Western Canada Business Litigation Blog - Vancouver | Calgary | Yellowknife

In October 2011 I wrote about the BC Supreme Court decision in Federation of Law Societies of Canada v. Canada (Attorney General), 2011 BCSC 1270 in which the Court held that provisions of the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act and related Regulations were constitutionally inapplicable to lawyers.  Specifically, the Court held that provisions of the legislation requiring lawyers to collect and maintain confidential information about their clients, and their clients’ activities, violates section 7 of the Canadian Charter of Rights and Freedoms and cannot be saved under section 1 of the Charter.

The federal government appealed to the BC Court of Appeal which issued its Reasons for Judgment on April 4, 2013 upholding the decision (2013 BCCA 147).  What is particularly interesting about the Court of Appeal decision is that while the Supreme Court decision (and earlier related decisions) were largely decided on the basis of a concern that the legislation does not adequately protect solicitor/client privilege, the Court of Appeal based its decision on the fact that the legislation interferes with the independence of the Bar, a value that the Court characterized as a principle of fundamental justice within the meaning of section 7 of the Charter.  In coming to this conclusion, the Court of Appeal accepted the arguments of the Federation of Law Societies, supported by the Law Society of British Columbia, the Canadian Bar Association, the Chambre des Notaires du Québec and the Barreau du Québec, that the legislation puts lawyers in a position of conflict between the duty of loyalty owed to their clients and the obligation to the state created by the legislation.  The various law bodies have argued all along that this conflict is untenable in that it undermines the independence of lawyers and therefore prejudices the proper administration of justice in Canada. 

While the decision represents a victory for the legal profession, it is arguably of greater significance to the clients that we serve in that it recognizes that clients must be free to consult legal counsel and to speak fully and frankly with their lawyers in order to ensure that they receive proper legal advice.

The federal government is still considering whether it will seek leave to appeal to the Supreme Court of Canada.

You just met a nice foreign gentleman.  He asks you to assist him in facilitating a transfer of funds overseas.  You agree because he offers a 5% commission.  He produces a cheque payable to you, for a large sum, and asks you to deposit it into your bank account.  After retaining your commission, you wire the rest overseas as instructed.  Easy money!  Now, several weeks later, your bank wants you to pay back the entire amount of the cheque.  What a surprise: the cheque was a fraud. 

Surprisingly, many people are taken in by such a ruse.  Is it greed, wilful blindness or just stupidity?  While cheque use in Canada is on the decline, cheque fraud is reported to cost Canadian business $1 to $2 billion each year.  Naturally, when your bank has to return funds credited to your account to the drawee bank, they are going to come looking for you to repay them.  The law entitles them to do this.

The Supreme Court of Canada recently confirmed this by dismissing an appeal from the Ontario Court of Appeal in a case involving a materially altered cheque.  Mr. Grenville-Wood met a man from Taiwan who asked him to help with a fund transfer overseas.  Mr. Grenville-Wood agreed and deposited into his account a cheque payable to him in the amount of $57,000.13.  His bank credited the account.  Mr. Grenville-Wood kept $2,850 and wired the rest to Japan. 

Some weeks later, the drawee bank returned the cheque and reclaimed the funds from Mr. Grenville-Wood’s bank who, in turn, charged back the debt to Mr. Grenville-Wood’s account.  Turns out the cheque had originally been issued to another payee in the amount of only $355.12.  It had been materially altered to change both the payee and the amount.  Mr. Grenville-Wood claimed ignorance of this alteration (Really!). 

In the result, Mr. Grenville-Wood had over $12,000 scooped from his account by his bank.  The bank then sued him to recover the shortfall.  Mr. Grenville-Wood defended the claim.  He argued that because his account had originally been credited with the funds, and he had since spent or disbursed them (thus changing his position), he should not be required to pay the money back. 

The court dismissed Mr. Grenville-Wood’s defence.  At common law (and generally in a bank’s account agreement), the bank has a right to reverse a credit made to a customer’s account where there is a defect in the bill of exchange (the cheque) that was deposited.  The fact the collecting bank received payment from the drawee bank is no defence to a charge back of the customer’s account once the material alteration to the cheque is ultimately discovered.  While a chargeback like this should be made within a reasonable time, the law imposes no actual deadline.  If a cheque is worthless, the passage of time will not change that fact.

