2019 QCCA 1678, 2019 QCCA 1678

Unofficial English Translation of the Judgment of the Court Compagnie d'assurances générales Co-Operators c. Coop fédérée 2019 QCCA 1678 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-026586-172 , 500-09-026587-170 (500-17-092055-154, 500-17-092579-161) DATE: October 4, 2019 CORAM: THE HONOURABLE JACQUES DUFRESNE, J.A. PATRICK HEALY, J.A. GENEVIÈVE COTNAM, J.A. No.: 500-09-026586-172 CO-OPERATORS GENERAL INSURANCE COMPANY APPELLANT/CROSS-RESPONDENT – Defendant v.

LA COOP FÉDÉRÉE RESPONDENT/CROSS-APPELLANT – Plaintiff And LIBERTY INTERNATIONAL UNDERWRITERS RESPONDENT – Interested Person And NATIONAL BANK OF CANADA RESPONDENT/CROSS-RESPONDENT – Impleaded Party No.: 500-09-026587-170 CO-OPERATORS GENERAL INSURANCE COMPANY APPELLANT/CROSS-RESPONDENT – Defendant v.

LIBERTY INTERNATIONAL UNDERWRITERS RESPONDENT/CROSS-RESPONDENT – Plaintiff and LA COOP FÉDÉRÉE CROSS-APPELLANT JUDGMENT [ 1 ] The appellant, Co-Operators General Insurance Company, appeals against a judgment rendered on December 14, 2016 and corrected on January 9, 2017 by a judge of the Superior Court, district of Montreal (the Honourable Mr. Justice Michel Déziel), that, in file 500-17-092055-154: - allows La Coop Fédérée’s application for a declaratory judgment; - dismisses the appellant’s application to amend its grounds of defence; - declares that the loss suffered must be borne by La Coop Fédérée under

article 2327 C.C.Q. and that the insurance policy issued by the appellant covers said loss; - declares that the insurance policy issued by Liberty is not a specific policy under

article 2496, para. 3 C.C.Q.;

- determines that the exchange rate applicable to the loss in US dollars is the rate in effect on the date of the judgment, namely, 1.3120; and - orders the appellant to pay La Coop Fédérée an amount of CAD$5,416,008.50 (US$4,128,055.26) with interest at the legal rate and the additional indemnity as of March 11, 2015, the whole with costs against the appellant. [1] [ 2 ] It also appeals the portion of the judgment pertaining to file 500-17-092579-161 that orders it to pay Liberty International Underwriters the amount of CAD$726,124.47 with interest at the legal rate and the additional indemnity as of April 21, 2015, with legal costs. [2] [ 3 ] Lastly, in both appeal files, La Coop Fédérée has lodged an cross-appeal which essentially seeks to have an obiter set out in paragraphs [74] and [75] of the judgment under appeal excluded or revised. [ 4 ] For the reasons of Dufresne, J.A., with which Healy and Cotnam, JJ.A. agree, THE COURT : In file no. 500-09-026586-172 : [ 5 ] ALLOWS the appeal in part ; [ 6 ] REVERSES the judgment under appeal in part; [ 7 ] AMENDS paragraphs [189] and [191] of the judgment under appeal so that they read as follows: [189] DECLARES that the policy issued by Liberty International Underwriters under no.

CMMOAANFFR0003 is a specific policy under

article 2496, para. 3 C.C.Q .; [191] ORDERS Co-Operators General Insurance Company to pay La Coop Fédérée an amount of CAD$4,984,618.10 with interest at the legal rate and the additional indemnity as of March 11, 2015; [ 8 ] MAINTAINS all the other conclusions of the judgment under appeal pertaining to the file in first instance no. 500-17-092055- 154; [ 9 ] THE WHOLE with legal costs against the appellant in favour of La Coop Fédérée and the National Bank of Canada, both in first instance and on appeal; [ 10 ] DISMISSES La Coop Fédérée’s cross-appeal in file no. 500-09-026586-172, without legal costs, given the circumstances.

In file no. 500-09-026587-170: [ 11 ] ALLOWS the appeal, with legal costs against Liberty International Underwriters; [ 12 ] CANCELS paragraph [193] of the judgment under appeal; [ 13 ] DISMISSES Liberty International Underwriters’ originating application, with legal costs against it in favour of the appellant; and [ 14 ] DISMISSES La Coop Fédérée’s cross-appeal, without legal costs, given the circumstances. JACQUES DUFRESNE, J.A. PATRICK HEALY, J.A. GENEVIÈVE COTNAM, J.A. Mtre Pierre Gourdeau Mtre Émilie Deschênes Carter Gourdeau For the appellant/cross-respondent

Mtre Alain Létourneau Mtre Gabriel Serena-Bélisle Cain Lamarre Mtre Sylvie Grenier Sternthal Katznelson Montigny For the respondent/cross-appellant La Coop Fédérée Mtre André Legrand Mtre Josée Beaudoin Norton Rose Fulbright Canada For the respondent/cross-respondent Liberty International Underwriters Mtre Patrick Ouellet Mtre Laurence Ste-Marie Woods For the respondent/cross-respondent National Bank of Canada Date of hearing: March 20, 2019 REASONS OF DUFRESNE, J.A.

I OVERVIEW [ 15 ] Phishing, that is, internet fraud aimed at obtaining confidential information through messages apparently originating from an institutional organization or a trusted third party, [3] is a real scourge. It affects low-income individuals as well as the wealthiest in our society (corporations or individuals). [ 16 ] The respondent, La Coop Fédérée (hereinafter “Coop Fédérée”), a well-known business, was a victim of phishing.

It issued a payment order authorizing its financial institution, the National Bank of Canada (hereinafter the “NBC”), to carry out a transfer of funds in the amount of $4,946,355.26 in U.S. currency to the account of the designated beneficiary in a Hong Kong bank. When Coop Fédérée realized the scam, it was unfortunately too late. The funds transfer had already been completed.

The fraudulent ploy had succeeded. [ 17 ] The debate on appeal, like the one that gave rise to the trial judgment [4] (hereinafter the “judgment under appeal”), pertains to the legal characterization of an electronic funds transfer and its impact on Coop Fédérée’s insurance coverage. [ 18 ] This case first raises the question of whether the Bills of Exchange Act [5] (hereinafter the “ BEA ”) applies to an electronic funds transfer and, more broadly, it calls for a reflection on the legal characterization of an electronic funds transfer. [ 19 ] The appeal also seeks to determine whether the loss suffered by the respondent, Coop Fédérée, is covered by the property insurance policy purchased from the appellant, Co-Operators General Insurance Company (hereinafter “Co-Operators”).

Coop Fédérée had two insurance policies which may cover the consequences of the fraud perpetrated against it. The first, issued by Liberty International Underwriters (hereinafter “Liberty”), is a fraud and embezzlement insurance policy that expressly lists the nature and scope of the coverage provided. The evidence shows that Liberty paid Coop Fédérée the maximum coverage provided for in the contract, namely, $1 million. The second, purchased from Co-Operators, is an insurance policy covering all of Coop Fédérée’s property for an amount of up to $15 million.

This policy includes a $500,000 retention and a $5,000 deductible. Co-Operators denies coverage for reasons that will be set out later. Liberty argues that, given the plurality of insurance covering the loss, it is entitled to ask Co-operators to reimburse a portion of the indemnity it paid to the insured. The calculation of that reimbursement is also under appeal. II CONTEXT [ 20 ] The joint statement of facts submitted by the parties in the appeal provides a good description of the sequence of the major events that occurred and led to the perpetration of the fraud: [ translation ] 1. At all relevant times, Ms.

France Cadieux was the Controller, reporting to the Executive Director, Finance and Administration, of La Coop Fédérée, the plaintiff;

2. On Thursday, August 21, 2014, at 9:32 a.m., Ms. Cadieux received an email from a sender whose address was that of the Chief Executive Officer of Coop, Mr. Gaétan Desroches, explaining that he was contacting her in a highly confidential manner and that Coop was carrying out a take-over bid monitored by the Autorité des marchés financiers […]; 3. This email asked Ms. Cadieux: “to contact Maitre Deschamps (cabinet.fidal-associés@lawyer.com) by email to provide the banking information required to make the transfer. .... ” […]; 4.

