By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed bank yesterday overturned a $115,489 damages award “to escape liability” related to the alleged theft of pension contributions made on behalf of staff at a Freeport-based resort.

Fidelity Bank (Bahamas) persuaded the Court of Appeal to reject the initial Supreme Court verdict on the basis that the cheques and bank drafts in the scheme were “void” under the Bills of Exchanges Act because they had been materially altered without permission by the person who perpetrated the alleged fraud.

Now-retired justice Jon Isaacs, in a unanimous verdict, detailed that the monies involved were pension contributions made on behalf of staff at the Ocean Reef Resort & Yacht Club, which was owned by Geltex Trading Corporation.

The funds were paid into an account at Fidelity Bank (Bahamas), from where they would be transferred to its then affiliates, Fidelity Merchant Bank & Trust and Fidelity Pension & Investments, to be managed and administered on the staff’s behalf.

“Between October 24, 2009, and June 12, 2014, the respondent [Geltex] prepared and signed 66 uncrossed cheques drawn on its account with CIBC FirstCaribbean International Bank (Bahamas), made payable to [Fidelity] without any instructions on the face of the cheques as to the purpose of the payments or the account(s) to which the funds were to be credited, the memo line on the face of the cheques having been left blank,” the Court of Appeal noted.

It added that Daviea Armbrister-Carroll, the Ocean Reef’s accounts manager, who also had a personal account with Fidelity Bank (Bahamas), received the “uncrossed cheques” with the task of endorsing them and ensuring they were deposited to the bank as pension contributions.

“Ms Carroll produced the cheques to the appellant for deposit to the account she had at the appellant’s [Fidelity] Freeport branch. Ms Carroll had endorsed her account numbers on the cheques ostensibly without the respondent’s consent. The appellant deposited the funds received from FirstCaribbean with respect to the cheques in accordance with the instructions endorsed on them by Ms Carroll,” the Court of Appeal said.

“Between August 4, 2011, and June 28, 2012, the respondent provided Ms Carroll with 15 FirstCaribbean banker’s drafts made payable to the appellant without any instructions on the face of the banker’s drafts as to the purpose of the payments or the account(s) to which the funds were to be credited, the memo line on the face of the banker’s drafts having been left blank by the respondent [Ocean Reef].

“Between August 4, 2011, and June 28, 2012, Ms Carroll presented the appellant with the 15 uncrossed banker’s drafts made payable to the respondent and endorsed as being payable to Ms Carroll’s account(s) with the appellant’s Freeport branch, ostensibly without the respondent’s assent.

“The appellant deposited the funds received from FirstCaribbean with respect to the banker’s drafts in accordance with the instructions endorsed on them by Ms Carroll.” Ocean Reef and its parent initiated legal action against Fidelity Bank (Bahamas) in 2015 over these events, with the Supreme Court finding the latter liable. Ms Armbrister-Carroll never faced a criminal conviction for her alleged actions, according to its ruling.

However, Fidelity Bank (Bahamas) and its attorney, Khalil Parker KC, the Bahamas Bar Association’s president, successfully persuaded the Court of Appeal that the BISX-listed institution could “escape liability” based on section 64 of the Bills of Exchange Act which stipulates that instruments such as cheques become void and invalid if “materially altered without the assent of all parties liable on the bill”.

“The appellant argues that the cheques were materially altered when Ms Carroll altered the payee’s name,” the Court of Appeal said of Fidelity Bank (Bahamas) case. “In this case, the payee’s name was not in fact altered. The payees were always the appellant. Ms Carroll did not sign, but simply placed her personal account number at the back of the cheques.

“The appellant collected the cheques made payable to itself and deposited it in Ms Carroll’s account. Counsel for the appellant argues that by endorsing the cheque with her account number, Ms Carroll materially altered the cheques and bank drafts and therefore the appellant is not liable as it would have been if there was no alteration.”

Backing this argument, the appeal justice Isaacs said of the original Supreme Court verdict: “In my judgment, the judge erred in her assessment of the materiality of the alterations to the instruments in question. The handwritten account numbers, endorsed by Ms Carroll on the reverse side of the cheques and bank drafts, constituted material alterations within the meaning of section 64(1) of the Bills of Exchange Act.

“This provision stipulates that a bill materially altered without the assent of all parties liable is void, except for those who made, authorised or consented to the alteration. The handwritten account numbers materially altered the legal effect of the instruments by redirecting proceeds to an account unauthorised by the respondent [Ocean Reef], thereby compromising their integrity and validity.

“The respondent failed to provide evidence of its account mandate with the collecting bank, which was crucial in determining whether the funds were deposited in accordance with the payer’s instructions....  Consequently, the cheques were rendered void under section 64(1) of the Bills of Exchange Act, and the appellant cannot be held liable for conversion or for ‘money had and received’ in relation to these instruments.”

The Court of Appeal added that Fidelity’s “argument that the cheques were reduced to worthless pieces of paper holds merit. The material alteration to the payee’s name fundamentally undermined their validity, and any subsequent dealings with them could not confer legal rights or obligations....

“The bank’s handling of the altered cheques, though potentially negligent in failing to identify the alteration, does not change the fundamental fact that the cheques were void.... Accordingly, I am satisfied that the alterations were both material and unauthorised, rendering the instruments void under section 64(1) of the Bills of Exchange Act, and the grounds of appeal are upheld.”