BLG Monthly Update - October 2011

The BLG Monthly Update is a digest of recent developments in the law which Neil Guthrie, our National Director of Research, thinks you will find interesting or relevant – or both.

IN THIS MONTH'S EDITION:

Advertising and marketing: still getting robocalls? Art law/equity/personal property: the murky world of art restitution claims Banking: bank not liable for negotiating cheques with missing signature; customer agreement a complete defence Banking: bank not liable for unauthorised e-transfers where security measures 'commercially reasonable' Banking/civil procedure: bank seeks direction on dealing with funds in Libyan embassy account Banking/contracts/torts: economic duress claim fails against lender reasonably exercising contractual rights Civil procedure/torts: spoliation of evidence still not an independent cause of action Class actions: settlement sent back; proceedings should never have been certified because of conflicts within class Commercial law: sale of cheesecake containing nuts not reasonably fit for purpose disclosed by allergic consumer Conflict of laws: Newfoundland and Labrador CA weighs in on 'real and substantial connection' Constitutional: Québec CA affirms federal jurisdiction over navigable waterways Contracts/conflict of laws: jurisdiction by hyperlink Contracts/torts: entire agreement clause and unreasonable reliance defeat misrep claim Damages: you can't have both – double recovery and election of remedies Employment law/torts: standard for malicious prosecution is lower where defendant is private individual Health/privacy: notice to non-parties of disclosure of personal health info Insurance: assault while operating car is an 'accident' for statutory benefits purposes, says Ontario SCJ Intellectual property: battle of the Italian eateries – both having created name confusion, neither gets trademark Intellectual property: music video violates photographer's copyright, partially Intellectual property: trade-mark confusion over 1980s band name? Partnership: this just in – partnership requires more than one party Pensions/trusts: actual knowledge, constructive knowledge and just plain forgetting Police/privacy: right to film police in public upheld by 1st Circuit Privacy: unsolicited communications not 'collected' by municipality; consent to use not required Real property: sex offender across the street could be a latent defect that needs to be disclosed to a purchaser Securities: some but not all misrepresentation claims against Lehman defendants given green light Torts: kids' claim against mother for infliction of emotional distress fails; conduct not 'extreme and outrageous' Torts: 'no such thing as an entirely safe tree', says English High Court ADVERTISING AND MARKETING

Still getting robocalls?

Robocalls are those annoying, recorded or synthesised telemarketing pitches made with automatic dialling-announcing devices (ADADs). Making ADAD calls without customer consent violates the CRTC's Unsolicited Telecommunications Rules, but the practice continues [Link available here].

A recent settlement between the CRTC and GoodLife Fitness may help to deter ADAD telemarketing: the company has agreed to stop making these calls to its customers without their consent, pay a $300,000 penalty, publish corrective notices and host a business education seminar with the CRTC on telemarketing compliance [Link available here].

ART LAW/EQUITY/PERSONAL PROPERTY

The murky world of art restitution claims

Fritz Grunbaum, a prominent Austrian Jewish collector in the 1930s, owned the drawing by Egon Schiele that is at issue in Bakalar v Vavra (SDNY, 17 August 2011) [Link available here].

Precisely what happened to the drawing between 1938 and 1964, when David Bakalar bought it, is unclear. It was not included in an inventory drawn up by a Nazi appraiser before Grunbaum's death in the Dachau concentration camp, so it may not have been looted when the Nazis subsequently seized the bulk of his collection. Grunbaum's sister-in-law Mathilde Lukacs sold the drawing to a Swiss gallery in 1956; it was then bought by the New York gallery from which Bakalar acquired it in 1964.

Grunbaum's heirs, Milos Vavra and Leon Fischer, became aware of the drawing in 2005 and sought its restitution in the New York courts. In dealing with the question of Bakalar's title, the district court initially applied Swiss law, which allows title to pass even where the seller has no right to sell the property. On appeal, it was held that New York law applied, under which a thief cannot pass good title. The case was sent back to the district court, where the onus was on Bakalar to establish that the work was not stolen; if he could not, the original owner's heirs were entitled to it.

