ONTARIO SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-08-363866
DATE: 20131120

BETWEEN:

The cash house inc.

Plaintiff

– and –

lai kwan choy, hsbc bank canada, andrew mantella, maple trust company, 1682689 ontario limited and bob chong

Defendants

Mauro Marchioni and Brent Pearce, for the Plaintiff

Courtney Kazembe, for the defendant Lai Kwan Choy,

R. Leigh Youd, for the defendant Andrew Mantella

Martin Sclisizzi, for the defendant Maple Trust Company

Bob Chong, acting in person

No one appearing for the defendant 1682689 Ontario Limited

HEARD: March 19, 20, 21, 22, 27, 28, May 13, 14, June 20 and 27, 2013

REASONS FOR JUDGMENT

Stinson J.

[1] This case involves an allegation of a fraudulent mortgage transaction, coupled with an allegation of the fraudulent negotiation of a bank draft representing the proceeds of the mortgage loan. The plaintiff claims that, as a result of the negligent and/or fraudulent conduct of the defendants, it has lost or incurred a liability of more than $325,000, representing the mortgage funds that were paid out via the bank draft in question.

[2] The defendants are various parties who, the plaintiff alleges, played different roles in the mortgage transaction and who wittingly or unwittingly were participants in the frauds. The plaintiff asserts that some or all of the defendants were either negligent or complicit in the fraudulent activity and are therefore liable to make good its loss. For their part, the defendants either deny knowing complicity in the activities in issue or assert that they owed no duty of care to the plaintiff and in any event maintain that they breached no standard of care.

[3] The case raises some questions of fact as well as several legal issues.

Factual overview

The parties

[4] The plaintiff, The Cash House Inc. (“TCHI”) carries on business as an operator of storefront outlets dealing in cheque-cashing services, payday loans, mobile telephone card renewal and money transfer services. At the relevant time it operated some outlets directly and also licensed several franchisees to carry on the same business under the trade name “Cash House”. At the relevant time, the defendant, 1682689 Ontario Ltd. (“168”) was a franchisee of TCHI and operated a Cash House retail outlet at 3342 Keele Street, in Toronto. Subsequent to the events in this action coming to light, 168 abandoned the operation of the Keele Street outlet; that location continues to be operated by TCHI as a corporate owned outlet. 168 has not defended this action and has been noted in default.

[5] At the relevant time the defendant, Lai Kwan Choy (“Mr. Choy”) and his spouse, Kit Ching Choy (“Mrs. Choy”) were the registered owners of a house located at 28 Raymerville Drive, in Markham, Ontario (“28 Raymerville”). It is that property that is the subject of the alleged fraudulent mortgage.

[6] Mr. and Mrs. Choy were both born in China. As adults, they immigrated to England, where they lived for approximately 30 years, and operated a restaurant. In 1989, following Mr. Choy’s retirement, they decided to immigrate to Canada and they purchased 28 Raymerville as an intended residence. The property was registered in both of their names, as joint tenants. They were unable to relocate to Canada at the time, however, because they did not yet have the necessary immigration status.

[7] Mr. and Mrs. Choy have three children. Their middle child, Sui Lan Choy (“Sui Lan”) moved to Canada to work while her parents still lived in England. They allowed her to live at 28 Raymerville. Between 1989 and 1995, Mr. and Mrs. Choy came to Canada and stayed with Sui Lan there from time to time. They ultimately immigrated to Canada in 1995, and took up residence at 28 Raymerville.

[8] Also in 1995, Sui Lan married the defendant, Bob Chong (a.k.a. “Boby Chong”) (“Mr. Chong”). At the time of the events in issue, all of Mr. and Mrs. Choy, Sui Lan and Mr. Chong resided at 28 Raymerville. Sui Lan and Mr. Chong separated in the summer of 2009 and were divorced in the fall of 2012.

[9] The defendant, Andrew Mantella (“Mr. Mantella”) is a lawyer who, at the relevant time, practiced law in Ontario. He was a sole practitioner. Mr. Mantella maintained his trust account with the defendant HSBC Bank Canada (“HSBC”). HSBC was the drawer of the bank draft that is at the centre of this litigation. The action has been discontinued as against HSBC.

[10] The defendant Maple Trust Company (“Maple Trust”) is a mortgage-lending subsidiary of the Bank of Nova Scotia. Maple Trust was the mortgagee in relation to the alleged fraudulent mortgage scheme.

Summary of the transactions in question

[11] I note at the outset that there are several factual disputes regarding various aspects of the transactions in question and in particular whether they were carried out by or with the involvement and approval of Mr. Choy or by someone who falsely impersonated him. For ease of reference, I will refer to the alleged imposter as the Rogue. In due course, I will make specific findings of fact in relation to these allegations.

[12] In October 2007, Mr. and Mrs. Choy (or persons impersonating them), applied through a mortgage broker, Shahid Saleem (“Mr. Saleem”) for a mortgage loan from Maple Trust against the security of the house at 28 Raymerville (which was at that stage mortgage free). Mr. Saleem was a mortgage broker who frequently submitted mortgage applications to Maple Trust. As part of the Choy mortgage application process, Mr. Saleem requisitioned a full appraisal of 28 Raymerville. That appraisal (including an interior inspection of the house) was carried out on October 25, 2007 by an appraiser approved by Maple Trust. Additional information and documentation, including purported copies of Mr. Choy’s income tax returns and notices of assessment were also submitted to Maple Trust, along with the appraisal. On November 7, 2007, the Choy mortgage application was approved by Maple Trust.

[13] The position of Mr. and Mrs. Choy is that they were wholly unaware of any of these steps and did not participate in either the application or the appraisal. It is common ground that many of the documents supplied to Maple Trust (e.g. copies of tax returns) were forgeries.

[14] Following approval of the mortgage application, Mr. and Mrs. Choy (or persons purporting to be them) retained Mr. Mantella to provide legal services with respect to (a) the transfer of 28 Raymerville from Mr. and Mrs. Choy jointly to Mr. Choy alone and (b) the completion of the mortgage transaction with Maple Trust. Mr. Mantella was also retained by Maple Trust to provide legal services to it with respect to the mortgage transaction. Once again, Mr. and Mrs. Choy deny that they ever retained Mr. Mantella or for that matter ever met him or attended at his office. They also deny signing any of the documents relating to the transfer of title or the mortgage loan transactions.

[15] In due course the mortgage loan was processed by Maple Trust and Mr. Mantella, with exchanges of the requisite instructions and documentation, including a Solicitor’s Interim Report certifying that Maple Trust would have a good first mortgage on 28 Raymerville. Mr. Mantella also arranged for a policy of title insurance in favour of Maple Trust. Because Mr. and Mrs. Choy were joint tenants, title to the property was transferred from them to Mr. Choy alone before a first mortgage from Mr. Choy to Maple Trust was registered against title to 28 Raymerville.

