Esses v. Bank of Montreal, 2008 ONCA 646

CITATION: Esses v. Bank of Montreal, 2008 ONCA 646

DATE: 20080924

DOCKET: C47301

COURT OF APPEAL FOR ONTARIO

LaForme, Rouleau and Watt JJ.A.

BETWEEN:

Shlomo Esses a.k.a. Shlomo Asis

Plaintiff (Respondent)

And

Bank of Montreal, and Friedberg & Co. Inc.

Appellant (Defendants)

James E. Adamson and J. Iczkovitz for the appellant Bank of Montreal

James F. Diamond for the respondent

Heard: January 25, 2008

On appeal from the summary judgment of Justice Joan L. Lax of the Superior Court of Justice dated May 31, 2007.

Watt J.A.:

[1] Moshe Benguigui (Benguigui) is a money-dealer. Amongst other things, he exchanges one currency for another. For a fee.

[2] Shlomo Esses (Esses) is a friend of Benguigui.

[3] In mid-February, 2004, Esses says he exchanged a shopping bag containing $450,000 CAD for three certified cheques drawn on the USD account of Friedberg & Co. Inc. (Friedberg), a local currency exchange and brokerage.

[4] About four months after he received the certified cheques, Esses deposited them in an account set up at the Toronto Branch of Bank Leumi. The ultimate destination of the funds was an account Esses maintained in Bank Leumi in Luxembourg.

[5] At first, Bank Leumi credited Esses’ account with the cheque proceeds. Within days, however, the Bank of Montreal (BMO), the bank on which the certified cheques had been drawn, directed that payment on the cheques be stopped. Bank Leumi reversed the credit to Esses’ account.

[6] Esses sued BMO and Friedberg, demanding payment of the certified cheques. The Bank defended, cross-claimed against Friedberg and counterclaimed against Esses. Friedberg defended and cross-claimed against BMO.

[7] Esses brought a successful motion for summary judgment against BMO. The motion judge also dismissed Esses’ claim and BMO’s cross claim against Friedberg and BMO’s motion to amend its statement of defence and to adjourn the hearing of Esses’ summary judgment motion.

[8] BMO appeals. The primary relief BMO seeks is an order setting aside the summary judgment against it and dismissing Esses’ motion for summary judgment. In the alternative, BMO seeks an order adjourning Esses’ motion for summary judgment to permit BMO to bring a motion before a Master to compel Esses to respond to questions improperly refused in his cross-examination on the original motion. BMO also seeks leave to amend its statement of defence.

THE FACTS

The Fraudulent Sale and Mortgage

[9] The story begins with the fraudulent sale of a residential property, financed by a mortgage issued by BMO to the counterfeit purchaser.

[10] Ann and William Yawylak have owned their Etobicoke home for over 40 years. For more than a decade, they have lived mortgage-free. The couple spend the first quarter of each year at their Florida winter home, leaving supervision of their Etobicoke property to their son Gary.

[11] In late February or early March, 2004, Gary Yawylak found a utility bill at his parents’ home. The bill was addressed to “William Babineau” at the same address. Suspicious, Gary Yawylak made some inquiries. Shortly, he and his parents learned that the couple’s home had been “sold” to William Babineau and that the property was now subject to a $459,000 mortgage held by BMO.

[12] The sale of the Etobicoke property had been accomplished, the mortgage given and funds advanced under it on the basis of a series of forgeries. The “sale” closed on February 12, 2004.

The Mortgage Funds

[13] On February 13, 2004, the counterfeit William Yawylak opened an account at a branch of CIBC. He produced a forged social insurance card and Ontario driver’s licence in his assumed name. The imposter deposited a lawyer’s trust account cheque for $498,488.64, payable to William Yawylak, to plenish the account.

[14] On February 16, 2004, the imposter withdrew $450,000.00 to purchase a CIBC bank draft payable to Friedberg. The remitter’s name on the draft is William Yawylak, the duplicate, not the original.