Bakalar could not establish that Mathilde Lukacs ever had title to the drawing, whether through gift, bailment or intestacy, nor could it be established that she had acquired it through duress (which would avoid her title altogether); the evidence was simply inconclusive. Advantage claimants, one would have thought; but Vavra and Fischer had sat on their rights and lost out as a result of laches. Even though they were unaware of the drawing specifically until 2005, they and earlier family members had been generally aware that Grunbaum had a valuable collection which had been looted or otherwise alienated. Even making allowances for the turmoil in Europe after the War, the Grunbaum heirs had put Bakalar in a position where he could not gather evidence to support his case. As a non-merchant purchaser of art, he was under no duty to investigate the provenance of the piece.

BANKING

Bank not liable for negotiating cheques with missing signature; customer agreement a complete defence

Sally Styles was the trusted book-keeper at Manor Windsor Realty (MWR). Trusted, but, as it turned out, dishonest: she defrauded the company of over $400,000 by paying to her own account cheques that had been signed in advance by one of the two required MWR signatories. The fraud was eventually detected and Styles convicted, but she had declared bankruptcy and MWR could recover nothing from her. MWR sued its bank, alleging that it should never have negotiated the fraudulent cheques: Manor Windsor Realty Ltd v The Bank of Nova Scotia, 2011 ONSC 4515 [Link available here].

The bank countered with the customer agreement that MWR had signed, pointing to the clauses requiring MWR to have fraud controls in place (which it really didn't), verify monthly statements and report any discrepancies or errors (which it also failed to do, except towards the end of the fraudster's career). Another clause specifically excluded the bank's liability for fraudulent cheques, even where it failed to verify signatures.

MWR was bound by its agreement. While its principals had not actually read the agreement, they were men of business and did not need to have onerous terms brought specifically to their attention. The agreement was not ambiguous. Even had the bank been at fault, MWR's claim was to a large extent statute-barred. Its recovery was limited to $7,800 arising from cheques which MWR had promptly reported to the bank as fraudulent.

Marty Sclisizzi and Dan Zacks of the Toronto office of BLG acted for The Bank of Nova Scotia.

Bank not liable for unauthorised e-transfers where security measures 'commercially reasonable'

Patco Construction used Ocean Bank's online banking to make payroll transactions and other transfers. In May 2009, it appeared that unknown third parties had made $588,000 in unauthorised withdrawals. The bank managed to block $288,000 of these. Patco sued to recover the rest.

There were some obstacles to overcome, including clauses in Patco's customer agreement making e-banking at the risk of the customer, requiring the customer to monitor transfers daily and making the customer liable for all transfers 'purportedly' made by it. The real question for the US magistrate in Maine was, however, whether Ocean Bank had adopted 'commercially reasonable' security measures; where this is the case, article 4A of the Uniform Commercial Code (on funds transfers) will absolve a bank of liability, provided it also acted in good faith and in compliance with those measures and the relevant agreements with the customer.

The magistrate concluded that while the bank's security measures did not include everything available at the time and were therefore 'not optimal', they were nevertheless OK. The US District Court agreed on appeal in a two-page order: Patco Construction Co v Peoples United Bank dba Ocean Bank (D Me, 27 May 2011; aff'd D Me, 4 August 2011).

BANKING/CIVIL PROCEDURE

Bank seeks direction on dealing with funds in Libyan embassy account

One of the customers of British Arab Commercial Bank (BACB) is the Libyan embassy in London, which has large amounts on deposit with the bank. Until the summer of 2011, BACB made regular payments from the account to Libyan students studying in the UK (₤2.5 to 3.5 million in grants per month). Then came the revolution and conflicting instructions to the bank: from Libyan Foreign Bank, BACB's majority shareholder and a Libyan state-owned entity, a direction to freeze the payments; from the London diplomatic representative of the National Transitional Council (NTC), the direction to make the payments as usual.

BACB sought the High Court's intervention in British Arab Commercial Bank plc v National Transitional Council of the State of Libya, [2011] EWHC 2274 [Link available here]. The UK government and the NTC were represented at the hearing, as was BACB. The bank also attempted service on representatives of the Gaddhafi régime, but they were unavailable. English counsel to the Gaddhafi régime sought an adjournment until instructions could be obtained from his clients.

Blair J concluded that in light of the UK government's recognition of the NTC as the legitimate government of Libya (as certified by the Foreign Secretary for these proceedings), its duly...