[16] Maple Trust paid the mortgage proceeds of $336,587 to Mr. Mantella in trust. In turn, Mr. Mantella deposited the funds in his trust account at HSBC. Mr. Mantella purchased two drafts from HSBC with the funds, one for $10,000 payable to Nafah Unlimited Inc. and the other for $325,158.90 payable to “Lai-Kwan Choy” (the “Choy Draft”). The funds were distributed pursuant to a letter of direction purportedly signed by Mr. Choy; as with the other mortgage documents, he asserts that his signature was forged on the letter of direction.

[17] On November 16, 2007, an individual purporting to be Mr. Choy (likely, the Rogue) attended at the Cash House outlet on Keele Street operated by 168, in order to negotiate the Choy Draft. 168 was provided with a false Canadian citizenship card in the name of Mr. Choy, bearing the photograph of someone else, along with Mr. Choy’s actual Canadian Social Insurance Number (“S.I.N.”) card. The staff at 168 followed internal procedures in order to decide whether to accept the Choy Draft. Among other steps, 168 contacted HSBC to verify the validity of the Choy Draft, and received confirmation from HSBC that the draft was valid. 168 decided it would cash the Choy Draft, on the basis that it would pay out the cash in installments. In the result, the person posing as Mr. Choy successfully negotiated the Choy Draft and received cash in the total amount of $317,060.95. The funds were paid out in a series of four installments between November 28 and December 3, 2007. 168 retained $8,097.95 as a fee for cashing the draft.

[18] In accordance with the banking arrangements for 168, the Choy Draft (purportedly containing Mr. Choy’s signature as an endorsement on the reverse side) was passed on to TCHI and was deposited in the account of 1160376 Ontario Limited (“116”) at Buduchnist Credit Union (the “Credit Union”). 116 is an affiliate of TCHI, through which TCHI carries out its banking. 116 has sufficient assets to satisfy the collateral requirements of the Credit Union in order to permit TCHI and 116 to negotiate the large volume of cheques that are deposited in the course of the business of TCHI.

[19] At this stage, the alleged frauds were complete: the mortgage application had been submitted and approved; title to the property had been transferred from Mr. and Mrs. Choy to Mr. Choy alone; a new first mortgage in favour of Maple Trust had been authorized by someone purporting to be Mr. Choy and registered on title; the proceeds of the mortgage loan from Maple Trust had passed through Mr. Mantella’s trust account and been distributed by him, largely through the Choy Draft; the Choy Draft had been negotiated by the Rogue at the 168 branch of the Cash House; and 168 had paid out cash totaling $317,060.95 to the Rogue.

[20] The alleged frauds were not discovered until February 2008, when Mr. Choy received a letter from Maple Trust about property tax arrears on 28 Raymerville. In response to that letter, he contacted Maple Trust and it emerged that he claimed to have no knowledge of the mortgage. Mr. Choy provided a statement that he did not obtain the mortgage from Maple Trust, that the signatures on the documents were not his or his wife’s and that neither he nor anyone authorized by him endorsed or negotiated the Choy Draft.

[21] The final event of significance occurred in June 2008. Acting pursuant to the rules of the Canadian Payments Association, HSBC debited the account of 116 at the Credit Union for the full amount of the Choy Draft, $325,158.90; in turn, HSBC credited Mr. Mantella’s trust account for the same amount. In due course, the disputed funds were placed in a lawyer’s trust account pending the outcome of this action (leading to the discontinuance of this action as against HSBC).

[22] As matters stand, therefore, the account of 116 at the Credit Union has been debited with the full amount of the Choy Draft. Pursuant to the banking arrangements between TCHI and its affiliate 116, TCHI is indebted to 116 for $325,158.90. Under the terms of the TCHI franchise agreement, 168, the former operator of the Cash House franchise where the Choy Draft was cashed is liable to TCHI for the full amount. 168, however, has ceased operations and has paid nothing to TCHI. TCHI, therefore, claims to have suffered a loss in the total amount of $325,158.90. As a result, it has brought this action against the named parties, all of whom, it asserts, played some role in the fraudulent transactions in question, and thus incurred liability to it.

issues and analysis

[23] The plaintiff makes various factual allegations and asserts varying causes of action against the multiple defendants. I therefore propose to address separately the claims made against each defendant.

Lai Kwan Choy

[24] As against Mr. Choy, the plaintiff asserts that either Mr. Choy or someone conspiring with him attended at the premises of 168 for purposes of cashing the Choy Draft. The plaintiff further asserts that Mr. Choy “swore a false declaration in respect of his alleged failure to receive proper consideration or any consideration in respect of the mortgage proceeds that were advanced to him and which he negotiated at the premises of [168].” Resolution of the allegations as against Mr. Choy, therefore, largely turns on the determination of questions of fact and in particular whether the evidence persuades me on a balance of probabilities that Mr. Choy was complicit in either the mortgage fraud or the fraudulent negotiation of the Choy Draft.

[25] As I have noted, both Mr. and Mrs. Choy deny any involvement in the execution of the mortgage documentation. None of the signatures on the relevant documents resembles their actual signatures. In relation to the cashing of the bank draft, the various signatures do not resemble Mr. Choy’s signature and the photo identification that was presented to 168 does not appear to be a photo of him. I therefore conclude that someone else endorsed and negotiated the Choy Draft.

[26] In relation to the question whether Mr. Choy was a participant in the mortgage fraud, the plaintiff submits that the evidence supports this conclusion. Among other facts, it points to the existence of the formal appraisal, that includes photographs of the interior of the house and information that the appraiser was told by the “owner” that the roof shingles were approximately three years old. Only a member of the household would have known that information. As well, there were only four keys for the premises, one for each person who lived at the house. This suggests that one of the residents allowed the appraiser to come into the house for the purposes of the appraisal required for the mortgage application. The plaintiff also notes that the telephone number contained in the mortgage application and the appraisal instructions corresponds to one of two landline telephones at 28 Raymerville.

[27] While all those facts are true, they do not necessarily point to any active involvement by Mr. Choy. No witness identified him as having attended at the office of the mortgage broker or the lawyer’s office. He plainly did not attend at the premises of 168 when the Choy Draft was negotiated; someone else impersonated him on that occasion. His testimony that he did not sign any of the documents is supported by comparing his authentic signature with the ones found on the other documents. Although his recollection was sometimes spotty and inconsistent while testifying, he was not moved from his assertion that he had nothing to do with the mortgage transaction. In this respect, his testimony was supported by that of Mrs. Choy, who also denied any such involvement.

[28] It is the case that a S.I.N. card in the name of Mr. Choy was provided to both the lawyer and to 168. Mr. Choy denied doing so. His testimony that his S.I.N. card was not continuously in his possession for an extended period of time provides an explanation for how this may have occurred.

[29] Finally, and most importantly, it makes little sense that Mr. Choy would participate in a scheme to register a fraudulent mortgage against his own house. On its face, such a registration would be valid and enforceable, leaving him with the burden – and risk – of establishing that it was fraudulent. At the time the Maple Trust mortgage was registered, 28 Raymerville was mortgage free. There were municipal property tax arrears, but the testimony of Mr. Choy (confirmed by Mr. Chong) was that those payments were the responsibility of his son-in-law and daughter, as part of their division of responsibility for household expenses. This evidence, too, provides a reasonable explanation for these arrears. Apart from that (minor) accumulating debt, there is no evidence that the Choys were in any financial difficulty that would motivate them to engage in a risky, fraudulent mortgage scheme. This evidence provides a “ring of truth” to the Choys’ testimony that they had nothing to do with the fraudulent transactions.

