Debt. Canadian Imperial Bank of Commerce v. Canada
In Canadian Imperial Bank of Commerce v. Canada (Fed CA, 2021) the Federal Court of Appeal, as part of a decision as to when a bank is subject to GST/HST in it's credit card operations, sets out an interesting and useful description of a typical credit card operation:
B. A typical Visa transaction. Royal Bank of Canada v. Rastogi
 A typical transaction using a Visa credit card and the Visa payment system involves the cardholder, who uses a Visa credit card to pay for goods or services; the merchant, which accepts the Visa credit card as payment; the issuer (here CIBC), which issued the Visa credit card to the cardholder and provides the cardholder with credit; the acquirer, which entered into an agreement with the merchant to accept Visa credit cards as payment; and Visa, as operator of the Visa payment system.
 When the cardholder presents the Visa credit card to the merchant as payment, an authorization request is sent electronically from the merchant to the acquirer, and almost simultaneously from the acquirer to Visa and from Visa to the issuer. The issuer (or, in some cases, a third party to which the issuer has outsourced the approval function) checks the cardholder’s available credit, and returns either an approve or a decline message to Visa. The message is transmitted almost simultaneously from Visa to the acquirer and from the acquirer to the merchant. The authorization process takes but a second or two, and Visa processes approximately 65,000 transactions per second.
 If the purchase transaction is authorized and completed, the merchant transmits a transaction record to the acquirer, ordinarily as part of a file transmitted daily with records of other transactions. The acquirer then sends it to Visa, which sorts the records by issuer, and advises each issuer of the net daily settlement amount payable. This comprises the amounts charged on the Visa credit card less interchange fees (fees payable by the acquirer to the issuer) and chargebacks (amounts reflecting the issuer’s reversal of a transaction – for example, for fraud). The issuer then sends the net settlement amount to Visa by paying it into the settlement bank account Visa has designated (in this case, an account with Scotiabank). Visa then pays out of this account to each acquirer the settlement amount the acquirer is owed. Each acquirer in turn pays each of its merchants the net amount the merchant is owed, taking account of fees payable. Finally, the issuer includes the amount payable by the cardholder on the cardholder’s monthly statement, and collects payment, plus any applicable interest, from the cardholder.
 Where an acquirer disputes a chargeback, the dispute is subject to rules and a dispute-resolution process established by Visa. Visa will also sometimes stand in to authorize transactions on an as-needed basis when the system of an issuer (or third party processor) is temporarily non-operational. These stand-in authorizations are subject to parameters communicated to Visa by the issuer.
C. Risks and indemnities
 Under the Visa rules, Visa is exposed to a variety of risks. One of these is settlement risk. Visa indemnifies its customers for any settlement loss suffered as the result of another customer’s failure to fund its daily settlement obligations. Visa may indemnify customers on this basis even where a transaction is not processed on the Visa system.
 In its annual report (Form 10-K) for 2009 filed with the United States Securities and Exchange Commission (Public Appeal Book, Vol. III, Tab K4, p. 964), Visa explains that "“[t]his indemnification creates settlement risk for [it] due to the difference in timing between the date of the payment transaction and the date of subsequent payment. The term and amount of the indemnification are unlimited.”" It goes on to state that concurrent settlement failures by customers, or systemic operational failures that last more than one day, could expose it to significant losses and materially affect its financial condition.
 To manage its exposure to settlement risk, Visa maintains a credit risk policy that contains credit standards and risk control measures. These include regular evaluation of customers to which it has significant exposure, and a variety of potential remedial actions up to and including terminating the right of participation in the system.
 According to the notes to its 2009 financial statements, Visa’s estimated maximum settlement risk exposure as of September 30, 2009 was approximately US$41.8 billion, of which US$3.7 billion was covered by collateral. As of the same date, the estimated probability-weighted fair value of the settlement risk guarantee was less than US$1 million. The evidence in the Tax Court was that Visa Canada has never had to make any payments on the settlement indemnity, and that Visa Inc. has incurred no material loss related to settlement risk in recent years.
 Other risks to which Visa is exposed are sovereign risk, foreign exchange risk, and merchant risk. Sovereign risk is the risk from operating in countries whose financial institutions are of questionable solvency. Foreign exchange risk arises from settling in multiple currencies, which in turn requires maintaining a large foreign exchange position all over the world.
 Merchant risk is the risk that, after the cardholder has made a valid purchase using a Visa credit card, the merchant will become insolvent and fail to provide the purchased goods or services. In these circumstances, Visa would indemnify the cardholder by not charging the issuer for the goods or services. For this reason, Visa’s risk management division actively monitors financially distressed merchants, consults with their acquirers, and may require the acquirers to post collateral. There was evidence before the Tax Court that concern about merchant risk, including the need for indemnification, was the main reason why Visa and its competitor MasterCard started up: their systems relieved individual issuers from the need to assess and monitor the credit-worthiness of merchants who were unknown to the issuer and might be located anywhere in the world. Like the settlement risk indemnity, Visa also provides this indemnity even in cases where the transaction is not processed on its system.
 While under the Visa rules it is the issuer or acquirer, and not Visa, that bears responsibility for fraud risk, Visa analyzes and responds to fraudulent transaction activity on an ongoing basis. Issuers and acquirers must agree to follow Visa-specified anti-fraud requirements and controls.
D. Benefits to CIBC
 Participation in the Visa payment network provides CIBC with a variety of benefits, in addition to the indemnities and controls just discussed.
 One obvious benefit is that CIBC earns revenue from its Visa credit card business. It does so in three principal ways. First, it earns net interest income to the extent that the interest it charges customers who do not pay their monthly credit card bills exceeds its cost of funding these receivables. Second, it earns interchange fees from acquirers, based on a percentage of purchases made with CIBC-issued Visa credit cards. Visa establishes default interchange rates, which CIBC has adopted, though CIBC is (like other issuers) free to negotiate its own rates. The third source of revenue is the annual fees charged to cardholders.
 Apart from serving as a source of revenue, the Visa payment system benefits CIBC by making it possible for merchants to trust that they will always be paid for goods and services charged to a Visa credit card. Absent this trust, merchants would not accept, and CIBC’s customers would not be able to use, Visa credit cards in payment for goods or services. The Visa rules also protect CIBC, through the chargeback mechanism, from having to fund purchases of goods and services that the merchant fails to provide.
 CIBC and other issuers also derive benefits from the Visa brand, which leads cardholders to trust and recognize the utility of the card and the ability to use it around the world.
In Royal Bank of Canada v. Rastogi (Ont CA, 2020) the Court of Appeal considered and dismissed an appeal against two banks that seized funds of an account-holder without authorization (they had only started a lawsuit). The underlying motion was brought under CJA 104(1) [recovery of possession of personal property], but the court converted the motion to one for summary judgment and granted to account-holder's sought relief:
The Nature of the Motion. Dutchmaster Nurseries Inc. v. Jerome Van Vliet
 Rastogi’s motion was brought under Rule 44. That rule applies to a motion for an “interim order” made under s. 104(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43. That section provides:
In an action in which the recovery of possession of personal property is claimed and it is alleged that the property, Section 104 and Rule 44 speak of recovery of possession of “personal property”. That phrase is not defined in the Act or in Rule 44.
(a) was unlawfully taken from the possession of the plaintiff; or
(b) is unlawfully detained by the defendant,
the court, on motion, may make an interim order for recovery of possession of the property. [Emphasis added.]
 A credit in a customer’s bank account is treated as a debt owed by the banker to the account holder. The relationship between the bank and the account holder is one of debtor and creditor: BMP Global Distributions Inc. v. Bank of Nova Scotia, 2009 SCC 15 (CanLII),  1 S.C.R. 504, at para. 63. Although RBC Direct is not a bank, I see no reason to treat credits in the RBC Direct accounts any differently. Those credits represented a debt owed by RBC Direct to Rastogi.
