MOTIONS JUDGE
[12] Wilson J. found that the Boma decision held: a) conversion
is a tort of strict liability, and b) contributory negligence is
therefore not available as a defence by a collecting bank. Wilson
J. equated a plea of contributory negligence to a plea of
preclusion under s. 48(1). This view accords with the submissions
of counsel for the respondent which were made in argument on the
appeal, that both the Boma case, and the case before this court
raised the issue of s. 48(1) preclusion.
[13] Wilson J. noted that Iacobucci J. did not use the word
“precluded” in the reasons for judgment, but he did quote s.
48(1) as one of the applicable statutory provisions. She also
concluded that there is an apparent conflict between s. 48(1) and
the Boma decision, and as a result awarded no costs of the
motion.
[14] Wilson J. concluded that paragraphs 9, 10 and 11 of the
Statement of Defence amounted to a plea of preclusion and
therefore, based on Boma, they must be struck out.
THE BOMA DECISION
[15] The Boma case was an action tried on an Agreed Statement of
Facts. It also involved an employee, Alm, who issued fraudulent
company cheques which she deposited to her own account at her
Bank, the Canadian Imperial Bank of Commerce (“CIBC”), sometimes
by forging endorsements and sometimes without any endorsement.
Boma and a related company sued both their own bank, the Royal
Bank, and the collecting bank, the CIBC, in both negligence and
conversion. The Royal Bank succeeded in advancing defences at
trial to the majority of the claim and neither side appealed that
disposition. The appeals only concerned the liability of the
collecting bank, CIBC.
[16] Portions of the pleadings in Boma are set out in the Court
of Appeal decision ((1994), 1994 247 (BC CA), 120 D.L.R. (4th) 250 at 254).
Paragraphs 12 and 13 of the Statement of Defence of the CIBC are
the ones that raise the issues of estoppel and of contributory
negligence:
- The CIBC says that it is unfair or unjust that this
claim should be made and that in all the
circumstances the Plaintiffs are estopped from
bringing this action; these circumstances include:
(b) the Plaintiffs’ failure to supervise and monitor their
employees, and in particular, Donna Alm;
(c) the Plaintiffs’ failure to regularly check and verify
their bank balances, documents, monthly statements,
cancelled cheques and vouchers with the Royal Bank;
(d) the Plaintiffs’ failure to recognize that they were
regularly issuing cheques payable to payees to whom they
owed no money;
(e) the Plaintiffs’ failure to notify the CIBC of the
defalcations committed by their employee promptly on
learning of them when prompt notification could have
enabled recovery of a significant portion of the loss
claimed by the Plaintiffs.
- In answer to the allegations of negligence made in
the Statement of Claim the CIBC says that the sole
cause, or, in the alternative, one of the causes, of
the loss alleged by the Plaintiffs is the
Plaintiffs’ own negligence, particulars of which are
set out in the immediately preceding paragraph; the
CIBC relies upon the Negligence Act, R.S.B.C. 1979,
c. 298, s.1.
[17] At trial, the judge dismissed the plaintiffs’ negligence
claim against the collecting bank on two bases, first that a
collecting bank owed no duty of care to the plaintiffs, and
second because the plaintiffs’ negligence in failing to detect
the fraud of the employee over a long period far outweighed any
negligence by the collecting bank. There was no appeal of the
dismissal on this ground.
[18] The bank was held to be liable, however, for conversion. The
trial judge rejected four defences which were raised in response
to the claim for conversion: 1) the worthless paper defence, 2)
the s. 165(3) holder in due course defence, 3) the fictitious
payee defence, and 4) the inadequate notice defence. He further
found that the claim succeeded based on s. 49 of the Act which
the trial judge found to have the effect of making the collecting
bank the guarantor of the validity of the payee’s endorsement. He
concluded:
The system requires the collecting bank
to verify the endorsement ahead of its
own, and it must rely on its own
customer in that regard by ensuring that
sufficient funds remain in the
customer’s account until the cheque has
cleared or count on that customer to
cover any cheque not honoured by the
drawee bank.
CIBC’s own negligence in failing to
obtain an endorsement on the “Lam”
cheques (the proffered explanation –
that the name was mistaken for “Alm” –
simply does not stand up to scrutiny)
and in assuming that Donna Alm was the
principal of the plaintiffs because of
the number of transactions, is a bar to
it relying upon any estoppel arising
from the negligence of the plaintiffs.
((1993), 1993 536 (BC SC), 81 B.C.L.R. (2d) 197 at 209).
[19] In the Supreme Court, Iacobucci J. reviewed the analysis of
both the trial and appeal decisions, including the last-quoted
paragraph of the trial judge’s conclusions. He then set out the
issues on the appeal and cross appeal and the three broad issues
under which he was considering the appeal to the Supreme Court:
IV. Issues
A. On Appeal
Were the cheques in question made payable to fictitious or
non-existing persons?Were the cheques in question “delivered” to the CIBC?
