Executive Summary: Key Legal and Evidentiary Issues

• Allocation of loss for a counterfeit bank draft and resulting international wire transfer between a lawyer and his bank under a Business Banking Services Agreement
• Effect of contractual clauses authorizing the bank to rely on customer instructions, charge back counterfeit instruments, freeze accounts, and exclude liability for forged or fraudulent items
• Credibility and evidentiary weight of conflicting accounts about whether bank staff gave assurances regarding the legitimacy of the bank draft and the safety of wiring trust funds
• Impact of the plaintiff’s omissions, including failure to follow Law Society client identification rules and non-disclosure that the draft was post-dated, on any alleged duty of care or misrepresentation by the bank
• Application of the Tercon exclusion-clause framework and the Cognos negligent misrepresentation test to determine whether the bank owed and breached a duty, or whether exclusion clauses were unconscionable or contrary to public policy
• Use of summary judgment (Rule 22, NB Rules of Court) to resolve the dispute without trial on the basis that there was no genuine issue requiring a trial on liability or enforceability of the banking agreement

Background and factual narrative

The case arises from a sophisticated fraud perpetrated against the plaintiff, Barry Robert Morrison, an experienced New Brunswick lawyer admitted to the bar in 1974 and practising as a sole practitioner since 2018. He maintained business and trust accounts at the St. Andrews, New Brunswick branch of the Bank of Nova Scotia, under a Business Banking Services Agreement. In December 2021, Mr. Morrison was contacted via email by someone calling herself “Maria Tochi,” who claimed to be a New Brunswick resident currently in Japan seeking legal assistance to enforce a divorce settlement against her ex-husband. She provided a copy of a purported passport, but it bore the name “Maria Micha,” creating an early inconsistency in her identity. Over the next days, Mr. Morrison exchanged further emails and spoke with individuals who said they were Maria and her ex-husband, “Micha Tochi”; at least one of the calls came from Nigeria. Despite these red flags, he proceeded to act and did not fully comply with the Law Society of New Brunswick’s mandatory client identification rules. In discovery, he candidly acknowledged that he decided to “strike while the iron was hot” and delayed compliance until he would see the client in person. On December 16, 2021, an email purportedly from “Micha Tochi” indicated he would send a partial payment of between $200,000 and $300,000 via bank draft. On December 22, 2021, Mr. Morrison received what he believed to be a CIBC bank draft for $265,900 issued by “Micha Holdings Inc.” and made payable to “Barry R. Morrison Q.C. in Trust,” together with a cover letter apparently from a Calgary brokerage firm signed by “Marcy Atwater.” The draft was post-dated December 24, 2021.

Banking transaction and alleged assurances

On December 24, 2021, Mr. Morrison went to the St. Andrews branch of the Bank of Nova Scotia. He asked teller Kathleen Shannon to deposit the $265,900 bank draft into his law firm trust account with “no holds,” because he wished to immediately send an international wire transfer that same day. Since the amount exceeded Ms. Shannon’s authority, branch manager Aimee Savoie approved the deposit and the “no hold” treatment. Mr. Morrison also instructed the bank to send an international wire transfer of $100,000 from the trust account, but the recipient details did not match the client story. Instead of being payable to “Maria Tochi,” the funds were to go to an individual named “Xiaoxia Liu,” with a Chinese address, while the destination bank was located in Hong Kong. Ms. Shannon drew this discrepancy to Mr. Morrison’s attention, but the transfer instruction remained unchanged. Because wires required dual approval and the branch was closing early for the holiday, the wire was initiated on December 24 but was only fully approved and sent by Ms. Savoie on December 29, 2021, after the Christmas holidays. Mr. Morrison later asserted that he had asked Ms. Shannon to verify the legitimacy of the bank draft and to confirm it was safe to wire funds from the trust account against that draft. He said he emphasized that he was extremely careful with trust monies, that his ability to practise law depended on maintaining a pristine trust account, and that Ms. Shannon left her station, consulted with the manager, and then assured him the draft was legitimate and the funds were safe to use. Both Ms. Shannon and Ms. Savoie firmly denied this version. Their evidence was that Mr. Morrison never sought assurances about the legitimacy of the draft or the safety of wiring funds from the trust account, and that they were not told the draft had been post-dated. They testified that had they known it was post-dated, the draft would never have been accepted or approved for deposit, because bank drafts, once drawn, are treated as cash and cannot be post-dated.