In fact, it was subsequently discovered that the email originated from a website based in the Czech Republic that made it possible to send fraudulent emails by showing a fake address for the sender […]; 5. Ms. Cadieux confirmed the following to the address suggested in the aforementioned email: “I have been instructed by Mr. Gaston Desroches to obtain the banking information for the bank transfer.” […]; 6. There followed several calls from the purported lawyer during which Ms.

Cadieux provided him with certain banking information as well as examples of transfers, carried out in US and Canadian dollars, that contained the signatures of three persons authorized to order payments, including Johanne Gauthier […]; 7. During telephone conversations, the purported lawyer informed Ms. Cadieux that he would contact Johanne Gauthier directly to obtain her signature and would return the document to her so she could fax it to the Bank. […]; 8. Ms.

Cadieux, who was eventually told the name and address of the recipient of the funds, the amount thereof and the receiving bank, prepared the transfer order which she signed and sent to the purported lawyer. […]; 9. The payment order sent included a verification code that was valid and appeared in the correct spot on the forms that had been provided to Coop by the NBC; 10.

To be valid, a payment order must include the signature of two authorized persons from a list provided to the NBC as well as a verification code calculated according to pre-established parameters, which code must be recalculated each time an instruction is sent to the NBC; […]; 11. The purported lawyer returned the transfer order to her with a second signature from an authorized person, namely, Johanne Gauthier […], but the latter had not, in fact, signed this document; […]; 12. While Ms.

Cadieux’s signature was genuine, although obtained fraudulently, the signature of Johanne Gauthier that appeared on the document was a reproduction, by some unknown means, of her signature, as it appeared on a banking document that Ms. Cadieux had previously sent to the scammers; […]; 13. Ms. Cadieux then faxed the payment order to the NBC and confirmed the transmission to the purported lawyer by email on August 21, 2014 at 2:05 p.m.; […]; 14.

The beneficiary of the order was the company Acceleration Trade Limited, located at 1 Road Street, in Hong Kong; upon investigation, this address was found to be fake; […]; 15. Despite the discovery of the fraudulent ploy on August 23, 2014 and the actions La Coop and the Bank then took, it was not possible to interrupt the mechanism and retrieve the funds

16. The payment order sent to the NBC was for an amount of US$4,946,355.26; […]; 17. La Coop had the obligation to protect the confidentiality of the verification code, its calculation method having been disclosed only to La Coop’s authorized representatives, and the Bank was required to check that the signatures on the payment order matched the relevant signature specimens; […]; 18.

The amount of US$4,946,355.26 was sent by [ original english ] “MT103, dated August 21st, 2014 TRN 201408 21 LS 7873 USD 4 946 355,26 $” […], from the NBC to the Standard Chartered Bank of New York, which confirmed [ original english ] “have effect the above payment to the beneficiary account on 22-Aug-14” […]; 19. The destination of the payment order was account no. 85226014243102000195 at the Long Wan, Rural Commercial Bank (SWIFT: LWBKCNSH) located at 5 Longfei Rd., Wenzhou, People’s Republic of China […]; 20. On August 21, 2014, Ms.

Cadieux sent the scammer the confirmation from the NBC to the effect that the “payment requests were carried out successfully”, […]; 21. The NBC recorded a debit in La Coop’s US-denominated account for an amount of US$4,946,355.26; […]; 22. On Saturday, August 23, 2014, when Ms. Cadieux contacted the Chief Executive Officer of La Coop Fédérée, Mr.

Gaétan Desroches, she discovered that he had not sent her any emails and that there had been a fraud; […]; 23. […] on August 21, 2014, the account in question already had a debit balance of US$3,386,361.80, but given that there was a sufficient line of credit, an additional amount of US$4,946,355.26 was debited from the account, bringing the new debit balance to US$8,332,717.06; 24. The debt of La Coop to the Bank, which stood at US$3,386,361.80, was increased to US$8,332,717.06; 25.

That same document […] shows that certain debits and credits were made subsequently and in the days that followed; 26. […] on September 2, 2014, La Coop Fédérée notified the NBC that, following the fraud it had reported as of August 23, 2014 and “given the circumstances, facts and actions of [the NBC], pertaining to this fraud”, it was contesting “the validity of the fraudulent transfer as well as the resulting debit of its account”; 27. At all relevant times, La Coop Fédérée had: (

a) an insurance contract with Co-Operators General Insurance Company covering “property and operating losses” (policy no. 3272643); […]; (

b) an insurance contract with Liberty International Underwriters “against fraud and embezzlement” (policy CMMOAANFFR 003); […]; 28. The insurers in question were duly informed of the loss and: (

a) Co-Operators confirmed that it was initiating an investigation, obtained a non-waiver agreement from La Coop Fédérée during the investigation, communicated with the plaintiff’s lawyers and, ultimately, denied the coverage sought on four specific grounds […]; (

b) Liberty acknowledged receipt of the proof of loss and agreed, subject to certain conditions resulting from the rules for contributions among insurers, to put its insurance limits of one million Canadian dollars on the table, in return for a receipt and acquittance, transfer of rights and transaction; […];

29. Based on “searches regarding the exchange rate” on April 21, 2015,on the date on which Liberty made the payment of one million Canadian dollars, that payment represents an amount of US$818,300.00, based on the highest exchange rate that day […]; 30. On September 10, 2015, La Coop, through counsel, responded to Co-Operators’ grounds for the denial of coverage […]; 31. This was followed by an exchange of correspondence between the aforementioned counsel, Co-Operators and eventually, Co- Operators’ counsel, […]; 32.

Schedules 4 to 16 inclusively, as well as 20, 29 to 32 inclusively, 55, 57 and 59 of Exhibit P-1, referred to herein and annexed hereto, are documents that circulated in that form between the parties in question, it being understood that the firm Fidal is not a party, but merely the expression of a fake identity assumed by the scammer(s). [Verbatim transcript] [References to exhibits omitted, except in paragraph 32 hereinabove] [ 21 ] The pleadings therefore establish that the payment order sent by France Cadieux, who was the Controller and reported to the Executive Director, Finance and Administration, of Coop Fédérée, was the result of the scammers’ fraudulent tactics, that the signature of France Cadieux was obtained through fraud and that the second signature, that of Johanne Gauthier, was evidently forged.

III JUDGMENT UNDER APPEAL [ 22 ] The trial judge had two files before him. In one (500-17-092055 154), Coop Fédérée was suing its insurer, Co-Operators, seeking declaratory relief regarding its insurance coverage so as to be fully indemnified for the loss sustained. In the other (500-17-092579-161), Liberty, which had already indemnified Coop Fédérée for the CAD$1 million insurance coverage against fraud, was claiming the reimbursement from Co-Operators of part of the indemnity paid to Coop Fédérée, namely CAD$726,124.47. During the proceedings, Co-Operators served a declaration of intervention under

article 188 C.C.P. , alleging that the misappropriated property belonged to the NBC and seeking to force it to bear the loss sustained by Coop Fédérée. [ 23 ] In a carefully-drafted judgment, the trial judge declared that Coop Fédérée had to bear the loss under

article 2327 C.C.Q . because the insurance policy issued by Co-Operators covered this loss and the insurance policy issued by Liberty did not constitute specific insurance. Accordingly, he determined the conditions under which the insurers would assume the loss.

Moreover, he refused Co- Operators’ application made in the course of the proceeding to amend its grounds of defence at the hearing and thereby assert the failure by its insured, Coop Fédérée, to invoke the nullity of the payment order. [ 24 ] The judge addressed and decided a number of issues which it is important to refer to briefly here in order to understand the essence of the conclusions of the judgment under appeal. [ 25 ] The application to amend Co-Operators’ defence .

Co-Operators argued that Coop Fédérée’s refusal to invoke the nullity of the payment order could not be set up against it without such refusal being a ground for denying coverage. Given Coop Fédérée’s refusal to invoke this ground of defence, Co-Operators asked to raise a new ground for denying coverage, which Coop Fédérée and Liberty contested. They argued that Co-Operators was bound by its statement dated May 4, 2015. [ 26 ] The judge concluded that Co-Operators could not add a ground for denying coverage at the hearing, because it [ translation ] “had made its bed” when denying coverage.

The judge considered this to be a bar to the application to amend, and he dismissed the application. [ 27 ] Who should bear the loss? The judge first ruled on the application of the Bills of Exchange Act that Co-Operators had argued and, referring to doctrinal authorities, he held that the electronic funds transfer in question was not governed by that statute.

