[2001] 2 F.C. 288
A-652-99
National Bank of Greece (Canada) (Appellant/ Applicant)
v.
Bank of Montreal (Respondent)
and
Canadian Payments Association (Respondent/ Intervener)
Indexed as: National Bank of Greece (Canada) v. Bank of Montreal (C.A.)
Court of Appeal, Stone, Linden and Evans JJ.A.— Ottawa, December 13, 2000.
Administrative law — Judicial review — Certiorari — Canadian Payments Association panel ordering appellant to pay to Bank of Montreal (BMO) amount of cheque dishonoured as NSF — Motions Judge dismissing judicial review application without first considering applicable standard of review — Standard of review should always be considered by reviewing court before examining administrative tribunal’s decision — Motions Judge should only have asked whether compliance panel’s determination BMO suffered “loss” unreasonable — Did not err in dismissing application — Panel’s conclusion BMO suffered “loss” not unreasonable.
Financial Institutions — Panel of Canadian Payments Association (CPA) finding National Bank of Greece (Canada) breached Association’s Rules in returning into clearing system dishonoured cheque more than day after could have decided whether to honour it — Motions Judge accepting CPA’s argument BMO suffered loss — Should only have considered whether panel’s decision unreasonable — Panel composed of persons understanding system — Statutory rules peculiar to financial institutions, not drawing on general legal concepts — Order not abrogating private law rights — Cheque clearance system undermined by judicial review applications — CPA statutory body to which banks must belong — Court reluctant to interve in “domestic” regulatory scheme.
This was an appeal from a Trial Division decision dismissing an application for judicial review of a decision made by a compliance panel of the Canadian Payments Association (CPA) ordering the appellant, the National Bank of Greece (Canada) (NBG) to pay to the respondent, the Bank of Montreal (BMO), the amount of a cheque that a customer had drawn on the appellant, but which the latter had dishonoured for insufficient funds. The panel found that the NBG had breached section 5 of Rule A4 of the Association’s Clearing Rules in that it had returned into the clearing system a dishonoured cheque more than a day after it was in a position to decide whether to honour it. The Motions Judge dismissed the application for judicial review on the ground that, for the purpose of determining whether the BMO had sustained a “loss” under paragraph 8(2)(d) of Rule A11, it was irrelevant whether the BMO was able to reverse the credit in its customer’s account. He accepted the CPA’s argument that the BMO had suffered a loss. The issue on appeal was whether the panel erred in law when it remedied the breach by making the impugned order.
Held, the appeal should be dismissed.
The Motions Judge denied the application for judicial review of the panel’s decision without first considering the applicable standard of review. The standard of review should always be considered by a reviewing court before embarking on an examination of an administrative tribunal’s decision. Otherwise, if the court were later to conclude that, on the basis of a pragmatic and functional analysis, a deferential standard is appropriate, it would have strayed beyond its proper role, and asked itself the wrong question, namely whether the tribunal’s decision was right. By not determining the standard of review first, a court may unwittingly encumber the administration of a statutory scheme by a tribunal whose decisions are not subject to review for correctness. If the reviewing court concludes that the tribunal’s interpretation of its enabling legislation was correct, this interpretation will be binding on other panels, and thereby deprive the tribunal of the power subsequently to take a different view. On the other hand, if the court concludes that the tribunal was wrong, but not unreasonable, it will be very difficult for the latter to follow its earlier interpretation that has been pronounced by a court on an application for judicial review to be “wrong”, even though not requiring judicial intervention. Accordingly, the proper starting point of the analysis was a consideration of the standard of review applicable to the panel’s interpretation of paragraph 8(2)(d) of Rule A11, under which the panel could make a “restitution” order when a member’s breach of the by-law occasioned a loss to another member.