[30] On balance, the evidence fails to satisfy me that Mr. Choy and his wife had any involvement in the fraudulent mortgage transaction or the fraudulent negotiation of the Choy Draft. I therefore conclude that the plaintiff has failed to establish a basis for a finding of liability as against Mr. Choy.

Maple Trust Company

[31] In the amended statement of claim, the plaintiff grounded its claim as against Maple Trust on the basis of negligence. The particulars of negligence as pleaded with respect to Maple Trust were as follows:

i. that they knew or ought to have known that Mr. Mantella was not a competent solicitor and that he would not be able to conclude the Mortgage transaction in a lawful and prudent manner;

ii. that the Defendant Maple Trust has in fact been paid for its losses by its title insurer, and as a result has no claim to any funds that are the subject matter of this action;

iii. it knew or ought to have known from previous dealings with the Defendant Mantella that he was an incompetent solicitor and that transactions that were concluded through his offices had previously been the subject matter of questionable practices.

[32] At the commencement of trial, during his opening statement, counsel for Maple Trust pointed out the very narrow basis upon which the plaintiff was asserting liability as against his client. No amendment was sought to the statement of claim at that time. Near the end of the trial, following the conclusion of the evidence and after his closing argument, counsel for the plaintiff prepared a further amended statement of claim, containing expanded allegations as against Maple Trust. He sought leave to amend his existing pleading to add those further allegations. Maple Trust opposed the proposed amendments. I heard submissions and made a ruling, in which I denied the proposed amendments. In essence, I ruled that despite the language contained in rule 26.01, the amendment should not be granted because Maple Trust had conducted its defence, presented evidence and cross-examined the plaintiff’s witnesses and others according to the case originally pleaded. For the reasons set forth in my ruling at trial, I concluded that to allow the amendments sought would cause prejudice that could not be compensated for by costs or an adjournment.

[33] In the result, the claim against Maple Trust is based upon the particulars of negligence that I have previously quoted. Dealing first with the allegations that Maple Trust ought to have known that Mr. Mantella was not a competent solicitor, the plaintiff presented no evidence to support these allegations. I am therefore unable to base a finding of liability on this ground.

[34] In relation to the allegation that Maple Trust has no claim to the funds that are the subject matter of the action by reason of the fact that it has been paid for its losses by its title insurer, in my view that plea is irrelevant to the underlying question. As mentioned in my summary of the facts, the disputed funds (which were returned to Mr. Mantella’s HSBC trust account) are currently being held in trust pending the outcome of the litigation. The two potential claimants to the fund are the plaintiff and Maple Trust. Although Maple Trust may have been reimbursed for its loss by its title insurer, the insurer would have a subrogated claim for those funds. This allegation by the plaintiff therefore provides no basis for relief in favour of the plaintiff this action.

[35] I therefore conclude that the plaintiff has failed to make out a case for liability as against Maple Trust.

Bob Chong

[36] Mr. Chong was added as a co-defendant pursuant to the order of Justice Perell dated March 27, 2012. The plaintiff did so on the basis of evidence provided at an examination for discovery of a representative of Maple Trust in July 2010. On that occasion, the Maple Trust representative disclosed the details of the investigation that had led him to the conclusion that Mr. Chong was complicit in the mortgage fraud. Up until that time, the plaintiff was unaware of Mr. Chong’s potential involvement. It therefore moved to add Mr. Chong as a co-defendant.

[37] The substance of the allegation against Mr. Chong is found in paragraph 15A of the amended statement of claim. It provides as follows:

15(A) with respect to Bob Chong:

i. he perpetrated a fraud as against the Plaintiff.

ii. He received the benefit of the monies negotiated at the premises of the Plaintiff, fraudulently, and thereby caused the loss being claimed by the Plaintiff.

[38] For his part, Mr. Chong denies any involvement in the fraudulent mortgage transaction. He further denies that he received any benefit of the monies arising from the negotiation of the Choy Draft. He also raises a defence based on the expiry of the limitation period, given that the events in question occurred in 2007, yet the claim as against him was not initiated until 2012.

[39] Dealing first with the limitation defence, the Limitations Act, 2002, S.O. 2002, c. 24 provides as follows in ss. 4 and 5(1):

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

5(1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

[40] Although the plaintiff learned in 2008 that a fraudulent transaction had occurred, leading to its monetary loss, the only direct participants of whom it was initially aware were the defendants who were sued when the lawsuit was commenced in October 2008. It was not until the examination for discovery stage that the plaintiff became aware of the potential involvement of Mr. Chong. In my view, this situation is covered by s. 5(1)(a)(iii) of the Limitations Act: this was the occasion upon which the plaintiff first knew that its loss may have been caused by the actions of Mr. Chong. As such, the limitation period in respect of a claim against Mr. Chong expired on the second anniversary after the date that the plaintiff learned of Mr. Chong’s potential involvement. Because the examination for discovery was conducted in July 2010, the limitation period for a claim against Mr. Chong did not expire until July 2012. Within that two-year period, on March 27, 2012, the plaintiff obtained an order permitting it to amend the statement of claim by adding Mr. Chong. That amendment was made on May 3, 2012. As such, the claim as against Mr. Chong was commenced within the limitation period. Mr. Chong’s defence based on the expiry of the limitation period therefore cannot succeed.

[41] I turn now to the merits of the substantive claim as against Mr. Chong. In essence, the plaintiff alleges that the loss that it suffered arose due to a fraud perpetrated by Mr. Chong that had its origins in the mortgage fraud and carried through the fraudulent negotiation of the Choy Draft. I accept that the plaintiff has suffered a loss. It is indebted to its affiliate, 116, for the full amount of the Choy Draft, since that deposit was reversed. The question to be answered is whether the evidence persuades me, on a balance of probabilities, that Mr. Chong was a participant in the fraudulent scheme. For his part, Mr. Chong denies any involvement.

[42] Despite Mr. Chong’s denial, I conclude that it is more likely than not that he was involved in perpetrating the mortgage fraud. A number of pieces of evidence point in this direction; when added together they support this finding and lead me to conclude that he was not being truthful when he claimed he had nothing to do with the mortgage fraud.

[43] First of all, Mr. Chong had experience in the mortgage lending business, albeit not as a licensed mortgage broker. He did, however, work in some capacity as an affiliate of a mortgage broker. Not only did this involvement provide him with a knowledge-base about the practices of mortgage brokers and mortgage lenders, but he had the means to become aware of various methods by which fraudulent mortgage transactions could be carried into place.

[44] Secondly, he was familiar with the affairs of his in-laws, Mr. and Mrs. Choy. He lived in the same house, split household expenses with them and he was familiar with their habits and activities. Among other things, he assisted them in their applications for Canadian citizenship. In this regard, he had possession of their personal identification documents, including Mr. Choy’s S.I.N. card. An original S.I.N. card in Mr. Choy’s name was provided to Mr. Mantella’s office and to 168 when it negotiated the Choy Draft. That document came from somewhere and it is entirely possible that it was provided by Mr. Chong to the Rogue to enable him to process the mortgage application and negotiate the Choy Draft.