Interestingly, Mr. Grenville-Wood also tried on the argument that because he had told his bank about the circumstances surrounding the deposit of the cheque (including the transfer of most of the funds overseas), the bank owed him a duty to warn him the credit to his account was only provisional and might later be reversed if the cheque was dishonoured.  The court rejected this argument, noting that the bank had no duty to warn Mr. Grenville-Wood.  The bank could not give any meaningful assurance about the validity of the cheque, nor could it reasonably know whether it might later be dishonoured.  Mr. Grenville-Wood was the person best placed to prevent the loss and to make inquiries about the validity of the cheque.

As is often the case, if someone presents you with a proposal that is “too good to be true”, there is likely more to it than you are being told.  You deal with these people at your peril and may well unwittingly be risking considerable financial loss.

The federal government and the legal profession have been at odds for a number of years over the extent to which lawyers can and should be regulated under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “Act”).  The Government has long argued that if lawyers are not subject to the same anti-money laundering measures that apply to other businesses and professionals, such as accountants, securities dealers, trust companies and banks, there is a significant gap in the anti-money laundering regime that will be exploited by criminal elements.

In response, the legal profession has maintained that the federal legislation intrudes unduly into the solicitor-client relationship and fails to adequately protect solicitor-client privilege, one of the foundational principles of our system of justice.  The lawyers also argue that the oversight of lawyers’ conduct is best left to the provincial and territorial law societies through the mechanism of self-regulation.

Round one of this dispute was won by the lawyers when, in 2001, the Law Society of B.C. obtained an injunction exempting lawyers from the application of provisions of the Act and related regulations that would have required lawyers to report suspicions about their clients’ activities to a federal agency (Law Society of B.C. v. Canada (Attorney General), 2001 BCSC 1593 aff’d 2002 BCCA 49).  Similar injunctions were obtained in other Canadian jurisdictions as a result of which the Government, for a time, backed away from its attempt to bring lawyers under the Act.

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On July 23^rd, 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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In April 2006, B.C.’s Civil Forfeiture Act (“CFA”) came into force.  Seven Canadian provinces now have similar legislation. 

The CFA provides a mechanism for the government, through the Director of the Civil Forfeiture Office, to seek the forfeiture of the “proceeds of unlawful activity”.  Forfeiture is ordered by the Court when it is proven that property is either the instrument or the proceeds of “unlawful activity”.  The standard of proof is a balance of probabilities, significantly lower than the criminal standard of proof beyond a reasonable doubt.  Proof of “unlawful activity” can be established even where there is no criminal conviction or charges.  It can also be proven despite the acquittal of an accused for the suspected offence.  This result can arise because of the differing standards of proof: similar to O.J. Simpson’s criminal acquittal for his wife’s murder and the subsequent finding of his civil liability for her death.

Funds realized through forfeiture are paid into a civil forfeiture account.  They are spent to compensate victims, prevent and remediate unlawful activities and “other prescribed purposes”. 

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This post was submitted by Lawson Lundell guest author Euan Sinclair, Director, Knowledge Management.

In the absence of a national identity card, many Canadians are routinely required to use their driving licences to prove their identity in the course of business, commerce or travel. But when is it lawful for organizations to record information from the licence to protect themselves against fraud or theft? In a Judgment handed down by the Alberta Court of Appeal last week, the court set out what is reasonable in the circumstances.

The case involved the purchase and subsequent collection of furniture. The furniture company requires that those collecting furniture identify themselves by requesting and recording their driver’s licence number and vehicle licence plate number to combat fraud or theft. That information is stored separately from the purchaser’s information and there is no evidence of disclosure to third parties for marketing or collateral purposes. In this case, the information was supplied, but under objection.