Unlike a cheque, an electronic funds transfer is a credit transfer rather than a debit transfer. [ 28 ] Next, he addressed the overdraft in the account, pointing out that there was an admission that the balance in Coop Fédérée’s account had been overdrawn by US$3,386,361.80 prior to the transfer and that, following the transfer, the overdraft had increased to US$8,332,717.06. [ 29 ] Proceeding by analogy with the legal characterization of bank deposits, the judge considered that an overdraft in an account makes the financial institution the creditor and that an advance of funds represents a loan.

As a result, he concluded that Coop Fédérée had become the owner of the misappropriated amount, such that it had to bear the resulting loss, in accordance with

article 2327 C.C.Q . [ 30 ] The judge noted, in passing, that the agreement between Coop Fédérée and the NBC regarding liability for electronic banking instructions provided that Coop Fédérée was to assume any loss resulting from its instructions. He pointed out that the parties had excluded the issue of the liability of those involved and, at the same time, he concluded that the NBC had fulfilled its mandate and its obligation to check the signatures and the verification code. [ 31 ] Does Co-Operators’ policy cover the loss ? The judge began by characterizing Co-Operators’ insurance contract (hereinafter the

“Co-Operators Contract”). He stated that it was a contract of [ translation ] “insurance of property and operating losses” issued by several insurers, including Co-Operators as the primary insurer. Co-Operators had provided coverage of CAD$15 million.

He further stated that it was a so-called [ translation ] “handwritten” or [ translation ] “non-standard” policy that had been negotiated between Coop Fédérée and Co-Operators in accordance with the [ translation ] “representations made”. [ 32 ] Given that the parties did not file any evidence regarding the negotiation of the Co-Operators Contract, the judge based himself on the text of the insurance policy and concluded that the policy covered all property of any kind whatsoever belonging to Coop Fédérée and all risks. He found that there was nothing in the policy excluding losses resulting from computer fraud.

The only relevant exclusion pertained to dishonest acts of the insured, which was not at all in question in the matter at hand. He therefore concluded that the Co- Operators Contract covered Coop Fédérée’s loss, subject to the retention and the deductible. [ 33 ] Is Liberty’s policy a specific policy ? The insurance contract entered into between Coop Fédérée and Liberty is entitled “Contrat d’assurance contre la fraude et le détournement” ([ translation ] “Contract of insurance against fraud and embezzlement”).

Co-Operators was of the view that Liberty’s policy was specific insurance that specifically covered fraud and embezzlement. Consequently, it was primary insurance and Co-Operators’ insurance was in excess thereof. Liberty argued that, on the contrary, its policy was a general, but circumscribed, insurance policy. [ 34 ] According to the judge, the title of the policy in question did not make it a specific insurance policy.

In the absence of evidence regarding the intention of the parties, the judge referred to the text of the policy. [ 35 ] He was of the opinion that [ translation ] “ like the Co-operators policy, the Liberty policy covers all property of the insured Coop [Fédérée], as well as all risks that may directly affect the insured property”, and he concluded that it could not be a specific policy.

He therefore found that both contracts, that of Co-Operators and that of Liberty, covered the loss suffered by Coop Fédérée. [ 36 ] The judge also pointed out that in order to conclude that there is a plurality of insurance, six criteria must be met, namely the same insured, the same object, the same interest in the object, the same risk, the existence of another policy that is in effect and is collectible, and the absence of a relevant exclusion. The judge found that the six criteria had been met and he therefore concluded that there was a plurality of insurance, such that the two policies were cumulative.

He also found that Coop Fédérée had not insured the $500,000 retention under the Co-Operators Contract with Liberty, particularly since the Liberty policy was silent in this regard. [ 37 ] Is Liberty’s recourse under 2496 C.C.Q. well founded? As the judge noted, Liberty’s legal proceedings were based on the third paragraph of

article 2496 C.C.Q ., which governs the relationship between multiple insurers: 2496. […] Unless otherwise agreed, the indemnity is apportioned among the insurers in proportion to the share of each in the total coverage, except with respect to specific insurance, which constitutes primary insurance. 2496. […] Entre les assureurs, à moins d’entente contraire, l’indemnité est répartie en proportion de la part de chacun dans la garantie totale, sauf en ce qui concerne une assurance spécifique, laquelle constitue une assurance en première ligne. [ 38 ] Since the civil law does not set out a calculation method other than stating that “the indemnity is apportioned among the insurers in proportion to the share of each in the total coverage”, the judge turned to the common law in this regard. [ 39 ] After analyzing various jurisprudential and doctrinal authorities on the subject, the judge opted for the calculation method favoured in Protection Mutual Insurance Company . [6] He noted that this calculation method is based on the maximum liability principle, a principle that is encouraged in property insurance.

He therefore ordered Co-Operators to reimburse an amount of $726,124.47, representing the difference between the amount paid and the amount due ($1,000,000 - $273,875.53), plus the interest and the additional indemnity since the payment made by Liberty on April 20, 2015. [ 40 ] The deductibles and allocation between the insurers .

Along with the conclusions in the preceding step, the judge concluded that Co-Operators had to reimburse the difference between Coop Fédérée’s loss (CAD$5,795,070.68) and Liberty’s share ($273,875.53), namely $5,416,008.50, excluding, however, the amount of $726,124.47 owed to Liberty. [ 41 ] The interest and the additional indemnity .

The judge determined that the interest and the additional indemnity on the amount payable by Co-Operators to Coop Fédérée had accrued since March 11, 2015, namely, the expiry of the 60-day period following receipt of the additional information that had been requested by Co-Operators. As for the amount payable by Co-Operators to Liberty, the judge determined that the interest and the additional indemnity had accrued as of April 21, 2015, the date of Liberty’s payment to Coop. [ 42 ] The exchange rate .

Since, as at the date of the judgment, Co-Operators had still not paid the indemnity, the judge had to determine a date for establishing the currency conversion rate.

Coop Fédérée argued that several dates could apply to determine the conversion rate, including the 60th day following the claim, the date of the formal notice, the date of the judicial application, the date of the judgment, or even a later date. [ 43 ] Given that Coop Fédérée had not been negligent in exercising its rights, the judge applied the doctrine of favouring creditors and concluded that the judgment date was the most appropriate one for establishing the conversion rate, which was 1.3120 on December 14, 2016.

Coop Fédérée’s US dollar-denominated loss was therefore converted on that date into Canadian dollars, using that conversion rate. In fact, the judge took the US dollar-denominated loss suffered by Coop Fédérée (US$4,946,355.26 – suffered in August 2014) and deducted therefrom the payment by Liberty converted into US dollars on the date of Liberty’s payment (US$818,300.00 – converted on April 21, 2015 [7] ): $4,946,355.26 - $818,300.00 = US$4,128,055.26.

The judge then reconverted this amount into Canadian currency based on the exchange rate, which he established as at the day of the judgment (1.3120), to come up with the amount payable by Co- Operators to Coop Fédérée, namely, CAD$5,416,008.50.

IV ISSUES IN DISPUTE [ 44 ] The parties also submitted a joint statement of the issues in dispute in the appeal. These issues, of which there are nine, set out the grounds raised in the appeal and in Liberty’s cross-appeal and are stated as follows: [ translation ] 1. Is the payment order governed by the Bills of Exchange Act ? 2. If not, is the payment order a mandate, and who can invoke its nullity? 3. Did the trial court err by dismissing the appellant’s application to amend? 4.

Did the trial court err by considering that the respondent’s refusal to invoke the nullity of the payment order was not a new ground for denying coverage? 5. Did the court err when applying the insurance coverage by deciding that the loss alleged by the respondent was an insured risk under the appellant’s insurance policy? 6. Did the court err in concluding that the respondent was the owner of the embezzled funds? 7.

Did the court err in ruling “on the fact that the Bank had fulfilled its mandate and its obligations ” , “thereby ruling on the Bank’s liability” and, in doing so , did it “rule ultra petita ” on the Bank’s liability? Should paragraphs 74 and 75 of the judgment be struck? 8. Is the insurance policy issued by Liberty a specific insurance policy? 9. Did the court err when calculating the indemnities payable by the insurers and their respective contributions, particularly with respect to the application of the deductibles and the applicable conversion rate?

