COURT FILE NO.: CV-10-409907
DATE: 20120514
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: OAKDALE KITCHENS INC.
Plaintiff
and
THE BANK OF NOVA SCOTIA and DUCA CREDIT UNION
Defendants
BEFORE: S. Chapnik J.
COUNSEL:
Steven Bellissimo, Counsel for the Plaintiff
Martin Sclisizzi and A. Nicole Westlake, Counsel for the Defendant, The Bank of Nova Scotia
HEARD: April 30 th , 2012
ENDORSEMENT
[ 1 ] The defendant, The Bank of Nova Scotia (“BNS”) seeks summary judgment, dismissing the plaintiff’s claims against it for negligence, breach of contract and conversion.
[ 2 ] The action arises from a fraud perpetrated on the plaintiff, Oakdale Kitchens Inc. (“Oakdale”) by its controller and account manager, Christopher Legge, who used his position with the plaintiff to forge cheques drawn on the company’s BNS account, between January 2005 and May, 2009. As a result, the plaintiff sustained a loss in the claimed amount of $634,368.33.
OVERVIEW
[ 3 ] The BNS account required the signatures of two signing officers of the plaintiff, its president Domenic Tersigni and its secretary, Joe Mascioli. When the account was opened, they provided signature cards and corporate resolutions to the Bank. At the same time, they executed the Bank’s standard Scotiabank Financial Services Agreement Signature Form (“the Agreement”). The relevant sections of the Agreement read as follows:
2.2 An instruction is a request to transfer funds to and from the accounts. Examples include cheques, transfers between accounts and any orders for the payment of money. Instructions may be given by electronic or written communication. Instructions may have the signature electronically or mechanically produced or imprinted.
7.1 We [Scotiabank] will periodically provide you with statements of your accounts in printed or electronic form.
7.2 You must review each statement carefully to check and verify the entries. If you believe there are any errors or omissions, you must tell us in writing within 30 days of our mailing the statement or making it available for pick-up electronically or in person. If you don’t tell us of any errors or omissions within that 30 days, you have acknowledged that:
• The balance shown in your statement is correct
• All amounts charged to your account are valid
• You are not entitled to be credited with any amount not shown on your statement
• You have verified the validity of any instructions
• The use of any service shown is correct.
7.3 After the 30 days, you can not claim, for any purpose, that any entry on your statement is incorrect and will have no claim against us for reimbursement relating to an entry, even if the instruction charged to your account was forged, unauthorized or fraudulent.
13.1 [Scotiabank is] not liable for the following specific matters:
• Honouring, or refusing to honour or cancel, an instruction for any reason
• Any delay in completing or failing to provide a service for any reason even if this means you are unable to access funds in your account
• Any matter rising from your actions or your failure to perform your obligations properly under this agreement even if you are not at fault
• A forged, unauthorized or fraudulent use of services, instruction or material alteration to an instruction, even if you or we did or did not verify the signature, instruction or authorization.
3.2 You agree to maintain security systems, procedures and controls to prevent and detect:
• Theft of funds
• Forged, fraudulent and unauthorized instructions and electronic transfer of funds
• Losses due to fraud or unauthorized access to the service.
ANALYSIS
[ 4 ] According to the defendant BNS, the Agreement serves as a “complete defence” to the plaintiff’s claims. Specifically, its defence is founded upon the verification and limitation of liability provisions in the Agreement. It relies on the case of Manor Windsor Realty Ltd. v. Bank of Nova Scotia , 2011 ONSC 4514 , [2011] O.J. No. 3434, in which this court, in similar circumstances, held that a Financial Services Agreement was binding, despite the fact that the principals of the companies had not read the Agreement and the Bank did not bring its terms to the attention of the principals (as is the case here). See also Boltrun Investments Inc. v. Bank of Montreal , [1998] O.J. No. 5526 (Gen. Div.) .
[ 5 ] In Don Bodkin Leasing Ltd. v. Toronto-Dominion Bank (1998), 1998 1101 (ON CA) , 40 O.R. (3d) 262 (C.A.), at pp. 266-69, the Ontario Court of Appeal upheld a trial judge’s finding that the verification clause applied.
[ 6 ] It is noted, however, that the findings in those cases were pronounced after a trial. Moreover, an opposite conclusion was reached in the case of S.N.S. Industrial Products Limited v. Bank of Montreal , 2010 ONCA 500 , [2010] O.J. No. 2934, in which the Ontario Court of Appeal found the Bank’s standard form verification agreement to be ambiguous and held, at para. 8, citing Dunn v. Chubb Insurance Company of Canada (2009), 2009 ONCA 538 , 97 O.R. (3d) 701 (C.A.), at para. 34 , n. 4, that such contracts must be interpreted “with regard to objective evidence of the factual matrix underlying the negotiation of the contract”.
[ 7 ] Being a matter of contract interpretation, in the court’s view, the verification agreement was “neither broad nor specific” enough to cover the forged cheques in the context and in light of s. 48 of the Bills of Exchange Act , R.S.C. 1985, c. B-4 (“the BEA ”). That section reads:
(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 to 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.