Discovery of the fraud and financial consequences

On December 31, 2021, the bank’s payment processor, Symcor, notified the Bank of Nova Scotia by fax that the bank draft was counterfeit. The bank responded by freezing Mr. Morrison’s accounts and charging back the $265,900 to his trust account. Before the deposit, the trust account balance stood at $15,342.04. After the $265,900 chargeback, the account, which had already been debited by $100,000 for the wire and a $115 service fee, went into a negative position of $84,777.96. Under pressure of the account freeze, Mr. Morrison ultimately reimbursed his trust account and the negative balance was cleared, at which point the bank lifted the freeze on his accounts. No portion of the fraudulent wire was recovered. Mr. Morrison then commenced an action against the Bank of Nova Scotia to recover the $100,000 and related charges, along with damages for alleged bad faith and mishandling of the situation.

Contractual framework: the Business Banking Services Agreement

The relationship between Mr. Morrison and the bank was governed by a written Business Banking Services Agreement, which he had acknowledged and which the court found to be the controlling contract. Several provisions were central to the dispute. First, clause 3.1 provided that the customer authorizes the bank to act on any instruction received from or in the name of the customer, and allows the bank to rely on those instructions as valid, correct, authorized and binding. Clause 4.1 placed the onus on the customer to ensure that their accounts have sufficient “cleared funds” to settle any payment instructions at the time they are given, warning that reported balances may include amounts that are not cleared funds. Clause 6.1 empowered the bank to debit from the customer’s accounts (a) the amount of any payment instructions the customer asks the bank to execute, (c) “the amount of any counterfeit or otherwise invalid currency deposited or transferred” to any of the customer’s accounts, and (d) any other amount the customer owes the bank, including fees, charges, costs and expenses. Clause 14.4 authorized the bank to cancel or suspend services and to freeze or place a hold on funds in any account without notice if it had reason to suspect the customer was engaged in improper or unlawful activity in connection with its services, or was the victim of fraud or identity theft. Finally, clause 16.2 set out broad exclusions of liability, expressly releasing the bank from any loss resulting from instruments or instructions that were forged, materially altered, fraudulent or unauthorized, and from losses arising out of compliance actions taken in relation to the customer’s instructions or breaches of law. Justice Roy held that these provisions gave the bank a clear contractual right to treat the counterfeit bank draft as invalid, reverse the deposit by chargeback, freeze the accounts pending resolution, and recover the negative balance, all on the strength of Mr. Morrison’s own instructions and at his risk.

Claims advanced and legal issues raised

Mr. Morrison alleged that the bank failed to advise him the draft was fraudulent, made negligent misrepresentations about its legitimacy, and breached its contractual and fiduciary duties by permitting the deposit without a hold, authorizing the wire transfer, freezing his accounts, and failing to cooperate with his efforts to investigate the fraud. He argued there was a genuine issue for trial based on four primary points. First, he said there were serious credibility conflicts between his evidence and that of Ms. Shannon and Ms. Savoie regarding what assurances were requested and given, such that cross-examination and a full trial were required. Second, he contended that any assurances provided by the teller or manager created a new agreement or “novation” that superseded or modified the Business Banking Services Agreement. Third, he maintained that his failure to follow the Law Society’s client identification rules could not absolve the bank of liability. Fourth, he urged the court to closely scrutinize the bank’s exclusion clauses under the Tercon framework, arguing they should not be enforced because of unconscionability or overriding public policy in circumstances where the customer was a fraud victim. The bank, for its part, brought a motion for summary judgment under Rule 22 of the New Brunswick Rules of Court, arguing that the Business Banking Services Agreement was dispositive. It asserted that the provisions authorizing it to rely on customer instructions, reverse counterfeit instruments, freeze accounts and exclude liability for forged or fraudulent instruments fully answered Mr. Morrison’s claim, and that on the evidentiary record there was no genuine issue requiring a trial on negligence, misrepresentation, contractual liability or public policy.

