Canada: The Supreme Court Of Canada Holds Banks Liable For Conversion: Teva Canada Ltd. V. TD Canada Trust

Last Updated: November 10 2017
Article by Caitlin E. Steven

On October 27, 2017, the Supreme Court of Canada released its decision in Teva Canada Ltd. v. TD Canada Trust.1 The Court split 5:4 in the decision to overturn the Ontario Court of Appeal's ruling that the banks were not liable for converting cheques to non-existing or fictitious payees.

Factual Background

The case revolves around a $5.4 million fraud perpetrated against Teva Canada Ltd. ("Teva"), a large pharmaceutical company, by an employee in the finance department, Neil McConachie ("McConachie").2

Over the course of four years, 63 fraudulent cheques in the amount of $5,483,249.40 were deposited into accounts at TD Canada Trust ("TD") and the Bank of Nova Scotia ("Scotiabank").3 The cheques were made out to six separate payees. The names of two of the payees were entirely invented by McConachie. The names of the other four payees were also names of legitimate Teva customers or service providers. However, none of the cheques requisitioned by McConachie for these payees was for a legitimate debt owed by Teva.4

At the time, Teva believed that each cheque was generated to satisfy a legitimate obligation to a customer, did not intend or authorize McConachie to possess or use the cheques for personal use, and the actual account holders were not intended by Teva to be the payees of the cheques.5

Teva discovered the fraud in 2006, fired McComachie, and commenced a lawsuit in 2007 against five banks, including TD and Scotiabank, for the tort of conversion. When Teva moved for summary judgment in 2013, only the claims against TD and Scotiabank remained.6 The motions judge held the banks liable for conversion.7 This holding was overturned in a unanimous decision by the Ontario Court of Appeal, and Teva appealed to the Supreme Court.8

The Tort of Conversion

The tort of conversion is a strict liability tort involving the wrongful interference with the goods of another.9

If a cheque is made payable to a specific payee, then it is ordinarily payable to order. This means that the bank may only negotiate the cheque if it is both delivered and validly endorsed. If a cheque payable to order is paid out and has a forged or missing endorsement, the bank will be liable for conversion.10 As the tort is one of strict liability, both a bank's negligence and the contributory negligence of the person on whose account a cheque is drawn (also referred to as the "drawer") is irrelevant.11

A bank can avoid liability for conversion by the application of section 20(5) of the Bills of Exchange Act (the "Act")12, which states:

Fictitious payee
(5) Where the payee is a fictitious or non-existing person, the bill may be treated as payable to bearer.

If a cheque is payable to bearer, the bank may negotiate the cheque by simple delivery to the bank, with or without a valid endorsement.13 Though TD and Scotiabank had raised other defences before the motions judge,14 only the application of section 20(5) was at issue on the appeal to the Supreme Court.

The Decision of the Supreme Court

Writing for the majority,15 Justice Abella outlined the current state of the law by providing an extensive history of the section 20(5) defence and its interpretation in both U.K. and Canadian jurisprudence, including the Supreme Court's most recent authority, Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce ("Boma").16

To demonstrate that a payee is fictitious or non-existing under section 20(5), a two-step framework is followed.

The first step is the "subjective fictitious payee inquiry", which looks to whether the drawer intends to pay the payee:

If the bank proves that the drawer lacked such intent, then the payee is fictitious, the analysis ends and the drawer is liable. If the bank does not prove that the drawer lacked such intent, then the payee is not fictitious, and the analysis proceeds to step two.17

Justice Abella explained:

A payee is fictitious when the drawer does not intend to pay the payee, meaning that the payee's name is inserted by way of pretence only. The underlying rationale behind the fictitious payee rule is that if the drawer did not intend that the payee receive payment, such as in cases of fraud, the drawer should not be able to recover from the bank.18

However, a specific intention to pay the payee may be presumed or attributed, in accordance with the realities of the cheque-issuing process in many large corporations, where "a specific intention by the guiding mind(s) of the corporation is not directed to each individual cheque".19

The second step is the "objective non-existing payee inquiry", which considers the legitimacy of the payee:

Step two... asks if the payee is either (1) a legitimate payee of the drawer; or (2) a payee who could reasonably be mistaken for a legitimate payee of the drawer. If neither of these is satisfied, then the payee does not exist, and the drawer is liable. If either is satisfied, then the payee exists and the bank is liable.