The Friedberg Deposit

[15] According to Benguigui, Lee and Malanca, two men with whom Benguigui had had previous dealings, approached him to help them convert the CIBC bank draft in Canadian dollars to cheques in American dollars. Ultimately, Lee and Malanca wanted cash. The draft represented the proceeds of a real estate transaction. Lee and Malanca also had a letter from a lawyer, which they said, again according to Benguigui, explained the circumstances of the transaction. Benguigui agreed to help them for a commission of 3%.

[16] Benguigui took the CIBC bank draft to Friedberg on February 17, 2004. He had been approached by Esses who had cash he (Esses) wanted to exchange for certified USD cheques. The draft, payable to Friedberg, was for $450,000 CAD. The remitter was William Yawylak. Friedberg wanted to verify the authenticity of the draft and Benguigui’s authority to tender it for deposit. After all, Benguigui was not William Yawylak.

[17] Benguigui telephoned Yawylak, the imposter, who faxed to Friedberg the necessary authority and (forged) identification. Friedberg verified the legitimacy of the draft with CIBC and accepted the draft from Benguigui.

The Friedberg Cheques

[18] Friedberg, following Benguigui’s instructions, prepared three cheques payable to “S. Asis”. The cheques were drawn on Friedberg’s USD account at BMO. Two cheques were for $115,000.00 USD, the third for $112,980.18 USD.

[19] Benguigui took the Friedberg cheques to BMO where he had each certified by a member of the bank staff.

The Cash for Cheques Exchange

[20] Benguigui left the bank and drove to Esses’ office where he exchanged the cheques for $450,000 CAD in cash. Esses delivered the money in a shopping bag. He did not ask for, nor did Benguigui provide a receipt for the cash. Esses paid Benguigui a commission of $8,000.00 for his assistance.

[21] Benguigui delivered the shopping bag of cash to Lee and Malanca, who had agreed to pay Benguigui a commission of 3%. Benguigui never received his commission.

Depositing the Cheques

[22] On June 24, 2004, more than four months after he had received the certified Friedberg cheques from Benguigui, Esses took them to the only Toronto branch of Bank Leumi, a Luxembourg financial institution. The deposit was credited to Esses’ account in Luxembourg. On the instructions of BMO, however, the credit was reversed days later on the ground that the funds were derived from fraud.

The Recovery Efforts

[23] After Esses learned of the reversal of his deposit at Bank Leumi, he and Benguigui went to the head office of BMO to find out why the original credit had been reversed despite the fact that the deposit consisted of cheques that BMO had itself certified. BMO did not resile from its position that the funds used in the underlying transaction had been obtained by fraud.

[24] Esses and Benguigui returned to BMO to pursue Esses’ request for restoration of his credit for the face value of the certified cheques. On this occasion, November 30, 2004, both men were arrested for defrauding BMO. About a year later, on December 4, 2005, the Crown withdrew the fraud charge against Esses. One month later, Esses sued BMO and Friedberg.

THE DECISION OF THE MOTION JUDGE

[25] The motion judge was faced with three motions scheduled for hearing on the same day:

i. Esses’ motion for summary judgment on his claim against BMO;

ii. Friedberg’s motion for dismissal of Esses’ claim and BMO’s cross claim against it;

iii. BMO’s motion for leave to amend the statement of defence and an adjournment of Esses’ motion to permit BMO to compel Esses to answer questions and produce documents previously refused on cross-examination.

[26] The motion judge concluded that there was no evidence;

i. that Esses participated in any part of the mortgage fraud that produced the funds involved; or

ii. that Friedberg knew that the CIBC bank draft represented the proceeds of fraud.

The motion judge concluded that Esses was a bona fide holder of the certified cheques, thus was entitled to their proceeds. By its certification of the cheques, BMO released Friedberg from any liability. The only party liable on the certified cheques was BMO.

[27] The motion judge dismissed BMO’s motion for leave to amend its statement of defence. Rule 25.06(8) requires full particulars of the material facts that underlie a pleading of fraud. BMO provided no particulars of a fraud alleged, and the record disclosed no evidence that Esses was in any way complicit in any fraud perpetrated by others. Esses’ refusals to answer various questions or produce requested documents on discovery were fully justified and cannot furnish a basis upon which to amend BMO’s statement of defence.

