In a narrow 5-4 decision, the Supreme Court of Canada has laid out a new formulation of the “fictitious or non-existing payee” defence under section 20(5) of the Bills of Exchange Act (BEA). The underlying dispute involved an employee who took advantage of weak internal compliance mechanisms to draft a number of fraudulent cheques. The employee made the cheques payable to entities the employer dealt with, as well as two non-existent entities with names similar to those of real suppliers. The cheques were then deposited into a number of bank accounts, set up by the employee in the names of these entities. The fraud was not discovered until after the employee had deposited $5,483,249 into the various accounts. The employer ultimately sued the banks in conversion in an attempt to recover the stolen funds. Continue Reading