There were a number of reasons why the Motions Judge should have confined himself to asking whether the compliance panel’s determination that the BMO had suffered a “loss” was unreasonable. First, the panel was composed of three employees of CPA members who had knowledge of the clearance and settlement systems. Second, the issues in dispute concern the interpretation of the enabling statutory framework, which is not “general law” but rules peculiar to a specialized regulatory regime. Third, the impugned order did not supersede whatever private law rights that the appellant may have against the BMO, the payer or payee of the cheque. Fourth, the reasons for the creation of this regulatory scheme indicate that judicial surveillance should be restrained. The expeditious clearance of cheques and transaction settlements might be undermined if one aggrieved by a panel decision could seek judicial review, asking a court to determine de novo the issue decided by the panel. Fifth, the CPA is a statutory body that derives its regulatory powers and duties from federal legislation and to which banks are required to belong. Hence, decisions of the compliance panel of the Association are subject to public law. The “domestic” or “private” aspect of this regulatory scheme indicates that the Court should be more reluctant to intervene than might be appropriate in respect of decisions by a statutory regulatory body of a more external, governmental nature. The Motions Judge did not err in dismissing the application for judicial review. The panel’s conclusion, that the BMO had suffered a “loss” for the purpose of paragraph 8(2)(d) of Rule A11, was not unreasonable. In determining whether a loss had been sustained and restitution should be ordered, the panel was not unreasonable in focussing only on the BMO’s settlement account with the Bank of Canada and on the NBG’s settlement account with its clearing agent, the Royal Bank.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Bills of Exchange Act, R.S.C., 1985, c. B-4.
Canadian Payments Association Act, R.S.C., 1985, c. C-21, ss. 4 (as am. by S.C. 1999, c. 28, s. 111), 5, 8, 9 (as am. idem, s. 112), 18, 19.
APPEAL from a Trial Division decision ((1999), 175 F.T.R. 232) dismissing an application for judicial review of a decision by a compliance panel of the Canadian Payments Association ordering the appellant to pay to the respondent, the Bank of Montreal, the amount of a cheque dishonoured for insufficient funds. Appeal dismissed.
APPEARANCES:
Vassilios Giannis for appellant (applicant).
No one appearing for respondent.
M. Lynn Starchuk for respondent (intervener).
SOLICITORS OF RECORD:
Vassilios Giannis, Montréal, for appellant (applicant).
Meighen Demers LLP, Toronto, for respondent.
Osler, Hoskin & Harcourt LLP, Ottawa, for respondent (intervener).
The following are the reasons for judgment delivered orally in English by
[1] Evans J.A.: The issue in this case is whether a compliance panel set up by the National Clearings Committee of the respondent, the Canadian Payments Association (the CPA), erred in law when it ordered the appellant, the National Bank of Greece (Canada) (the NBG), to pay to the respondent, the Bank of Montreal (the BMO) the amount of a cheque (and interest) that a customer had drawn on the appellant, but which the appellant dishonoured for insufficient funds.
[2] The panel found that the NBG had breached section 5 of Rule A4 (Returned and Redirected Items) of the Association’s Rules, in that it had returned into the clearing system a dishonoured cheque more than a day after it was in a position to decide whether to honour it. The panel’s conclusion that the appellant was in breach of this provision is not challenged in this proceeding.
[3] The question in dispute is whether the panel erred in law when it remedied the breach by making the impugned order pursuant to its power under paragraph 8(2)(d) of Rule A11 (Compliance) to issue
An order requiring the making of restitution to any Member that has suffered a loss as a result of the acts or omissions of a Member under the jurisdiction of the CPA. [Emphasis added.]
[4] The appellant argued that the BMO had suffered no loss because its customer, the payee of the cheque, had funds in its account that enabled the BMO to charge back the credit and thus to recoup from its customer any loss that it would have sustained as a result of initially crediting its customer with the proceeds of the subsequently dishonoured cheque.
