A Cautionary Tale for Front Line Bank Employees?

Posted by Peter Roberts on August 30, 2011

A common fraud perpetrated on financial institutions is the deposit of counterfeit cheques.  The account holder distances themselves from the fraud by portraying the payment as one they thought was part of a legitimate transaction.  The funds are often withdrawn or transferred before the cheque is returned as counterfeit, usually within a matter of days.  After the transaction is reversed and the customer’s account is well overdrawn, the financial institution is left to try and recover the funds from its customer.  In hindsight, there are often red flags that were overlooked.

One such warning is an urgent inquiry by the customer about whether the funds have cleared or whether the cheque is “good”.  The answer to queries like this can make the difference between recovery by the bank or liability for the loss once the fraud is discovered.

A recent Ontario decision, Oak Incentives Group Inc. v. Toronto Dominion Bank resulted in judgment against the bank for a loss caused when its customer unwittingly accepted a counterfeit deposit into its account.   There are several surprising aspects to this case but at its core the bank was found liable for breach of a duty of care owed to its customer.  That liability arose because of what the bank’s employees knew about the transaction, said and did not say to the customer. 

Oak Incentives was a long term customer buts its account did not have a history of large deposits or transactions.  Oak Incentives was approached by a Mr. Lim who wished to purchase $200,000 worth of Sony televisions.  Mr. Lim was told payment in full had to be received before the product would be shipped.  Mr. Lim said he would wire the funds directly to Oak Incentives’ account.  As a result, Oak Incentives, which did not have familiarity with wire transfers, inquired of the branch manager whether a wire transfer was a safe and secure method of payment.  The branch manager was told about the proposed transaction and, in particular, that the order was a rush delivery requiring confirmation of full payment before the product could be delivered.  The branch manager assured Oak Incentives a wire transfer was safe and secure.

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Are the Courts in B.C. Levelling the Ground? Recent decisions under REDMA

Posted by Craig Ferris on August 26, 2011

The sale of condominiums in British Columbia is a big business.  The financing for the development of these condominiums is often dependant on the successful marketing and sale of the condominium units prior to construction.  These marketing and sale activities are governed by the Real Estate Development Marketing Act (British Columbia) (“REDMA”) which, among other things, sets out the requirements for a Disclosure Statement and provides that contracts entered into where there has been non-compliance with certain provisions of REDMA are unenforceable.

In 2010, the British Columbia Court of Appeal affirmed the trial decision in Chameleon Talent Inc. v. Sandcastle Holdings Ltd., (“Sandcastle”).  Sandcastle has been interpreted as being a highly purchaser friendly decision which set a very low standard for the test of what constituted a “material” fact, which if misstated, gave rise to the ability of a purchaser to seek an order that the contract for purchase of the condominium unit was unenforceable.

In 2011, however, the Supreme Court of Canada considered the issue of “materiality” under legislation similar, but not identical, to REDMA in Sharbern Holdings Ltd. v. Vancouver Airport Centre Ltd. (“Sharbern”).  The hurdle for materiality set out in this decision was considerably higher than the standard in Sandcastle.

A trial judge in British Columbia has recently analyzed REDMA utilizing the higher threshold for materiality from Sharbern and, in reaching his decision, distinguished Sandcastle.  In 299 Burrard Residential Limited Partnership v. Essolat (“299”), the Court dealt with the question of whether it was a misstatement of a material fact where a Disclosure Statement estimated construction of the condominium development to be complete in September 2009 and the development was not completed in fact until December 2009 with occupancy in January 2010.  Relying on Sandcastle, the purchaser argued that the estimated construction completion date was a material fact and that it had been misstated in the Disclosure Statement.  He argued that this should result in an order that his agreement to purchase the condominium unit was unenforceable.

The Court disagreed and followed Sharbern finding that it had to be “satisfied that there was a substantial likelihood that the undisclosed delay in completion would have had actual significance to a reasonable purchaser in making a decision whether to purchase a unit”.  The Court found that a reasonable purchaser would have seen the construction date as an estimate and it would not have influenced a reasonable purchaser in making such a decision.

It appears that 299 represents a levelling of the ground for REDMA based disputes and developers will have an increased likelihood of holding purchasers to the bargain made before the condominium was built.

Would Cinderella Inherit?

