Executive Summary: Key Legal and Evidentiary Issues

• Responsibility for loss when payment is diverted by a third-party cybercrime.

• Interpretation of contractual obligations regarding payment methods and receipt.

• Assessment of whether either party acted negligently or enabled the fraud.

• Evaluation of the Small Claims Court Adjudicator’s findings and application of law.

• Determination of whether the means of payment affects the obligation to pay.

• Consideration of remedies, including entitlement to payment and denial of costs or interest.

Background and facts of the case

Todd’s Trades Ltd. (“Todd”) provided ongoing services and invoicing to The Veteran Farmer Inc. (“Farmer”), led by Autumn Farmer. Payments were routinely made by e-transfer to Todd’s designated email address. On January 2, 2025, Todd invoiced Farmer for $16,100, and Farmer paid $8,100 that same day by e-transfer. Due to daily transfer limits, Farmer’s accountant, Louise, sent an additional $8,000 by e-transfer on January 3, 2025, to the same email address. While Todd received the first payment, the second payment was diverted and deposited into an account belonging to “Jonathan Watson.” Todd did not receive the $8,000 and requested payment from Farmer, who refused, asserting that the funds had already been sent.

Small Claims Court proceedings

Todd filed a claim in Small Claims Court seeking the unpaid $8,000. The Adjudicator found that the payment was diverted to “Jonathan Watson” and concluded that Todd’s email account had likely been hacked. The Adjudicator determined that Farmer could not be faulted for following the payment instructions provided by Todd and dismissed the claim, suggesting that any fault might lie with the bank rather than the parties.

Appeal to the Supreme Court of Nova Scotia

Todd appealed the Small Claims Court decision, arguing that the Adjudicator erred in law and failed to properly apply the requirements of natural justice. The Supreme Court of Nova Scotia, per Justice Rosinski, reviewed the facts and the legal principles governing contractual obligations and payment. The Court found that while both parties agreed to the method of payment, the core contractual obligation was for Farmer to ensure receipt of payment by Todd. The diversion of funds by a third party did not relieve Farmer of this obligation.

Discussion of contractual terms and legal principles

The Court emphasized that the means of payment, whether by e-transfer or otherwise, was incidental to the main contractual duty to pay for services rendered. The fact that Farmer genuinely attempted to pay did not satisfy the obligation if Todd did not actually receive the funds. The Court also noted that neither party was negligent nor enabled the theft, and the precise method of the cybercrime was not determinative of the contractual responsibility.

Ruling and overall outcome

The Supreme Court of Nova Scotia allowed the appeal, overturned the Small Claims Court decision, and ordered The Veteran Farmer Inc. to pay Todd’s Trades Ltd. the sum of $8,000. No pre-judgment interest or costs were awarded. Todd’s Trades Ltd. is the successful party, with the total monetary award being $8,000.