[45] Thirdly, the fact that interior photographs were taken confirms that someone allowed the appraiser to have access to the interior of the house. As a resident of the house, Mr. Chong was in a position to permit such access. The fact that the appraiser was told about the age of the shingles on the roof of the house suggests that the individual who allowed the appraiser to have access also had some knowledge of the state of repair of the building and past maintenance practices. Mr. Chong had lived in the house for over a decade by the time of the November 2007 appraisal, having married Sui Lan in 1995, so he would likely possess this knowledge.

[46] Next, Mr. Chong was also associated with the telephone number that is found on the mortgage application and the appraisal documentation. It is common ground that this was not a telephone number that was used by Mr. and Mrs. Choy. The number rang through to a telephone located in the area of the house that was occupied by Mr. Chong and his wife. This would suggest that the appraiser would have been able, by means of that telephone number, to contact someone who had access to that telephone in order to set up arrangements for the attendance for the inspection. I am aware, of course, that Mr. Chong testified that he did not personally use that number and that it was instead used by his wife for her business. Despite that evidence, an Internet search for that telephone number revealed that it was registered in the name of Mr. Chong, at 28 Raymerville. No evidence, apart from the testimony of Mr. Chong, supported the conclusion that this telephone number was used by his wife exclusively. She was not called to testify. While not impossible, it strikes me as inherently unlikely that she would knowingly participate in a scheme to place a fraudulent mortgage on her parents’ house

[47] Another relevant consideration is the fact that somehow, a new bank account for Mr. Choy was opened with the Bank of Montreal (“BMO”) apparently with no involvement on his part. This account was intended to be the one that would pay the automatic monthly debits for the monthly mortgage payments for the new Maple Trust mortgage. Mr. Choy denied having anything to do with that account, and there was no evidence from any witness that contradicted him. Mr. Chong also denied any involvement with the BMO account.

[48] The evidence discloses, however, that on an earlier occasion Mr. Chong had opened bank accounts at the TD Bank in the names of Mr. Choy and Mrs. Choy without their participation. He used their identification documents on that occasion. Those accounts were used to borrow funds and, as a result, Mr. Chong somehow managed to incur indebtedness on the part of his in-laws without any involvement by them. Mr. Chong used these funds to pay credit card debits. When these accounts came to light, he admitted his wrongdoing, and promised to repay his in-laws.

[49] Mr. Chong testified that he was induced by someone else to open the TD accounts, with the complicity of an insider at TD. With respect, I found that story to be somewhat far-fetched, unlikely, and hard to believe.

[50] The evidence relating to the TD accounts is, on its face, not admissible because it is evidence of prior discreditable conduct on the part of Mr. Chong. Evidence of discreditable conduct on other occasions is presumptively inadmissible: Alan W. Bryant, Sidney N. Lederman & Michelle K. Fuerst, Sopinka, Lederman & Bryant: The Law of Evidence in Canada, 3d ed. (Markham: LexisNexis Canada, 2009) at 760. Where, however, that evidence is relevant to an issue in dispute, it may be admitted provided its probative value exceeds its prejudicial effect. In the present case, the issue to which the opening of the fraudulent TD accounts is said to be relevant is whether Mr. Chong was likely involved in opening of the fraudulent BMO account, a necessary element in the mortgage fraud scheme.

[51] In my view, the fact that Mr. Chong had on a prior occasion, opened bank accounts in the names of his father-in-law and his mother-in-law, without their knowledge or participation, demonstrates that, before the events in dispute in this lawsuit, he had the knowledge and ability to do so. This evidence is therefore relevant to supporting the inference that Mr. Chong could have accomplished the same thing at BMO, as part of the mortgage fraud scheme. In my view, the probative value of this evidence exceeds its prejudicial effect, and I would admit it on this basis.

[52] Additionally, it must be borne in mind that, around the relevant time, Mr. Chong had in his possession (or, at least, had access to) Mr. Choy’s personal identification documents. These documents would be necessary in order to open a new bank account in the name of Mr. Choy.

[53] The foregoing evidence would support the inference that, despite his denial, Mr. Choy was involved in opening the BMO account. Indeed, had the property tax arrears not come to the knowledge of Maple Trust, triggering its letter to Mr. Choy, it may well be that BMO account could have been used for some time to make the monthly mortgage payments and further conceal the fraud.

[54] For the reasons previously set out, I find that neither Mr. or Mrs. Choy had any involvement in the fraudulent mortgage scheme. As I have noted, there is no evidence that they needed money. By contrast, Mr. Chong used the fraudulent TD accounts to procure money to pay his credit card debts. Mr. Chong was responsible for paying the property taxes on 28 Raymerville, yet he allowed them to fall into significant arrears. This evidence suggests that Mr. Chong was facing serious financial problems, which would give him a motive to participate in a fraudulent mortgage loan scheme.

[55] Overall, when considered together, the foregoing factors all support the conclusion that Mr. Chong was somehow involved in the fraudulent mortgage application. Although there had to be other participants in that scheme, they did not include either Mr. or Mrs. Choy. The evidence does not support the conclusion that their daughter was involved, either; indeed, no one advanced that theory at trial. Instead, the evidence persuades me on a balance of probabilities that it was Mr. Chong who assisted in the process by which the fraudulent mortgage application was submitted, processed and approved, the mortgage funds obtained and the Choy Draft negotiated for cash. Plainly, this was a fraud involving multiple actors, of whom Mr. Chong was one perpetrator.

[56] One element of the fraud was the negotiation of the Choy Draft at the premises of 168. The perpetrators of the fraud had to know that, once the fraudulent endorsement on the Choy Draft was discovered, the full amount of the draft would be charged back as against the party who negotiated the draft. Put another way, the perpetrators had to know that those who negotiated the bank draft would suffer a loss such as the one suffered by 116 and the plaintiff.

[57] I therefore conclude that Mr. Chong is liable to the plaintiff for the full amount of its loss, founded upon the theory that he was one of the perpetrators of the fraud that caused the damage to the plaintiff. I therefore hold that the plaintiff is entitled to an appropriate damages award as against Mr. Chong.

Andrew Mantella

[58] I turn now to the plaintiff’s claim against Mr. Mantella. It is based on the following allegations of negligence in the amended statement of claim:

i. that at the time that he acted in respect of the Mortgage transaction he was acting for both the borrower and the lender and as a result was acting in a position of conflict;

ii. at the time of his acting in the circumstances he was incompetent and should not have acted or attempted to act on behalf of the Defendants Choy and/or the co-Defendant Maple Trust;

iii. he employed staff, employees, agents or contractors who were incompetent and ought not to have assisted him in acting or attempting to act on behalf of the co-Defendants;

iv. he failed to carry out his actions on behalf of the co-Defendants in a reasonable and prudent manner in particular, but not limiting to the generality of the foregoing, failed to ensure that the documents allegedly executed by Choy were actually executed by Choy;

v. that he knew or ought to have known that a third party would rely on his delivery of a draft to have been made to the proper party so that when being verified it was not reported as stolen or otherwise a fraudulent draft.