[5] The Motions Judge [(1999), 175 F.T.R. 232] dismissed the application for judicial review on the ground that, for the purpose of determining whether the BMO had sustained a “loss” under paragraph 8(2)(d) of Rule A11, it was irrelevant whether the BMO was able effectively to reverse the credit in its customer’s account. The CPA administers the system for the clearing of cheques and the settlement of transactions among member institutions pursuant to the Canadian Payments Association Act, R.S.C., 1985, c. C-21 (the CPAA), and the by-laws and rules enacted by the Association under sections 18 and 19. Any order made by a compliance panel to remedy a breach of the by-laws or rules does not derogate from whatever rights and remedies may be available to the banks, or their customers, under the private law relating to negotiable instruments or to the contractual relationship of banker and customer.
[6] The Motions Judge accepted the CPA’s argument that the BMO had suffered a loss because, as a result of the NBG’s returning the dishonoured cheque through the clearing system, the BMO effectively lost the credit with the Bank of Canada that it had obtained when it credited its customer’s account with the amount of the cheque and put the cheque into the clearance system. Further, he relied on the fact that, by returning the cheque in breach of the Rules, the NBG had gained a credit in its settlement account with its clearing agent, the Royal Bank of Canada. Although named as a respondent, the BMO took no part in the application for judicial review or in the appeal.
[7] A preliminary issue addressed neither by the parties in their memoranda, nor by the learned Judge, is the standard of review to be applied to the panel’s interpretation of paragraph 8(2)(d) of Rule A11. It appears to have been assumed that, if the NBG established that the panel’s interpretation was not correct, then the panel erred in law. When the standard of review issue was raised from the Bench, counsel for the appellant took the position that correctness was the appropriate standard because whether the BMO had suffered a “loss” was a jurisdictional question that the panel had to decide correctly. When counsel for the respondent was invited to address this issue, she argued that the Court should only intervene if it concluded that the panel’s interpretation of the word “loss” was unreasonable.
[8] In our opinion, the standard of review should always be considered by a reviewing court before embarking on an examination of an administrative tribunal’s decision. Otherwise, if the court were later to conclude that, on the basis of a pragmatic and functional analysis, a deferential standard is appropriate, it would have strayed beyond its proper role, and asked itself the wrong question, namely whether the tribunal’s decision was right.
[9] By not determining the standard of review first, a court may unwittingly encumber the administration of a statutory scheme by a tribunal whose decisions are not subject to review for correctness. Thus, if the reviewing court concludes that the tribunal’s interpretation of its enabling legislation was correct, this interpretation will be binding on other panels, and thereby deprive the tribunal of the power subsequently to take a different view. On the other hand, if the court concludes that the tribunal was wrong, but not unreasonable, it makes it extremely difficult for the tribunal to follow its earlier interpretation that has been pronounced by a court on an application for judicial review to be “wrong”, even though not requiring judicial intervention. Moreover, for a reviewing court to start by assuming that its task is to determine the correct meaning of the legislation puts it into the wrong mind set for playing a limited role in the interpretative process.
[10] Accordingly, the proper starting point of the analysis in this case is a consideration of the standard of review applicable to the panel’s interpretation of paragraph 8(2)(d) of Rule A11, under which the panel could make a “restitution” order when a member’s breach of the by-law occasioned a loss to another member. We should add that there was no challenge to the legal authority of the Association under sections 18 and 19 of the CPAA to enact a rule or by-law authorising the panel to order restitution.
[11] For the following reasons, a pragmatic and functional analysis clearly indicates that the Motions Judge should have confined himself to asking whether the compliance panel’s determination that the BMO had suffered a “loss” for the purpose of paragraph 8(2)(d) was unreasonable, even though its decisions are not protected by a privative clause.
[12] First, the panel was composed of three employees of members of the CPA, other than those involved in the dispute. The understanding of the operation of the clearance and settlement systems that the panel members have by virtue of their employment in member financial institutions is relevant to the interpretation of the Association’s Rules, even though the panel seems to exercise an essentially adjudicative function on an ad hoc basis. Moreover, before rendering its decision, the panel held a hearing at which the appellant was represented by counsel.
