Case information

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Commercial law - Bills of exchange - Financial institutions - Banks - Whether a collecting bank can avoid the obligation to repay a final and settled account on the basis that a drawee bank mistakenly had honoured a forged cheque deposited into that account weeks earlier - Whether equitable principles override the terms of a banking contract in a dispute between a customer and a bank.

The Appellant, B.M.P. Global Distribution Inc. (“BMP”) was a customer of the branch of the Respondent bank (“BNS”) in the Vancouver area. Its two principals, Hashka and Backman, had personal accounts in the same bank and Hashka’s holding company also had an account there. On October 22, 2001, BMP received a cheque in the amount of CAD $902,563 by courier, drawn by the First National Financial Corporation on the Royal Bank of Canada (“RBC”) in Toronto. Hashka brought the cheque to BNS for deposit to the BMP account, and advised the manager, Richards, that it was a downpayment for distributorship rights for BMP’s bakeware product. Richards placed a hold on the cheque for a full seven days, to ensure that the cheque was not counterfeit. The cheque cleared the bank clearing system and RBC paid the face value to BNS. The hold on the cheque was released on October 30, 2001, and over the next ten days, BMP made numerous payments to creditors out of its account. Hashka also transferred $400,000 from the BMP account to his holding company account; $73,000 was transferred to two of Backman’s personal accounts; and $20,000 was transferred to Hashka’s personal account. On November 9, 2001 RBC contacted Richards to advise that the signatures appearing on the cheque were forged. It requested BNS’s assistance with respect to the remaining funds and in response, Richards froze all five accounts. At that point, there was approximately $350,000 in the BMP account and approximately $426,000 divided among the other four accounts. Richards also sent out a “grid warning” advising other financial institutions about the counterfeit cheque and the persons involved. BNS debited each of the accounts and remitted approximately $776,000 to RBC. Hashka and Backman insisted that they were entitled to retain all of the deposits, and with BMP and Hashka’s holding company, the four parties sued BNS, alleging a breach of their banking contracts, negligence, money had and received, breach of fiduciary duty, breach of the settlement rules of the Canadian Payments Association, defamation and breach of the Privacy Act.

The Plaintiffs’ action was allowed; the Respondent was ordered to pay pecuniary damages of $776,650.48 and $7,500 in general damages to the four plaintiffs; no punitive damages awarded. On appeal, the appeal was allowed in part, damages for B.M.P. Global Distribution Inc. reduced to $101; appeals against damages awarded to 636651 B.C. Ltd., Audie Hashka and Paul Backman dismissed.