Category: Consumer Law

Charities and the debt collection scam

A lawyer colleague forwarded me an email the other day, purportedly from an executive of a large Asian manufacturing company in need of legal assistance collecting bad debts in this jurisdiction. I was not surprised at all to find that the email was from a fraudster seeking to dupe a lawyer into sending money…uh…elsewhere.

I was reminded of my lunchtime conversation with a good friend who runs the charitable giving arm of a particular national disability organization in Toronto. The charity had received a donation cheque for 20,000 GBP in the mail and they were quite pleased and surprised by it. Our lunch date was on the auspicious date of September 11th – perhaps a good or bad omen.

The cheque had arrived without a cover letter and no one in the department had any inkling about its origins. However, it is a small department that reaches out to thousands of potential donors regularly so it may have just been the case that a donor had made use of an unconventional means for giving.

In any event, the charity was thrilled with the donation and deposited it to the appropriate account. As is usual for generous donations the charity reached out to the donor to say thank you.

Things started sounding odd when the erstwhile donor on the other end of the phone said the 20,000 GBP cheque wasn’t actually intended just for that charity, but to be divided up, by the charity, to go to several charities; another charity in Ontario, one in London, England, and one in … wait for it…Nairobi.

I said to my friend it is too bad such a big donation cheque was fraudulent; very disappointing for the charity. He looked rather incredulous and asked why I thought that.

I described to him the basics of the debt collection scheme in which a lawyer is contacted to collect on a debt. The creditor seems to be quite legitimate and armed with invoices and demand letters. The debtor quickly responds to the first demand from the lawyer and sends a certified cheque for the entire amount. On reporting to the creditor client the lawyer is told to take the very generous fees from the funds and immediately wire the balance, usually to an overseas account. Sometime after completing the transaction the lawyer is contacted by the bank and told that the certified cheque was fraudulent, and that the funds transferred overseas are long gone. The lawyer is out of pocket the amount of the funds transferred to the creditor client.

Charities and lawyers are ripe targets for fraud artists, as they have high volumes of funds transfers in and out of their bank accounts from a wide variety of sources making it easy to slide a run-of-the-mill transaction through their offices. By the time the fraud is detected the funds are gone and the money unrecoverable.

I received an email from my friend once he had returned to his office that he had alerted the bank to the possibility that this cheque is a fraud. A week or so later the bank reported back that the cheque was no good, and I felt particularly good about my charitable act of alerting him to the fraud. I wonder if I can get a tax receipt for that.

Is IOS 8 really secure from a search warrant?

September 18, 2014

Gizmodo staff writer Robert Sorokanich, writing about new security features in Apple’s just released IOS 8, says we can feel secure from searches and seizures by U.S. law enforcement of data on our Apple devices running IOS 8. See his article here.

However, reading through Apple’s Legal Process Guidelines to U.S. Law Enforcement at section “I” and Apple’s statement to consumers, I don’t think we should feel any more secure than we did before downloading the new operating system.

Apple’s policy is carefully written, and it is neither emphatic nor unequivocal. The wording of the statement to consumers and of its Legal Process Guidelines avoids use of words like “cannot” or “not possible”, and instead says “not feasible” and that Apple will not possess the encryption key.

From the Legal Process Guidelines to US Law Enforcement Agencies

“For all devices running iOS 8.0 and later versions, Apple will no longer be performing iOS data extractions as the data sought will be encrypted and Apple will not possess the encryption key. ”

Sorokanich cites Apple’s statement to consumers, and here is an excerpt that is problematic:

“So it’s not technically feasible for us to respond to government warrants for the extraction of this data from devices in their possession running iOS 8.”

I don’t equate “not feasible” with “not possible”.

I have reasonable faith that an encryption key, just one more piece of data, can be hacked or otherwise obtained by a motivated law enforcement agency – or someone else, for that matter. And, I think what Apple is saying is that it is unwilling to do the hack, which may be consistent with Apple’s privacy and other policies, but if a law enforcement agency finds another way to obtain an encryption key, I don’t think Apple can resist a valid warrant.

