By NEIL HARTNELL
Tribune Business Editor
A Bahamian attorney has been ordered to pay Scotiabank some $165,000 after his business account became overdrawn due to two bank drafts that were discovered to be “forgeries or counterfeit”.
Justice Indra Charles, in a July 22, 2022, verdict rejected Glendon Rolle’s claim for loss and damages as a result of what he alleged was the commercial bank’s “breach of fiduciary duty and/or negligence”.
While finding that Scotiabank (Bahamas) was indeed negligent in protecting itself from risk, as it allowed the two bank drafts to clear and be credited to Mr Rolle in less than the 15 days stipulated by its own processes, she found the attorney was bound by the contract he signed when opening the account.
This specifically stated that neither Scotiabank, nor its directors, officers and employees, can be held liable for “a forged, unauthorised or fraudulent use of services, cheque or instruction”. As a result, Justice Charles found the bank could credit a client’s account without a bank draft or cheque clearing first, and was thus entitled to recover the overdrawn sum from Mr Rolle.
And she ruled that the attorney, who trades as Lord Ellor & Company (Ellor is Rolle spelled backwards), had blundered in any event by failing to file a defence to Scotiabank’s counter-claim. As a result, the bank was “entitled to have final judgment entered in its favour” for the $165,000 overdrawn sum claimed - plus a monthly $15 overdraft fee that has accrued over almost five years - regardless of the final verdict.
Justice Charles’ verdict gives no indication as to who was responsible for the “fraudulent” CIBC FirstCaribbean bank drafts, worth a combined $428,000, that were deposited by Mr Rolle and became central to his dispute with Scotiabank (Bahamas). The attorney submitted his application to open the account on January 19, 2016, and it held a $3.233 balance by July 20, 2017.
That was the date when Mr Rolle deposited the first CIBC bank draft, for $196,920, which was credited to the account on or before that month’s end. He then instructed Scotiabank (Bahamas) to wire transfer some $143,774 from the same account to the Mizuho Bank in Tokyo, Japan, for the benefit of his client, Verhenz Japan Company Ltd, on July 31, 2017.
The wire transfer was made the same day, leaving a $55,269 balance. Mr Rolle subsequently withdrew a further $33,025 in a series of transactions up until August 15, 2017. And, on August 8, he had deposited the second CIBC bank draft to the account for the sum of $231,811.
Mr Rolle, on August 16, 2017, then instructed Scotiabank (Bahamas) to make a second wire transfer worth $164,019 to the same bank and client in Japan. This, too, was carried out the same day, but Justice Charles noted: “Also on August 16, 2017, the bank determined that the first bank draft was fraudulent by reason of being a forgery or counterfeit.
“The bank successfully rescinded the second wire transfer but the first wire transfer of $143,774 was never recovered by the bank. On August 18, 2017, the bank advised the plaintiff that the first bank draft was returned on the ground that it was fraudulent.
“On August 21, 2017, [Mr Rolle] met with representatives of the bank and wrote a letter to Edward Smith, an investigation services officer of the bank, requesting that the matter be investigated and further requesting that the wire transfer by stopped immediately.”
The net result of the “fraudulent” bank drafts, and first $143,774 wire transfer that could not be recovered, was that Mr Rolle’s business account with Scotiabank was overdrawn by some $173,794 as at September 14, 2017. The bank demanded repayment, advising that same day that the second CIBC bank draft was “rejected”. An incoming $9,164 wire transfer in early 2018 was applied to the overdrawn sum, which Mr Rolle refused to pay.
He accused Scotiabank of “failing to exercise reasonable skill and care” in carrying out his instructions and not ensuring the first CIBC bank draft had properly cleared before he withdrew the additional $33,000-plus. He claimed on several grounds, including loss of prospective earnings and reputation damage.
Scotiabank, though, held fast to the Small Business Financial Services Agreement that Mr Rolle signed when opening the bank account. Leif Farquharson QC, a Graham, Thompson & Company attorney and partner acting for the bank, argued simply that his client could not be held liable for “any indirect, special, consequential, exemplary or punitive damages or losses in connection with the account” due to the contract’s terms.
Cathleen N. Hassan, representing Mr Rolle, argued that Scotiabank (Bahamas) had “had a duty to verify the bank drafts before making the funds available, and certainly before effecting wire transfers therefrom”. And she also asserted that the bank account contract was overridden by the Consumer Protection Act, which requires that all consumer-related agreements be “reasonable”.
However, Justice Charles said the Act’s wording made it clear that the definition of “consumer” does not apply to persons using services for their business, as Mr Rolle had been doing with the account, and it therefore did not apply.
And, describing Mr Rolle’s failure to file a defence to Scotiabank’s counterclaim as “unusual”, Justice Charles suggested this was enough by itself to decide the outcome. “In failing to file a defence to counterclaim, the plaintiff is deemed to have admitted every allegation of fact within the bank’s counterclaim,” she found.
“I therefore agree with the submissions advanced by Mr Farquharson that the bank is entitled to have final judgment entered in its favour in the terms prayed for in the counterclaim. I shall make this order.” Justice Charles nevertheless proceeded to see the case through to the end, noting that Lauryn Cartwright, a Scotiabank executive, said its policy is to only release funds from cheques after 15 working days to ensure they are not “defective”.
“Ms Cartwright admitted that, contrary to the bank’s policy, the first and second bank drafts were credited to the account in seven working days and that the holds should have still been in place. She also admitted that the first wire transfer was effected in less than 15 working days and that the hold should have been in place at the time of the transfer,” the verdict added.
Justice Charles, finding that the relationship between the two parties was contractual, said no fiduciary duty was owed by Scotiabank to Mr Rolle. And she found the provisions in the account opening contract “excuses the bank’s actions that the plaintiff asserts was negligent – crediting the account without having settled the bank draft”.
“The bank was negligent. Absent the [contract], the bank would be prevented from remedying its own negligence by seeking to recover the funds paid pursuant to the fraudulent bank drafts,” Justice Charles ruled. “As I reiterated, the bank took a risk by making the funds available before conclusively determining the validity of the bank drafts.
“However, the [contract] is plain. There can be no liability on the part of the bank to its customer arising from any action taken pursuant to an instruction to the customer. This is expressly so where the instruction or payment in reliance thereon relates to a fraudulent item.
“However, as Mr Farquharson QC correctly stated, the bank is entitled to credit the account without having clearing the instrument, and it follows that the bank cannot be liable and to deduct amounts paid that turn out to be fraudulent even if they have not settled the instrument purporting to pay the same. Accordingly, the bank is entitled to recover the overdraft sum from the plaintiff.” Justice Charles also dismissed Mr Rolle’s claim.