[28] The motion judge concluded that the only party liable to Esses was BMO, which had certified the cheques of its customer, Friedberg. In the result, the motion judge dismissed Esses’ claim and BMO’s cross claim against Friedberg.

THE GROUNDS OF APPEAL

[29] BMO says that the motion judge erred in three respects:

i. by granting summary judgment to Esses;

ii. by failing to grant BMO leave to amend its statement of defence; and

iii. by failing to adjourn the hearing of Esses’ summary judgment motion to permit BMO to obtain an order to compel responses from Esses for questions not answered in materials not provided on discovery.

[30] In her decision on the motion for summary judgment, the motion judge found that there was no genuine issue for trial. BMO contends that this finding is flawed because the motion judge tried the issue joined between BMO and Esses and made her own findings of fact, rather than consider whether the evidence raised a triable issue about Esses’ knowledge of, if not complicity in, the spurious origins of the Friedberg cheques. These findings were unfair to BMO because the findings thwarted BMO’s efforts to adduce further evidence to complete the record and confirm that there were genuine issues for trial.

[31] To begin, BMO submits, there was a triable issue about Esses’ participation in, or at the very least, his knowledge of, the spurious origins of the funds used to purchase the Friedberg cheques of which he gained possession. A convenient bag of cash. In just the right amount. In not one, but three cheques. No receipts. An offshore deposit, four months later. A series of transactions, close together, the ultimate object of which was to cleanse funds illegally obtained. Each participant had a role to perform. At the very least, the circumstances left open a variety of inferences for a trier of fact. It was not for the motion judge to deprive the trier of fact of its due.

[32] BMO further argues that the motion judge misapplied the burden of proof in connection with Esses’ claim that he was a holder in due course, or a holder for value of the Friedberg certified cheques. It was for Esses to prove in the main action that he gave value for the cheques, and did so in good faith. It was not for BMO to prove that Esses gave no value, or did not act in good faith. Each issue was controverted and, by misplacing the onus, the motion judge wrongly converted what was contested into something that was not triable.

[33] Esses adopts a contrary stance. BMO has it all wrong. The motion judge did not find that Esses was a holder in due course of a bill of exchange. She grounded Esses’ entitlement on the basis that he was the payee of three cheques that BMO had certified. BMO could not refuse to honour cheques it had certified.

[34] Esses concedes that BMO could resist payment by proving that the certification had been obtained by fraud to which Esses was a party, or at least of which he was aware. But there was no evidence before the motions judge, thus no triable issue, that Esses himself obtained the certification by fraud, or connived with others, for example, Benguigui, Lee or Malanca, to do so. Neither was there any evidence to support an inference of Esses’ participation in the original fraudulent house sale and mortgage financing scheme.

[35] Esses says that to fund the argument that there are triable issues about his knowledge of or participation in the fraudulent scheme to obtain money and launder the proceeds, BMO relies upon his (Esses’) refusals to answer and produce records to substantiate his claim. These refusals, eminently proper, cannot amount to evidence on which BMO can rely to support its assertion on a factual controversy.

[36] Esses takes issue with BMO’s submission that whether Esses actually had $450,000 CAD in cash in a bag to exchange for the certified cheques is of no legal consequence in this case. Equally irrelevant is BMO’s submission that Esses’ accumulation of the funds to evade both income and goods and services taxes disentitled him to recover on the certified cheques. Esses was, at bottom, the payee of each of three cheques certified by BMO. Certification obliges BMO to pay, at least in the absence of evidence of Esses’ knowledge of or participation in the fraudulent scheme by which the monies were originally obtained. Nothing raises a triable issue about Esses’ knowledge or participation.

[37] As for BMO’s motion for leave to amend its statement of defence, Esses says the motion was rightly dismissed. The purpose of the amendment was to advance a new theory in defence, tax evasion as a source of Esses’ funds to exchange for the certified cheques, in its turn thus disentitling Esses to claim as a holder in due course. The proposed amendment, an allegation of fraud, is sought without any supportive affidavit or other evidentiary foundation: in essence, theory only.

[38] The motion to amend was rightly refused on another basis: abuse of process. The motion for summary judgment had been set for argument for several months. The motion to amend drifted in late and was little less than a tactical manoeuvre to derail the motion for summary judgment. Leave to amend was rightly refused.

ANALYSIS

[39] The principal issue that divides the parties concerns the correctness of the motion judge’s decision to grant summary judgment in favour of Esses. If BMO succeeds in its attack on the decision granting summary judgment to Esses, the motion to amend, as well as any other motion to compel response to discovery questions and production of documents, may be reinvigorated.

The Standard to be Applied on Motions for Summary Judgment

[40] Rule 20.04(2) authorizes a court to grant summary judgment where the court is satisfied that there is no genuine issue for trial with respect to a claim or defence. In this case, to grant summary judgment to Esses, the motion judge had to be satisfied that BMO had not raised in defence to Esses’ claim any genuine issue for trial.

[41] The term “genuine issue” cannot be reduced to any precise formula for ease of application. Nonetheless, Irving Ungerman Ltd. v. Galanis (1991), 1991 7275 (ON CA), 4 O.R. (3d) 545 (C.A.) provides some assistance about the meaning of “genuine” in the phrase “genuine issue for trial”. At paragraph 22, Morden A.C.J.O. concluded:

¶22 It is safe to say that “genuine” means not spurious and, more specifically, that the words “for trial” assist in showing the meaning of the term. If the evidence on a motion for summary judgment satisfies the court that there is no issue of fact which requires a trial for resolution, the requirements of the rule have been met. It must be clear that a trial is unnecessary. The burden is on the moving party to satisfy the court that the requirements of the rule have been met. Further, it is important to keep in mind that the court’s function is not to resolve an issue of fact but to determine whether a genuine issue of fact exists. (See 6 Moore’s Federal Practice, 2^nd ed. (1987 release), p. 56-391; Wright, Miller and Kane, supra, at vol. 10A, pp. 574-75.)

[42] The Ungerman court found two other requirements implicit in r. 20.04(2). In paragraph 16, Morden A.C.J.O. described these implicit requirements:

¶16 Our rule does not contain, after “genuine issue”, the additional words “as to any material fact”. Such a requirement is implicit. If a fact is not material to an action, in the sense that the result of the proceeding does not turn on its existence or non-existence, then it cannot relate to a “genuine issue for trial”. (See Wright, Miller and Kane, Federal Practice and Procedure, 2^nd ed. (1983), vol. 10A, pp. 93-95.) Similar reasoning applies to the absence from our rule of the words “and the moving party is entitled to a judgment as a matter of law”. This is implicit.

[43] Ungerman reminds us of two other points of importance in connection with motions for summary judgment. The first distinguishes between identification of issues of fact on the one hand, and resolution of issues of fact, on the other. The function of a judge on a motion for summary judgment is to determine whether a genuine issue exists about any material fact. Once having determined that such an issue exists, it is not for the motion judge to resolve that issue, for that is the task of the trier of fact at trial. The second point of importance that emerges from Ungerman is that, at least as a sensible general proposition, if there is an issue of credibility, a trial is required, and summary judgment should not be granted. Ungerman at para. 24. The issue of credibility must, of course, be genuine, not contrived.

[44] On a motion for summary judgment, the motion judge must bear in mind the placement and substance of the onus on the parties to the motion. The moving party, here Esses, bears the legal or persuasive burden to satisfy the court that there is no genuine issue for trial before summary judgment can be granted. Hi-Tech Group Inc. v. Sears Canada Inc., 2001 24049 (ON CA), [2001] O.J. No. 33 (C.A.) at para. 30. The responding party assumes an evidentiary burden, or something similar, to respond with evidence setting out specific facts showing that there is a genuine issue for trial. But, failure of the responding party to tender evidence does not automatically result in summary judgment. Hi-Tech at para. 30.