SUMMER’S HERE AND THE TIME IS RIGHT … FOR ENSURING YOUR GUESTS DON’T DO BAD THINGS AFTER DRINKING

People gather socially for all kinds of reasons – graduations, proms, an afternoon by the pool, cottage weekends, birthday parties, weddings, or just an evening with friends. When alcohol is present social hosts may bear responsibility for the acts of guests who are under the influence.

Here we re-visit the May 5, 2005 decision of the Supreme Court of Canada in Childs v. Desormeaux, arising from a terrible set of circumstances in 1999 that left many lives in tatters, and where it leaves social hosts and their imbibing guests now.

THE BACKGROUND: CHILDS v DESORMEAUX
Dwight Courrier and Julie Zimmerman hosted a new year’s party at their home in the Ottawa area on the eve of 1999. It was a B.Y.O.B. event combined with a potluck dinner. The only alcohol provided by the hosts was a part-bottle of Champagne served in small glasses at midnight. The party was otherwise attended by family and friends of the hosts.

Desmond Desormeaux left Courrier’s and Zimmerman’s party after midnight, driving his car, and at about 1:30 a.m. crossed the centre line of the road into oncoming traffic, colliding head-on with a vehicle being driven by Patricia Hadden. One of the passengers in Hadden’s car was killed, and three others were seriously injured, including Zoe Childs. She suffered a spinal injury rendering her a paraplegic. Desormeaux and the two passengers in his car were also injured. Desormeaux entered pleas of guilty to a number of criminal charges arising from the incident and received a ten-year sentence.

Childs sued Desormeaux, and there was really no question as to his liability for her injuries. However, it is common for a plaintiff to spread a wider net in cases like this, to determine whether there was anyone else responsible for the injuries suffered. So Childs sued Courrier and Zimmerman, claiming that as social hosts of the party attended by Desormeaux, they too were liable for her injuries. Eventually the case made it to the Supreme Court of Canada. The question the Supreme Court considered was whether social hosts, who invite guests to an event where alcohol is served owe a duty of care to third parties who may be injured by intoxicated guests.

Chief Justice Beverley McLachlan, for the court, held that as a general rule, such a duty of care does not exist for social hosts. Here’s why.

Desormeaux was known to be a heavy drinker, and at trial he admitted to being an alcoholic for twenty years. His use of alcohol increased significantly after the death of his brother in 1990. His drinking affected his ability to maintain employment, and got him into trouble a number of times, including convictions for impaired driving in 1991 and 1994, and then in 1996 for driving while disqualified. But Desormeaux was adept at concealing his alcoholism, appearing quite cool and calm despite prodigious drinking. He had been a friend of Courrier’s for many years and even roommates for a period of time. Desormeaux and Courrier tended to spend time together watching sports. If Desormeaux was intoxicated, he slept over. Courrier was very familiar with Desormeaux’ drinking habits and conduct. When Desormeaux left the new year’s party after midnight on January 1st, Courrier walked with him to his car, and asked him if he was okay. Desormeaux responded, “no problem”, got behind the wheel and drove away.

While Desormeaux had probably consumed twelve beers at the party, there was never any evidence that Courrier or Zimmerman were aware of the consumption, that either Courrier or Zimmerman had monitored any guests’ intake of alcohol, or that Courrier observed any signs of intoxication on Desormeaux.

The Supreme Court declined to draw the line connecting Courrier’s and Zimmerman’s actions to Child’s injuries because they could not impart foreseeability of Child’s injuries to them. While Courrier and Zimmerman were aware of Desormeaux’ history of alcohol consumption and impaired driving, it did not make impaired driving and the consequent risk to third parties reasonably foreseeable at the time.

WHAT DOES CHILDS v DESORMEAUX TELL US ABOUT OUR GUESTS?
So, are social hosts off the hook when something bad comes from their guests’ drinking? Maybe not.
What happens if one of your guests leaves the party while intoxicated, and while driving, injures or kills someone? This is something none of us should have to think about when we are playing host to friends. After Childs v. Desormeaux, you might think you have nothing to worry about. But you might be wrong.