The Court notes that the Alberta Personal Information Protection Act makes frequent use of the concepts of “reasonableness” and “consent” in defining lawful use of personal information. Pivoting on the contemporary use of driving licences as a universally accepted form of identification (rather than just entitling the holder to drive a car), the Court found that it is reasonable to use personal information in this way. Considering that the information was supplied under objection, the Court found that “consent” includes “reluctant consent”. An organization is permitted to refuse to contract unless personal information is provided, so long as this is reasonably necessary.  There is also “acquiesced consent” where customers do not object.

 “Personal Information” is defined in the Act as meaning information about an identifiable individual. The Court drew an important distinction between information that relates directly to the individual and information that relates to an object or property owned by that individual. Thus, a driver’s licence number is personal information, but the number on a vehicle licence plate is not, because it is linked to a vehicle not a person.

The Alberta Court of Appeal held by a 2-1 majority that it can be reasonable for businesses to require that the driving licence number be recorded in certain circumstances, even though it constitutes personal information. As the strong dissenting judgment in this case shows, there is perpetual tension in the competing rights in the collection of personal information. The Alberta Court of Appeal has laid down some useful markers in knowing where the balance should be struck, but look out for an appeal.

In an intersection of law and Canadian pop-culture, k.d. lang successfully defended her California judgment against her ex-manager, Annabel Lapp.  Lapp, a Canadian resident, had been k.d.’s manager for 16 years prior to November 2005.  Matters became nasty when k.d. sued Lapp in California for fraudulently handling her finances.  k.d. effectively obtained a default judgment in California for about USD $1.9 million.  Cindy Harnett reports that Lapp decided not to defend the California suit because “it would cost too much to be worthwhile.”  Risky!

The legal part of interest is the enforcement of a foreign judgment in B.C. in the face of an allegation that it was obtained by fraud.  Lapp sought to prevent the enforcement k.d.’s judgment in Canada, arguing the California judgment had been obtained by fraud going to the jurisdiction of the California court.  She said k.d. had “misrepresented her place of residence” and where the two had originally made their management agreement, B.C. rather than California. 

Generally, to successfully attack a foreign judgment, you must present new evidence discovered since the trial or evidence that, despite due diligence, was not discovered until later.  However, “fraud” is an exception.  In such cases, you do not need to present “new evidence” or prove due diligence.  This is because “facts relating to jurisdiction are so fundamental that they should always be open to attack.”  However, the “fraud” must be “fraud going to jurisdiction” as opposed to “fraud on the merits”, meaning the “fraud” was not a matter that was or ought to have been raised in the foreign court in considering the merits of the case.  On the facts before it, the B.C. Court of Appeal found that k.d. had not misled the California court into taking jurisdiction over her claim against Ms. Lapp.   

Perhaps in prescient celebration of this legal victory, k.d. once crooned in her cover of The Beatles' song “Golden Slumbers / The End”: 

Once there was a way
To get back homeward
Once there was a way
To get back home

You just discovered that one of your company’s directors or a senior employee has been engaging in a fraud.  One of the first things I get asked in situations like this is whether the conduct of the employee/director will be treated as the conduct of the company generally.  Can the company distance itself from its agent’s conduct?  It matters for a variety of reasons, including the exposure to civil liability to third parties and the possibility of criminal charges. 

Les Leyne in his Times Colonist article The Ugly Side of Deregulating Beauticians  illustrates a recent situation like this.  He reported on the dismissal of a fraud claim by the Cosmetology Industry Association of B.C. ("CIABC") against one of its members for a fraud perpetrated in cahoots with a CIABC director.  His point was that deregulation of an industry is not always a good thing but from a legal point of view, the important point is that where the actions of the fraudster are apparently for the benefit of the company (no matter how misguided), the courts will treat the conduct as that of the company. 

What this means is that the company is not going to be able to recover from others any loss it suffered.  It may also be exposed to claims by the victims of the fraud and cannot defend by saying it was the employee, not us.  This is because the company will be treated as a party to the fraud (through the actions of its misguided employee/director).  In such cases, the legal principle known as the “corporate identification doctrine” applies.  It says that where a company acts through one of its “directing minds” and is involved in a fraud, it is a party to that fraud and must bear the consequences.