COURT FILE NO.: CV-08-00366686
DATE: 20131227
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
RAZA KAYANI LLP,
Plaintiff
– and –
THE TORONTO-DOMINION BANK, AMARAS GEM AND JEWEL and NITHIYAKALYAANI JEWELLERS,
Defendants
-AND ALSO-
JACK SHELDON ZWICKER,
Plaintiff
– and –
THE TORONTO-DOMINION BANK,
Defendant
Martin Sclisizzi, Counsel for the Plaintiff
Martin Greenglass, Counsel for The Toronto-Dominion Bank, one of the Defendants
Kayani, by Notice of Discontinuance, dated July 27, 2010 discontinued his action against the other two Defendants.
CV-08-00357752-0000
Martin Sclisizzi, Counsel for the Plaintiff
Martin Greenglass, Counsel for The Toronto-Dominion Bank, the Defendant
HEARD: SEPTEMBER 18 and 19, 2013
JUDGMENT: GREER J.:
[1] The parties agreed that these two actions should be heard together, one after the other, as they were similar actions arising out of similar transactions, in which each Plaintiff was involved. The Toronto-Dominion Bank (“TD Bank”) is the Defendant in both actions and it made sense to hear one after the other.
[2] The parties provided a Joint Book of Documents, which included most documents. The legal arguments in both actions were argued by counsel for the Plaintiffs in both actions and defended by the same counsel for TD Bank in both actions. The parties also agreed that the two Plaintiffs would give their evidence first, followed by the Defendant Bank for both actions.
The Claims
[3] Both Plaintiffs involved are lawyers, with the Plaintiff, Raza Kayani LLP (“Kayani”) being a law firm partnership of two lawyers. The Plaintiff, Jack Sheldon Zwicker (“Zwicker”), is a sole practitioner. The parties agree that both lawyers involved were the victims of fraud. The issue in both cases is who should bear the financial consequences of that fraud.
[4] In the Kayani matter, counsel subpoenaed two witnesses, who had been bound over from when the matter first came on for Trial and was adjourned to September 18, 2013. Neither of those witnesses appeared for the Trial although they were given notice to do so. Given their failure to appear, after counsel called and left messages for them to attend, I ordered that Warrants of Arrest should issue to have them brought before the Court.
[5] The Kayani Statement of Claim was issued on June 26, 2008 and the Zwicker Statement of Claim on November 12, 2008. Both Plaintiffs made the same claims against the Defendants, as follows:
(a) Kayani claims damages for conversion in the amount of $211,500.74 and Zwicker claims the amount of $190,883.82 also for conversion by the Defendant;
(b) Each claims further and in the alternative, asks for damages for the same amount for negligence committed by the Defendant;
(c) Each claims an Order that the sum of $4,989.03 currently frozen in the TD Bank account held in the name of Nithiyakalyaani Jewellers (the “Nithiyakalyaani Account” at the TD Bank’s. The Westway Branch, as defined below, be paid forthwith to him;
(d) Zwicker also claims an Order that the $11,268.11 currently frozen in the TD Bank account at the Streetsville Branch, as defined below, be paid forthwith to him.
The Zwicker Case
[6] Zwicker is an Ontario lawyer who was called to the Bar in 1976. Since 1982 he has been a sole practitioner with an office at 7100 Woodbine Avenue, Suite 306, in Markham. Zwicker’s major areas of practice are real estate and commercial law. He has working in his office, a Secretary who has been with him for 22 years, a younger assistant who does mainly electronic searches and registrations, as well as a bookkeeper, who spends ½ day per month on his books. He also uses the help of a law agency which helps with files when he is very busy.
[7] In the parties’ Agreed Statement of Fact, they agree that Zwicker maintains and operates a general account and a trust account at the branch of the TD Bank at 2900 Steeles Avenue East, Thornhill, Ontario (the “Steeles Avenue Branch”). Although Zwicker’s accounts were at TD Bank’s Steeles Avenue Branch, he frequently made deposits and conducted other transactions in his accounts at the branch of the TD Bank at 7085 Woodbine Avenue, Markham, Ontario (the “Woodbine Branch”).
[8] Zwicker says that he was contacted in December, 2007, by telephone, by a man named Kevin Simmons (“Simmons”), who asked whether he handled financial transactions. Simmons also identified himself as a Financial Consultant and Loan Broker, who had a prospective client, Sutanga Silva (“Silva”), he would like to refer to Zwicker. Zwicker says he never met with Simmons in person nor had he any prior business dealings with or referrals from Simmons. Simmons told Zwicker that the transaction he was referring to him had to be completed prior to Christmas 2007.