Summary judgment framework and comparative case law

Justice Roy applied the modern summary judgment framework set out in Rule 22 and the New Brunswick Court of Appeal’s guidance in decisions such as O’Toole v. Peterson, Russell v. Northumberland Co-Operative, and Girouard Estate v. Girouard. Under that framework, the court must determine whether it can fairly and justly resolve the dispute on the written evidentiary record, including affidavits and discovery transcripts, using its powers to weigh evidence, assess credibility, and draw inferences, without requiring a full trial. The parties are expected to “put their best foot forward” and not hold back evidence for a later trial that may never occur. Justice Roy concluded that the record was sufficient and that he could fairly and justly adjudicate the issues without the need for oral testimony or a “mini-trial.” The court also canvassed relevant banking and fraud jurisprudence. In Du v. Jameson Bank, the Ontario Superior Court had emphasized that merely being the victim of fraud does not transfer liability to one’s bank, and that the ordinary bank-customer relationship is debtor-creditor in nature, not fiduciary. Cases like Bank of Montreal v. Butt (involving a Nigerian-style scam) and Meridian Credit Union v. Grenville-Wood reinforced the principle that where a customer facilitates suspect transactions based on relationships formed online, the customer is often best placed to prevent the loss, and that banks retain an inherent right of chargeback as collecting banks, even absent explicit contractual language. Justice Roy distinguished more sympathetic authority such as Zheng v. Bank of China (Canada), where the bank had prior knowledge of a prevalent fraud scheme and had obtained an exclusion clause after the transaction; that different factual matrix justified closer scrutiny of the bank’s obligations and the timing of the exclusion clause. By contrast, in Mr. Morrison’s case, the exclusion and chargeback provisions were part of the existing agreement that governed his ongoing accounts and services.

Novation, exclusion clauses and negligent misrepresentation

On the contractual side, the court rejected outright the argument that there had been a novation or subsequent contract. Citing Great Northern Railway Co. v. Cole Agencies and Catalyst Paper Corp. v. Companhia de Navegação Norsul, Justice Roy noted that novation requires a clear, formal agreement by all parties to replace one contract with another. No such agreement existed; at most, there were alleged informal assurances by branch staff operating within the overarching Business Banking Services Agreement. Furthermore, any alleged subsequent understanding could not be grounded on incomplete or inaccurate information. Mr. Morrison had not told the bank that the draft was post-dated or that he had not complied with Law Society client-identification rules. Both of those facts would have been material to the bank’s risk assessment and its willingness to accept and act on the instrument. Turning to the Tercon framework for contractual exclusion clauses, the court accepted that it must ask: whether the exclusion clause applies on the facts, whether it was unconscionable when made, and whether overriding public policy justifies refusing to enforce it even if valid. Justice Roy found that the clause clearly applied to losses arising from counterfeit or fraudulent instruments, that there was no evidence of unconscionability at the time the agreement was entered into, and that no public policy concern justified overriding the parties’ allocation of risk. The burden of demonstrating abuse of freedom of contract rested with Mr. Morrison, and he did not meet it. As to negligent misrepresentation, the court applied the five-part test from Queen v. Cognos, later summarized in New Brunswick in Levitt v. TCT Mortgage Group. Even assuming for the sake of argument that Mr. Morrison received some level of comfort from bank staff, Justice Roy held that, given the incomplete facts he had disclosed, their statements could not be characterized as untrue, inaccurate, or negligent. Nor could Mr. Morrison’s reliance be considered reasonable when he himself had ignored Law Society red-flag procedures and failed to disclose that the draft was post-dated and came from a source with whom he had no pre-existing relationship. In that context, the bank was entitled by clause 3.1 to treat his instructions as valid and to act on them without independent verification of the underlying transaction.

Allocation of responsibility and outcome

Justice Roy was critical of the internal inconsistency in Mr. Morrison’s position: he indicated he was deeply concerned about the sanctity of his trust account and the risk to his licence, yet simultaneously chose not to follow mandatory client identification rules and failed to tell the bank key facts about the transaction and the instrument. Even if one accepted his account of having asked for assurances, any such conversation could not shift the contractual risk he had assumed, particularly where the bank was never given the full picture. The court found that, under the Business Banking Services Agreement, Mr. Morrison bore responsibility for fraudulent instruments deposited to his accounts and for ensuring there were cleared funds to support payment instructions, and that the bank had properly exercised its rights to freeze the accounts and charge back the counterfeit draft. There was no evidence of negligence, bad faith, or breach of contractual or fiduciary duties by the bank. In the result, the court held that there was no genuine issue for trial and that the dispute could be fairly and justly decided on the motion record. Summary judgment was granted in favour of the defendant, The Bank of Nova Scotia, and Mr. Morrison’s action was dismissed. The bank, as the entirely successful party, was awarded costs fixed at $2,500 plus allowable disbursements, with the judgment noting that the precise amount of disbursements could not be determined on the face of the decision and would follow the usual rules rather than being quantified in the reasons.