[45] The nature of the “evidential burden” imposed on a responding party to a summary judgment motion warrants brief mention. The “evidential burden” involves the presentation of evidence, whether affidavit or other material, capable of supporting the position advanced by the responding party. The responding party may not rest his or her defence on unsupported defence allegations or denials, but may nonetheless urge that the moving party’s claim as supported by affidavit, is so obviously deficient that it raises a triable issue about the moving party’s right to succeed. Hi-Tech at para. 30.

[46] Sometimes, the issue on a summary judgment motion upon which the parties divide has to do with knowledge. At times, knowledge, or more broadly, state of mind, is a notoriously difficult fact for a party to prove. Especially a party opposite to the party whose knowledge or state of mind is in issue. Knowledge need not, for that matter in many instances cannot, be proven by direct evidence. Circumstantial evidence is a perfectly acceptable means of proving knowledge, indeed is the most common currency for doing so. Frequently, proof of knowledge is much better canvassed by a trial judge, with the benefit of viva voce evidence, than by a motion judge on an arid printed record. Dawson v. Rexcraft Storage and Warehouse Inc., 1998 4831 (ON CA), [1998] O.J. No. 3240 (C.A.) at para. 82.

The Effect of Certification of a Cheque

[47] Under s. 165(1) of the Bills of Exchange Act, R.S.C. 1985, c. B.-4 (BEA), a cheque is a bill of exchange drawn on a bank, payable on demand. The BEA contains no references to a certified cheque.

[48] Despite the silence of the BEA about the process and effect of certification of a cheque, it is well established that certification of a cheque by a bank is equivalent to acceptance of the cheque as a bill of exchange under the BEA. Maubach v. Bank of Nova Scotia (1987), 1987 4348 (ON CA), 62 O.R. (2d) 220 (C.A.) at p. 221; A. E. LePage Real Estate Services v. Rattray Publications Ltd., 1994 1506 (ON CA), [1994] O.J. No. 2950 (C.A.) at paras. 16-17. Treatment of certification as acceptance draws certified cheques into the framework provided by the BEA and codifies the consequences of certification. A. E. LePage at p. 18.

[49] It is of no moment to the treatment of certification of a cheque as acceptance by whom the certification has been obtained. Whether the party obtaining certification is the drawer of the cheque or its payee, matters not: certification is acceptance. A. E. LePage at para. 18.

Payees of Cheques as Holders of Bills of Exchange

[50] Under s. 2 of the BEA, the payee of a cheque is a holder of a bill of exchange.

[51] It is not every holder of the bill of exchange who is a holder in due course under the BEA. Section 55(1) of the Act describes the circumstances under which a holder of a bill becomes a holder in due course:

55. (1) A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions, namely,

(a) that he became the holder of it before it was overdue and without notice that it had been previously dishonoured, if such was the fact; and

(b) that he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it.

[52] Section 55(1) of the BEA, in effect, describes a series of conditions precedent before a holder of a bill of exchange becomes a holder in due course under the Act. Of especial importance here are the conditions contained in s. 55(1)(b), which can be summarized as:

• good faith

• value

• lack of notice of title defects

These requirements or conditions, along with those under s. 55(1)(a), are cumulative: the absence of any one of them nullifies a holder’s claim to be a holder in due course.

[53] Nothing in s. 55(1) distinguishes among the various forms of bills of exchange. In the result, the payee of a certified cheque is only a holder in due course within s. 55(1) of the BEA where he or she satisfies the conditions precedent of the section.

[54] Section 55(2) describes the circumstances in which the title of a person who negotiates a bill of exchange is defective under the Act. The manner in which the bill, or acceptance of it, has been obtained may vitiate a holder’s claim that she or he is a holder in due course. The catalogue of blemishes in s. 55(2) is as follows:

(2) In particular, the title of a person who negotiates a bill is defective within the meaning of this Act when he obtained the bill, or the acceptance thereof, by fraud, duress or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.