[9] Simmons told Zwicker that Silva was the principal of a company, 2154337 Ontario Limited (“#215”), and that it would be purchasing inventory and/or equipment from an entity known as Nithiyakalyaani Jewellers (the “Jewellers”). The transaction would be financed through loan advances to be made by an entity know as Small Business Finance Corporation. Zwicker’s firm received a cheque, not from Small Business Finance Corporation but from an entity called SBFC Incorporated. His firm did not question the difference in the names. He says he spoke several times by telephone to Jane DeSousa, the author of the instructions’ letter he received to carry out the transaction.
[10] Zwicker also says he was concerned about being rushed to complete the transaction. He asked for a couple of extra days. The instructions received by him from the lender directed loan advances to be payable to Jewellers. It was never referred to a corporation through the use of words such as Ltd., Limited, Corporation, Corp. or Inc.. The parties agree that at no time did Zwicker receive a signed Loan Agreement or a signed Security Agreement and no requests were made by Zwicker for production of any such Agreement. He says he does not have the original instruction sheet. He wound up with an Amended Version. He also asked for a copy of the Articles of Incorporation of #215 and copies of it By-Laws 1 and 2. Those By-Laws were produced but were neither signed nor dated. No Minute Book was produced.
[11] On December 18, 2007, Zwicker received a letter from Small Business Finance Corporation under the signature of Janet DeSousa, enclosing a certified cheque in the amount of $192,000 representing the closing funds for #215. The cheque, however, has the name of “S.B.F.C. INCORPORATED” in its Calgary, Alberta address. It is purported to have been issued by the Bank of Montreal at 6100 MacLeod Trail S.W. in that city. The certification stamp on the cheque is “Chinook Plaza, 105 MacLeod Plaza S.W.”.
[12] Zwicker says his junior assistant took it over to the TD Bank Branch at 7085 Woodbine Avenue. That person then got a certified cheque issued from Zwicker’s Trust Account dated December 18, 2007 from the Branch at 2900 Steeles Avenue East, payable to the Jeweller in the amount of $190,883.82, which would be charged back to that account.
[13] Zwicker said since he had no information about the Jewellers, he called Janet Desousa to ask who they were. He says she told him that they were a jewellery business at 1439 Gerrard Street East, Toronto. Based on that, Zwicker prepared the documents himself, and booked the appointment with Silva, having met with him the day before the advance of the money was sent. Zwicker describes Silva as being a brown-skinned Sri Lankan with white hair and sparkling blue eyes. Zwicker copied Silva’s I.D. and left it in his office while he went to copy some documents. He did not notice it was missing until after Silva signed the documents and left with the cheque in the amount of $190,883.82. The difference is Zwicker’s fee, which he deducted from the original amount received.
[14] Zwicker seemed to begin to worry so he checked out the Jeweller’s name on Canada 411, but did not think about whether it was incorporated or not. He had an address and phone number so he and his wife, after the fact, drove to check out the premises. She took a photo of it, showing the name of the Jewellers with the designation “Ltd.” after it, on the front of the building. He says his wife also checked a Sri Lankan data base.
[15] Zwicker says that it was not until December 28, 2007, that he learned that Silva was a fraudster, and the certified cheque he had deposited to his trust account was also fraudulent. He tried reaching Janet DeSousa in Calgary. The phone rang but no one answered.
[16] On cross-examination, Zwicker agreed that he never received a letter from Simmons about the transaction. He says that his practice, while mixed, is really 78% real estate and 22% commercial and litigation. He agrees that he was never involved with the Small Business Finance Corporation or S.B.F.C. Incorporated, (as noted on the bank draft). When questioned whether it was normal to be doing a transaction with an Alberta company, Zwicker said that he has had some dealings in the past with small Alberta and B.C. companies.
[17] When Zwicker was asked about #215, he agrees that the company was never properly organized and was freshly incorporated. He says he assumed Small Business Financial Corporation was a credit company and when asked about whether he does due diligence on transactions like this, he says it depends on the security documents. He agrees that he never saw a security agreement nor did he check on Silva nor did he get a list of what assets were being purchased, as it is not done is all assets are being purchased. He acknowledges that a corporate search done of Jewellers, after the fact on July 17, 2008. It showed the business name and address as being effective November 14, 2007.
[18] Zwicker agrees that there was no discussion with Small Business Finance Corporation about the other name, S.B.F.C. Incorporated, on the cheque. Zwicker says he did not see the cheque personally as it was deposited by one of his staff. He also did not question why there was no tag of incorporation on the certified cheque made to Jewellers, since he said lots of incorporated jewellers leave that off their business name.