Was the CIBC, as a “collecting” bank, prima facie liable to
the appellants in conversion so that the cheques in question
had to be properly negotiated to the CIBC in order for the
CIBC to obtain title to those cheques and thereby escape
liability?Is the defence of contributory negligence available to the
respondent?2
B. On Cross-Appeal
- What is the proper interpretation of s. 165(3), and in
particular:
(f) Must the cheque be deposited to the credit of its
payee for the subsection to apply?
(g) Must the cheque be endorsed before the bank can credit
the person with the amount of the cheque?
(h) Must the cheque be delivered with the authority of the
drawer or endorser, or does simply handing it to the bank
teller for deposit suffice?
V. Analysis
I have found it helpful to consider this appeal in
terms of three broad issues, as follows: the
doctrine of conversion with respect to cheques; s.
20(5) [fictitious payee] as a defence to an action
in conversion; and s. 165(3) [holder in due
course] as a defence to an action in conversion.
([ ] added.)
I set out the issues considered by Iacobucci J. in full in order
to demonstrate that the issue of the application of the doctrine
of preclusion under s. 48(1) of the Act was not raised in Boma.
[20] Iacobucci J. first discussed the tort of conversion of
cheques. He held that because conversion is a tort of strict
liability, the fault or innocence of the tortfeasor is
irrelevant, and therefore the concept of contributory negligence
by the owner of the cheque is also irrelevant and inapplicable.
Iacobucci J. referred to the discussion of the possibility of
applying the concept of apportionment of responsibility in
conversion actions in the text by Professor Ogilvie, Canadian
Banking Law (Scarborough, Ont.: Carswell, 1991), where she
recognizes that “in most situations in which conversion occurs in
relation to cheques, there are varying degrees of innocence and
carelessness on both sides”, and argues that it would be more
equitable to apportion liability than to expect banks to be
insurers, particularly because the banks would just pass the cost
along to all of their customers.
[21] However, Iacobucci J. rejected this approach on the basis
that “the strict liability feature of conversion is well
engrained in the jurisprudence concerning bills of exchange.”
(p.477) He concluded that to introduce the contributory
negligence approach into this area of the law would require a
legislative change by Parliament. This conclusion again makes it
clear that Iacobucci J. was not addressing the scope of
preclusion under s. 48(1) which is already part of the
legislative scheme.
[22] With great respect to Wilson J., in my view s. 48(1) is not
inconsistent with Iacobucci J.’s analysis in Boma. Iacobucci J.
held in Boma, that a bank which converts cheques is strictly
liable whether or not the conversion involved negligence on the
part of the bank. The defence of preclusion is not an
apportionment of liability, but a complete bar to recovery by the
drawer of the cheque. The circumstances where the drawer could be
precluded from relying on the forgery to assert conversion
against the bank involve the drawer’s own conduct in facilitating
the forgery, although arguably they could also arise where the
drawer’s conduct after the forgery led the bank to rely on that
forgery. As preclusion is a complete defence rather than a route
to apportionment of liability, the negligence or fault of the
bank is irrelevant; only the conduct of the drawer is relevant.
Therefore, because the defence of preclusion by negligence of the
drawer of the cheques is not dependent on a finding that the bank
which converted the cheques was negligent in so doing, s. 48(1)
is not inconsistent with nor affected by the Boma analysis.
[23] The other reason why it is clear that Iacobucci J. did not
intend to overrule the s. 48(1) preclusion defence was that he
did not refer to the recent leading Supreme Court of Canada case
on that section in Canadian Pacific Hotels Limited v. Bank of
Montreal and Morris Sands et al, 1987 55 (SCC), [1987] 1 S.C.R. 711.
[24] That case involved an action against its own bank by the
drawer of cheques forged by an employee. The issue was whether
the plaintiff was precluded under s. 48(1) (then s. 49(1) of the
Bills of Exchange Act, R.S.C. 1970, c. B-5) from recovering its
loss from its bank, based on a breach of an alleged duty to
examine bank statements and report discrepancies within a
reasonable time and to maintain a system of internal controls to
prevent or minimize loss through forgery. LeDain J. rejected such
a wide duty after a full and thorough review of the Canadian case
law and the English and American case law on which it is based,
including many cases where employees of drawers had defrauded
their employers by issuing or intercepting forged cheques,
sometimes over long periods of time, and where the issue was
whether the bank or the drawer which allowed this situation to
develop and continue, should bear the loss.