[59] As I have mentioned, Mr. Mantella was a sole practitioner. He employed a receptionist, a general assistant and a paralegal assistant to work on personal injury work. He shared space with a paralegal, Nazir Alakoozi, who did Highway Traffic Act matters. Other space in his office was occupied by a real estate conveyancer named Dawn Scott, to whom he was introduced by Mr. Alakoozi. He had no written contract or lease with Ms. Scott; for her referrals to him, he would charge a fee for his real estate work and she would charge for the conveyancing.

[60] With respect to the Choy mortgage transaction, this legal work came to Mr. Mantella by way of a referral through a mortgage broker, Mr. Saleem, whom he had met through Mr. Alakoozi. Mr. Mantella had no specific recollection of opening the file, but testified that his ordinary practice would be to review the initial documents, contact the conveyancer (Ms. Scott), have a brief discussion with her, and give her the documents to work with. Based upon the contents of his file, Mr. Mantella had little direct involvement in the Maple Trust – Choy transaction; most of the work was carried out by Ms. Scott, who prepared the documents. That said, Mr. Mantella was the lawyer who was retained on behalf of both the borrower and Maple Trust to carry out the steps necessary to complete the mortgage transaction and to provide Maple Trust with a valid and enforceable first mortgage on the Choy property.

[61] According to Mr. Mantella’s evidence, on the day that the Choys were to come to his law office to execute the required documents, he was unable to stay late. Mr. Alakoozi offered to stay and verify the clients’ identification and obtain their signatures on the documents. This had been done by Mr. Alakoozi before. In advance, Mr. Mantella discussed with Mr. Alakoozi the need for the clients to present identification that was to be verified; if they had questions, Mr. Alakoozi was to pass them on to Mr. Mantella. Despite the fact that Mr. Mantella never saw the Choys personally he provided to Maple Trust a completed Identification Verification Form in which he certified that he had examined Mr. Choy’s photo identification. Completion of that form was a prerequisite to disbursement of the mortgage funds. Mr. Mantella’s file contained copies of Mr. Choy’s S.I.N. card and a false Canadian citizenship card in his name. The latter document was plainly a forgery because Mr. Choy did not obtain his Canadian citizenship until 2008, and the individual pictured on the card in Mr. Mantella’s file is plainly not the defendant Lai Kwan Choy.

[62] Mr. Mantella never saw the persons who executed the various documents that the mortgagors were required to sign. The instructions he received from Maple Trust did, however, provide that “all mortgage documents must be signed in your presence or in the presence of your designate, whose actions [sic] you remain fully liable.” There were deficiencies in a number of these documents. For example, the mortgage document was signed by the spouse of Lai Kwan Choy in the wrong place. The acknowledgment and direction form confirming the terms of mortgage, was signed by the person purporting to be Lai Kwan Choy, but contained a misspelling of Mr. Mantella’s name. Many of the requisite statutory declarations were not fully completed or sworn. There was no survey. There was no waiver of any of these requirements by Maple Trust.

[63] In addition to the foregoing technical deficiencies, there were two other unusual aspects of the mortgage transaction. Firstly, the funds from Maple Trust were received into and disbursed from Mr. Mantella’s trust account on November 15, 2007. The mortgage registration was not completed, however, until November 20, 2007, some five days later. In other words, the funds were disbursed well before the mortgage security was registered.

[64] Additionally, Mr. Mantella’s file contains no real property tax certificate confirming that the taxes on 28 Raymerville were up-to-date. The Solicitor’s Instructions from Maple Trust expressly stated that all real property taxes were to be paid up to and including November 15, 2007. Maple Trust required a tax certificate confirming payment. No such certificate was obtained. As I have noted, it ultimately emerged that the property taxes on 28 Raymerville were several years in arrears. As Mr. Mantella conceded during his evidence, if a tax certificate had been ordered, the arrears would have been dealt with prior to the advance of the mortgage funds. Thus it is plain that this condition regarding the release of funds was not met.

[65] Broadly speaking, Mr. Mantella relied on Mr. Alakoozi and Ms. Scott to deal with the borrower and the lender and to carry out all the searches, paperwork and conveyancing associated with the mortgage transaction. According to his evidence, he left it to Mr. Alakoozi to verify the identity documents and to obtain the signatures on the required documents and he relied on Ms. Scott’s assurances that everything was in order, that the tax payments were current, and the documents had been registered, before he authorized the release of the funds from his trust accounts. If one accepts Mr. Mantella’s evidence, it follows that Mr. Alakoozi was either duped by the fraudsters or was complicit in the fraud and duped Mr. Mantella. It further follows that Mr. Mantella was either duped or misled by Ms. Scott, because, contrary to her assurances to him, there were tax arrears and the registration of documents was not complete. Despite these facts, the funds were released, contrary to the instructions of the client Maple Trust. It is also possible that Ms. Scott was complicit in the fraud.

[66] There remains the possibility that Mr. Mantella was personally complicit in the fraud. There is no direct evidence that he was. He denied any knowing involvement. According to him, he was misled by Ms. Scott either intentionally or carelessly. It is not clear whether he was misled by Mr. Alakoozi.

[67] Unlike Mr. Chong, there are no external indicia of a motive or mechanism for Mr. Mantella to become involved in fraudulent activity. He had the most to lose – his licence to practice law and a potential criminal prosecution – and he was the easiest to locate once the fraud came to light, as it inevitably would, sooner or later. Mr. Mantella conceded the shortcomings in the way the loan was processed. He was not seriously challenged or contradicted on any material points on cross-examination.

[68] Overall, I conclude that it is unlikely that Mr. Mantella was a knowing participant in the mortgage fraud and I accept his denial. I find instead that he was duped (or let down) by a combination of Mr. Alakoozi, Ms. Scott, the originator of the mortgage application (Mr. Saleem) and the Rogue.

[69] If this lawsuit had involved a lawyer’s negligence claim by Maple Trust against its lawyer, Mr. Mantella, arising from a loss alleged to have been suffered by Maple Trust as a client by reason of the manner in which the mortgage transaction was handled, there would likely have been expert evidence as to the standard of care to be met by a lawyer retained to act for a mortgagee in such circumstances. That evidence might well have addressed the significance of the failure of Mr. Mantella to meet with the Choys personally; his certification of the identification documents notwithstanding the fact that he had not met the Choys directly; the significance of his – or Ms. Scott’s – failure to obtain a tax certificate prior to making the advance; the fact that the mortgage funds were advanced several days prior to the registration of the mortgage documents; and his reliance on paralegals and others in the course of his real estate practice. Based upon that evidence, coupled with the manner in which the mortgagee may have suffered the loss, it would have been my task to determine whether Mr. Mantella fell below the required standard of care and whether his actions caused the loss.

[70] This case is not a lawyer’s negligence case, however. There was no expert testimony. There is no evidence whether Mr. Mantella’s conduct met or fell below the standard of care.

