Teva Canada Limited v. TD Canada Trust, et al.

(Ontario) (Civil) (By Leave)




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Commercial law – Bills of exchange – Legislation – Interpretation – Has the Ontario Court of Appeal revised the rules governing the assignment of risk of cheque fraud, as it exists between Canadian banks and drawer companies, by introducing a defence of drawer’s negligence into the strict liability tort of conversion – To what extent are Canadian financial institutions responsible for upholding the certainty and finality of bill of exchange transactions – To what extent is a company’s internal cheque approval process determinative of such assignment – What is the proper scope and interpretation of the “fictitious payee” rule – Are the decisions of this Court in Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce, [1996] 3 S.C.R. 727 and Royal Bank of Canada v. Concrete Column Clamps (1961) Ltd., [1977] 2 S.C.R. 456 still good law – If so, has the Ontario Court of Appeal followed these decisions, in accordance with the principle of stare decisis.

The applicant (“Teva”) is a large manufacturer of generic pharmaceuticals. Teva and the respondent banks fell victim to a fraudulent scheme orchestrated by a Teva employee, M. M was responsible for administering Teva’s rebate programme but had no authority to requisition or authorize cheques. From 2002 to 2006, M took advantage of the fact that Teva’s internal payment approval policies were not followed. He requisitioned cheques payable to six entities to whom Teva owed no monies: two entities whose names he had invented, and four who were current or former customers of Teva. M requisitioned 63 fraudulent cheques totalling $5,483,249.40, which he and five accomplices deposited into small business accounts they had opened at the respondent banks. Teva sued the banks for damages for conversion, and the banks raised defences under ss. 20(5) and 165(3) of the Bills of Exchange Act, R.S.C. 1985, c. B.4 and under the Ontario Limitations Act. Each party brought motions for summary judgment. The motion judge granted summary judgment in favour of Teva, but this was reversed on appeal.

Lower Court Rulings

February 19, 2014
Ontario Superior Court of Justice

07-CV-334218PD3, 2014 ONSC 828
Applicant’s motion for summary judgment for payment of all cheques collected by respondents, granted; Respondents’ crossclaims in negligence dismissed
February 2, 2016
Court of Appeal for Ontario

C58546, 2016 ONCA 94
Appeal allowed, lower court judgment set aside and applicant’s action dismissed