[19] Zwicker agrees that he was defrauded, that he issued his cheque as directed by his client, and that he never heard of either entity before this transaction took place.
The Raza Kayani LLP Case
[20] The Kayani firm has two office locations at 22456 Britannia Road West, Mississauga, and 2131 Lawrence Avenue East, Suite 207, Toronto. The partner who was involved in the transaction is Junaid Kayani and he was working at the Mississauga office when the fraud occurred. He gave evidence at Trial. He was called to the Bar of Ontario in 2001 and joined Raza in partnership in 2003. That partnership was dissolved in 2011.
[21] Kayani says that his practice at the time in 2007 consisted of 75% real estate and 25% commercial, with some immigration matters. He says his commercial practice consisted of handling legal matters for clients buying and selling businesses, franchise matters and financing matters.
[22] In mid December, 2007, the law firm received an unsolicited telephone call from Simmons, the same man who called Zwicker. He made the same representations to Kayani’s law firm. He again said that the financing transaction he was referring to the firm had to be completed prior to Christmas 2007. Like Zwicker, Simmons was unknown to either Kayani or his firm.
[23] The entity referred by Simmons to Kayani was a sole proprietorship called Amaras Gem and Jewel alleged to be operated by Chandana Archchige (“Chandana”). Neither that entity nor Chandana were known to Kayani or his firm. He received instructions on December 20, 2007 to pay the funds as directed to the Jewellers and Amaras. These instructions were signed by Chandana.
[24] Kayani was sent a Loan Agreement on the letter head of Small Business Finance Corporation, with the borrower being Amaras Gem and Jewel. The loan was to be in the amount of $242,000, with a term of 5 years and an interest rate of 13.75 percent. The funds were to be disbursed, $211,500 to Nithiyakalyanni Jewellers and $30,500 payable to Amaras Gem and Jewel. The address of the Corporation was the same one in Calgary, Alberta.
[25] The instruction letter was dated December 13, 2007 and was addressed to Arif Raza at the Lawrence Avenue office. It was signed by Janet DeSousa, with a printed signature. The certified cheque was delivered on December 18, 2007 in the amount of $242,000, again under the S.B.F.C. Incorporated with the same address and certification by the Bank of Montreal, as the Zwicker cheque had. It also turned out to be counterfeit.
[26] Kayani, by letter dated December 19, 2007, to Small Business Finance Corporation, sent it a void cheque so that it could deposit the “funds into our account on December 21, 2007.” Jewellers produced an Invoice dated November 20, 2007 showing the purchase, including from Amaras of various gemstones and jewellery equipment, which with GST totalled $211,500.74. The address for Jewellers is shown as 1487 Gerrard St. East, with Amaras’, address shown as 1560 Brimley Road, Unit 206.
[27] Kayani therefore had a bank draft issued as instructed from the TD Bank at 168 Queen Street South in Mississauga to the Jewellers. A certified cheque on the law firm’s account Trust Account for $20,000 dated Dec 21, 2007 was made payable to Amaras. A Bank Draft for $211,500.74 was made payable to Jewellers. They were given to Chandana by the firm on that date. The draft from Kayani’s Trust Account payable in the amount of $211,500.74 was deposited in the Jewellers’ account at the TD Bank’s The Westway Branch on December 21, 2007. The $20,000 certified cheque payable to Amaras was deposited to its credit with its account at the TD Bank’s Streetsville Branch.
[28] Just as happened to Zwicker, neither the Small Business Finance Corporation nor S.B.F.C. Incorporated were known to Kayani.
[29] There is nothing on the invoice to show that Jewellers was an incorporated entity. Later, after the fraud was known, a corporate search was done, which showed a corporation in that name but followed by the word “Ltd.”. The parties agree that this company had carried on business at the Gerrard Street East address but found out that had ceased carrying on business sometime prior to December 2007 at that address. That incorporated company never received any of the money in question in either transaction.
[30] Kayani never handled the fraudulent bank draft, nor did he deal with the bank draft to Jewellers nor the certified cheque to Amaras. Neither Raza nor Kayani could remember who went to the bank to deposit the draft. It appears on the evidence that it was likely Eva McLeod who worked for the law firm. After the draft and cheque were delivered to Chandana, the amounts were then debited from the account, leaving Kayani with $10,499.26 for his fees. When the fraud was discovered by the TD Bank on December 27, 2007, the amount of $231,500.74 had by then been debited from the law firm’s trust account.
