Supreme Court of Canada issues precedent-setting decision concerning recovery of proceeds of fraud
Client
Bank of Nova Scotia
On April 2, 2009, the Supreme Court of Canada ("SCC") released its decision in B.M.P. Global Distribution. Inc. v. Bank of Nova Scotia, 2009 SCC 15.
The case involved a forged cheque deposited by the plaintiff, B.M.P. Global Distribution Inc. ("BMP"), in its account at The Bank of Nova Scotia ("Scotiabank"). The cheque in the amount of $904,563 was drawn on the Royal Bank of Canada ("RBC") account of First National Financial Corporation. The main issue was whether the plaintiffs were entitled to recover amounts debited from their accounts by their bank when it was discovered that the original source of the credits was a forged cheque. The trial judge found that Scotiabank was not entitled to return the proceeds of fraud to RBC and awarded damages to plaintiffs. The Court of Appeal held that BMP could not keep the proceeds of fraud, but that Scotiabank had acted wrongfully in tracing the proceeds into the accounts of BMP's principals.
The SCC held that RBC had a right to recover the payments mistakenly made to BMP, and that BMP had no entitlement to keep the proceeds of the cheque. The trial judge's ruling that BMP was entitled to damages equivalent to the funds which had been returned to RBC was held to be wrong. The SCC also held that at common law the proceeds of fraud could be traced into the accounts The Court ruled that BMP's appeal should be dismissed with costs. It also ruled that Scotiabank's cross-appeal should be allowed with costs.
In its reasons for judgment, the SCC made a number of findings that are of great significance both to financial institutions and commercial litigants, generally. The Court's decision has confirmed the prima facie right of a financial institution to seek recovery of funds mistakenly paid out due to fraud. The judgment has also clarified the common law basis on which a victim of fraud may seek to recover funds mistakenly paid to a third party.
D. Geoffrey G. Cowper, Q.C., Brook Greenberg and Jennifer Francis of Fasken Martineau were counsel for Scotiabank, the respondent (the appellant on the cross-appeal.) Mr. Cowper argued the appeal and Mr. Greenberg argued the cross-appeal before the SCC.
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