COMMERCIAL HOSTS
It is common ground now that commercial hosts, bars, restaurants, or any other establishment licenced to sell alcohol, may be held liable for injuries caused by an intoxicated patron who drives. The typical situation is one in which a server at a bar serves a patron alcohol in quantities that cause the patron to become intoxicated. The patron leaves the bar, drives a car, and then is involved in an accident in which a third party is injured. The injured party sues not only the drunk driver, but also the bar, claiming the bar was negligent in allowing the patron/driver to imbibe to the point of intoxication and then leave the bar, while aware of the risk that the patron might drive and cause an injury to a third party. To avoid liability, commercial hosts must monitor the alcohol intake of patrons and take steps to reduce the risk to third parties.

COMMERCIAL HOSTS vs SOCIAL HOSTS
So, how does the Court justify the particularly onerous duty placed upon commercial hosts but not upon social hosts? Chief Justice McLachlan points out three criteria upon which to differentiate the two situations.

First, commercial hosts are in a better position to monitor guests’ alcohol consumption because of server/patron interaction, and because of the desire of the commercial host to be paid for service.

Second, the sale of alcohol by commercial hosts is strictly regulated in law, such that commercial hosts operate in a very different context than social hosts. The regulations impose special responsibilities upon commercial hosts who stand to profit from the supply of alcohol.

Third, the relationship between a commercial host and its patrons is contractual in nature while there is a significant range of relationships that may be in place between a social host and a guest, none of which may be contractual.

In contrast, a person who accepts an invitation to attend a private party does not park his autonomy at the door. The guest remains responsible for his or her conduct, and, generally, social hosts will not owe a duty of care to third parties because proximity and foreseeability cannot be established.

But I’m not so sure that will always be the case.

Chief Justice McLachlan said this: “I conclude that as a general rule, a social host does not owe a duty of care to a person injured by a guest who has consumed alcohol…” Well, everyone knows there is an exception to every rule…and perhaps more than one.

CREATING EXCEPTIONS TO THE RULE
It just so happens the Chief JusticE provided the groundwork for such an exception by saying that while a guest remains responsible for his or her conduct, that “[s]hort of active implication in the creation of the risk, a host is entitled to respect the autonomy of a guest. The consumption of alcohol, and the assumption of the risks of impaired judgment, is in almost all cases a personal choice and an inherently personal activity.”

SOCIAL HOSTS MIGHT BE LIABLE
So, if a social host could be implicated in the creation of the risk, then perhaps a court would find the connecting line, the proximity, between the social host and an injured third party. The foreseeability of the risk to the third party could be imparted to the social host, and liability would follow.

AND HERE’S AN EXAMPLE
In a 2011 decision in the matter of Sidhu (Litigation Guardian of) v. Hiebert, the British Columbia Supreme Court declined to grant a social host’s motion to be let out of a law suit for the reasons set out in Childs v. Desormeaux.

Rattan had hosted the defendant, Hiebert, at a party. A third party, the plaintiff Sidhu, suffered injuries in a motor vehicle accident caused by Hiebert after the party. Evidence indicated Hiebert may have already been drinking before attending Rattan’s party and had more to drink while there. The court noted there was conflicting evidence about what Rattan knew or ought to have known about Hiebert’s sobriety when he drove away from party.

The BC Supreme Court had occasion to consider these principles again in a 2013 decision on a motion brought by social hosts in Lutter v. Smithson. Smithson was a guest at a BYOB party hosted by Glen and Tralee Mazu’s daughter, Brianne. Smithson left the party driving, and shortly thereafter, hit a taxi in which Lutter was a passenger. Lutter was injured. The taxi driver was killed. Lutter sued the Mazus as social hosts for the injuries he suffered.

The Mazus moved to dismiss the claim against them on the principles raised in Childs v. Desormeaux. The court dismissed the motion saying that although it was common ground the Mazus did not serve alcohol to guests, they knew Smithson was intoxicated and the issue existed whether or not the Mazus should have expected Smithson to drive.

Just to be clear, the above two case notes arise from pre-trial motions. What the court did in both cases was confirm that the potential liability of the social hosts would be left to be decided at trial.

So, what does it mean to you at your summertime party? Apart from any moral duty you may feel to safeguard the interests of your guests, your neighbours, and the general public, and recognizing just how terrible you would feel if one of your guests was injured or injured someone else after leaving your party, keep in mind that you just might owe a legal duty of care to a third party your guest might injure. Plan accordingly…but don’t forget to enjoy your party.