[71] Rather, in this case there was no lawyer-client relationship between Mr. Mantella and the plaintiff, TCHI. Despite the absence of such a relationship, the plaintiff seeks to impose liability against Mr. Mantella on the theory that he failed to carry out his actions on behalf of the co-defendants (i.e. Mr. Choy and Maple Trust) in a reasonable and prudent manner, that he failed to ensure that the documents allegedly executed by Mr. Choy were actually executed by him, and that he knew or ought to have known that a third party would rely on his delivery of the Choy Draft to have been made to the proper party. As advanced at trial, the plaintiff’s claim was based on the existence of a duty between Mr. Mantella and the plaintiff (respectively characterized as the drawer of the draft and the collecting bank), which duty Mr. Mantella failed to meet.

[72] Counsel for the plaintiff conceded during argument that he could not locate a case in which a bank that cashed a cheque with a fraudulent endorsement had successfully claimed against the lawyer who drew the cheque in the course of a mortgage fraud. Thus, I am being asked to recognize the existence of a duty where none has previously been found. As has frequently been stated, however, “[t]he categories of negligence are not closed.” Donoghue v. Stevenson, 1932 536 (FOREP), [1932] A.C. 562 (H.L.) at 619.

[73] Before turning to a specific analysis of the potential basis for imposing liability in favour of TCHI against Mr. Mantella, it is useful to examine the circumstances under which TCHI suffered the loss in the first place. When the mortgage advance was processed through Mr. Mantella’s trust account, it was paid out by way of a bank draft payable to “Lai-Kwan Choy”. From Mr. Mantella’s perspective, at least, that draft was intended to be payable to and negotiated by the registered owner of 28 Raymerville, the defendant Lai Kwan Choy. As events unfolded, however, the Choy Draft came to be cashed by the Rogue when he attended at the premises of 168. The Rogue presented false identification (in the form of a forged citizenship card) and Mr. Choy’s S.I.N. card, and proceeded to endorse the back of the draft with a signature. I find as a fact that the signature on the reverse side of the Choy Draft was not that of the intended payee Lai Kwan Choy, although it purported to be that signature. It follows that the endorsement was a forgery.

[74] After the Choy Draft was cleared and HSBC became aware of the forgery, it returned the draft through the bank clearing process to the Credit Union, pursuant to the rules of the Canadian Payments Association. Those rules provide that an item bearing a forged endorsement may be returned through the clearing process up to six years from the date the item was cleared. Through this process, HSBC debited the Credit Union for the amount of the Choy Draft ($325,158.90) and credited the same amount to Mr. Mantella’s trust account. In turn, the Credit Union debited its customer, 116, for the same amount. Pursuant to the arrangements between them, TCHI is obliged to indemnify 116 for the full amount of the loss. TCHI has therefore incurred a liability as a result of the fraudulent negotiation of the Choy Draft.

[75] The legal underpinning for the foregoing is as follows. Pursuant to s. 61(1) of the Bills Of Exchange Act, R.S.C. 1985, c. B-4, in order to operate as a negotiation, an endorsement must be “written on the bill itself and be signed by the endorser”. Where an endorsement is forged, the payment is diverted from its intended recipient. A forged endorsement is wholly inoperative and does not transfer the bill to the endorsee. Mr. Choy’s actual endorsement was necessary to effect the negotiation of the Choy Draft. Because the endorsement was forged, it was wholly inoperative to transfer the Choy Draft to 116. See Bradley Crawford, Q.C., The Law of Banking and Payment in Canada, loose-leaf, (Aurora, Ont.: Canada Law Book, 2008), ch. 23 at 53, 79-80, 84, ch. 24 at 19, and ch. 26 at 9.

[76] Where a cheque or bank draft bears an unauthorized endorsement, a collecting bank (here the Credit Union) which proceeds to collect the draft, essentially converts the funds to a person not entitled to receive them, and therefore is liable for conversion. The Credit Union, 116, and TCHI, the endorsees of the Choy Draft, converted the Choy Draft. They were not entitled to the Choy Draft because Mr. Choy’s endorsement was forged. The Credit Union collected the Choy Draft from HSBC for 116 based on Mr. Choy’s forged endorsement. It was on this basis that, pursuant to the rules of the Canadian Payments Association, HSBC was entitled to return the item and debit the account of the Credit Union accordingly.

[77] The tort of conversion is the “wrongful interference with the goods of another” and is a strict liability tort. See Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce, 1996 149 (SCC), [1996] 3 S.C.R. 727, at 746. In that decision, writing for the majority of the Supreme Court (in a 7:2 decision) Justice Iacobucci described conversion in the banking context as follows (at 767):

A bank converts an instrument, including a cheque, by dealing with it under the direction of one not authorized, by collecting it and making the proceeds available to someone other than the person rightfully entitled to possession. It should be noted that the tort of conversion is one of strict liability.

[78] In relation to the subject of conversion of cheques, Iacobucci J. said as follows (at 746):

The tort of conversion involves a wrongful interference with the goods of another, such as taking, using or destroying these goods in a manner inconsistent with the owner’s right of possession. The tort is one of strict liability, and accordingly, it is no defence that the wrongful act was committed in all innocence. Diplock L.J. asserted this principle in Marfani & Co. v. Midland Bank, Ltd., [1968] 2 All E.R. 573, at pp. 577-78:

… the moral concept of fault in the sense of either knowledge by the doer of an act that is likely to cause injury, loss or damage to another, or lack of reasonable care to avoid causing injury, loss or damage to another, plays no part.

If the customer is not entitled to the cheque which he delivers to his banker for collection, the banker, however, innocent and careful as he might have been, would at common law be liable to the true owner of the cheque for the amount of which he receives payment, either as damages for conversion or under the cognate cause of action, based historically on assumpsit, for money had and received.

[79] At 748-49, Iacobucci J. continued as follows:

The seminal discussion of conversion of cheques is found in Crawford and Falconbridge, Banking and Bills of Exchange (8th ed. 1986), vol. 2, at p. 1386:

Conversion is the remedy of the lawful possessor of chattels to have their value paid to him by a wrongful dispossessor. It is normally applied to goods and there might appear to be some difficulty in holding that a bank that has paid part of what it owes to a customer to some other person not entitled to receive it is guilty of a conversion of the customer’s chattel. But any such apparent difficulty has been surmounted by treating the conversion as being of the instrument itself, that is, of the piece of paper in respect of which the payment is made. Similarly a bank that collects a sum of money under an instrument for a person not entitled to it is treated as having converted the instrument. It has been repeatedly held that a bank converts an instrument by dealing with it under the direction of one not authorized, either by collecting it or, semble (although this has not yet actually been decided) by paying it and in either case, making the proceeds available to someone other than the person rightfully entitled to possession.

[80] The loss suffered by the plaintiff in the present case, therefore, arose by reason of its participation in the wrongful conversion of the Choy Draft and its corresponding liability to 116 and the Credit Union by reason of the banking arrangements and agreements between those sets of parties. Pursuant to the law of bills of exchange as confirmed by the majority of the Supreme Court in Boma, the loss arising from a forged endorsement is borne by the party who participates in the conversion (i.e. who processes the forged endorsement) regardless of any culpability on its part.

