Court File and Parties

COURT FILE NO.: CV-14-10478-00CL DATE: 20160517 SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

BETWEEN: CLINTON WAYNE and 2306691 ONTARIO INC. Plaintiffs

AND: BRENT WESTGATE, BERNARD HERSCHEL JACOB KLEINBERG, PICOV & KLEINBERG and BANK OF MONTREAL Defendants

BEFORE: Newbould J.

COUNSEL: Thomas Mathews, for the Plaintiffs Allyson Fox, for the Bank of Montreal

HEARD: April 15, 2016

Endorsement

[1] The plaintiffs have sued the Bank of Montreal for $211,999.62 arising from a series of unauthorized debits from a BMO account held by the plaintiff 2306691 Ontario Inc. (“230”). They move for summary judgment. BMO moves for summary judgment to have the claims dismissed based on a limitations period and also an account verification agreement.

[2] Mr. Wayne is the secretary and treasurer of 230. The defendant Brent Westgate was the president of 230.

[3] The defendant Jacob Kleinberg is a lawyer practising with the defendant law firm, Picov & Kleinberg in Toronto. Mr. Kleinberg, through Picov & Kleinberg, was originally retained by Mr. Wayne and Mr. Westgate in or about November 2011 to represent 230 in a real estate transaction investment.

[4] On or about November 23, 2011, Mr. Wayne and Mr. Westgate attended the BMO branch located at 437 Spadina Road, Toronto, Ontario, and opened a Business Banking Account, bearing account number 3626-1998-686, held in the name of 230 (the “230 Account”).

[5] The banking agreement they signed required both of their signatures for all withdrawals from the 230 Account except for ABM withdrawals that were permitted to a maximum of $500 per day. The business address for 230 was stated to be Mr. Wayne’s home address.

[6] In the normal course, the monthly statements for the 230 Account would be sent by BMO to Mr. Wayne’s home. The monthly account statements are dated on the last date of each month. The monthly statements are created and mailed out by a third party contractor, Symcor, on the seventh business day of the month immediately following the statement date (i.e. a February 29, 2016 statement would be mailed on March 9, 2016), and arrive shortly thereafter. There is no evidence from Symcor that the statements were mailed to Mr. Wayne and no evidence that Mr. Wayne saw these statements before he attended at the branch and complained, the date of which is unclear.

[7] Approximately 85 transactions were made from the account from its inception in November 2011 to March 2012. During the life of the 230 Account, Mr. Westgate was the sole signatory for the 40 instruments drawn against the 230 Account, all of which appeared on 230’s monthly account statements. That was not in accordance with the banking agreement that required the signatures of both Mr. Wayne and Mr. Westgate.

[8] On January 26, 2012, Mr. Westgate attended the BMO branch and deposited a cheque payable to 230 in the amount of $200,000 into the 230 Account.

[9] On the same date, Mr. Westgate obtained five bank drafts payable from the 230 Account as follows: a. Draft 027265963 payable to Emily MacKay in the sum of $10,000; b. Draft 027265997 payable to Right at Home Realty in trust in the sum of $10,000; c. Draft 027265981 payable to Vince Demasi in the sum of $10,000; d. Draft 027265972 payable to Ferdinand Wagner in the sum of $5,000; e. Draft 027265954 payable to Picov & Kleinberg in trust in the sum of $120,000.

[10] Mr. Wayne did not sign any document authorizing BMO to issue these drafts. His evidence is that on January 26, 2012 BMO sought authorization and instruction from him by phone as to the $200,000 deposit by Westgate made payable to 230. In order to appropriately place the funds, the $200,000 draft needed to be made payable to Picov & Kleinberg in trust. He said that he specified that the entire $200,000 amount was to be immediately withdrawn and made payable to Picov & Kleinberg in trust. How it was to be withdrawn by the bank he did not say. What happened that day is that a draft for $120,000 was issued by BMO to that law firm and the remainder went elsewhere. At that time, Mr. Wayne did not know this.

