Who Bears the Loss When a Cybercrimal Diverts Funds?

The Issue

What happens when two innocent parties to a settlement agreement are victims of cybercrime resulting in settlement funds being misdirected to a fraudster? The recent Ontario Small Claims Court decision St. Lawrence Test & Inspection Co. Ltd v. Lanark Leeds Distribution Ltd. And Mark Schokking, 2019 CanLII 69697 (ON SCSM) (“St. Lawrence“) considered this issue. As Kelford, DJ succinctly states:

The Plaintiff and Defendant were both innocent victims of a “cybercrime” which resulted in the loss of funds which were paid by the Defendants to settle the Plaintiff’s claim. Both parties are innocent. Unfortunately, one of them must bear the loss.

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