V ANALYSIS [ 45 ] It seems appropriate to address the jointly submitted issues in dispute in the appeal one by one. They have the benefit of circumscribing the debate on appeal. [ 46 ] In the discussion in its brief, the appellant, Co-Operators, asks, subsidiarily, that the Court rule on the issue of liability for the loss. The Court must refrain from doing so. Indeed, it has been established that the parties did not address this matter in first instance. The judge expressly referred thereto in paragraph [179] of the judgment under appeal. I will come back to this later. 1.

Is the payment order governed by the Bills of Exchange Act? (

a) Grounds submitted by the parties [ 47 ] The appellant, Co-Operators, essentially submits that the Bills of Exchange Act [8] applies to the matter at hand, because the substantive and formal conditions of bills of exchange, as set forth in

section 16 BEA , have been satisfied. In its view,

section 48 BEA must be applied, both because Ms. Cadieux’s signature was obtained through fraud and because Ms. Gauthier’s signature was forged. In essence, it argues that, under this provision, the NBC must ultimately assume the loss and credit the account of Coop Fédérée for the amount of the bill of exchange. As a result, the latter has no claim to make against its insurers. Is this so? (

b) The applicable law [ 48 ] The appellant relies on the following provisions of the Bills of Exchange Act : 16

(1) A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay, on demand or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to bearer. 16

(1) La lettre de change est un écrit signé de sa main par lequel une personne ordonne à une autre de payer, sans condition, une somme d’argent précise, sur demande ou à une échéance déterminée ou susceptible de l’être, soit à une troisième personne désignée — ou à son ordre — , soit au porteur.

(2) An instrument that does not comply with the requirements of subsection (1), or that orders any act to be done in addition to the payment of money, is not, except as hereinafter provided, a bill. […]

(2) L’effet qui ne remplit pas les conditions fixées au paragraphe (1), ou qui exige autre chose en sus du paiement d’une somme d’argent, ne constitue pas, sauf cas prévus ci- dessous, une lettre. […]

(1) Subject to this Act, where a signature on a bill is forged, or placed thereon without the authority of the person whose signature it purports to be, the forged or unauthorized signature is wholly inoperative, and no right to retain the bill or to give a discharge therefore or to enforce payment thereof against any party thereto can be acquired through or under that signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority. 48

(1) Sous réserve des autres dispositions de la présente loi, toute signature contrefaite, ou apposée sans l’autorisation du présumé signataire, n’a aucun effet et ne confère pas le droit de garder la lettre, d’en donner libération ni d’obliger une

partie à celle-ci à en effectuer le paiement, sauf dans les cas où la

partie visée n’est pas admise à établir le faux ou l’absence d’autorisation.

(2) Nothing in this

section affects the ratification of an unauthorized signature not amounting to a forgery. […]

(2) Le présent

article n’empêche pas la ratification d’une signature non autorisée qui ne constitue pas un faux. […] [ 49 ] A bill of exchange is an unconditional payment order essentially involving three parties: first, the drawer, the person giving the order, second, the drawee, the person receiving the order and, lastly, the payee, unless the bill of exchange is payable to bearer, i.e. has no named payee. The drawer must sign this monetary instrument, personally or through its mandatary. The drawee must expressly accept the bill of exchange and must appear on the payment instrument.

The bill of exchange must clearly state the amount to be paid in legal tender. The time when payment is to be made, either on demand or at a determined or determinable future time, is another condition of a bill of exchange. [ 50 ] Furthermore, the negotiability of a bill of exchange is a particular feature of negotiable instruments, of which a bill of exchange is an example.

This feature means that the instrument can be transferred from one person to another by being endorsed and delivered or physically delivered, depending on whether the instrument is payable to a specified person or to bearer. [ 51 ] In the 4th edition of Droit bancaire , authors Nicole L’Heureux, Édith Fortin and Marc Lacoursière explain the negotiability of a negotiable instrument as follows: [ translation ] […] The negotiable instrument embodies the obligation to pay.

The undertaking of each signatory and the principle that exceptions cannot be set up against the holder provide the latter with a guarantee that the amount will be paid. The fact that the right to receive payment is incorporated in the document allows the holder to transfer (negotiate) it by merely endorsing it in order to obtain a payment or credit . [9] [Emphasis added] [ 52 ] A negotiable instrument is tangible movable property. [10] Its negotiability results primarily from the fact that the debt owed [ translation ] “is embodied in the document evidencing it”.

Thus, if the drawee refuses to honour the bill of exchange presented to it, the payee may collect, and even institute legal proceedings, based on the negotiable instrument in its possession. [ 53 ] In Boma Manufacturing v. CIBC , the Supreme Court described a bill of exchange as follows: 82 . A bill of exchange is a chattel that can be negotiated from party to party. Title to a bill, such as a cheque, is obtained through negotiation.

Once an individual has obtained title, that individual has the right to present the bill to the drawee for payment, as well as a right of recovery against the drawer if the bill is dishonoured by the drawee. [11] [ 54 ] An electronic funds transfer differs in many respects from a cheque, the latter being a perfect example of a bill of exchange governed by the BEA . [12] Authors Nicole L’Heureux and Marc Lacoursière are of the opinion that the BEA does not govern funds transfers made without the use of paper documents. They mention the following distinctions: [ translation ] 897.

Written process – A transfer is a technique whose principle relies on a set of book entries through which funds are moved. This mechanism, which evolved through practice to ensure the transfer of funds deposited in banks, developed without any legislative intervention. It is defined as a transaction whereby the bank in which the account is held debits, on the order of the holder of the account, a certain amount that is credited to another account held at the same bank or at another bank and whose holder may be the originator or a third party. […] 900.

General – The transfer order, which begins the transfer, is an instruction from the originator to a bank requiring it to pay a specified amount of money into the beneficiary’s account. The transfer may be initiated by any means, including a letter, a telex, a telecommunication, an email, a text message, or a payment card. In practice, at least three parties are involved, an originator, a beneficiary and a bank. Ordinarily, the originator and the beneficiary deal with their own bank, and other financial institutions may be involved in the process, especially in international transfers.

The characterization is important for determining the legal relationships between the parties and the liability of each of them. 912. Prudence and diligence – The transferring bank that receives a transfer order must check whether the order originates from its customer and whether it contains any anomalies, such as a discrepancy regarding the amount if it is expressed in numbers and in letters. In the event the transfer order is mistakenly executed, the transferring bank could be liable to the originator.

As mandatary, it only owes its customer an obligation of means; it must execute the order with prudence and diligence, without error and within a reasonable period of time. It must send the funds to the actual beneficiary. In the event of a duplicate transfer, depending on the circumstances, it may have to bear the risk. [13]

*** - An EFT [14] order is not payable at a determinable future moment or on demand. It is payable as soon as the transferring bank can make the payment. Since no date is specified, one might think that the order is payable upon demand, but that is not the case, because the beneficiary does not have the possibility of demanding payment. - The order is not payable to the order of a designated person or to the bearer. While the order does designate a beneficiary to whom or to whose account the money is to be paid, it does not do so within the meaning of the Bills of Exchange Act.

The beneficiary cannot transfer the order to another beneficiary. - The formulation does not include words that could be interpreted as giving the transferring bank a formal order to pay. Rather, it is an authorization. Since an EFT order does not satisfy the definition of a negotiable instrument, the rights of the parties are based solely on the law of contracts. [15] *** An electronic funds transfer is a payment order given by an originator to its bank to pay a beneficiary.

It is, so to speak, a set of book entries, where the originator’s bank debits its customer’s account and the beneficiary’s bank credits the beneficiary’s account. The transfer is characterized as a mandate given by the originator to its bank.

Article 1564, para. 2 C.C.Q. provides that, in order for the debtor to be released, the payment must have been accepted by the creditor (beneficiary). This type of payment is a credit transfer, because the originator initiates the payment by “pushing” it towards the beneficiary. Unlike cheques, which are debit transfers governed by the Bills of Exchange Act , bank transfers are not regulated in Canada.