Posted by Peter Roberts on August 24, 2011

If Cinderella had not married a prince, she might have cared a bit more about her legal status as a stepchild to her evil stepmother.  It is common ground that the relationships between stepparents and stepchildren can be difficult.  Vince Dixon of the Chicago Tribune recently provided saga guidance on how to mitigate some of those potential problems.  Communication is generally the key.  But for step-grandparents, the introduction of stepchildren into their lives is a matter generally beyond their control.  It is often a wonderful and vibrant experience but the legal consequences are not generally discussed.  How is an inheritance to be handled when a stepparent or step-grandparent dies?  What are the legal rights of step-children to inherit?

The short answer is: it depends.  The starting point is what the will says.  If the stepchild is specifically named and granted a bequest, they will inherit.  But what of the occasions where the bequest is more ambiguous, for example, where there is no specific bequest and the beneficiaries are referred to only as “my children” or “my grandchildren”.  In the past, Courts generally did not include in the definition of “child” or “grandchild” either illegitimate or stepchildren.  Thankfully, that rule has been somewhat relaxed to a rebuttable presumption in favour of legal descendants rather than an inviolable rule.  Now, in interpreting a will to see if stepchildren (grand or otherwise) are to inherit, the Courts will, where there is ambiguity, look to the context of the will and other external evidence that may assist in that interpretation.

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The Red Carding of Mohammed Bin Hammam

Posted by Kinji Bourchier on August 17, 2011

On July 23rd, ex-Fifa presidential candidate, Mohammad Bin Hammam (“MBH”) was banned from football related activity for life.  He is the most senior official to be banned by Fifa in its 107 year history.  For the uninitiated, Fifa is the governing global body for the sport of soccer.  A brief factoid:  Fifa has more members (208) than the International Olympic Committee; is an association established under the laws of Switzerland and headquartered in Zurich; has a motto of “For the Game, For the World” and is responsible for the organization and governance of the World Cup, the World’s largest and most lucrative sporting event.

This blog is actually more of a “prequel”, in that MBH has vowed to appeal his life-time ban to, among others, the Court of Arbitration for Sport, which I am going to report on in a subsequent instalment faithful reader. 

Now, soccer is no stranger to allegations of corruption, (less than 5 years ago in Italy, several prominent “squadra” were docked points for match fixing which resulted in Juventus of Turin dropping down a league) but, this latest scandal goes all the way to the top. 

MBH was found guilty of trying to buy votes from Caribbean Football Union members in his recent bid to become Fifa president.  MBH, who hails from Qatar [more on this later], says he will appeal against the ruling, which said he gave or offered cash gifts of around $40,000 US each to the 25 Caribbean associations.  MBH went on to say (to Sky News), “This is actually the act of the dictators and you have witnessed through history the dictators when they think this or that person is a prominent one to replace him, the first thing they do is execute him.”

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But I spent the money already!

Posted by Peter Roberts on August 08, 2011

There is a card in Monopoly that reads “Bank error in your favour” and which entitles you to keep the $200 wrongly credited to your account.   Banks can make errors.  Banks are also frequently the victims of fraud.  The result of this is often that a lucky customer’s account suddenly has a much larger balance.  However, unlike Monopoly, when this occurs, the bank will do all it can to recover those funds.  The account holder deals with those bonus funds at his or her peril.

The B.C. case of Royal Bank of Canada v. B.M.P. Global Distribution, 2011 BCSC 458 provides a recent example of just such a situation.  It is also the end (almost) of a dispute that began almost ten years ago and which has been up to the Supreme Court of Canada once already.  Mr. Hashka and Mr. Backman, the principals of B.M.P. Global, received a cheque for $776,000 which they maintained was payment for certain distribution rights (for a product they had no right to).  They deposited the funds into BMP’s account.  After the bank’s hold on the account was lifted, they immediately transferred most of the funds to other bank accounts.  Eventually, it was determined that the cheque was counterfeit.  The drawee bank tried to reverse the deposit.  A large amount of the subject funds were frozen in the secondary accounts but a considerable amount had already been spent by Messrs. Hashka and Backman retiring pre- existing personal and corporate debts.  There was no evidence these gentlemen knew of the fraud.  They claimed entitlement to the funds, despite the fraud, on the grounds that they had changed their position in good faith reliance on the bona fides of the cheque and their bank’s release of the hold on the B.M.P. Global account.

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