Bank of Montreal v. Royal Bank of Canada, [1933] SCR 311

Supreme Court of Canada

Bank of Montreal v. Royal Bank of Canada, [1933] S.C.R. 311

Date: 1933-04-25.

The King, on the Information of the Attorney-General for the Dominion of Canada Plaintiff;

and

The Bank of Montreal (Defendant) Appellant;

and

The Royal Bank of Canada (Third Party) Respondent.

1933: March. 24; 1933: April 25.

Present: Duff C.J. and Rinfret, Lamont, Smith, Cannon and Crocket JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA

Exchequer Court—Jurisdiction—Third party procedure—Defendant sued by Crown—Defendant claiming indemnity against third party under Bills of Exchange Act, R.S.C., 1927, c. 16, s. 50—Jurisdiction of Exchequer Court in respect of claim against third party—Exchequer Court Act, R.S.C., 1927, c. 34, ss. 30, 87 (as enacted by 18-19 Geo. V, c. 23, s. 5), 88—Exchequer Court Rules 234 to 241.

The Crown took action in the Exchequer Court to recover from the defendant bank the amounts of certain cheques signed by the Crown’s proper officers and paid by the bank and charged by it to the Crown’s

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account, the Crown alleging that the payees’ endorsements on the cheques were forged. The bank, purporting to act under rules 234 to 241 of the Exchequer Court, served a third party notice on another bank, claiming indemnity (for which claim it relied on s. 50 of the Bills of Exchange Act) against any liability, alleging that the cheques (purporting to be duly endorsed by the payees) were presented by the other bank to the defendant bank and paid by the defendant bank to it. The third party notice was set aside in the Exchequer Court. The defendant bank appealed.

Held (affirming the judgment below): The Exchequer Court had not jurisdiction in respect of the claim in the third party notice. Sec. 30 (d) of the Exchequer Court Act, by which that court possesses “concurrent original jurisdiction” in actions “of a civil nature * * * in which the Crown is plaintiff” did not make it competent for that court to deal with the claim in question. The proceeding against a third party on such a claim is a substantive proceeding and not a mere incident of the principal action. Rules for third party procedure are in essence rules of practice, not of law, introduced for the purposes of convenience and to prevent circuity of proceedings. Sees. 87 and 88 of the Exchequer Court Act, notwithstanding their comprehensive language, do not invest the judges of that court with power, by promulgating a rule, to enlarge the scope of the subject matters within that court’s jurisdiction. Nor was the claim in question within the intendment of s. 30 (a), giving jurisdiction “in all cases relating to the revenue in which it is sought to enforce any law of Canada.”

APPEAL by the defendant, the Bank of Montreal, from the judgment of Maclean J., President of the Exchequer Court of Canada, setting aside the third party notice herein.

The action was brought by the Crown, by information in the Exchequer Court of Canada, against the defendant to recover from the defendant the amounts of certain alleged cheques alleged by the plaintiff to have been wrongfully and improperly charged during the years 1928, 1929 and 1930 against the account kept by the plaintiff with the defendant, on the alleged ground that, although the cheques were signed by the proper officers of the plaintiff, the signatures of such officers were obtained by fraudulent means and that, although the cheques purported to be endorsed by the parties to whom they were made payable, the endorsements of the payees were forgeries; and that the cheques were therefore not properly chargeable against the plaintiff’s account; and on the further alleged ground that by a special agreement with the plaintiff the defendant was an absolute guarantor of endorsements on all Government cheques drawn on and paid by the defendant.

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By third party notice, the defendant claimed, if it should be adjudged liable to the plaintiff in respect of all or any part of the amount mentioned in the information, to be indemnified by the Royal Bank of Canada (hereinafter called the “third party”) against such liability and to be entitled to relief over against it, and to recover such amount from it; alleging that the cheques were presented for payment by the third party to the defendant and were paid by the defendant to it, the cheques when so presented and paid purporting to be regularly drawn upon the plaintiff’s account with the defendant and purporting to be duly signed by the duly authorized officers of the plaintiff and purporting to be duly endorsed by the respective payees thereof.

On motion by the third party, Maclean J., President of the Exchequer Court, made an order setting aside the third party notice, without prejudice to any existing right of indemnity which the defendant might have against the third party. From this order the defendant appealed to this Court.

By the judgment now reported the appeal was dismissed with costs.

M. G. Powell K.C. and F. D. Hogg K.C. for the appellant.

E. G. Gowling and D. K. MacTavish for the respondent.

The judgment of the court was delivered by

Duff C.J.—The Crown is proceeding by way of information for the recovery from the defendant, the Bank of Montreal, of certain sums charged by the defendant to His Majesty’s account as disbursed in payment of cheques purporting to be drawn by the authority of His Majesty and duly endorsed. These cheques were signed by the proper signing officers, but the endorsements are alleged to be forged. The appellant, the Bank of Montreal, claims indemnity from the Royal Bank of Canada under section 50 of the Bills of Exchange Act:

50. If a bill bearing a forged or unauthorized endorsement is paid in good faith and in the ordinary course of business, or by or on behalf of the drawee or acceptor, the person by whom or on whose behalf such payment is made shall have the right to recover the amount so paid from the person to whom it was so paid or from any endorser who has endorsed

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the bill subsequently to the forged or unauthorized endorsement if notice of the endorsement being a forged or unauthorized endorsement is given to each such subsequent endorser within the time and in the manner in this section mentioned.