Childs v. Desormeaux, [2006] 1 S.C.R. 643
Sidhu (Litigation Guardian of) v. Hiebert, 2011 BCSC 1364
Lutter v. Smithson, 2013 BCSC 119

WHAT DOES “BONDED” REALLY MEAN?

This is a question that comes up regularly in my practice, and probably in your daily life as well. Bonding is a form of insurance against a specific range of events or type of event. While there are a number of different types of bonds, usually through an insurer, what most of us think of when we hear the term is the sign on a contractor’s van that says “bonded and insured”, or a claim in an advertisement for security or cleaning services that all of their personnel are bonded.

FIDELITY BONDING
This type of insurance is often termed fidelity bonding, and it protects a consumer, end user, or employer against losses caused by a dishonest employee. Think of the cleaning service people that come to your home or office; people who have unfettered and unsupervised access to all parts of your home or business. Bonding provides assurance that the employer, or more likely the employer’s bonding agency, has conducted background checks on each employee, that consideration has been given to individual’s employment and criminal history, and that if there is an event of loss that there is compensation available. Coverage limits are typically modest, designed to address opportunistic thefts or frauds that might occur. The real security we receive from this type of bonding is the assurance that it has been done.

CRIMINAL RECORDS
We are often asked whether a criminal record or any involvement in the criminal justice system will impede bonding, and the answer is a firm maybe. When bonding insurance underwriters review background checks of potential employees, if a criminal record exists the insurer will consider how the criminal activity may relate to the protections being offered under the bond. If a person was, for example, convicted of a drinking and driving offence five years ago, not a crime involving dishonesty or trust, there may be no reason not to offer bonding for that person to work as in a commercial cleaning agency. In contrast, a criminal record revealing a fraud or theft would raise warning signals.

The reality is a criminal record is not an immediate bar to bonding. It will just raise red flags that cause the bonding insurer to ask more questions and perhaps recommend further protections to support the bond. Those protections may include ensuring employees never work alone or limiting access to valuable or sensitive environments. In fact, it is just as likely that a non-conviction disposition, a discharge or a peace bond, for example, will raise the same red flags, as will a report of dishonesty from a former employer.

OTHER TYPES OF BONDS
There are other types of bonding. Those include performance bonds, contract/bid bonds, and, well, every other kind of bond.

PERFORMANCE BONDS
Performance bonds protect a consumer, for example a property owner who has contracted with a builder to construct a shopping mall. If the contractor fails to complete the job through bankruptcy or lack of resources, the bond, which should be sufficient to offset the cost of the work, may be drawn on to complete the work. Performance bonds are often called on in commercial construction lien matters.

BID BONDS
Contract/bid bonds, also frequently used in the construction industry, ensure owners that the contractor who is the lowest bidder will enter into the contract at the tendered price. Performance and contract/bid bonds also help the contractor by freeing up resources and credit.

EVERY OTHER KIND OF BOND
Every other kind of bond? Well that may include license and permit bonds, often required for service firms like electricians or real estate agents. License and permit bonds make the business owner liable for injuries or damage caused to the public, somewhat like an indemnification. Customs and excise bonds assure the government that taxes and duties will be paid. Court or litigation bonds are more common in some other jurisdictions, but are slowly creeping into Ontario. They protect a plaintiff against the potential liabilities arising from a loss.
Is it the same as insurance? Even though bonding is a type of insurance and is underwritten by insurers, it is not what we would typically think of as insurance.

Bonding is often described as an insurance contract in which an insurer guarantees payment to an employer in the event of an unforeseen financial loss through the actions of an employee. It is a balancing of risk management – putting procedures and safeguards in place – and a guarantee of reimbursement.

Insurance, in contrast, covers liability issues that may arise in the course of work. For example, in the case of a performance bond, if a worker falls from a scaffold and is injured, insurance will be called upon to provide compensation for losses and damages that in some circumstances may get into millions of dollars, whereas the bond would not be called upon unless the fall prevented completion of the work, and the payout from the bond would be limited to the coverage limit or the cost of the balance of the work.

As Sergeant Esterhouse would say, “be careful out there.”

(This is an update of a post on bonding I wrote last year for Mills & Mills LLP. There is lots of other good information there from some great lawyers)