[13] Second, the issues in dispute concern the interpretation of a provision of the enabling statutory framework under which the panel operates. It is not “general law”, but applies only to the banks, and to other financial institutions that have voluntarily become members of the CPA, when they use the CPA’s clearing system. The statutory rules governing the technical operation of the clearance and settlement systems are peculiar to this specialized regulatory regime, and do not draw upon general legal concepts or values.
[14] Third, while the remedial order in question adversely affected the NBG’s financial interests, it did not supersede whatever private law rights that the appellant may have against either the BMO, or the payer or payee of the cheque. Indeed, as part of his argument for why the appeal should be allowed, counsel for the NBG claimed that the panel’s decision was “sterile” or “absurd” because the appellant could offset whatever it owed by virtue of the panel’s order against what it was entitled to recover from the BMO under the Bills of Exchange Act, R.S.C., 1985, c. B-4.
[15] Fourth, the reasons for the creation of the regulatory scheme governing the clearance of cheques and the settlement of transactions among member banks indicate that judicial surveillance should be restrained. The expeditious and final decision making required for the prompt clearance of cheques, and similar items, within Canada’s banking system, and the settlement of transactions, might be undermined if a party aggrieved by a compliance panel’s decision could bring an application for judicial review to ask the Court to determine de novo the issue in dispute before the panel.
[16] Fifth, the CPA is a statutory body that derives its regulatory powers and duties from federal legislation. In addition, banks are statutorily required to belong to the CPA: CPAA, section 4 [as am. by S.C. 1999, c. 28, s. 111]. Hence, decisions of the compliance panel of the Association are subject to public law.
[17] On the other hand, the CPA is also a self-regulatory body of a vital sector of Canada’s financial services industry, namely the clearance of cheques and similar items among member institutions. Thus, members of the CPA elect the board of directors of the Association, except for one who is nominated by the Bank of Canada: CPAA, sections 8 and 9 [as am. idem, s. 112]. In addition, membership in the CPA is voluntary for financial institutions other than banks, as is the members’ use of the CPA’s clearance system. However, as a practical matter, it is necessary for those offering their customers the benefit of a chequing account to avail themselves of the clearance system.
[18] Accordingly, the “domestic” or “private” aspect of this regulatory scheme, under which, after holding a hearing, panels set up by a committee of the Association interpret and apply rules promulgated by the Association, indicates that the Court should be more reluctant to intervene than might be appropriate in respect of decisions by a statutory regulatory body of a more obviously external, governmental nature. Similarly, the consensual aspects of grievance arbitration in labour disputes, as well as the need for expeditious and final decision making, have led courts to limit the intensity of their review of arbitrators’ interpretations of collective agreements, even though legislation also regulates important dimensions of the process.
[19] In our opinion, the Motions Judge did not err when he dismissed the application for judicial review. However, the basis of our decision is that the panel’s conclusion that the BMO had suffered a “loss” for the purpose of paragraph 8(2)(d) of Rule A11 was not unreasonable. We have reached this conclusion by having regard to section 5 of the CPAA which provides that the objects of the CPA are to establish and administer a national clearing and settlement system. This system operates only at the level of banking and similar institutions, and, as counsel for the appellant conceded, decisions of the compliance panel have no impact on either the private law rights and duties of banks, their customers, and the payers and payees of cheques, or the remedies available to enforce them.
[20] Accordingly, in determining whether a loss had been sustained and restitution should be ordered, the panel was not unreasonable in regarding as irrelevant the relationship, or the state of accounts, between the negotiating bank and its customer, and in focussing only on the BMO’s settlement account with the Bank of Canada and on the NBG’s settlement account with its clearing agent, the Royal Bank. Looked at in that way, it is incontrovertible that, as a result of sending back a cheque through the clearing system in breach of the Rules, the NBG gained a credit, and the BMO incurred a corresponding debit.
[21] For these reasons, the appeal will be dismissed with costs.