[11] On February 7, 2012, $100,000 was deposited by Mr. Westgate to the 230 Account and he obtained two bank drafts payable from the 230 Account, as follows: a. Draft 027342375 payable to 1304262 Ontario Limited in the sum of $85,000; b. Draft 027342384 payable to Brent Westgate in the sum of $15,000.

[12] Mr. Wayne did not sign any document authorizing BMO to issue these drafts. His evidence is that the $100,000 was intended for, and should have been made payable to, Picov and Kleinberg in trust and that BMO called him to confirm that the $100,000 deposited by Westgate in to the 230 BMO account was to be made payable to Picov & Kleinberg in trust. He says he gave clear instructions to BMO to do that. Mr. Wayne was not aware at the time that the two drafts were made payable to others. While his affidavit evidence does not state what the 1304262 Ontario Limited company was, in his factum it is stated that the company was the vendor in the real estate transaction involving Mr. Wayne and Mr. Westgate. It is not clear on the record whether the vendor actually received the funds.

[13] Mr. Wayne’s evidence is that on or about March 1, 2012 he attended the BMO branch and met with Heather Friedman, the branch manager. He said that he explained to her that there has been an enormous amount of suspicious transactions from the 230 BMO account in excess of the $500 limit. He said that he further explained that he was the business partner and joint account holder of the 230 BMO account with Mr. Westgate whom he suspected of embezzling and misappropriating unauthorized and unverified investor money from the account. He said that Ms. Friedman printed out the bank statements of the 230 BMO accounts from November to February, and gave them to him.

[14] Mr. Wayne then stated in his affidavit:

The problems regarding the 230 BMO account became evident to me. Westgate had pirated the 230 account but the whereabouts of the funds were not clear as the bank statements only show the deposits, credits, dates, and type of transaction.

[15] Mr. Wayne stated that he then tried to get BMO documents that would show where the funds went that were shown on the account statements but had trouble getting them until July, 2012. More particular, he said Ms. Friedman told him that day that she would need the consent of Mr. Westgate. Mr. Wayne was upset and asked to escalate the matter. Ms. Friedman gave him the number of her district manager and the BMO ombudsman. After he got no response from the district manager, he contacted the BMO ombudsman and finally obtained the BMO documentation in the first week of July, 2012. This he says is when he learned to whom all of the unauthorized payments had been made.

[16] In her affidavit, Ms. Friedman made no mention of any meeting with Mr. Wayne on March 1, 2012 but said that the meeting took place in June, 2012. She stated in her affidavit that on or about June 4, 2012, Mr. Wayne attended the BMO branch seeking copies of the account documentation for the 230 Account. She said that at that time, Mr. Wayne made allegations regarding the operation of the 230 Account, which required investigation. Ms. Friedman said that on June 6, 2012, Mr. Wayne attended at the BMO branch and she provided him with the escalation procedure for any complaint he had with BMO. She said that on June 14, 2012, she provided copies of the documentation for the 230 Account to Mr. Wayne.

[17] On her cross-examination Ms. Friedman stated that the first time she met Mr. Wayne was “when he approached me about the situation in or around May or June of 2012”. There is some support for the evidence of Ms. Friedman as to the timing of her interaction with Mr. Wayne in that the articles of incorporation of 230 were faxed by the branch to the BMO legal department on June 8, 2012, perhaps suggesting it was then that the complaints were made by Mr. Wayne.

[18] Mr. Wayne started his action on March 11, 2014.

Analysis

[19] Section 4 of the Limitations Act, 2002 provides a limitation period of two years from the date on which the claim was discovered. Section 5 provides:

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). (2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[20] Mr. Wayne argues that the limitation period should not start until the time he was provided with the BMO documents that showed to whom the funds were improperly paid, which the account statements did not. There may be something in this. Mr. Wayne knew from looking at the monthly statements that there were many withdrawals that he had not signed for, which he knew, or should have known, was contrary to the banking documentation, but he did not know if money had improperly gone elsewhere. He said in his affidavit that at the time he met with Ms. Friedman he told her that he suspected Mr. Westgate of embezzling money from the account and that when she provided him with the account statements it became evident to him that Mr. Westgate had pirated the account although the whereabouts of the funds was not clear. On his evidence, he asked for the underlying cheques or withdrawal documents but was told he could not get them without Mr. Westgate’s consent. If that was indeed what he was told, there would have been no basis for it as he was a signatory on the account and had just been given the account statements. Had he been given the underlying documents by BMO when he asked for them, he would have had them within the limitation period if it was on March 1, 2012 that this conversation occurred.