[55] Although every holder of a bill is not a holder in due course, s. 57(2) of the BEA enacts a rebuttable presumption that a holder is a holder in due course. The presumption is in these terms:

57. (2) Every holder of a bill is, in the absence of evidence to the contrary, deemed to be a holder in due course, but if, in an action on a bill, it is admitted or proved that the acceptance, issue or subsequent negotiation of the bill is affected with fraud, duress or force and fear, or illegality, the burden of proof that he is the holder in due course is on him, unless and until he proves that, subsequent to the alleged fraud or illegality, value has in good faith been given for the bill by some other holder in due course.

[56] The payee of a cheque, certified or not, is a holder of a bill under s. 2 of the Act. It follows, as a result of s. 57(2), that a payee of a cheque is presumed to be a holder in due course, absent evidence to the contrary.

[57] In a action on a bill, for example, by a payee to enforce payment on a cheque, the onus of proving that the claimant is a holder in due course of the bill may shift to the claimant, despite the presumption enacted by s. 57(2). Where it is admitted or proven that acceptance of the bill, for example by certification of a cheque, issue or subsequent negotiation of the bill is affected with fraud or other illegality, the burden of proving that he or she is holder of due course falls upon the person who asserts it.

[58] In deciding whether to grant a motion for summary judgment, a motion judge must not lose sight of the assignment of the burden of proof on an issue, especially when the allocation varies between the parties. An erroneous assignment of the burden of proof in connection with a claim or defence may contaminate a decision about whether there is a genuine issue for trial in connection with that claim or defence.

DISCUSSION

The Origin of the Funds

[59] No controversy emerges about the genesis of the funds that seeded this series of transactions that culminated in the preparation of three USD cheques by Friedberg & Co. and their certification by Benguigui.

[60] An impostrous buyer financed a sham purchase of William Yawylak’s home from a counterfeit vendor by mortgage funds advanced by a branch of BMO on the strength of fraudulent representations made by the fraudster. Shortly after the “sale” closed, the “vendor” received the proceeds from his solicitor and immediately purchased a bank draft from a CIBC branch in the amount of $450,000 CAD. The remitter of the draft was William Yawylak - the imposter, not the real owner of the property.

[61] Benguigui, who had had prior dealings with at least one if not both of the principals in the sham sale of Yawylak property, in another similar fraudulent scheme, took the draft to Friedberg. Since Benguigui was not the remitter of the draft, Friedberg required authority from the remitter, the fake Yawylak, that Benguigui was in lawful possession of the draft. Benguigui contacted the fake Yawylak who confirmed the legitimacy of Benguigui’s possession. Friedberg confirmed with drawee bank that the draft was genuine, then accepted it and deposited it into Friedberg’s account.

[62] In accordance with Benguigui’s instructions, Friedberg drew three cheques on its USD account at BMO to represent the USD equivalent of the funds deposited by bank draft, less any exigible commissions. Not one cheque, but three. Not payable to Benguigui, rather at his direction, to “S. Asis”, which is said to be the name shown on Esses’ Israeli passport.

[63] Benguigui went to the main branch of the BMO and had the three Friedberg cheques certified. Four months later, Esses opened an account at Bank Leumi where he deposited the Friedberg cheques.

[64] Apart from Esses’ negotiation of the Friedberg cheques at Bank Leumi, which took place on June 24, 2004, the entire series of transactions, from the “sale” of the Yawylak property to the certification of the Friedberg USD cheques, took place between February 12 and February 17, 2004. Thus, BMO has filed sufficient proof that the cheques Esses seeks to have honoured represent the bulk of the fraudulently – obtained mortgage funds.

The Basis of the Claim

[65] Esses sought summary judgment against BMO for the proceeds of the three certified cheques drawn on the USD account of Friedberg on two grounds:

i. that he was “Asis”, the payee of the cheques; and

ii. that, as payee of the certified cheques, he was a holder in due course of bills of exchange and entitled to payment under the BEA.

[66] The motion judge appears to have rested her decision on the ground that, absent fraud by Esses in obtaining the certification, BMO could not refuse to honour the cheques it had certified. BMO adduced no evidence that Esses was a participant in the fraud, thus Esses, as “S. Asis”, was entitled to payment.

