Canada: Business E-Mail Fraud: Sometimes You Pay Twice!

Last Updated: August 22 2019
Article by Devan Marr

In a recent Ontario Small Claims Court decision, a deputy judge was faced with a situation where a business e-mail compromise resulted in settlement funds being redirected to a fraudster rather than the intended recipient.

The case raised the following novel question:

Where a fraudster assumes control of Victim A's e-mail account and then, impersonating Victim A, issues instructions to Victim B, who then transfers funds intended for Victim A (or a third party) to the fraudster's account, is Victim A liable for the loss?

The Facts

The underlying claim was simple and traditional. The plaintiff was seeking an unpaid balance for environmental assessment services in the total amount of $15,670.54. The defendant acknowledged the debt but claimed insolvency. The plaintiff issued a small claims action on April 27, 2018. The parties reached a settlement agreement on August 1, 2018.

The relevant terms of settlement were:

Mark Schokking on behalf of the Corporate Shareholders shall pay to [the Plaintiff] the sum of $7,000 as follow as full and final settlement of the claim.

Mark Schokking and/or the Corporate Shareholders will deposit $7,000.00 into the Trust account of McDonald, Duncan LLP, account number XXXXX-773, Bank of Montreal no layer than August 8, 2018....

Between August 1, 2018 and August 8, 2018, a fraudster struck. The fraudster gained access to the workplace e-mail of the paralegal representing the plaintiff. Her e-mail credentials were obtained either via a "phishing" attack or possibly a "brute strength" attack. The fraudster changed the e-mail "rules" for the paralegal's account that had the following consequences:

  • Specific incoming e-mails would be forwarded to an external Gmail account and the original incoming e-mail would automatically be deleted.
  • The fraudster was then able to send e-mails from the paralegal's account to the specific accounts. If the recipient e-mailed back, it would be re-directed.
  • The paralegal would have no way of knowing the correspondence was taking place.

With these redirections in place, the fraudster sent revised instructions to Mr. Schokking on August 1, 2018. The e-mail requested Mr. Schokking deposit the money to a Credit Union account in Medicine Hat, Alberta. Mr. Schokking replied by e-mail asking for the physical address. The fraudster, still masquerading as the paralegal, provided the information. Ultimately, Mr. Schokking sent the money to the Medicine Hat account. The fraud was subsequently discovered but the money was never recovered.

The plaintiff brought a motion to enforce the settlement, arguing that the defendant had failed to comply with the settlement terms. The defendant took the position he had satisfied the terms of settlement.

After noting a lack of jurisprudence and the need for legislative intervention in this specific area, the deputy judge concluded that as a default rule, the subject of a fraud (Victim A) that results in another entity (Victim B) diverting funds properly meant for Victim A will not be liable for the loss unless:

  • Victim A and B had a contract which authorized B to rely on e-mail instructions from A, and the contract shifts liability for a loss resulting from fraudulent payment instructions to A; or,
  • There is evidence of willful misconduct or dishonesty by Victim A; or,
  • There is negligence on the part of Victim A.

In the present case, the deputy judge found none of these exceptions applied. There was no contract between the two parties beyond the initial terms of settlement, and there was no evidence of misconduct, dishonesty, or negligence by the paralegal or her firm.

The deputy judge accordingly found that by sending the settlement funds to the Medicine Hat account as opposed to the trust account, the defendant failed to follow the terms of the settlement. The deputy judge ordered the Defendant to pay $7,000 in settlement of the claim.

The Take-Aways

The old adage of "an ounce of prevention is worth a pound of cure" still holds true in the world of e-mail fraud. Proactive risk management practices like employee training, responsive procedures and properly enforced office policies can be an inexpensive and effective way to manage the continued risk of business e-mail compromise and similar cyber breaches.

This case is a prime example of how it takes multiple errors from multiple parties to result in a loss. In an era where the human element continues to make up the bulk of cyber claims managerial controls and employee training are essential in addressing these risk exposures. In this specific case, there were two ways the likelihood and the severity of this breach could have been modified.

The first is the need for organizations to proactively train their employees on the ongoing risk of cyber breaches. The firm's IT professional noted that the paralegal's e-mail password was considered "strong" and therefore likely resistant to a brute force attack. This suggests that her credentials were obtained via a "phishing" scam. Frequent password changes and a scrutiny of e-mails with the hallmarks of a "phishing scam" could had avoided an e-mail compromise in the first place.

The second take-away is that in the age of convenient e-transfers, organizations must have policies and procedures in place to verify any changes in deposit instructions. This is especially true when those new instructions include a transfer to an extra-provincial account with no apparent connection to the parties. In the present case, had the defendant made a phone call after receiving the e-mail, they could have reduced the impact of the paralegal's e-mail compromise and avoided having to pay out twice on a claim they thought settled.  

See: St. Lawrence Testing & Inspection Co. Ltd. v Lanark Leeds Distribution Ltd., 2019 CanLII 69697 (ON SCSM)

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.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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