[21] The irony of this case at this stage is that BMO now wants to ignore the evidence of Ms. Friedman and accept Mr. Wayne’s version that he complained about the activity in the 230 Account on or about March 1, 2012 and was given the account statements that day. March 1, 2012 was eleven days more than two years before the action was commenced on March 11, 2014. On Ms. Friedman’s evidence, the interaction between her and Mr. Wayne only occurred in June, 2012, less than two years before the action was started.

[22] In his affidavit Mr. Wayne stated that to his knowledge neither Ms. Friedman nor the area manager made any record or log of his notices or concerns provided to them. During argument I asked if the BMO ombudsman had any records and was told that no one has asked for that information. It would be highly unlikely if the ombudsman did not have records of a complaint made to him.

[23] I am reluctant on this record to find that it was on March 1, 2012 that Mr. Wayne was provided with the information of the January and February 2012 statements that led him to believe Mr. Westgate had pirated the account. Mr. Wayne may be mistaken as to the date he first spoke to Ms. Friedman. He has no note or record and four years later to say it was “on or about” March 1, 2012 that he spoke to her is not all that compelling as to when the conversation took place, particularly in this case when ten or eleven days makes such a crucial difference with regards to the limitations argument of BMO. Ms. Friedman may be right as to the timing. Full banking records, including the BMO ombudsman’s records, should be provided before a trier of fact is in a position to make a finding. As well, evidence of what Mr. Wayne knew from other sources, including Mr. Westgate, at relevant times would need to be considered. Neither side on this motion referred to any such evidence.

[24] In the circumstances I am not prepared on a summary judgment motion to dismiss the action based on a limitation period. It cannot be said that there is no genuine issue requiring a trial.

[25] In the account documentation signed by Mr. Wayne and Mr. Westgate, there was a typical account verification provision that required notice in writing within 30 days of account statements, the failure of which relieved BMO from all unauthorized transactions, including those caused by BMO’s negligence. It stated:

14. Account Statements and Verification by you …You are responsible for reviewing and verifying, at least monthly, the debit and credit entries to your Account, examining the cheques or cheque images and Transaction information and documents provided and determining their authenticity, and notifying us in writing of any errors, irregularities, omissions or any other objections to them or in respect of any other Transaction involving your Account (including, without limitation, if you become aware that an Instrument has forged signatures, has been altered, is a duplicate, is counterfeit or is otherwise unauthorized or fraudulent). You will provide your notice to us within 30 days after: (i) the statement date, if you receive monthly statements; and (ii) the last day of the month in which the Transaction was posted to your Account, if you do not receive monthly statements (the “Review Period”). Upon the expiry of any Review Period (except as to any alleged errors, irregularities, omissions, or other objections outlined on the notice provided to us within such Review Period) you are deemed to have accepted all statements and reports of Account information pertaining to such Review Period and generated by us with respect to the Account as accurately reflecting all Transactions on the Account. Without limiting the foregoing, you acknowledge and agree that, after the expiry of any Review Period: (i) you have no claim that any cheques or any other payment instructions charged to the Account had forged signatures, were altered, were duplicated, were counterfeit or were for any reason unauthorized or fraudulent even if you or we did or did not verify the signature, instruction or authorization;… (iv) you cannot claim that any entry on the relevant statement or posting during the relevant month, as applicable, is incorrect for any reason, and you will have no claim against us for reimbursement relating to any such entry or posting, as applicable, even if the instruction which resulted in the charge to your account was forged, unauthorized or fraudulent or was improperly charged for any other reason whatsoever, including our negligence; and (v) we will be released from any claim whatsoever relating to the statement of your Account and Transaction information and documents pertaining to such Review Period, whether for negligence, breach of contract, breach of trust, breach of fiduciary duty, conspiracy, unlawful interference or otherwise

[26] No written notice of unauthorized withdrawals from the 230 Account was provided before a letter of October 5, 2012 sent to BMO by the lawyer for the plaintiffs. The letter did not specify any particular transaction but made general allegations of unauthorized withdrawals by Mr. Westgate.