(3) Where a cheque payable to order is paid by the drawee on a forged endorsement out of the funds of the drawer, or is so paid and charged to his account, the drawer has no right of action against the drawee for the recovery of the amount so paid, nor any defence to any claim made by the drawee for the amount so paid, as the case may be, unless he gives notice in writing of the forgery to the drawee within one year after he has acquired notice of the forgery.
[ 8 ] In the particular circumstances of this case, the plaintiff has raised several issues endemic to the factual matrix that, they say, and I agree, require a trial for their resolution.
[ 9 ] The first area is the signing of the documents, and the alleged representations or inferences made by Bank officials that led the plaintiff’s principals to believe that the Bank would compare signatures on cheques drawn on its account and moreover that the Agreement related to a restricted line of credit only.
[ 10 ] The second area is the steps undertaken by the plaintiff to satisfy its obligations under s. 3.2 of the Agreement. The plaintiff asserts that due to the lack of sophistication of its principals in financial matters, they retained the services of bookkeepers and chartered accountants to monitor, oversee and supervise the work of the controller, Mr. Legge. They also note the sophistication of the fraudster who hid the forged cheques from them and when requested, provided reasonable explanations in response to their inquiries.
[ 11 ] The third area of argument related to the facts is the plaintiff’s contention that the large quantity and nature of the forged cheques (made payable to Mr. Legge himself) and other suspicious circumstances should have alerted the Bank of a problem.
[ 12 ] The Bank counters this by explaining that today, Symcor is the data clearing unit for all Canadian banks. The processed cheques, once negotiated, are not sent to the bank branches on which they were drawn and the branches do not verify the signatures. The question becomes whether this situation accords with or alters any existing contractual or statutory duty imposed on the Bank in these circumstances.
[ 13 ] The Agreement seeks to preclude a statutory right given the plaintiff pursuant to s. 48 of the BEA . To contract out of the strict liability imposed on the Bank by this provision requires, as noted in the S.N.S. case, clear and complete evidence and an agreement that is unambiguous.
[ 14 ] It is noted that the court in Manor did not make mention of the S.N.S. case that had been released a year earlier, in July 2010, but rather, relied on Arrow Transfer Company Ltd. v. Royal Bank of Canada , 1972 135 (SCC) , [1972] S.C.R. 845, heard long before the Symcor system was in place, and in which “statements of account” became conclusive evidence that no debits were wrongly made. In the words of the Supreme Court, at pp. 850-51:
At the end of the stipulated period, the account as kept by the bank became conclusive evidence that it contained no debits that should not be contained in it, subject to only two exceptions:
Errors of which timely notice had been given to the bank; and
Payments made on forged or unauthorized endorsements. [Emphasis added.]
[ 15 ] Accordingly, this case is not a “slam dunk” as the defendant alleges.
[ 16 ] Regarding the import of the new Rule 20 of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194, the Ontario Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764 , [2011] O.J. No. 5431 held that in the absence of an agreement, summary judgment motions are appropriate where the claims or defences are without merit or the judge can “fully appreciate” all the evidence and issues required to make a dispositive finding without a trial and given the additional considerations.
[ 17 ] The new formulation does not change the evidentiary burden on the moving party to show there is no genuine issue requiring a trial. The party resisting summary judgment must adduce evidence of material facts that require a trial to properly assess credibility, weigh evidence and draw factual inferences. In other words, the standard remains consistent with the existing jurisprudence that each side must “put its best foot forward” with respect to the existence or non-existence of material facts to be tried. See Combined Air, at para. 56, and Royal Bank of Canada v. Tie Domi Enterprises Ltd ., 2011 ONSC 7297 , [2011] O.J. No. 5828, at para. 5 .
[ 18 ] In my view, the pleadings and other material filed raise genuine issues that require a trial, including:
a. whether the Agreement contains “substantive ambiguity” within its wording which triggers the contra proferentum rule;
b. whether the Bank had a duty pursuant to clause 7.1 of the Agreement to ensure valid cheques were paid out to payees and whether, if so, it breached its duty by transferring its data clearing process to Symcor;
c. whether the plaintiff was misled in its negotiations with the Bank by the way it conducted its business; and
d. whether the plaintiff took all reasonable steps to satisfy its obligations to notify pursuant to s. 3.2 of the Agreement.
[ 19 ] The defendant also raised a limitation defence to the claim. It is undisputed that the subject fraud was only discovered after an investigation, conducted by forensic accountants in May or June 2009. The issue of discoverability, in my view, is a real issue that must also be determined after a trial in the circumstances of this particular case.
CONCLUSION
[ 20 ] In this case, I cannot say the plaintiff has no prospect of success, nor am I able at this stage of the proceedings and on the material before me, to determine the dispute, or the lis , between the parties and gain a full appreciation of the evidence.
[ 21 ] In my view, there are genuine issues of fact and mixed fact and law that require a trial for their dispositive resolution.
[ 22 ] Accordingly, the motion of the defendant is dismissed. In my view, a fair and reasonable assessment of costs within the parameters of rule 57.01 and the reasonable contemplation of the parties would be the amount of $15,000 inclusive of HST and disbursements.
[ 23 ] Costs to the plaintiff in the all-inclusive sum of $15,000 payable forthwith.
S. Chapnik J.
DATE: 20120514