[67] Critical to the decision of the motion judge is her determination that there was no evidence of Esses’ participation in any fraud, thus no triable issue raised in BMO’s defence to Esses’ claim however advanced.

The Disqualifying Factors

[68] The parties agree that certification of the cheque is equivalent to acceptance under the BEA. It is of no legal moment whether the certification was done by mistake or in ignorance of the origin of the funds.

[69] The payee of a cheque is a holder under s. 2 of the BEA. Under s. 57(2) of the Act, in the absence of evidence to the contrary, every holder of a bill of exchange, including payees of certified cheques, is deemed to be a holder in due course. The presumption is rebuttable by evidence to the contrary. But if acceptance, issue or subsequent negotiation of the bill is affected with fraud or illegality, the burden of proof that a person is the holder in due course is on the party who claims the benefit of that status. Here it is clear that the bills, the certified cheques, were affected with fraud or other illegality. The presumption that their holder, Esses, was a holder in due course falls away. The onus of proving that he is a holder in due course shifts to Esses. BMO does not have to prove the opposite as the motion judge held.

[70] To be a holder in due course under s. 55(1) of the Act, a person must take a bill, complete and regular on its face, under several conditions, including but not only:

i. in good faith;

ii. for value; and

iii. without notice of any defect in the title of the person who negotiated it.

A title is defective under s. 55(2) when a person obtains the bill or acceptance of it by fraud, or other unlawful means, or for an illegal consideration.

[71] In this case, it fell to the motion judge to determine whether there was any genuine issue for trial in connection with any factor that would disentitle Esses to claim under the Act. A genuine issue is an issue that is at once not spurious and relates to a material fact. Ungerman at paras. 16 and 22. There must not be an issue of fact that requires a trial for its resolution. Said in another way, it must be clear that a trial is unnecessary. Ungerman at para. 22.

[72] As it seems to me, at the core of this proceeding is the issue of credibility. Of the ubiquitous Benguigui and the fortuitously available Esses. It is a sensible general proposition that, if there is an issue of credibility, a trial is required, and summary judgment should not be granted. Ungerman at para. 24.

[73] The central issues in this case have to do with Esses’ knowledge of the provenance of the scheme by which the certified cheques came into his possession and whether Esses, in fact, gave value for the cheques. Esses denied knowledge of and participation in any fraudulent scheme. BMO says Esses is lying, was well aware of and complicit in the scheme, and that the bag of cash either did not exist or consisted of ill-gotten funds.

[74] Knowledge, more generally state of mind, is notoriously difficult to establish. For the most part, what is involved is the drawing of inferences from conduct, both acts and omissions, as well as words spoken or left unsaid. Inferences are drawn from the evidence as a whole, not by segregating various items or dividing up what is, in effect, a continuous transaction into discrete parts shorn of context. The existence of competing inferences underscores the necessity of their resolution by a trier of fact, on viva voce evidence.

[75] As in Ungerman, the timing and sequence of the several transactions, not to mention the plausibility of some of the responses advanced, raises genuine issues about whether Esses acquired the cheques for value, knew of the provenance of the funds, and participated in the overall scheme. Further, Esses’ refusal to answer certain questions and to provide requested documentation has served to limit BMO’s ability to put its best foot forward in response to Esses’ motion.

[76] In the result, I would allow the appeal with costs, set aside the order of the motion judge granting summary judgment to the respondent Esses and dismissing the appellant’s motion for leave to amend the statement of defence, and, in their place, make an order dismissing Esses’ motion for summary judgment with costs. The appellant shall be at liberty to pursue its motion for leave to amend the statement of defence and any other motions in the appropriate forum. I would fix the costs of the appeal at $17,500.00 inclusive of disbursements and GST and award the appellant costs of the motion for summary judgment, on a partial indemnity basis, in the amount of $30,000.00 inclusive of GST and disbursements.

RELEASED: September 24, 2008 “HL”

“David Watt J.A.”

“I agree Harry S. LaForme J.A.”

“I agree Paul Rouleau J.A.”