The majority of the Court found that the banks were prima facie liable for conversion, as McConachie was not lawfully entitled to the cheques, the banks dealt with the cheques "under the direction of one not authorized", and made "the proceeds available to someone other than the person rightfully entitled to possession".21

The application of section 20(5) then depended on whether the six payees on the cheques were fictitious or non-existing. In allowing the appeal and restoring the motions judge's decision, Justice Abella wrote:

In this case, Teva was not complicit in the fraud. Though only four of the names used were those of existing customers, the other two names used were very similar to names of Teva's real customers. The motions judge found that there was "a rational basis for concluding that cheques were apparently made payable to existing clients", and that "the payees could plausibly be understood to be real entities and customers of the plaintiffs".

As a result, the payees were not fictitious or non-existing.22

Recognizing that the jurisprudence on section 20(5) had critics, Justice Abella stated that "compelling reasons" are required for the Supreme Court to overrule its own decisions in order to ensure certainty, consistency, and institutional legitimacy, and that such reasons did not exist in this case.23 Referencing public policy on the allocation of risk, Justice Abella observed:

Banks are well-situated to handle the losses arising from fraudulent cheques, allowing those losses to be distributed among users, rather than by potentially bankrupting individuals or small businesses which are the victims of fraud.

The dissenting judges, in reasons written by Justices Côté and Rowe,25 would have dismissed the appeal and overturned two of the Court's previous decisions: Boma and Royal Bank of Canada v. Concrete Column Clamps (1961) Ltd.26 The dissent endorsed returning to objective tests for "non-existing" and "fictitious" in the context of section 20(5).27


In upholding previous jurisprudence and finding TD and Scotiabank liable for conversion, the Supreme Court held that, under section 20(5) of the Act, a specific intention to pay a payee may be presumed or attributed to a large corporation with a mechanical and/or computerized cheque-issuing process, in accordance with commercial realities.28

Notably, while Teva had an express policy requiring specific approval for the cheques issued to the payees, the policy was not followed with the fraudulent cheques. McConachie did not have signing authority, nor authority to even requisition cheques or approve the payments for which the cheques were requisitioned. Teva's former chief financial officer admitted that the accounts payable department knew that McConachie did not have authority to approve the payments, but nevertheless issued the cheques.29

Banks should especially take note of this aspect of the decision, as it suggests that the intention to pay will be presumed or attributed even in situations where the corporation's cheque-issuing policy is not followed.


[1]2017 SCC 51 [Teva, Supreme Court of Canada].

[2]Ibid at para 9.


[4]Ibid at para 10.

[5]Teva Canada Ltd. v. Bank of Montreal, 2014 ONSC 828 at paras 16-18.

[6]Ibid at para 1.

[7]Ibid at para 39.

[8]Teva Canada Ltd. v Bank of Montreal, 2016 ONCA 94 [Teva, Court of Appeal].

[9]Teva, Supreme Court of Canada, supra note 1 at para 3.



[12]RSC 1985, c B-4.

[13]Teva, Supreme Court of Canada, supra note 1 at paras 5-6.

[14]The banks also argued: (1) that the cheques were deposited to the credit of the account holder, with the account holder being the named payee of the cheques, and the banks were the holders in due course pursuant to section 165(3) of the Act. No endorsements were therefore required; and (2) the claim was statute-barred under the Ontario Limitations Acts, 2002, SO 2002, c 24, Sch B.

[15]Justices Moldaver, Karakatsanis, Gascon and Brown concurring.

[16]Teva, Supreme Court of Canada, supra note 1 at paras 19-71; [1996] 3 SCR 727.

[17]Teva, Supreme Court of Canada, supra note 1 at para 7.

[18]Ibid at para 51.

[19]Ibid at para 53.

[20]Ibid at para 7.

[21]Ibid at para 72.

[22]Ibid at paras 74 and 75.

[23]Ibid at para 65.

[24]Ibid at para 67.

[25]Chief Justice McLachlin and Justice Wagner concurring.

[26][1977] 2 SCR 456.

[27]Teva, Supreme Court of Canada, supra note at paras 80, 83.

[28]Ibid at para 53.

[29]Teva, Court of Appeal, supra note 8 at paras 14-16.

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.

Events from this Firm
7 Dec 2017, Webinar, Toronto, Canada

FEX Members Jeff Noble, BDO, and Caroline Abela, WeirFoulds LLP, invite you to a complimentary webinar series titled: All About Shareholders.

11 Nov 2018, Seminar, Toronto, Canada

WeirFoulds Partner Glenn Ackerley will Chair the RICS & CIQS 5th Annual Construction & Project Management Seminar.

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