[31] Kayani, given the fraud, reported it to LawPro and LawPro paid the Bank the sum of $215,246.60 on his or the law firm’s behalf, pending the outcome of this litigation. Simmons could never be located, nor could Janet DeSousa or Chandana.
[32] On cross-examination, Kayani admitted that there no notes by him in the lawyer’s file. There is simply one page with 2 names with telephone numbers, noting that “he is psej Equipment from” and “He is not incorporated Small business loan Sole Proprietor” and “Alaudin - Cell 647-241-9811 Jewellers Client called has arranged for delivery for today.” Kayani says he is certain he called the phone number on the Invoice but was unsure if Bell was ever called about the number.
[33] As noted in his answers about how he conducted his law practice in situations like this, Kayani said that he was only involved in the closing and that his partner, Raza up to that point had dealt with the client but he could not say that Raza had actually met with the client. There is, however, a business card reads “Amaras’s Gem and Jewel”, which must have been left with the law firm by Chandana.
[34] Kayani says that there was no indication that Amaras was incorporated. He agrees that there was no GST or PST charged on the transaction and that no one obtained a Certificate under the Bulk Sales Act. He says that he spoke to Alaudin Shaik by telephone on December 21, 2007 to confirm that the vendor existed and the sale transaction was completed. He asked Shaik to fax a copy of the invoice and it was sent to him. Kayani says did not know that Jewellers was unincorporated until after the fraud had taken place. He says that his firm designated the payee on the bank draft and that Eva McLeod went to the bank to get it. Kayani, however, is no longer proceeding on his original claim for damages respecting the Trust Cheque in the amount of $20,000 that was payable to Amaras. He says it is accepted that Amaras was a fictitious entity so the claim for that amount was dropped.
[35] Kayani also admits that no one at his firm did any PPSA searches against the Vendor selling the equipment and gems. He says he recalls they said that they had done their due diligence and had done an appraisal of the goods being purchased. He did not know exactly who came to pick up the cheque for Chandana. He says he withheld $10,500 for his legal fees since he had “no clue what would be disbursements and fees after all accounts done”. He agrees that he had no direction from the client to do this.
The position of the parties
[36] After the fact, the parties found out that Nithiyakalyaani Jewellers Ltd. (“Jewellers Ltd.”) was incorporated in Ontario on May 10, 1995. On December 2007, when the frauds were committed, the charter of the company had not yet been revoked. Vijayan Nayagam was the name on the corporate filing as being the President and Director of the company. He was one of the witnesses subpoenaed to Trial but did not appear.
[37] The business signs remained on the premises in large lettering with the words. “Jewellery & Textiles” under the name. This was all there when the fraud was committed from some time in 2006 until it was closed, Jewellers Ltd. maintained a bank account at the TD Bank located at 1684 Danforth Avenue.
[38] On November 14, 2001, six years prior to the fraud, a person purporting to be Alaudeen Shaik registered the unincorporated business name of Nithiyakalyaani Jewellers as a sole proprietorship under the Business Names Act. On December 4, 2007, he opened an account in the name of Nithiyakalyaani sole proprietorship at the TD Bank’s Westway Branch. The bank records show that the business was jewellery and the address was the 1487 Gerrard Street East address.
[39] The parties have also found that there were deposits into this Westway Branch account made on December 7, 11 and 12, 2007 in the amounts of $400, $34,000 and $6,900. On December 12, 2007 the amount of $40,000 was debited to the account for a draft payable to “Bendix Foreign Exchange Corporation”. On December 20, 2007, Zwicker’s certified cheque in the amount of $190,883.82 was deposited into that account and on the same date, $185,097 was debited from the account for a payment to the same Bendix Foreign Exchange Corporation. That account also was used to deposit another certified cheque by someone else in the amount of $211,574, with $217,500 debited to that account for a payment to the same corporation.
[40] The parties also found out that Amaras Gem and Jewel was registered by Chandana under the Act, with its business activity said to be the distribution of gems and jewellery. Chandana, then on August 3, 2007, opened an account at the TD Bank branch at 168 Streetsville, Ontario in Amaras’s name. The parties agree that Chandana and Amaras were both fraudsters.
[41] It is Zwicker’s position that in all the circumstances of this case that the transaction appeared to be regular and bona fide and acting on the belief the transaction was such, Zwicker says he prepared the necessary documents and obtained the relevant and necessary corporate documents from #215 and Silva, and at all time acted in accordance with written and oral instructions from S.B.F.C.
[42] The steps Zwicker took are set out above, showing that he followed the instructions given to him. The TD Bank was the collecting bank of both fraudulent certified cheques, as that term is defined in the Bills of Exchange Act, R.S. 1985, c.B. It was deposited in what Zwicker says was the fraudulent account owned by an unknown person purporting to have signing authority for the intended payee of the cheque, the Jewellers.
[43] When the Bank of Montreal discovered that its bank draft was fraudulent, it informed the TD Bank. On December 28, 2007, Zwicker says that a representative of the TD Bank advised him that the S.B.F.C. Incorporated Certified Cheque was counterfeit and fraudulently issued and that his lawyer’s Trust Account would be debited in the amount of $192,000, which did take place.
[44] Zwicker and Kayani both point to the fact that there was a company of similar name as the Jewellers, only it was incorporated, with Nayagam as the sole officer, director and president with signing authority on the account. He did not endorse the Trust Cheque, nor did he authorize anyone to do so, on his behalf, or to otherwise negotiate it on his behalf or on the incorporated company’s behalf. The parties agree that the endorsement on the Trust Cheque is a forgery.
[45] Zwicker obtained a Statutory Declaration of Nayagam on February 11, 2008, after the fraud was discovered, and provided it the TD Bank. Nayagam confirms that the signature is not his and that he did not sign the Trust Cheque nor did he authorize anyone else to negotiate it on his behalf or on behalf of the corporation, and neither he nor the corporation received the proceeds of the Trust Cheque or any part of it.
[46] Zwicker and Kayani say that the TD Bank is guilty of conversion of the trust Cheque and Bank Draft and is liable to each of them and has failed to reimburse each’s Trust Account with the funds converted by TD Bank.
[47] With respect to their claims for negligence by the TD Bank, Zwicker and Kayami each pleads that the TD Bank owed each of them a duty of care as a customer to take all reasonable steps to ensure that its customers were not fraudsters and not to facilitate the Fraudulent Scheme.
[48] Zwicker says that the TD Bank should have taken all reasonable and necessary precautions to confirm that the S.B.F.C. certified cheque was not counterfeit before crediting the Trust Account and permitting the proceeds of the S.B.F.C. Certified Cheque to be used to issue the Trust Cheque. He also says that the TD Bank should have taken all reasonable and necessary steps to ensure that the Trust Cheque was not negotiated by the unincorporated Jewellers.
[49] Kayani says that the TD Bank should have taken all reasonable and necessary precautions to confirm that the S.B.F.C. certified cheque was not a forgery before crediting the Trust Account and permitting the proceeds of the SBFC Certified Cheque to be used to purchase the Bank Draft and Amaras certified cheque. He also says that the TD Bank should have taken all reasonable and necessary steps to ensure that the endorsement on the Bank Draft was authorized by the payee, the incorporated Jewellers Ltd.
[50] Zwicker says that the TD Bank should have expeditiously moved to freeze the Nithikalyaani Account once the TD Bank was notified that the S.B.F.C. certified cheque was fraudulent and counterfeit. Kayani says also that the TD Bank should have frozen the Nithikalyaani Account and the Amaras Account once the Bank was notified that the S.B.F.C. certified cheque was fraudulent.
[51] The Plaintiffs both plead that TD Bank breached its duty of care to them by permitting fraudulent accounts to be opened and for failing to take the necessary and appropriate precautions to confirm that the two S.B.F.C. Certified Cheques were not forgeries, for hastily cashing them and allowing Zwicker’s Trust Cheque and Kayani’s Bank Draft and the Amaras’ Cheque to be purchased or drawn on each of their Trust Accounts with the TD Bank.
Analysis
[52] The Plaintiffs admit that they were defrauded by the fictitious financing company in Alberta, S.B.F.C. Incorporated, which purported to be the lender to the two fraudsters, the Jewellers and Amaras, with respect to the purchase of inventory and instruments. It is their position that when the TD Bank issued the Bank Draft in the case of Kayani and the Certified Cheque in the case of Zwicker, these were instruments converted by the TD Bank when they were collected from the branches where Plaintiffs’ had Trust Accounts.
[53] The Plaintiffs say that when they drew these instruments on their Trust Accounts, they did not intend to pay the money to fraudsters. Both bills of exchange were payable to “Nithiyakalyanni Jewellers”, which has been referred throughout this Judgment as “Jewellers”. Both Plaintiffs discovered, after the fact that there was a real incorporated entity called “Nithiyakalyanni Jewellers Ltd.” now referred to as Jewellers Ltd., that had operated out of the 1487 Gerrard Street address, which address was shown on the documents when each Plaintiff received instructions.
[54] The Plaintiffs’ position is that where a bill is payable to a fictitious or non-existing payee, it may be treated as payable to “bearer”. If it is payable to bearer, such bills can be negotiated by simple “delivery” to the bank, with no endorsement required. Through the fictitious or non-existing payee rule, the loss is thrown upon the drawer, namely Zwicker and Kayani. This is the position taken by the TD Bank. It says that results of the fraud lie with the individual solicitors and that their Trust Accounts were properly debited by the TD Bank.
[55] On the other hand, the proposition is if the payee is neither fictitious nor non-existing, the TD Bank is liable to the Plaintiffs. The Plaintiffs say that since Jewellers Ltd. was an existing corporation at the relevant times, and it remained an existing corporation when the litigation was commenced, the TD Bank is liable to them.
[56] The Plaintiffs rely on the passage by Falconbridge, in Banking and Bills of Exchange, 6th. Ed. (Toronto: Canada Law Book. 1956) with respect to fictitious or non-existing payees as follows, (with names inserted in this case):
Whether a named payee is non-existing is a simple question of fact, not depending on anyone’s intention. The question whether the payee is fictitious depends upon the intention of the creator of the instrument, that is the drawer of a bill or cheque or the maker of a note, i.e. Zwicker and Kayani. [Emphasis added].
In the case of a bill drawn by Kayani/Zwicker upon Toronto-Dominion Bank payable to Nithiyakalyaani Jewellers, the payee may or may not be fictitious or non-existing according to the circumstances.
If Nithiyakalyaani Jewellers is not the name of any real person known to Kayani/Zwicker, but is merely that of a creature of the imagination, the payee is non-existing and is probably also fictitious.
If Kayani/Zwicker for some purpose of his own inserts as payee the name of Nithiyakalyaani Jewellers, a real person who was known to him but whom he knows to be dead, the payee is non-existing, but is not fictitious.
If Nithiyakalyaani Jewellers is the name of a real person known to Kayani/Zwicker names him as payee by way of pretence, not intending that he should receive payment, the payee is fictitious, but is not non-existing.
If Nithiyakalyaani Jewellers is the name of a real person intended by Kayani/Zwicker to receive payment, the payee is neither fictitious nor non-existing, notwithstanding that Kayani/Zwicker has been induced to draw the bill by the fraud of some other person who has falsely represented to Kayani/Zwicker that there is a transaction in respect of which Nithiyakalyaani Jewellers is entitled to the sum mentioned in the bill.
The names in this litigation are inserted into the proposition in Falconbridge, so that they have substituted their names, Zwicker and Kayani for “Bede” and have substituted Nithiyakalyaani Jewellers for “Martin Chuzzlewit.”
[57] The Plaintiffs say that both their cases come within the parameters of the fourth proposition put forth by Falconbridge. They say that they were induced by the fraud of some other person who represented to them that there is a transaction in respect of which Nithiyakalyaani Jewellers is entitled to the sums mentioned in each of their respective Bank Draft of Kayani and Certified Cheque of Zwicker, which they were induced to draw out of their Trust Accounts by fraud.
[58] Both Plaintiffs have pleaded damages for conversion, each with respect to the amounts each lost. TD Bank was the collecting bank of those sums, which came into the Bank in the form of the bank drafts of S.B.F.C. Incorporated drawn on the Bank of Montreal. Zwicker and Kayani were the drawers who authorized the writing of the cheque or draft on their Accounts. The Bank was the drawee, which was directed to pay a sum of money on an instrument, in this case a cheque or a draft. The payee was the person to whom the cheque or draft is payable, being Nithiyakalyaani Jewellers.
[59] The tort of conversion is the “wrongful interference with the goods of another”, as set out in the case law. Conversion is a strict liability tort and it is irrelevant that Zwicker and Kayani may have been negligent in the steps they took or did not take when they dealt with the transaction as presented to them. In conversion, it does not matter that the TD Bank was an innocent party in the transaction or that it acted diligently in carrying out the transaction. Neither of these is a defence to a claim for conversion. The tort of conversion is one of strict liability.
[60] In the conversion of cheques or bank drafts negotiated at a collecting bank and deposited to the credit of the collecting bank’s customer, who was not entitled to the proceeds of the cheque or draft, the collecting bank is prima facie liable to the maker of the cheque or draft.