[25] The established rule allowed a very narrow defence for a
bank to set up against its customer for preclusion. For a bank
customer to be precluded from recovering against its own bank for
conversion of forged or altered cheques, there were two
requirements: 1) The negligence of the drawer must have been in
the transaction itself, that is, in the mode of drawing the
cheque, such as leaving space to fill in a different amount or
signing in blank, as opposed to negligently allowing the
circumstances to develop which could facilitate a fraud such as
leaving a cheque book around. 2) The negligence in the
transaction had to be the proximate cause of the loss. The
customer could also be precluded if it delayed in reporting the
forgery to the bank. However the customer had to have actual
knowledge of the forgery, not merely imputed knowledge from its
own negligent failure to be aware of the forgery.
[26] LeDain J. essentially affirmed the narrow contractual duty
of the customer to its bank and rejected again any wider duty. He
concluded (p. 777):
In conclusion, then, I am of the opinion
that a customer of a bank does not, in the
absence of a verification agreement, owe a
duty to the bank to examine his bank
statements and vouchers with reasonable
care and to report any discrepancies
within a reasonable time, nor does a
customer “sophisticated” or otherwise, owe
a duty to its bank to maintain an adequate
system of internal accounting controls for
the prevention and minimization of loss
through forgery.
[27] The court in Canadian Pacific also considered whether a
customer could owe a concurrent duty arising in tort even though
no such duty could be implied in contract. LeDain J., speaking
for the majority, stated that although a tort duty was not fully
argued, there could be no duty of care in tort arising where the
same duty had been rejected as an implied term of a concurrent
contract.3 However, earlier in the judgment, LeDain J. did
specifically limit the scope of the decision to determining
whether a customer had by contract, the specific duties contended
for in the case, that is a duty to examine bank statements with
reasonable care and to report discrepancies within a reasonable
time. He stated (p.725):
I do not find it necessary or desirable
for purposes of the present appeal to
express a view as to the extent to which a
party may be precluded by negligence under
s. 49(1) [now s. 48(1)] from setting up a
forgery. I am satisfied that whatever be
the proper scope and meaning to be
assigned to the word “precluded” in s.
49(1) it cannot be construed as freezing
the kinds of duties, the breach of which
may be properly characterized as resulting
in an estoppel by representation.
[28] LaForest J. in a concurring judgment agreed that any broader
duty in tort should be very limited but did not agree with the
rationale for rejecting consideration of a possibly broader duty
owed by a bank’s customer in tort than could be implied by
contract. He based his analysis on policy considerations. He
considered that in developing the system for dealing in bills of
exchange, a policy decision had been made and implemented by
interpretation by the courts, whereunder the narrower duty of the
customer was established. He therefore concluded that (pp. 780-
781):
To introduce a wider duty today under the
rubric of the tort of negligence would
effect the same uncertainties as those
referred to by Parke B. in the Bank of
Ireland case [Bank of Ireland v. Evans’
Trustees (1855), 5 H.L.C. 389, 10 E.R.
950]. The line between carelessness and
negligence in many everyday situations can
be extremely hard to draw, and as I
mentioned before there is need for more
precise boundaries in this area.
It was against the background above
described that the Bills of Exchange Act,
now R.S.C. 1970, c. B-5, and in particular
s. 49(1), [now s. 48(1)] was enacted.
Generally, what Parliament sought to do by
the Bills of Exchange Act was to codify
the pre-existing law. It must, as in
other cases, be presumed to have known the
law in enacting the provision that now
governs the situation. I cannot believe
Parliament, by the word “precluded” (which
embodies the only exceptions to the
general rule), would have meant to
authorize at this late date a wide
divergence from the rules for loss
allocation that it sought to codify. This
does not mean that the law is completely
frozen, but it does mean that it cannot be
expanded in such a way as to give rise
under a new label to a wider duty that is
inconsistent with the basic policy choice
it sought to codify. ( [ ] added.)
ANALYSIS
[29] The issues on this appeal break down as follows:
If the applicable portion of the Boma case stands only
for the proposition that the tort of conversion is a
strict liability tort and therefore cannot be the subject
of apportionment of liability based on contributory
negligence, can paragraphs 9, 10, and 11 of the Statement
of Defence be interpreted as a plea of contributory
negligence which therefore must be struck out?(a) Is there a plea of preclusion under s. 48(1)
in paragraphs 9, 10 and 11 of the Statement of
Defence?
(b) If so, must that plea be struck out?
- (a) If there is not, is the defendant entitled to
leave to amend at this stage to plead s. 48(1)
preclusion?
(b) Is such a plea barred by the Boma case?
(c) Is it barred by the Canadian Pacific case?
[30] With great respect to the motions judge, I am satisfied that
the decision of the Supreme Court in Boma does not purport to
override s. 48(1) of the Bills of Exchange Act to read out the
availability of the defence of preclusion, nor to overrule the
court’s decision in Canadian Pacific, which deals fully with the
interpretation and application of that section as it applies to
the contractual duty of a customer to its bank.