[81] Despite the foregoing legal principles, however, in the present case the party who would otherwise be fixed with the loss (i.e. the plaintiff) seeks to impose liability on the drawer of the bank draft, Mr. Mantella. In order to do so, the plaintiff advances the (admittedly novel) theory that a duty of care is owed by the drawer of a draft to a subsequent party who may negotiate it, to ensure that the draft is the product of a legitimate transaction, such that by negotiating it the subsequent party will not suffer a loss by being visited with liability for negotiating a draft with a forged endorsement.

[82] In support of its theory, the plaintiff relies upon the line of caselaw originating with the House of Lords decision in Anns v. Merton London Borough, [1978] A.C. 728 (H.L.). See also Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537. In essence, based on those authorities, the plaintiff argues that Mr. Mantella owed a duty to his “neighbour” (the subsequent negotiator(s) of the draft) to ensure that the bank draft representing the mortgage proceeds was released to the right person (i.e. the genuine mortgagor), such that its subsequent negotiation would not result in a loss to the party who negotiated it. The plaintiff argues that it is foreseeable that the failure to ensure that the draft is released appropriately can cause the loss complained of here. Turning the draft over to a person who will negotiate it but is not the correct recipient, the argument continues, is a breach of duty, because it will cause foreseeable loss to the party who cashes it, here the plaintiff.

[83] The approach for which the plaintiff advocates, therefore, would impose a duty of care on the drawer of a cheque or bank draft, the breach of which would be enforceable by way of a claim for negligence by a subsequent negotiator of the draft who suffers a loss. The potential insertion of the concept of negligence into the law of bills of exchange was considered and rejected by the majority of the Supreme Court in Boma. The plaintiff in that case, a closely held corporation, had been defrauded by its bookkeeper. The bookkeeper had prepared a series of fraudulent cheques over a five-year period, payable to a number of persons associated with the plaintiff. The bookkeeper then deposited all the cheques into her account with the defendant bank, effectively forging endorsements that permitted her to do so. When the plaintiff discovered the loss, it sued the defendant bank for conversion. Among other grounds, the bank resisted the claim on the ground that the plaintiff had been contributorily negligent in failing to supervise the activities of the fraudulent employee and in failing to set up an adequate system of review to detect and prevent the fraudulent activity.

[84] The plaintiff’s action against the bank succeeded at trial, but that decision was reversed on appeal by the British Columbia Court of Appeal. The Supreme Court of Canada allowed the subsequent appeal, and restored the trial judgment.

[85] In relation to the subject of the availability of the defence of contributory negligence, Iacobucci J. for the majority said as follows (at 748):

As I stated above, however, it seems as a matter of principle that contributory negligence would not be available in the context of a strict liability tort. If the contributory negligence approach is to be introduced into this area of the law, I would leave that innovation to Parliament because such a change would be more appropriate for the legislative branch to make. As I see it, the strict liability feature of conversion is well engrained in the jurisprudence concerning bills of exchange.

[86] Boma was followed by Kiteley J. in Khosla v. Korea Exchange Bank of Canada, [2008] O.J. No. 4344 (S.C.); aff’d 2009 ONCA 467, a case that bears many similarities to ours. In Khosla, the plaintiff was the lawyer for the purchaser of a fraudulently listed property. As part of the transaction, the plaintiff lawyer, drawing on funds provided to him by his legitimate purchaser client, issued a certified cheque payable to the property owner on account of the purchase price. The fraudster who had fraudulently listed the property, fraudulently opened a bank account with the defendant bank in the name of the property owner. The fraudster then forged the signature of the property owner on the cheque, deposited it and subsequently withdrew the funds. In resisting the plaintiff’s claim for reimbursement for the funds, the defendant bank argued that the plaintiff lawyer had been in a better position to stop the fraud and had been negligent. In the first instance, Kiteley J. held that the cheque was not validly negotiated because it bore a forged endorsement. On appeal, the decision of Kiteley J. was upheld. At paras. 5-6, the Court of Appeal said as follows:

First, this case is governed by Boma. In that case, the Supreme Court of Canada made clear that where a bank receives a cheque on which the payee’s endorsement has been forged and then collects it and pays out the proceeds to someone not rightfully entitled to possession of it, the collecting bank converts the cheque and is liable in tort to the drawer. That is exactly what happened in this case.

Moreover, at paragraphs 34 and 35 of Boma, the court makes clear that the tort of conversion is one of strict liability. Thus, neither contributory negligence by the drawer nor his or her relative ability to discover the fraud are relevant. This reflects the policy of certainty that underpins the relevant provisions of the Bills of Exchange Act. [Citations omitted; emphasis added.]

[87] Khosla, therefore, was a case in which a lawyer was the victim of a real estate fraud carried out by a rogue, much the same as the present case. In that case, as here, it was argued by the opposite party that a duty of care should be placed on the lawyer engaged in the real estate transaction, to take appropriate steps to ensure that the underlying transaction is legitimate and carried out in a proper fashion, so that any subsequent negotiator of the cheque representing the proceeds of the transaction would not be responsible for the loss that might arise if the endorsement on the cheque is forged. Relying on Boma, the Ontario Court of Appeal rejected that theory, referring to the “policy of certainty” that underpins the law relating to bills of exchange.

[88] The plaintiff in the present case, however, seeks to distinguish Boma and its discussion regarding strict liability for conversion. The plaintiff points out that ours is not a case in which a claim for conversion by the drawer of a cheque is resisted on the ground that the drawer was negligent or contributorily negligent in relation to the events that permitted the conversion. In other words, the plaintiff says the concept of conversion as a strict liability tort and the resulting irrelevance of contributory negligence have no application to this case. Instead, the plaintiff argues, based on our facts (where the plaintiff’s loss flows from the charge back by the Credit Union to the account of 116) it is appropriate to conduct an Anns analysis to determine whether a claim for negligence may lie.

[89] In support of its submission, the plaintiff relies on an obiter comment by Borins J.A. in Royal Bank of Canada v. Société Générale Canada (2006), 2006 42545 (ON CA), 219 O.A.C. 83 (C.A.). In that case, having already set aside the judgment of the motion judge and ordered that the entire action proceed to trial, Borins J.A. commented as follows, at para. 51, “There has been no judicial consideration of the duty of care owed by the drawer of an instrument to a collecting [bank].” Borins J.A. went on to observe that, since this was a novel claim, it should have been permitted to go to trial. As events unfolded, the matter settled and no trial ever took place.

[90] The plaintiff further relies on the comments of LaForest J. in Boma, in dissent (McLachlan J. concurring), at 778:

I am not yet prepared to discount the possibility that in a proper case the loss should be apportioned between the employer/drawer and the accepting bank. There is much to be said for the view that this would be the fairer course. One, but possibly not the only, vehicle that would allow this to occur would be a suit in negligence. In a suit in negligence apportionment is specifically provided for through the mechanism of contributory negligence. The principal difficulty with such an approach is that the courts in both England and Canada have traditionally been unwilling to find that a duty of care exists between the rightful owner of a cheque and an accepting bank .… However, that type of reasoning is reminiscent of the time before the law could take contributory negligence into account by virtue of either legislation or judicial development.