This statute applies strictly to negotiable instruments, thereby excluding electronic payments, both because of various requirements that must be met, including an original (not photocopied) handwritten signature on the payment instrument, and because of the payment mechanism itself, which must be a debit transfer. Over the years, judges have drawn both on the ordinary rules of law as well as on

Article 4A of the United States Uniform Commercial Code to determine the obligations of the parties. This model statute has been codified in the legislative corpus of all the states in the United States, and there are few reported court decisions regarding cases of error or fraud involving electronic funds transfers. In the event of an unauthorized electronic funds transfer, liability is determined as follows. First, the bank is liable for the unauthorized transfer. The risk, however, will be passed on to the customer if the bank has followed a commercially reasonable security protocol.

The risk could revert to the bank if the fraud was committed by a third party or if there is an agreement between the parties to that effect. [16] [ 55 ] In Marcotte v. Fédération des Caisses Desjardins du Québec , the Supreme Court stated that credit card payments do not fall under the legal rules for bills of exchange, because “there is no negotiable instrument”. [17] [ 56 ] What is the situation of the funds transfer made in the case at bar? (

c) Application to the case at bar [ 57 ] From the outset, one conclusion can be drawn: electronic funds transfers have characteristics that differ substantially from those of bills of exchange. The manner in which electronic funds transfers are executed is incompatible, indeed irreconcilable, with the essential components of bills of exchange.

In other words, a funds transfer is not a bill of exchange within the meaning of the BEA . [ 58 ] The framework of the BEA is to ensure the currency of negotiable instruments. [18] By way of example, for a payment by cheque, the BEA [ translation ] “requires compliance with strict formalities to ensure its validity”. [19] In the present case, the electronic funds transfer, whose terms are established in the form entitled “Ordre de paiement/Wire Transfer”, is not governed by the BEA , because it does not satisfy the essential conditions that characterize bills of exchange within the meaning of this statute.

The judge was right in arriving at this conclusion. [ 59 ] The payment order in question here is a document containing, essentially, the name of the [ translation ] “originating customer”, the name of the beneficiary’s bank, the name and bank account number of the beneficiary, and the amount of the transfer. In the present file, another piece of information, one that is crucial in order to ensure the execution of the electronic funds transfer by the financial institution, is the [ translation ] “Verification Code” added by the [ translation ] “originating customer”.

In principle, this code is known only by the bank and its customer, here the NBC and Coop Fédérée. The Verification Code is part of the security measures for preventing fraud, without being an impenetrable shield. [ 60 ] This payment order, containing instructions authorizing the financial institution to proceed with the transfer of funds to an expressly designated beneficiary or beneficiary account, is not a bill of exchange. Indeed, it does not have the essential attributes of a bill of exchange within the meaning of the BEA . It only sets out the terms for initiating the electronic transfer of money.

In this era of the internet, electronic funds transfers are routinely used. This type of banking transaction is characterized by its instantaneity. [ 61 ] Whether the transfer of funds is made from a debit account or an overdraft account with a preauthorized line of credit, as in the case at bar, to another account belonging to the same person or to a third party, the effect is immediate.

The fraudulent tactic used here is a perfect example thereof. [ 62 ] Unlike a bill of exchange, an electronic funds transfer does not involve a presentation for payment. [20] [ 63 ] In addition, in the case of a bill of exchange, such as a cheque, its value is honoured only upon acceptance by the drawee. The signature or, at least, the acceptance of the drawee is essential under the BEA to create an obligation of the drawee to the payee. The immediacy and finality of an electronic funds transfer differs from the delivery of a bill of exchange.

Once the financial institution has been instructed as per the agreed-upon terms, the movement of funds accomplished through a set of book entries in favour of a third party or a third-party account is, in practice, irrevocable, indeed irreversible.

[ 64 ] Equally significant, the beneficiary to whom the transfer is addressed has no title or written instrument enabling it to request payment if the transaction is not carried out or completed, unlike the payee in possession of a bill of exchange (such as a cheque), who can demand payment, even in court. [21] In that regard, a bill of exchange is considered property that confers a right of action on its holder against the drawer in the event of non-performance by the drawee, while the document evidencing a funds transfer order confers no right of action on the named beneficiary if the bank refuses to perform. [ 65 ] The notion of negotiability is also foreign to an electronic funds transfer.

The natural person or legal entity for whom a transfer is intended cannot endorse the title in favour of a third party, unlike the payee of a bill of exchange, who can do so when the conditions in the BEA permit.

In fact, there is no title; there are only instructions from the customer to its bank regarding a given transfer, but nothing more. [ 66 ] Other elements also differentiate an electronic funds transfer from a bill of exchange, such as the fact that an electronic funds transfer is payable as soon as the bank is able to make the payment and is not considered “on demand”, because the beneficiary cannot demand its performance. [22] [ 67 ] Only one conclusion can be drawn from these fundamental differences: an electronic funds transfer is not a bill of exchange.

In the present case, the electronic funds transfer, whose terms are established in the form entitled “Ordre de paiement/Wire Transfer”, does not satisfy the essential conditions that characterize bills of exchange within the meaning of the BEA . 2. If not, is the payment order a mandate, and who can invoke its nullity? (

a) Grounds submitted by the parties [ 68 ] The appellant, Co-Operators, denies coverage under the insurance contract between it and its insured, Coop Fédérée. In its pleadings in first instance, it did not seek the nullity of the payment order, but, rather, argued that the payment order had never been validly authorized, which, according to it, means that the only party that must assume the loss is the NBC.

It characterizes the payment order as [ translation ] “defective”, because one of the two required signatures is the result of counterfeiting (a forged signature). [ 69 ] Coop Fédérée replies by focusing on the particular features of an electronic funds transfer. Once the order has been given pursuant to instructions that appear to be in full compliance with the agreement entered into between it and its financial institution, namely, the NBC, the latter must execute the transfer.

Once executed, the electronic funds transfer becomes, as a matter of fact, irreversible. [ 70 ] Furthermore, the NBC argues that only Coop Fédérée can invoke the nullity of the payment order and, moreover, that the Convention concernant la réception d’instructions par communications électroniques ([ translation ] Agreement regarding the receipt of instructions by way of electronic communications ) entered into on June 21, 2010 between it and Coop Fédérée stipulates that the latter, alone, assumes the risk associated with banking instructions given by way of electronic communications. (

b) Applicable law and application to the case at bar [ 71 ] An electronic funds transfer is a mandate within the meaning of the Civil Code of Québec (arts. 2130 C.C.Q. and ff.). In short, a customer who gives instructions authorizing its bank to proceed with an electronic funds transfer gives such a mandate. [23] [ 72 ] Electronic funds transfers are not governed by any particular legal framework.

Over time, they have become commonplace. [24] This type of payment order is, however, subject to banking practices and to the contractual terms the financial institution and its customer may have agreed upon. [ 73 ] Electronic funds transfers have two characteristics: the written process and the release they effect.

First, the written process implies that the transfer is carried out by means of a set of book entries that generates the movement of funds. [25] The release effected by an electronic funds transfer is also particular: like a cash payment, it effects a full discharge. [26] [ 74 ] There is no need to say more on this point, particularly since, as will be discussed below, it is not appropriate to address the liability of the bank that executed the payment order in the present case. 3. Did the trial court err by dismissing the appellant’s application to amend? (

a) Grounds submitted by the parties [ 75 ] The appellant, Co-Operators, alleges the occurrence of a new fact, which would entitle it to invoke grounds for denying coverage other than those set out in its letter denying coverage, dated May 4, 2015, which it sent to its insured, Coop Fédérée. [ 76 ] It claims that, until the Superior Court hearing on October 26, 2016, Coop Fédérée had always contested the validity of the payment order. The application to amend its pleading in first instance was a reaction to Coop Fédérée’s sudden change of position.

Until then, the appellant had relied on Coop Fédérée’s position expressed in its letter dated September 2, 2014 to the NBC. [ 77 ] It points out that Coop Fédérée reported the fraud as soon as it was discovered, on August 23, 2014, which, according to the appellant, implies that the respondent was contesting the validity of the bank transfer and was therefore asking for the reimbursement of the illegal debit. [ 78 ] Respondent Coop Fédérée replies that its letter dated September 2, 2014 represents, at most, a reservation of its rights.

(

b) The applicable law [ 79 ] The rules governing the amendment of pleadings are set out in articles 206 and 207 C.C.P. : 206. At any time before judgment, the parties may withdraw or amend a pleading without it being necessary to obtain an authorization from the court, provided doing so does not delay the proceeding and is not contrary to the interests of justice. However, the amendment of a pleading must not result in an entirely new application having no connection with the original one. 206 .

