Canada: Raza Kayani: Ontario Court Of Appeal Addresses Scope Of Fictitious Payee Defence Under Canada’s Bills Of Exchange Act

Last Updated: February 27 2015
Article by David S. Wilson and Christopher McKibbin

In the recent decision of Raza Kayani LLP v. Toronto-Dominion Bank, the Ontario Court of Appeal addressed the scope of the "fictitious payee" defence available to banks and other financial institutions under Canada's Bills of Exchange Act. The decision has important implications for entities seeking to recover against financial institutions in cheque fraud cases.

The plaintiffs were a law firm and another individual lawyer who fell victim to essentially identical counterfeit cheque scams. The plaintiffs were each retained by a purported purchaser in connection with a commercial transaction involving a vendor known as Nithiyakalyaani Jewellers. As part of the closing of each transaction, the plaintiffs were provided with counterfeit certified cheques representing the purchase funds, which they deposited into their trust accounts. The plaintiffs then provided a trust cheque and a bank draft (the "instruments") payable to "Nithiyakalyaani Jewellers" to a representative of the purported vendor.

The fraudsters' use of the name "Nithiyakalyaani Jewellers" was a form of corporate identity theft. There had been a valid Ontario corporation, Nithiyakalyaani Jewellers Ltd., which had previously carried on business at the address used by the fraudsters, but which no longer did so as of the time of the fraud. One of the plaintiffs had even performed a Canada411 search on "Nithiyakalyaani Jewellers" to satisfy himself that the entity existed and was located at the address provided.

An individual, Shaik, had opened an account in the name of Nithiyakalyaani Jewellers with TD Bank. Shaik provided TD Bank with an Ontario Master Business Licence indicating that he had registered "Nithiyakalyaani Jewellers" as a sole proprietorship. The instruments were deposited into this account. By the time the plaintiffs learned that the certified cheques were counterfeit, the fraudsters and the money were long gone.

The plaintiffs alleged that TD Bank, as collecting bank, was liable in conversion because it credited the instruments to someone other than the intended payee. As conversion is a strict liability tort, TD Bank had no defence, other than the statutory defence afforded to collecting banks by subsection 20(5) of the Bills of Exchange Act. This provides that where a named payee is a fictitious or non-existing person, a cheque may be treated as payable to bearer (i.e., whoever presents the cheque to the collecting bank) and the bank will have no liability for negotiating it on the bearer's instructions.

The law in this area is not always easy to apply. If the payee is not the name of any real person known to the drawer, but is merely that of a creature of the imagination, the payee is non-existing, and is probably also fictitious. However, if the payee is the name of a real person, intended by the drawer to receive payment, the payee is neither fictitious nor non-existing, even if the drawer has been induced to draw the instrument by a fraudster's representation that there is a transaction in respect of which the payee is entitled to the sum mentioned in the instrument.

TD Bank contended that "Nithiyakalyaani Jewellers" was a fictitious and non-existing entity – a figment of the fraudsters' imaginations. As such, TD Bank validly negotiated the instruments and was not liable.

Relying on the Court of Appeal's 2012 decision in Rouge Valley Health System, the plaintiffs countered that a payee will not be found to be non-existing if the payee name is similar to the name of an actual person, such that the drawer of an instrument might plausibly maintain that it believed it was paying a real entity. This is sometimes referred to as the "plausibility doctrine."

The trial judge had held that the plaintiffs believed that an entity called Nithiyakalyaani Jewellers (with or without the "Ltd.") existed, and that it was located at the address where Nithiyakalyaani Jewellers Ltd. had previously operated. On this basis, she held that Nithiyakalyaani Jewellers Ltd. was the entity the plaintiffs intended to pay. Consequently, the payee was neither fictitious, nor non-existing, and TD Bank had no defence under subs. 20(5).

The Court of Appeal disagreed, holding that the plausibility doctrine still requires that the drawer of the instrument must have knowledge of the payee, i.e., the name must be similar to the name of an actual person or entity with which the drawer has previously done business. Here, the plaintiffs acknowledged that they had had no prior dealings with Nithiyakalyaani Jewellers Ltd., and that they had not turned their minds to the incorporation status of Nithiyakalyaani Jewellers when they drew the instruments.

Consequently, the Court of Appeal held that the plaintiffs could not establish that "Nithiyakalyaani Jewellers" was the name of a real entity, intended by the plaintiffs to receive payment. As such, subs. 20(5) applied to afford TD Bank with a defence to the conversion claim.

The Court of Appeal appears to have narrowly applied the plausibility doctrine in Raza Kayani. The Court's decision demonstrates the need for careful analysis of the factual context under which a drawer has been induced to prepare and part with a cheque. Where a drawer can adduce evidence demonstrating that the drawer thought it was paying an entity with which it some prior relationship, the drawer may be able to recover in conversion against the collecting bank.

Raza Kayani LLP v. Toronto-Dominion Bank, 2014 ONCA 862

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

David S. Wilson
Christopher McKibbin
Events from this Firm
8 Nov 2018, Conference, Toronto, Canada

This year’s program is entitled “An Analysis of Fidelity Claims for the Modern World.” The program will address important substantive and practical issues germane to today’s fidelity claims handling.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions