BMP Global Distribution Inc v Bank of Nova Scotia


BMP Global Distribution Inc v Bank of Nova Scotia 1 S.C.R. 504, 2009 SCC 15, is a significant case of the Supreme Court of Canada on the law of restitution and tracing, in this case dealing with a bank's right to recover funds paid by mistake on the deposit of a fraudulent cheque.

The courts below

In the original case before the British Columbia Supreme Court, the trial judge ordered BNS to pay $777,336 in total pecuniary damages and also awarded damages for wrongful disclosure of information and defamation. In his view, BNS had violated the service agreement as well as the law applicable to banker/customer relations by charging back amounts credited to BMP's and the related accounts.
On appeal to the British Columbia Court of Appeal, BNS's appeal was allowed against BMP by reducing the latter's damages to $101. As to the funds traced in the related accounts, the court found that BMP's transfers were proper and that the cheques were actual bills of exchange and dismissed the appeals against BMP's related parties.

Appeal to the Supreme Court

In a unanimous judgment, BMP's appeal was dismissed, and BNS' cross-appeal was allowed.

The right to recover funds

As noted in Barclays Bank v. Simms, if a person pays money to another under a mistake of fact which causes him to make the payment, he or she is prima facie entitled to recover it. The person's claim may fail, however, if:
  1. the payor intends that the payee shall have the money at all events or is deemed in law so to intend ;
  2. the payment is made for good consideration; or
  3. the payee has changed his position in good faith or is deemed in law to have done so.
In that regard, BMP had raised the following points in its defence:
  • on finality of payment:
  • * it forms part of the common law and that it prevents the drawee bank from recovering the paid proceeds of a forged cheque from anyone other than the forger
  • * the scheme of the Bills of Exchange Act does not allow RBC to recover from BNS or BMP
  • * the service agreement between BNS and BMP precludes BNS from recovering such proceeds from BMP
  • on good consideration:
  • * RBC should bear the loss
  • on the payee's change of position:
  • * BNS's role was changed from that of a collecting bank to that of a borrower
Here, RBC had a right to recover the money paid to BMP. RBC's payment was made on the basis of a forged cheque and the defences are not available to BMP in the circumstances of this case.

The principles of tracing

BNS had the right to claim the amount in BMP's account and to trace funds in the related accounts. There is no issue of identification of the money in BMP's account.
It is possible at common law to trace funds into bank accounts if it is possible to identify the funds. When the chain is broken by one of the intervening parties paying from its own funds, identification of the claimant's funds is no longer possible. However, the fact that a cheque passes through a clearing system, or that it may have been certified, does not break the chain, as the funds have not lost their identity. Tracing is impossible only when the means of ascertainment fail. As noted by the Court,

Aftermath

The decision has given Canadian financial institutions some protection in the event of the deposit of counterfeit cheques. The Court, however, in Canada Trustco Mortgage Co. v. Canada, decided not to extend its principles to other types of fraudulent payments, although the dissenting opinion in that case endorsed the approach.