Les parties peuvent, avant le jugement, retirer un acte de procédure ou le modifier sans qu’il soit nécessaire d’obtenir une autorisation du tribunal. Elles peuvent le faire si cela ne retarde pas le déroulement de l’instance ou n’est pas contraire aux intérêts de la justice; cependant, s’agissant d’une modification, il ne doit pas en résulter une demande entièrement nouvelle sans rapport avec la demande initiale.

An amendment to a pleading may be made, for instance, to replace, correct or complete statements or conclusions, allege new facts or assert a right accrued since the notification of the judicial application. La modification peut notamment viser à remplacer, rectifier ou compléter les énonciations ou les conclusions d’un acte, à invoquer des faits nouveaux ou à faire valoir un droit échu depuis la notification de la demande en justice. 207.

A party that intends to withdraw or amend a pleading must notify the intended withdrawal or the amended pleading to the other parties, which have 10 days to notify their opposition. If no opposition is notified, the withdrawal or amendment is accepted. If opposition is notified, the party that intends to withdraw or amend the pleading presents its application before the court for a decision. 207. La

partie qui entend retirer ou modifier un acte de procédure doit notifier le fait ou l’acte modifié aux autres parties lesquelles disposent d’un délai de 10 jours pour notifier leur opposition. En l’absence d’opposition, le retrait ou la modification d’un acte est accepté. En cas d’opposition, la

partie qui entend retirer ou modifier un acte présente sa demande au tribunal pour qu’il en décide. If any of the other parties must respond following the withdrawal or amendment of a pleading, the time limit for responding is set by the parties or, if the time limit is not already specified in the case protocol, by the court. If, as a result, a new defendant is brought into the proceeding, the judicial application must be notified to that party without delay.

Si l’une des autres parties doit réagir en conséquence du retrait ou de la modification, le délai qui lui est accordé pour le faire est fixé par les parties ou, s’il n’est déjà prévu par le protocole de l’instance, par le tribunal. Si la conséquence est de joindre un nouveau défendeur à l’instance, la demande en justice doit lui être notifiée sans délai. [ 80 ] The principle is to allow amendments insofar as “ doing so does not delay the proceeding and is not contrary to the interests of justice”.

Moreover, the amendment must not result in an entirely new application, [27] and the fact that an application to amend is filed late is not self-standing grounds for its dismissal. [28] When ruling on an application to amend, a judge is exercising an essentially discretionary power. [29] [ 81 ] In the case at bar, the appellant’s application, made expressly at the time of the oral arguments, is an application to amend its oral grounds of defence, but, more fundamentally, an application to add a ground for denying coverage.

As regards the addition of grounds for denying coverage after an insurer has sent a notice refusing coverage, this Court has, time after time, stated the following: […] This Court has gone farther and on several occasions has held, without any qualification, that a denial of liability amounts to a waiver of the conditions respecting notice, in other words, to a “fin de non-recevoir”. Reference may be made to General Fire Insurance v. Claprood, 28 K.B. 361 ; Gaudet v. Guardian Assurance Co., 28 RLns, 428 ; and Cie. d’Assurance Mutuelle v. Beaudoin, 45 K.B. 551 .

At page 554 of this last report the late Chief Justice Letourneau said: [ translation ] The jurisprudence of this Court is clearly to the effect that a positive refusal by an insurer, a formal statement that it considers itself not bound, that it does not intend to pay, give rise to a waiver. [30] [ 82 ] This position was reiterated in Micheline Lapointe-Boucher c. La Mutuelle-Vie des fonctionnaires : [ translation ] In Tracy Place Shop Inc. c. Continental Insurance Co ., 1980 C.S. 903 , Philippe Pothier, J.S.C., dealt with a similar situation.

Initially, the insurer had refused to indemnify the insured on the ground that it was not liable for the damage. The reply had been, [ original english ] “No liability on part of insured liability denied to claimant”. Notwithstanding the position adopted by its insurer, the insured admitted its liability and had the required repairs done. At trial, the insurer raised two new grounds to refuse payment for the damage: the existence of another insurance policy that was to apply first and the insured’s admission of liability in violation of one of the conditions of the policy.

Relying on the [ original english ] “doctrine of election”, the judge stated: […] The Court is of the opinion that the defendant can no longer invoke a breach of a condition of the policy. It never informed the insured of this purported breach and, much later, it finally took a position without invoking it. This judgment was confirmed by our Court in The Continental Insurance Company c. Tracy Plate Shop Inc.

(1987) R.R.A. 176 . The

opinion of L’Heureux-Dubé, J.A., with which Vallerand and Rothman, JJ.A., concurred, specifically confirmed the trial judge’s decision regarding the delay in invoking the two new grounds. I conclude by pointing out that, in the case at bar, the insurer made its bed with full knowledge of the facts and deliberately chose not to invoke alcoholism as a ground for denying coverage . The situation would be different if the insurer had discovered this ground after its initial investigation and after its letter dated March 13, 1989. The insurer’s conduct amounts to a tacit waiver of the right to invoke this ground.

Given that good faith is the very basis for insurance contracts, the insured was justified in concluding that the only ground for the denial of coverage was the failure to mention the cerebral ischemia. [31] [Emphasis added] [ 83 ] What can be said about it in this case? (

c) Application to the case at bar [ 84 ] The appellant, Co-Operators, claims that it always considered the payment order to be invalid and always believed that Coop Fédérée was invoking its invalidity. At the hearing in first instance, however, the lawyers for respondent Coop Fédérée intimated that the latter did not intend to raise the nullity of the payment order.

The appellant contends that, faced with its insured’s [ translation ] “refusal” to invoke a ground of defence against the NBC, it presented an application to the judge to amend its grounds of defence against Coop Fédérée’s action for a declaratory judgment in order to add a new ground for denying coverage, namely, the refusal to invoke the nullity of the payment order. [ 85 ] The appellant’s application to amend its oral grounds of defence, grounds that, until then, were essentially based on its reasons for denying coverage expressed on May 4, 2015, is ultimately an application to add a ground for denying coverage. [ 86 ] In order to succeed, the appellant therefore had to convince the judge that there was a reason giving rise to the amendment of the grounds of defence it had already set out and that there were new facts justifying the addition, at this late stage of the proceedings (the hearing on the merits), of an additional ground for denying coverage.

It argues that there was a new fact, namely, Coop Fédérée’s change in position towards the bank at the hearing. [ 87 ] The trial judge properly determined this issue. In his words, the appellant a fait son lit ([ translation ] “made its bed”) on May 4, 2015, when it raised four grounds for denying coverage, but not this ground. [ 88 ] As in Di Capua , the insurer, the appellant in the case at bar, did not act in a timely manner in raising the nullity of the payment order as a ground for denying coverage.

There was nothing at the time preventing the appellant from invoking this ground of defence, among others, regardless of Coop Fédérée’s position on this matter, but instead it chose not to do so. [ 89 ] In short, the appellant has not shown how the judge erred in exercising the discretionary power he had with respect to the amendment of pleadings in the course of a proceeding. This ground must fail. 4.

Did the trial judge err by considering that the respondent’s refusal to invoke the nullity of the payment order was not a new ground for denying coverage? [ 90 ] Given the answer to the previous question, it does not seem appropriate to answer this question, particularly since liability for the loss was not really addressed in first instance and, even less so, decided by the judge. Moreover, it is not out of the question that this debate could require the production of evidence not included in the record as constituted. 5.

Did the court err when applying the insurance coverage by deciding that the loss alleged by the respondent was an insured risk under the appellant’s insurance policy? (

a) Grounds submitted by the parties [ 91 ] According to the appellant, Coop Fédérée’s loss is not covered by its insurance policy. It points out that it is the insured that bears the burden of proving the elements giving rise to the insurance coverage and that the respondent did not discharge that burden. [ 92 ] It claims, more specifically, that the misappropriated amount did not belong to Coop Fédérée. Without a valid payment order, Coop Fédérée could not have become the owner of the misappropriated sums.

In its opinion, the increase of the debit balance in the bank account is not property covered by its policy. [ 93 ] The appellant also argues that the risk in question is not covered by its insurance policy. More specifically, it adds that “all risk does not literally include anything that might conceivably happen”. Moreover, it argues that there was no loss.