2. Any such person or endorser from whom said amount has been recovered shall have the like right of recovery against any prior endorser subsequent to the forged or unauthorized endorsement.

3. Such notice of the endorsement being a forged or unauthorized endorsement shall be given within a reasonable time after the person seeking to recover the amount has acquired notice that the endorsement is forged or unauthorized, and may be given in the same manner, and if sent by post may be addressed in the same way, as notice of protest or dishonour of a bill may be given or addressed under this Act.

The appellant, accordingly, purporting to act under the Rules, 234 to 241, of the Exchequer Court, served a third party notice on the Royal Bank of Canada. The learned President of the Exchequer Court set aside this notice on the application of the Royal Bank. From this order the Bank of Montreal appeals.

The rule making authority exercised by the Exchequer Court is derived from sections 87 and 88 of the Exchequer Court Act, which are as follows:

87. (1) The Judges of the Court may, from time to time, make general rules and orders,

(a) for regulating the practice and procedure of and in the Exchequer Court;

(b) for the effectual execution and working of this Act, and the attainment of the intention and objects thereof;

(c) for the effectual execution and working in respect to proceedings in such Court or before such Judge, of any Act giving jurisdiction to such Court or Judge and the attainment of the intention and objects of any such Act;

* * * *

88. Such rules and orders may extend to any matter of procedure or otherwise, not provided for by any Act, but for which it is found necessary to provide in order to ensure their proper working and the better attainment of the objects thereof.

2. Copies of all such rules and orders shall be laid before both Houses of Parliament within ten days after the opening of the session next after the making thereof.

3. All such rules and orders and every portion of the same not inconsistent with the express provisions of any Act shall have and continue to have force and effect as if herein enacted, unless during such session an address of either the Senate or House of Commons shall be passed for the repeal of the same or of any portion thereof, in which case the same or such portion shall be and become repealed: Provided that the Governor in Council may, by proclamation, published in the Canada Gazette, or either House of Parliament may, by any resolution passed at any time within thirty days after such rules and orders have been laid before Parliament,

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suspend any rule or order made under this Act; and such rule or order shall, thereupon, cease to have force and effect until the end of the then next session of Parliament.

We have no doubt that, notwithstanding the comprehensive language of these sections, they do not invest the judges of the Exchequer Court with power, by promulgating a rule, to enlarge the scope of the subject matters within the jurisdiction of the Exchequer Court. The question of substance is whether the claim of the appellant set forth in the third party notice under section 50 of the Bills of Exchange Act is a claim in respect of which the Exchequer Court has jurisdiction. That jurisdiction is defined by section 30 of the Act which, in so far as material, is in these words:

30. The Exchequer Court shall have and possess concurrent original jurisdiction in Canada

(a) in all cases relating to the revenue in which it is sought to enforce any law of Canada, including actions, suits and proceedings by way of information to enforce penalties and proceedings by way of information in rem, and as well in qui tam suits for penalties or forfeiture as where the suit is on behalf of the Crown alone;

* * * *

(d) in all other actions and suits of a civil nature at common law or equity in which the Crown is plaintiff or petitioner.

The principal contention of counsel for the appellants was that, the proceeding under the information being an action or suit “of a civil nature * * * in which the Crown is plaintiff * * *,” the Court has, by the explicit words of the section, “concurrent original jurisdiction” with the courts of the provinces,—in this case with the Supreme Court of Ontario, in which province the cause of action arose. In such an action, that court would have jurisdiction to try and give judgment upon such a claim as that presented by the third party notice, and it is argued therefore that the Exchequer Court is invested with a like jurisdiction.

We cannot accede to this ingenious argument. The Supreme Court of Ontario has jurisdiction, by virtue of the statutes and rules by which it is governed, to entertain and dispose of claims in what are known as third party proceedings. Claims for indemnity, for example, from a third party, by a defendant in respect of the claim in the principal action against him, can be preferred and dealt with in the principal action. But there can be no doubt that

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the proceeding against the third party is a substantive proceeding and not a mere incident of the principal action. These rules are in essence rules of practice, not of law, introduced for the purposes of convenience and to prevent circuity of proceedings. We think, therefore, that section 30, in virtue of the sub-paragraph mentioned, by which the Exchequer Court possesses “concurrent original jurisdiction * * * in * * * actions * * * of a civil nature * * * in which the Crown is plaintiff,” does not make it competent to the Exchequer Court to deal with the claim in question.

The remaining point concerns the language of sub-paragraph (a) by force of which the Court is given jurisdiction

in all cases relating to the revenue in which it is sought to enforce any law of Canada * * *

We do not doubt that the words “to enforce any law of Canada” would have, standing alone, sufficient scope to include a claim under section 50 of the Bills of Exchange Act. No doubt the principal action is strictly within the words “cases relating to the revenue.” There is also, no doubt, a sense in which the third party claim relates to the revenue since it is a claim to have the third party indemnify the defendant in respect of a debt which the defendant is called upon to pay to the Crown. There is a great deal to be said also on grounds of convenience in favour of investing the Court with jurisdiction to entertain such claims for indemnity. On the whole, however, we think, having regard to the context, that this claim is not within the intendment of sub-paragraph (a).

The appeal should be dismissed with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Powell & Matheson.

Solicitors for the respondent: Brown, Montgomery & McMichael.