[61] The TD Bank takes the opposite position regarding the transactions which took place. It says that the tort of conversion does not apply, and that Zwicker and Kayani were grossly negligent in the steps they took, or did not take, upon receiving the instructions from S.B.F.C. Incorporated. It is really saying that if neither of them had been grossly negligent, they would have discovered that the transaction was fraudulent. It says that Kayani did not understand the proper procedures to take when receiving a financing transaction, and he did not carefully examine the documents he received. It says that Kayani ought to have noticed the red flags raised in the documents. He received no security agreement or loan contract. The promissory note was completed with blanks in it. In the note itself, there was no prepayment right, and this point was missed by both lawyers.
[62] TD Bank takes the position that Zwicker has given inconsistent evidence regarding the making of the Certified Cheque and that knowledge was only obtained after the fraud was discovered. It says that this case differs from the facts of cases upon which the Plaintiffs rely, and the tort of conversion does not apply in the circumstances of this case. He says Kayani’s action is based on a Bank Draft and not a solicitor’s Trust Cheque, since it is drawn on the Bank’s own funds. In that case, it says the relationship is one of debtor/creditor.
[63] With respect to the Kayani firm, the TD Bank says it is neither a drawer nor payee nor drawee of the Bank Draft, so it is a stranger to the transaction. It says that Zwicker and Kayani did not do the proper searches of the names of the entities and persons it was given. The Bank also points to the dearth of proper instructions not being received and the scanty file notes relating to the Kayani action.
[64] What then is the tort of conversion? The Supreme Court of Canada describes it, in relation to banking matters in Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce, 1996 149 (SCC), [1996] 3 S.C.R. 727 at paras., 31 and 83 as follows:
(31) 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.
[83] A bank converts an instrument, including a cheque, by dealing with it under the direction 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.
In Boma, supra, Iacobucci J. also in para. 31 also quotes from Lord Diplock as follows in:
[31] asserting this principle in Marfani & Co. Ltd. v. Midland Bank Ltd., [1968] All E.R. 573 (C.A.), 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.
NOTE: (in this paragraph of the quotes continued from para. 31, the names of the parties in this action have been put in brackets beside the appropriate nouns, in order to clarify them)
If the customer [a fraudster] is not entitled to the cheque which he delivers to his banker [TD Bank] for collection, the banker, however innocent and careful he might have been, would at common law be liable to the true owner of the cheque [Zwicker and Kayani] 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.
[65] In my view, these passages from Boma, supra, exemplify what took place in the frauds committed in the two actions before me. I am satisfied on the evidence before me that the tort of conversion was committed by the TD Bank and that it is liable to the Plaintiffs for the amount noted above that were charged to Zwicker’s and Kayani’s Trust Accounts.
[66] When the tort of conversion is committed, as noted in the authorities, it matters not that either or both Zwicker and Kayani were not careful lawyers in accepting the transactions as they were presented to them and in carrying out those instructions. Even if either or both of them could be said or found by a court to have been professionally negligent in some aspect of the transaction, that does not exonerate TD Bank from being found liable for the tort of conversion and from having to pay the damages, which occurred as a result of the conversion. Conversion is a strict liability tort.
[67] In Rouge Valley Health System v. TD Canada Trust, 2012 ONCA 17, the Court of Appeal examines the issue of whether a non-existing person under S.20(5) of the Bills of Exchange Act, R.S.C. 1985, c. B-4 (“the Act”) applies. Under it, a cheque may be payable either to order or to bearer. The Court, in paras. 22 and 23, said that Boma, supra, remains the authority in that regard, noting the approval of Falconbridge’s four principles, as earlier outlined by me. The Court then said that two important principles structure those four propositions as follows:
• Whether the payee is non-existing is a simple question of fact no depending on anyone’s intention.
• Whether the payee is fictitious depends upon the intention of the drawer of the instrument, that is the drawer of a bill or cheque or the maker of a note.
In this case, the payee was not fictitious as both Zwicker and Kayani made their Certified Cheque and Bank Draft payable to the Jewellers they believed was an existing entity, which it was and the instruments were negotiated. Therefore, in my view, Falconbridge’s first proposition does not apply, despite TD Bank’s position.
[68] In Rouge Valley, supra, Laskin J. refers in para. 30 to Bradley Crawford’s The Law of Banking and Payment in Canada (Aurora: Canada Law Book, 2008) at p.22-34, where the author summarizes some of the Bomba principles, that even if the payee may be “non-existing” within the meaning of s. 20(5) of the Act, if is a name that plausibly be identified by the drawer , as in the present case, then the first proposition does not apply.
[69] In para. 34, Laskin J. also noted that in cases where the name on the cheque is factually non-existent, but has a name similar to the name of an actual person, then the bank with whom the drawer has done business, the drawer might plausibly maintain that it believed it was writing a cheque to a real creditor of its business.