[31] In paragraph 12 of the Statement of Defence in Boma, the
CIBC pleaded estoppel, which is akin to preclusion but did not
refer to s. 48(1). The trial judge dealt with that allegation by
holding that the CIBC’s own negligence barred it from relying on
any estoppel arising out of the negligence of the plaintiffs.
Iacobucci J. referred to this disposition by the trial judge
without comment. In my view, to the extent that the pleading in
paragraph 12 can be taken to be equated to a pleading of
preclusion under s. 48(1), the Supreme Court effectively approved
the disposition of the issue by the trial judge. Although no
authority was cited, in Canadian Pacific LeDain J. noted that
part of the common law development of the preclusion defence
included the concept that the bank could only rely on the
negligence of the customer as a defence when it had not itself
been negligent. (p.732)
[32] What the Boma case does decide is that there is no defence
of contributory negligence available where the action against the
bank is for conversion.
[33] This action is a claim for conversion against Canada Trustco
as collecting bank. The decision in Boma is directly applicable.
If paragraphs 9, 10 and 11 purport to form the basis for a plea
of contributory negligence, then they must be struck out
following Boma. Although there is no reference to contributory
negligence or apportionment of liability in the pleading, the
allegations against Nesbitt of voluntary assumption of risk in
respect of forged endorsements on its cheques and breach of duty
to Canada Trustco as a collecting bank, are capable of providing
the foundation for a finding of contributory negligence.
[34] Paragraphs 9,10 and 11 of the Statement of Defence do not
refer to s. 48(1), nor to preclusion nor to estoppel by
negligence. However, they allege voluntary assumption of risk,
and duties alleged to be owed by Nesbitt to the Bank which would,
on their face, be beyond the narrow scope of the preclusion or
estoppel by negligence defence as articulated and confirmed in
the Canadian Pacific case.
[35] Having said that, this case was argued based on Boma, and
although the historical development of preclusion was referred
to, it was not argued as the basis for striking the impugned
paragraphs, nor directly as the basis for retaining them.
[36] The Canadian Pacific case dealt with the duty owed by a
customer under its contract with its own bank and not with any
duty which may arise between a drawer of a cheque and a
collecting bank which acts on a forged endorsement. Any such duty
would arise in tort alone on the basis of the test set out in
Anns v. Merton London Borough Council, [1978] A.C. 728, (H.L.)
requiring a relationship of proximity or neighbourhood between
such parties. Any recognition of such a duty would be subject to
the observations made by both LeDain J. and LaForest J. that
although the law is not frozen, any new developments will be
informed by what has been held to be the very narrow scope of the
contractual duty owed by a customer to its bank and the policy
behind that law.
CONCLUSION
[37] Because there is no specific reference in paragraphs 9, 10
and 11 of the Statement of Defence either to contributory
negligence, or to preclusion by negligence under s. 48(1), the
legal intent of those paragraphs of the pleading is unclear. To
the extent that those paragraphs may be a pleading of
contributory negligence, they must be struck out. A plea of
contributory negligence is not available in response to an action
for conversion.
[38] However, the appellant is entitled to leave to amend, if so
advised. Any such amendment is to state clearly the legal basis
of any defence being asserted.
[39] Therefore the answers to the issues set out in paragraph
[29] above are:
Yes
(a) Not specifically.
(b) Not necessary to decide in light of the answer to (a).
- (a) Yes.
(b) No.
(c) This issue is left open to be decided if the
pleading is sought to be amended.
The appeal is therefore dismissed with leave to amend.
[40] As success on the appeal was divided, costs of the appeal
shall be in the cause of the action.
Released: March 22, 2000 “K. Feldman J.A.”
“I agree M. Rosenberg J.A.”
“I agree J.C. MacPherson J.A.”
1 Date format is yyyymmdd
2 PUT IN CASE NUMBER – NOT LOWER COURT NUMBERS
1 Applied by this court in Manos Foods International Inc. v. Coca-
Cola Ltd., 1999 3022 (ON CA), [1999] O.J. No. 3623 (C.A.); Chitel v. Bank of
Montreal, 1999 8746 (ON CA), [1999] O.J. No. 3988 (C.A.); Merling v. Southam Inc.,
2000 5621 (ON CA), [2000] O.J. No. 123 (C.A.).
2 The only plea of contributory negligence in the Statement
of Defence of CIBC is in paragraph 13 quoted above, which
does not respond to the conversion claim but to the
negligence claim of the plaintiffs. It is therefore unclear
how this defence came under consideration as a response to
the conversion claim. The negligence claim was dismissed at
trial and not appealed.
3 He explained that the decision of the Supreme Court in Central
Trust Co.v. Rafuse, 1986 29 (SCC), [1986] 2 S.C.R. 147 had been delivered
following the argument of the Canadian Pacific case.