[27] At the end of the provisions relating to account statements and verification there was a paragraph that stated:

Notwithstanding the foregoing, you shall notify us immediately if (i) at any time prior to the expiry of the Review Period you become aware that an Instrument has been altered, is a duplicate or is otherwise fraudulent, or (ii) at any time you become aware of any unauthorized or forged endorsement on any instrument.

[28] Each monthly account statement sent by BMO stated “Please check this statement and report any errors or omissions within 30 days of delivery”.

[29] It is to be noted that neither of these two latter provisions required written notice.

[30] I am reluctant on the record to dismiss the claim based on the account verification clause. When Mr. Wayne spoke to Ms. Friedman and was given the account statements for the account, he says that he told her of his suspicions that there were unauthorized transactions initiated by Mr. Westgate. That was immediate notice within the last paragraph of the account verification provisions in the banking agreement to which I have referred in paragraph 27 above. The 30 day review period for the January statement was not until sometime in March, 2012 and for the February statement not until sometime in April, 2012. Depending on when exactly Mr. Wayne spoke to Ms. Friedman, the notice he gave may have been within the 30 day review period for those January and February statements.

[31] The same pertains to the statement on the account statements that they should be checked and any errors or omissions should be reported within 30 days. Both this statement and the immediate notice provision at the end of the account verification clause contained no requirement that the notice be in writing.

[32] In light of these two provisions that do not require written notice and the provisions in the account verification clause that do require written notice, an issue arises as to whether the provisions taken together create an ambiguity to which the contra proferentem rule applies against BMO which drafted all of these provisions. In Bradley Crawford, Q.C., The Law of Banking and Payment in Canada, Vol. 1 (Toronto: Canada Law Book 2015) it is stated:

There is a conflict of authority on whether verification of agreements are properly to be interpreted strictly against the bank, even in the absence of any ambiguity that might legitimately justify an interpretation fortius contra proferentem.

[33] The author then referred to various cases, including the case of S.N.S. Industrial Products Ltd. v. Bank of Montreal, 2010 ONCA 500. In that case, the Court stated:

14 Verification of account clauses of the type at issue here form part of the Bank's standard form account documents prepared by the Bank to govern its relations with its customers. We agree with SNS that clauses of this kind are to be construed strictly and, in the event of any ambiguity, against the Bank, as the author of the clause, in accordance with the doctrine of contra proferentem: see Dunn, at para. 36.

[34] Other cases referred to were Campbell v. Imperial Bank of Canada (1924), 55 O.L.R. 318 (O.S.C.-App. Div.) in which an account verification clause with provisions that required written notice and one that did not was strictly construed against the bank so that oral notice was satisfactory and Toronto Dominion Bank v. Pentagon Hospitality Inc. 2003 CarswellOnt 6383 (Div. Ct.); leave to appeal refused 2004 CarswellOnt 4883, which upheld a decision that an account verification agreement that required written notice could not be relied on by the bank because of the bank’s negligence in operating the account.

[35] In the circumstances I am not prepared on a summary judgment motion to dismiss the action based on the account verification agreement. It cannot be said that there is no genuine issue requiring a trial.

[36] So far as the motion by the plaintiffs for summary judgment is concerned, it is clear from the foregoing that there are genuine issues requiring a trial.

[37] While it was not argued on the motions, I fail to see how Mr. Wayne personally has a cause of action against BMO. The account was a corporate account of 230 and any claim for breach of contract or negligence would be a claim by 230 and not by Mr. Wayne personally.

[38] The motions by the plaintiffs and by BMO for summary judgment are dismissed. As success has been divided, there shall be no order as to costs.

Newbould J. Date: May 17, 2016