[70] In Bomba, supra, the Court at par.55 decided that the “drawer” of the cheque meant the entity out of whose bank account the cheques were drawn, not the person who signed the cheques. It also held that what mattered was not the fraudster’s intention but the intention of the drawer out of whose bank account the cheques were drawn. In the case before me, Zwicker and Kayani, honestly believed that the cheques and bank draft were being made out for an existing obligation to a real company despite the fact that the name of the payee was not precisely accurate. They were fraudulently induced to believe these were real transactions. See also: Westboro Flooring and Décor Inc. v. Bank of Nova Scotia et. al., (2004), 2004 59980 (ON CA), 241 D.L.R. (4th) 257 at paras. 21, 24 and 25.
[71] Reference should also be made to other sections of the Act that are referred to in the case law that surrounds the issues before me. Section 16 of the Act reads, in part:
(1) A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay, on demand or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to bearer.
(2) An instrument that does not comply with the requirements of subsection (1), or that orders any act to be done in additions to the payment of money, is not, except as hereinafter provided, a bill.
Section 20(4) of the Act reads:
Where a bill is not payable to bearer, the payee must be named or otherwise indication therein with reasonable security.
Another Section of the Act, which is also referred to is subsection 165(3), which reads:
Where a cheque is delivered to a bank for deposit to the credit of a person and the bank credits him with the amount of the cheque, the bank acquires all the rights and powers of a holder in due course of the cheque.
I adopt the following words of the Ontario Court of Appeal in Westboro, supra, in para. 29:
In other words, the cumulative effect of ss.20(4) and 165(3) is to afford protection to a collecting bank where the collecting bank deposits a cheque without an endorsement from a legitimate, albeit misdescribed, payee.
In that case, the Court dismissed the Bank’s appeal and rejected its submission that Section 165(3) only operates where a cheque is “delivered” to a bank. The Court said that delivery is only effective when made by an authorized party. In the case before me, the Cheque and Draft deposited had an endorsement from a legitimate, albeit misdescribed payee, and they were negotiated by the TD Bank. In Westboro, the drawer of the cheques believed that invoices in the name of Ottawa-Hull Carpet Installations were invoices from Terry Govas Ottawa – Hull Carpet Ltd. In this case, the validity of the Cheque and the Draft are not challenged. Zwicker signed the Cheque and Kayani’s Draft was purchased by Kayani with funds debited by TD Bank from Kayani’s Trust Account.
[72] As I said earlier in this Judgment, in my view this case comes surely within Falconbridge’s fourth proposition. Both Zwicker and Kayani saw their transactions as legitimate. I have found that the tort of conversion applies.
Conclusion
[73] For the reasons as set out herein, the following Judgments and Orders shall issue:
Judgment in damages shall issue in Zwicker’s Claim in the amount of $190,883.82 for conversion by the TD Bank.
Judgment in damages shall issue in Kayani’s Claim in the amount of $211,500.74 for conversion by the TD Bank.
An Order shall issue that sum of $4,989.03 currently frozen in the TD account in the name of Nithiyakalyaani Jewellers (the “Nithiyakalyaani Account” at the TD Bank’s The Westway Branch, be forthwith paid to Kayani, together with any interest accrued therein.
An Order shall go that the sum of $11,268.11 currently frozen in the fraudster’s TD Bank account in the Streetsville Branch be paid forthwith to Zwicker, together with any interest accrued therein.
The Plaintiffs are entitled to pre-judgment interest from the dates of their Claims to the date of this Judgment plus post-judgment interest from the date hereof until the date of payment, at the rates under the Courts of Justice Act, R.S.O. 1990, c.43 as amended.
If the parties cannot otherwise agree on Costs, they may make written submissions to me no longer than 3 pages in length plus time dockets, a Bill of Costs and case law within 30 days of the date of this Judgment. They shall be sent to me care of Judges’ Administration, 361 University Avenue, first floor, Toronto, Ontario.
[74] The Judgment and all Orders shall issue accordingly.
Greer J.
Released: December 27, 2013
COURT FILE NO.: CV-08-00366686
DATE: 20131227
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
RAZA KAYANI LLP,
Plaintiff
– and –
THE TORONTO-DOMINION BANK, AMARAS GEM AND JEWEL and NITHIYAKALYAANI JEWELLERS.
Defendants
-AND ALSO-
JACK SHELDON ZWICKER,
Plaintiff
– and –
THE TORONTO-DOMINION BANK,
Defendant
JUDGMENT
Greer J.
Released: December 27, 2013