To this end, it refers to the definition of [ translation ] “event” in its insurance policy and argues that, given the respondent’s change of position at the hearing in first instance regarding the nullity of the payment order, there is no longer a loss to be covered. [ 94 ] Coop Fédérée addresses this ground by raising three points: ownership of the misappropriated sums, the risk not covered and the absence of a loss. [ 95 ] Coop Fédérée argues that the misappropriated funds belonged to it, and not to the NBC, such that it suffered the loss.

The overdraft balance is nothing but a reflection of the loss it suffered through the fraud perpetrated against it.

[ 96 ] In response to the argument that the risk is not covered, Coop Fédérée points out that the Co-Operators policy does not contain any restrictions regarding physical damage. [ 97 ] Lastly, replying to the appellant’s argument that the loss it suffered results from the confirmation of an unauthorized payment order, Coop Fédérée is of the view that, through this argument, the appellant is implicitly acknowledging the unforeseen and sudden nature of the loss it suffered.

The fact that this argument was never raised earlier is a bar to it being raised now. [ 98 ] Moreover, Coop Fédérée claims that the sending of the fraudulent email constituted, for it, a sudden and unforeseen event and is therefore an accident within the meaning of the policy. (

b) The applicable law [ 99 ] In Progressive Home , the Supreme Court pointed out the principles applicable to the

interpretation of insurance contracts: [22] The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole. [23] Where the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction. For example, courts should prefer

interpretations that are consistent with the reasonable expectations of the parties, so long as such an

interpretation can be supported by the text of the policy. Courts should avoid

interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded. Courts should also strive to ensure that similar insurance policies are construed consistently. These rules of construction are applied to resolve ambiguity. They do not operate to create ambiguity where there is none in the first place. [24] When these rules of construction fail to resolve the ambiguity, courts will construe the policy contra proferentem — against the insurer.

One corollary of the contra proferentem rule is that coverage provisions are interpreted broadly, and exclusion clauses narrowly. [32] [References omitted] [ 100 ] The Supreme Court has many times since referred to this landmark ruling. [33] [ 101 ] Moreover, in Sabean v. Portage La Prairie Mutual Insurance Co. , the Supreme Court reiterated the following rule: [12] In Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. , […], this Court confirmed the principles of contract

interpretation applicable to standard form insurance contracts. The overriding principle is that where the language of the disputed clause is unambiguous, reading the contract as a whole, effect should be given to that clear language: […] Only where the disputed language in the policy is found to be ambiguous, should general rules of contract construction be employed to resolve that ambiguity : […] Finally, if these general rules of construction fail to resolve the ambiguity, courts will construe the contract contra proferentem , and interpret coverage provisions broadly and exclusion clauses narrowly […]. [34] [Emphasis added; references omitted] (

c) Application to the case at bar [ 102 ] It is useful to recall the wording of

article 2327 C.C.Q. : 2327. By simple loan, the borrower becomes the owner of the property loaned and he bears the risks of loss of the property from the time it is handed over to him. 2327. Par le simple prêt, l’emprunteur devient le propriétaire du bien prêté et il en assume, dès la remise, les risques de perte. [ 103 ] The policy issued by Co-Operators is not at all ambiguous. It covers all property of any kind and description whatsoever of its insured Coop Fédérée.

As will appear more fully in the following question, by the effect of the disbursement, Coop Fédérée became the owner of the amount of the loan granted by the NBC from the preauthorized line of credit, such that this property is covered by the policy. Moreover, the list of excluded property in the policy is specific and exhaustive and there is no relevant exclusion barring the insurance coverage. [ 104 ] Consequently, there is no reviewable error in the judgment under appeal on this issue. 6. Did the court err in concluding that the respondent was the owner of the embezzled funds? (

a) Grounds submitted by the parties [ 105 ] The appellant argues that the judge erred in law by concluding that the misappropriated money belonged to Coop Fédérée and not to the NBC. It points out that if there had been a credit balance in Coop Fédérée’s account at the time of the payment order, only NBC would have been liable for the debt and, in its view, the situation cannot be different simply depending on whether the account has a debit or credit balance. [ 106 ] Furthermore, the appellant characterizes the opening of the account as a promise to lend made by the NBC to Coop Fédérée.

It also argues that there was no delivery of the misappropriated sum to Coop Fédérée. Lastly, it considers that Coop Fédérée never validly

consented to the transfer of funds. It is of the view that Coop Fédérée [ translation ] “was merely the instrument for the fraud, while the Bank [the NBC] suffered a loss that it must bear”. (

b) Application to the case at bar [ 107 ] The following are the relevant articles of the Civil Code of Québec : 2312. There are two kinds of loans: loan for use and simple loan. 2312. Il y a deux espèces de prêt: le prêt à usage et le simple prêt. 2314. A simple loan is a contract by which the lender hands over a certain quantity of money or other property that is consumed by use to the borrower, who binds himself to return a like quantity of the same kind and quality to the lender after a certain time. 2314.

Le simple prêt est le contrat par lequel le prêteur remet une certaine quantité d’argent ou d’autres biens qui se consomment par l’usage à l’emprunteur, qui s’oblige à lui en rendre autant, de même espèce et qualité, après un certain temps. 2316. A promise to lend confers on the beneficiary of the promise, in the event of failure by the promisor to perform the promise, only the right to claim damages from the promisor. 2316. La promesse de prêter ne confère au bénéficiaire de la promesse, à défaut par le promettant de l’exécuter, que le droit de réclamer des dommages-intérêts de ce dernier. 2327.

By simple loan, the borrower becomes the owner of the property loaned and he bears the risks of loss of the property from the time it is handed over to him. 2327.

Par le simple prêt, l’emprunteur devient le propriétaire du bien prêté et il en assume, dès la remise, les risques de perte. [ 108 ] A deposit in a bank account is characterized as a loan made by the depositor to the bank, which in turn becomes the debtor. [35] Thus, the money deposited in a bank account becomes [ translation ] “the property of the bank”, subject to the bank’s obligation to remit the same amount, in addition to the interest, upon demand. [36] The contract of loan of money formed by a deposit in a bank account is characterized as a real contract: it is created by the disbursement of the sums.

In short, there can be no loan of money without a disbursement. [37] [ 109 ]

Article 2316 C.C.Q. provides that a promise to lend, such as a line of credit, is not a loan.

A contrario , a disbursement from an overdraft account is a loan to the account holder. [ 110 ] Thus, in the case of a line of credit associated with a bank account or an overdraft account, there can be two situations: either there is a credit balance, in which case the bank assumes the risk of loss, or the balance is negative, in which case the customer assumes the risk of loss, the customer having become the bank’s debtor. [ 111 ] Coop Fédérée had a preauthorized line of credit of $100 million in U.S. currency that had been granted to it by the NBC.

Just before the payment order in question, the debit balance in that account was US$3,386,361.80. The electronic transfer order for US$4,946,355.26 executed by the NBC at the request of Coop Fédérée made the latter the bank’s debtor for the amount of the corresponding disbursement. Coop Fédérée was therefore the owner of the stolen money. It cannot be otherwise. The judge correctly answered this question. 7.

Did the court err in ruling “on the fact that the Bank had fulfilled its mandate and its obligations”, “thereby ruling on the Bank’s liability” and, in doing so, did it “rule ultra petita” on the Bank’s liability?

Should paragraphs 74 and 75 of the judgment be struck? [ 112 ] It is a well-established principle that one can generally only appeal the conclusions of a judgment. [38] There is no exception to this principle in the case at bar. [ 113 ] The two paragraphs of the reasons of the judgment under appeal (paras. 74 and 75) are essentially obiter , because, as mentioned earlier, the judge did not rule on liability in the conclusions of the judgment. In the circumstances, there is therefore no need to say more on this matter. 8.

Is the insurance policy issued by Liberty a specific insurance policy? [ 114 ] It may be useful to summarize the essential points of the debate on this issue and the judge’s analysis thereof. [ 115 ] Both insurance policies, that of Co-Operators and that of Liberty, were in effect for the same term, from May 1, 2014 to May 1, 2015. The insurance contract entered into between Coop Fédérée and Liberty is entitled: “Contrat d’assurance contre la fraude et le détournement” ([ translation ] “Contract of insurance against fraud and embezzlement”).

