BNS wins case against Iberostar hotel
Bank cleared of liability for cheques forged by hotel employees
AFOREIGN hotel company that sued its bank over fraud allegedly committed by its own employees twelve years ago, had its lawsuit tossed by the Supreme Court in September.
Branch Developments Limited, which trades as Iberostar Rose Hall Beach Hotel, sought to recover $34.44 million from Bank of Nova Scotia Limited, for honouring 75 forged cheques drawn on a Jamaica-dollar account the company held at the bank’s Sam Sharpe Square branch in Montego Bay.
However, the court held that BNS took reasonable steps to verify the signatures on the cheques with the company and, therefore, was not liable for any loss related to the fraud.
Iberostar is a family-owned international hotel chain based in Spain. Its local subsidiary Branch Developments, has done business with Canadian-owned BNS, which trades as Scotiabank, since at least 2004.
According to court documents, the two female employees were able to learn the hotel’s cheque generation system two weeks after they were employed there and found a way to defraud it. They allegedly forged the signatures of two of the company’s signing officers – Financial Manager Fransisco Andreu Mestres and Project Manager Javier Bethencourt – on the 75 cheques.
The fraudulent cheques were among 2,200 drawn on the hotel’s account over three months, from May to July 2007, and honoured by BNS.
Iberostar argued in court that BNS was wrong to encash forged cheques, and had breached its duty of care to as its customer, but the bank maintained that its action in paying out the money was
justified and protected in law based on the terms of the agreements regarding the operation of Branch Developments’ accounts.
There was no dispute that the signatures on the cheques in question had been forged by Iberostar’s own employees. The court also ruled that the cheques were forged, based on the evidence before it. Iberostar claimed that by honouring the cheques, the bank was negligent and in breach of the banking contract because the signatures did not match those of the signing officers on its agreement with the bank.
The hotel’s contention was that the bank had a duty to explain the agreements to Iberostar’s signing officers, Mestres and Bethencourt.
However, Justice David Fraser, who delivered the judgment, said there was no evidence presented to the court to indicate that Mestres and Bethencourt did not understand English or didn’t know what they were signing when they executed the agreements.
As men engaged in business, Justice Fraser said, there was “no basis for the contention that they did not, or may not, have known the nature of what they were signing,” he added.
Mestres gave evidence that the forged signature was similar to his own, but was not his. That led the judge to judge said to conclude that the untrained eye could not distinguish between good and bad cheques. In that context, he said, it could not be said that the cheques were “obviously forged”.
Iberostar had accused BNS of failing to check with the signatories even after noting that persons turning up to the bank to encash the fraudulent cheques included teenagers and other young persons.
In its defence, BNS argued that a bank has no duty to check with the signatories on a commercial account to verify each cheque. He said such a duty would be impractical, given the large number of cheques drawn on Iberostar’s account, and that, critically, the agreements contained no such contractual duty.
Further, as indicated by one of the witnesses, a banker for 29 years, the practice within the banking sector is to consult companies’ accounts department, and not with the signatories, who are normally important people likely to be unavailable for such consultations.
The verification log received in evidence showed that checks were made by BNS with Iberostar’s accounts department for all the relevant cheques encashed at BNS. Each cheque was endorsed with the name of a person from Iberostar’s accounts department, who verified that the payments were valid, and some were even verified by Iberostar’s chief accountant.
The judge held that BNS took appropriate measures to ensure that the cheques were verified by a representative of Iberostar before payment.
Justice Fraser also ruled that, based on the evidence, “even if BNS had checked with the signatories, the result would not have been different. Mr Mestres testified that he could only verify the cheques using information which the alleged fraudsters entered in the system”.
Iberostar was represented by Pamela Benka-Coker, QC, and Brian Moodie, while BNS was represented by Michael Hylton QC, Shanique Scott and Melissa McLeod. Benka-Coker was not reached for comment as to whether Iberostar would be appealing the judgment.