Check Those Cheques: Is The Payee Plausible?

Companies victimized by cheque fraud from within their own ranks often turn to their banks for recovery. A bank that pays out a cheque to a recipient unintended by the cheque's drawer can be liable to the drawer for conversion. Conversion is a strict liability tort with few defences. The Ontario Court of Appeal, however, recently reviewed one defence that is available to banks in circumstances of fraud under the Bills of Exchange Act (the "Act").

Background

Rouge Valley Health System v TD Canada Trust¹ concerned a cheque fraud scheme perpetrated by a mid-level employee of Rouge Valley Health System ("Rouge Valley"), an acute care community hospital. With the aid of an outside accomplice, the employee approved payment of over 70 fake invoices rendered by a made-up entity called Scarborough-York Mobile Rehabilitation which bore the logo, but not the name, of a community agency familiar to Rouge Valley. The rogue employee made cheques out to S.M.R. His accomplice