BMP Global Distribution Inc v Bank of Nova Scotia: Another Step in the Development of Unjust Enrichment?

Next month, the Supreme Court of Canada (“SCC”) will hear submissions in an appeal from BMP Global Distribution Inc v Bank of Nova Scotia (cob Scotiabank), 2007 BCCA 52. This case involves a mysterious counterfeit cheque in an amount of over $900,000 which was couriered to BMP by some unknown party. BMP, believing that the cheque was payment in relation to a licensing agreement it had reached with a third party, deposited the cheque with its bank, Scotiabank. The cheque cleared the banking clearing system and Royal Bank paid the amount to Scotiabank. BMP began using the funds in that account until Royal Bank discovered that the cheque was counterfeit and requested that Scotiabank freeze BMP’s accounts. Scotiabank retrieved the remaining funds in the accounts of BMP and its principals that it could trace to the mistaken payment and returned them to Royal Bank. BMP then brought an action against Scotiabank in an attempt to recover this money.

Surprisingly, at trial, the judge awarded BMP damages in the amount of the funds taken from BMP’s account by Scotiabank on the basis that the bank was in breach of its banking contract, ignoring restitutionary principles usually applied to mistaken payment cases. The trial judge took a very narrow view of the expectancy damages calculation, holding that BMP suffered a loss of this money despite the fact that it had no legal entitlement to it since it was based on a counterfeit cheque.

The British Columbia Court of Appeal reversed this decision, holding that since the cheque that had been deposited was counterfeit and BMP had not been legally entitled to any funds from that cheque, Scotiabank’s act of debiting the funds from BMP’s account had not caused BMP to suffer any damages. As the Court of Appeal notes, in an ordinary mistake of fact case, it would be the party that has suffered the loss (Royal Bank in this case) bringing an action for the return of funds that had been paid by mistake against the person who had received the windfall. Here, it was Scotiabank that had repossessed the funds in BMP’s account on Royal Bank’s behalf. And it was the BMP, the party who had received the mistaken payment and then had it taken away, who brought the action against Scotiabank. However, the Court of Appeal held that, regardless of these differences, this was essentially a mistake of fact case where Scotiabank had released funds to BMP on the mistaken understanding that the cheque was valid and that under ordinary restitutionary principles, the bank was entitled to retrieve the money.

It is difficult to see how the SCC would allow BMP to recover this money which was paid by mistake and give effect to a fraudelent transaction, regardless of the fact that BMP was also innocent to the fraud. It is not clear that the cheque was in fact related to the licensing agreement or that BMP had paid any consideration for the funds it purported to transfer. Further, it does not appear that BMP has any equitable defences, such as a change of position or detrimental reliance upon the money. In balancing the interests between the two innocent parties, there is no reason why greater weight should be given to BMP’s interest in retaining money for which it had no legal entitlement vis-a-vis the bank’s interest in returning it to its rightful owner. If the money was in fact returned to BMP, Royal Bank would still have a claim for the return of these funds from BMP in money had and received. As an aside, Royal Bank did in fact commence a separate action for recovery of the portion of funds from the counterfeit cheque which had been spent by BMP by the time Scotiabank froze its account. An attempt to join the two actions had been refused by the lower court. Perhaps it may have been more practical to make Royal Bank, Scotiabank and BMP parties to the same action to resolve all issues as between the parties, a solution which is available in the United States under the Uniform Commercial Code.

Regardless of the final result, this case is a great opportunity for the SCC to provide further clarification of the laws of restitution in Canada and to build upon the principles of unjust enrichment established by previous decisions such as Deglman v Guaranty Trust, [1954] SCR 725, and Pettkus v Becker, [1980] 2 SCR 834.

[Editor’s note: the SCC has since rendered its judgement on this case in BMP Global Distribution Inc v Bank of Nova Scotia, [2009] 1 SCR 504]