[91] In light of the foregoing the plaintiff submits that this case – in which there were a series of shortcomings and irregularities in the fashion in which the Choy mortgage transaction was handled by Mr. Mantella – is one in which the conduct of the drawer of the bank draft (Mantella) should be actionable in negligence. I am not prepared to accept that submission, for several reasons.

[92] First, as plaintiff’s counsel conceded and as the comments of Borins J.A. quoted above would indicate, put at its highest this is a novel claim. The plaintiff was unable to cite any case in which liability had been imposed on a lawyer who was the victim of mortgage fraud in favour of a bank who subsequently negotiated the cheque that was the product of the fraudulent transaction. Boma was decided 17 years ago and, despite the comments of LaForest J., no court has picked up his lead. Indeed, only four years ago, in a decision released three years after the comment of Borins J.A. in Royal Bank v. Société Générale, the Court of Appeal in Khosla opted to follow the majority decision in Boma.

[93] Second, the comments of Iacobucci J. in Boma offer a clear reason for the reticence of judges to wade into this complex and multifaceted field. An innovation that would introduce the concept of negligence (contributory or otherwise) into the certainty that otherwise pervades the jurisprudence concerning bills of exchange is one that should be left to the legislature. This would allow a thorough and proper assessment of all relevant considerations in this complicated and well-developed area of the law.

[94] Finally, I am not persuaded that negligence of the sort alleged by the plaintiff is made out on the facts of this case. As I have noted, this is not a claim by the unhappy mortgagee for a loss suffered when its mortgage security turned out to be unenforceable, due to substandard legal work by the lawyer hired to carry out the transaction. While there were mistakes and omissions that might well be actionable in such a case, in the present action the evidence persuades me that Mr. Mantella was also duped by the fraudsters. Even if all of the alleged shortcomings had not occurred – for example, if he had met the imposter Choys himself and personally certified their identification; if all of the statutory declarations had been duly completed; if a tax certificate had been ordered, the arrears discovered and remedied; if the registration of the transfer and mortgage documents had been completed before the advance of funds – the net result would still have been the issuance of a bank draft payable to Lai Kwan Choy. That bank draft would have been picked up by the Rogue, taken to 168 and negotiated in the same fashion, resulting in the conversion that gave rise to the charge back by HSBC to the Credit Union and to 116. In other words, the evidence fails to satisfy me that anything that was done or not done by Mr. Mantella caused the loss; put another way, nothing he might have done would have prevented it.

[95] I note in addition that the plaintiff has failed to establish that Mr. Mantella was the cause of its loss. Rather, the loss came about because 168, 116 and the Credit Union accepted and processed the Choy Draft, containing as it did a forged endorsement. As a result, they all committed the strict liability tort of conversion, thereby entitling HSBC to charge back the full amount of the draft to the Credit Union, with the resulting consequences to 116 and 168. It was their actions and not those of Mr. Mantella that occasioned the loss.

[96] I therefore conclude that the plaintiff has failed to make out a case for liability as against Mr. Mantella.

1682689 Ontario Limited

[97] 168 did not defend the action and was noted in default. The plaintiff did not move for judgment at trial, but had it done so I would not have been prepared to grant judgment against 168 for the following reasons.

[98] The allegations against 168 are founded on negligence, as particularized in paragraph 15(d) of the amended statement of claim as follows:

With respect to 1682689 Ontario Limited:

(1) It failed to adhere to the processes and procedures outlined in its franchise agreement as between the plaintiff and itself;

(2) It knew or ought to have known that Choy was a co-conspirator with one or more of the co-defendants in respect of the negotiation of the draft;

(3) That it did not exercise the due diligence required of it as set out in the franchise agreement entered into between it and the plaintiff, dated the 10th day of March 2006, and as a result is responsible to indemnify the plaintiff against any losses that it may occasion as a result of the aforementioned series of events.

[99] There is no evidence to support allegation (1). With respect to allegation (2), I have found as a fact that Mr. Choy was not a co-conspirator. As a result, this ground of complaint cannot be sustained. With respect to allegation (3), a lack of due diligence, the evidence instead persuades me that 168 did act reasonably. Indeed, it consulted with the principal of the plaintiff before making the decision to accept the Choy Draft. In the circumstances, I do not accept that it was guilty of any failure to exercise due diligence.

[100] For these reasons, the plaintiff has not made out a case for liability as against 168 on the grounds pleaded in the amended statement of claim.

Damages

[101] The full amount of the plaintiff’s liability to 116 is the amount of the charge back made by the Credit Union to the account of 116, namely, $325,158.90. In my view, that represents the correct quantification of the plaintiff’s loss.

Conclusion and disposition

[102] For the foregoing reasons, the action is dismissed as against the defendants Lai Kwan Choy, Andrew Mantella, Maple Trust Company and 1682689 Ontario Limited. The plaintiff is awarded judgment as against the defendant Bob Chong for the sum of $325,158.90, plus prejudgment interest.

[103] In relation to costs, if the parties cannot agree, they may make written submissions as follows:

(a) The successful defendants Lai Kwan Choy, Andrew Mantella and Maple Trust Company shall serve bills of costs on the plaintiff, and the defendant Bob Chong, accompanied by written submissions, within 30 days of the release of these reasons.

(b) The plaintiff shall serve its response on the defendants Lai Kwan Choy, Andrew Mantella, Maple Trust Company and Bob Chong within 15 days thereafter.

(c) The plaintiff shall serve its bill of costs and submission on the defendant Bob Chong at the same time.

(d) The defendant Bob Chong shall serve his response on the other parties within 15 days thereafter.

(e) The defendants Lai Kwan Choy, Andrew Mantella and Maple Trust Company and the plaintiff shall serve their reply, if any, within 10 days thereafter.

(f) The defendant Bob Chong shall serve his response to the plaintiff’s submission at the same time. If it wishes, the plaintiff may serve a reply within a further 10 days.

(g) In all cases, the written submissions shall be limited to three pages, plus bills of costs. I expressly invite counsel for the plaintiff to submit the bill of costs it would have tendered on the successful defendants if the plaintiff had been successful at trial against them.

(h) I direct that counsel for the defendant Maple Trust shall collect copies of all parties’ submissions and arrange to have that package delivered to me in care of Judges’ Administration, Room 170 at 361 University as soon as the final exchange of materials has been completed. To be clear, no materials should be filed individually: rather, counsel for the defendant Maple Trust will assemble a single package for delivery as described above.

___________________________ Stinson J.

Released: November 20, 2013

COURT FILE NO.: CV-08-363866

DATE: 20131120

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

The cash house inc.

Plaintiff

– and –

lai kwan choy, hsbc bank canada, andrew mantella, maple trust company, 1682689 ontario limited and bob chong

Defendants

REASONS FOR JUDGMENT

Stinson J.

Released: November 20, 2013