Co-Operators was of the view that Liberty’s policy is specific insurance that specifically covers particularized items of property (money, securities and other property not otherwise defined) against the risk of fraud and embezzlement. It submitted that this policy is primary insurance, which implies that no allocation must be made between the two insurers. Liberty argued that, on the contrary, its policy is a general insurance policy, but one that it characterized as being circumscribed.

They have adopted the same respective positions on appeal. [ 116 ] The judge did not limit himself to the title of Liberty’s policy to characterize it. Noting the absence of evidence regarding the intention of the parties, the judge referred to the text of the policy. Being of the view that [ translation ] “ like the Co-operators policy, the Liberty policy covers all property of the insured Coop, as well as all risks that may directly affect the insured property”, the judge

concluded that it could not be a specific policy, which entails that both contracts, that of Co-Operators and that of Liberty, are insurance policies of the same rank that cover the loss suffered by Coop Fédérée. What about this? [ 117 ] While both policies may cover the same property and the same risks, it is inaccurate to say that Liberty’s policy covers all of Coop Fédérée’s property and all risks. [ 118 ] Of the two existing policies, Liberty’s is specific insurance within the meaning of the exception set forth in the third paragraph of

article 2496. This exception was introduced with the 1994 reform of the Civil Code of Québec . [ 119 ]

Article 2496 C.C.Q. provides as follows with respect to a plurality of insurance: 2496. Any person who, without fraud, is insured by several insurers, under several policies, for the same interest and against the same risk, so that the total amount of indemnity that would result from the separate performance of such policies would exceed the loss incurred, may be indemnified by the insurer or insurers of his choice, each being liable only for the amount he has contracted for. 2496.

Celui qui, sans fraude, est assuré auprès de plusieurs assureurs, par plusieurs polices, pour un même intérêt et contre un même risque, de telle sorte que le total des indemnités qui résulteraient de leur exécution indépendante dépasse le montant du préjudice subi, peut se faire indemniser par le ou les assureurs de son choix, chacun n’étant tenu que pour le montant auquel il s’est engagé. No clause suspending all or part of the performance of the contract by reason of plurality of insurance may be set up against the insured.

Est inopposable à l’assuré la clause qui suspend, en tout ou en partie, l’exécution du contrat en cas de pluralité d’assurances. Unless otherwise agreed, the indemnity is apportioned among the insurers in proportion to the share of each in the total coverage, except with respect to specific insurance, which constitutes primary insurance .

Entre les assureurs, à moins d’entente contraire, l’indemnité est répartie en proportion de la part de chacun dans la garantie totale, sauf en ce qui concerne une assurance spécifique, laquelle constitue une assurance en première ligne . [Emphasis added] [ 120 ] The provision that preceded it,

article 2585 C.C.L.C. , was, all in all, linear, and did not include the exception set out in the third paragraph of

article 2496 C.C.Q. : 2585. Where several valid insurance contracts have been made without fraud on the same property and against the same risks, each produces its effects in proportion to all the insurance in force up to the amount of the loss. 2585. Quand plusieurs assurances valides ont été contractées sans fraude, sur la même chose et contre les mêmes risques, chacune produit ses effets en proportion de la totalité des assurances en vigueur jusqu’à concurrence de la perte.

The insurers are not allowed to invoke the benefit of division against the insured; the latter may sue each of them for the full amount of the coverage he has contracted for until he has been fully indemnified. Les assureurs ne sont pas admis à invoquer le bénéfice de division contre l’assuré; ce dernier peut poursuivre chacun d’eux pour le plein montant de la garantie pour laquelle il s’est engagé tant qu’il n’a pas été indemnisé intégralement. [ 121 ] Little has been written on the exception for specific insurance policies within the meaning of this provision.

While we can readily characterize insurance covering certain property (for example, objects of value, such as jewellery) as specific insurance, particularly since such policies often pertain to items of value or property that generally form part of express exclusions in “property insurance policies”, there is no reason to restrict specific policies to this type of policy. [ 122 ] To properly circumscribe this question, in the context of a plurality of insurance, it seems useful to recall the jurisprudential

interpretation of the applicable general framework so as to properly underscore the distinctiveness of the exception established by the Quebec legislature. [ 123 ] In Ledcor , the Supreme Court specified that, exceptionally, the standard of review is correctness where an appeal involves the

interpretation of a standard form contract, the

interpretation at issue has precedential value and there is no meaningful factual matrix that is specific to the particular parties to assist the

interpretation process. [39] [ 124 ] In the landmark ruling American Home Insurance Co. c. Duret , rendered by this Court in 1989, the objective of

article 2585 C.C.L.C. (now 2496 C.C.Q. ) was described as follows: [ translation ] It should not be forgotten that by including this

article in the Civil Code , the legislature simply intended to prevent an insured from making a profit by simultaneously demanding from the insurers with which it has contracted amounts that in the aggregate would represent compensation exceeding the monetary loss it has suffered. [40] [ 125 ] In that same judgment, Chevalier, J.A. ( ad hoc ), set out the relevant elements for determining whether two or more insurance policies are cumulative policies:

[ translation ] Ultimately, we must determine whether, when placed side by side and taking into account each of their relevant clauses, the two insurance policies have established a subsidiary or complementary insurance scheme for the parties or if, on the contrary and as my colleague has opined, one of them, the one issued by American Home, was framed so as to circumvent the principle in

article 2585 and, consequently, is but a disguised cumulative policy. To determine the nature of the policies in question, we must first examine and reconcile the contractual texts . This analysis must be made in light of the criteria outlined in the doctrine with respect to such matters. What is this doctrine?

According to Picard and Besson - Les assurances terrestres […] “ Insurance policies are said to be multiple only if they are liable to become cumulative, that is, to be added the one to the other in the event of a loss and thereby exceed the amount of the damage .” Excluding insurance policies which, when placed side by side, do not result in such excess, the aforementioned authors add that: “... to be characterized as such and, thus, be subject to the legal rules, (they) must have certain common characteristics , certain similarities that make them fungible, so to speak.” These common characteristics are (1) a plurality of insurers; (2) identity of object; (3) identity of risk; (4) identity of interest; (5) simultaneous insurance; (6) joint guarantees that are not subsidiary to one another . [41] [ Emphasis added ] [ 126 ] In Orion , this Court stated the following regarding a plurality of insurance: The question which we have to decide is whether

article 2585 applies in the present instance notwithstanding the presence of the excess coverage clause in condition 11 of the conditions of the policy exhibit P-2 issued by Appellants. […] As I stated earlier, in Symons Madam Justice L’Heureux-Dubé made an exhaustive study of the history of

article 2585 as well as the doctrine and jurisprudence therein referred to. In dealing with the subscription policy she expressed the opinion that the first paragraph of 2585 relates only to multiple insurance of a cumulative nature. Here is what she said concerning the adoption by the Legislature of the new

article 2585: [ translation ] Here, the legislature clearly indicated its intention to modify the existing law regarding multiple cumulative insurance, by replacing the date-based system with a pro rata-based system and, in these cases, by not allowing insurers to apply the benefits of division and discussion, to the advantage of insureds. There is no indication, in fact the contrary is true, that it intended to go any further and completely overhaul the scheme applicable to subscription policies. The text of

article 2585 C.C. that was ultimately adopted reads very closely like

article 30 of the French statute, although its second paragraph differs substantially. This, however, does not change the purpose of the first paragraph which, based on these texts, texts that were simply reworked but not substantially amended when the final wording of

article 2585 C.C. was adopted, appears to apply only to multiple insurance that is cumulative. Clearly, the second paragraph of that

article only pertains to the situation referred to in the first paragraph. (p. 2837) It is obvious therefore that the intention of the Legislature was simply to avoid payment to the insured of an amount in excess of the damages suffered by him. As stated below, a provision to contribute proportionately or a clause providing for excess coverage only prevents such a happening from taking place . [42] [ 127 ] More recently, in Family Ins. c. Lombard du Canada , the Supreme Court specified the rules of

interpretation applicable when there are multiple insurance policies: 14 It is a well-established principle of insurance law that where an insured holds more than one policy of insurance that covers the same risk, the insured may never recover more than the amount of the full loss but is entitled to select the policy under which to claim indemnity, subject to any conditions to the contrary. The selected insurer, in turn, is entitled to contributio

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