 The language of s. 104 of the Courts of Justice Act and, even more so, the language of Rule 44, suggest that “personal property” means property that is tangible and capable of physical description. The security requirements addressed in rule 44.03 suggest the same interpretation. On this interpretation a debt would not constitute “personal property” for the purpose of Rule 44.
 It is unnecessary for me to come to any firm conclusion as to whether a debt is included within the phrase “personal property” in s. 104 and Rule 44. Even if the section and the rule could have application to a debt, Rastogi was not seeking an interim order for possession of property, and was not offering to post any security. Rastogi wanted the release of his funds plain and simple. The order made by the motion judge reflects the nature of the relief sought. There is nothing interim about the relief ordered by the motion judge. The relief granted was not available under Rule 44.
Should Summary Judgment be Granted on Rastogi’s Claim to the Funds held by RBC Direct and TD?
 Rastogi’s claim to the funds in RBC Direct and TD is straightforward. The credit in those accounts represents debts owed to him by RBC Direct and TD. He has demanded payment. Neither RBC Direct nor TD advanced any claim against Rastogi, much less a claim that would give rise to any right of set off. Counsel for Rastogi submits that RBC does not, merely by commencing a lawsuit in which it claims a right to the funds, acquire any right to unilaterally prevent Rastogi from obtaining those funds. Counsel contends that, absent a court order, RBC was not entitled to preemptively interfere with Rastogi’s rights in respect of his accounts at RBC Direct and TD.
 RBC’s claim that the funds should not be released to Rastogi rests on the assertion that the material filed on the motion demonstrates that RBC has an arguable claim to a restitution order with respect to the funds. RBC asserts that its remedy goes beyond damages and that the funds in those accounts in fact belong to RBC. The restitutionary claim is based on either a constructive trust flowing from Rastogi’s breach of his duties to RBC, or on RBC’s mistaken payment of the funds into Rastogi’s accounts at RBC. RBC maintains that its arguable restitutionary claim, combined with the uncontroverted evidence that some of the proceeds of the currency trading are in the accounts in issue, is enough to give RBC a valid interest in those funds and create what counsel called a “interpleader situation” as between RBC and Rastogi.
 RBC’s position confuses its undenied right to pursue its restitutionary claims and any right it has to unilaterally deprive Rastogi of his property while RBC pursues its restitutionary claim. The fact that RBC has an arguable case would certainly preclude Rastogi from obtaining summary judgment on RBC’s restitutionary claim. The mere fact that RBC has an arguable restitutionary claim, however, does not give it any right to interfere with Rastogi’s property pending a determination of the merits of that claim.
 RBC’s restitutionary claim comes down to the assertion that the funds in Rastogi’s accounts at RBC Direct and TD belong to RBC and not to Rastogi. If RBC had concerns about the disputed property disappearing before trial, it could have sought an interlocutory injunction. Had RBC chosen to do so, however, it would have been required to show more than an arguable case before it could obtain an order freezing those accounts. Under the well-known tripartite test in RJR MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC),  1 S.C.R. 311, RBC would have been required to show:
• An arguable case (serious issue to be tried); RBC cannot escape the tripartite test for injunctive relief because the nature of the property in issue has permitted RBC to unilaterally achieve a de facto injunction without a court order. Surely RBC would not argue that it was entitled to go into Rastogi’s garage and unilaterally seize his vehicles and hold them until trial if it had an arguable case that the vehicles were purchased with the proceeds of the currency trading. I do not see how RBC’s legal position is improved because the assets in issue are debts owed to Rastogi by another bank and an affiliate of RBC.
• Irreparable harm if injunctive relief was not granted;
• The balance of convenience favoured injunctive relief.
 For whatever reason, RBC has not sought an interlocutory injunction in the two years since it started this action. RBC is not entitled to what would effectively be an interlocutory injunction merely by showing that its allegations, including those related to his restitutionary claims raise arguable issues. On the motion record, Rastogi’s entitlement to the funds vis-à-vis RBC Direct and TD is undeniable. He is their creditor. RBC’s entitlement to the funds is contingent upon RBC establishing the merits of its claim.
 Any entitlement RBC has to freeze Rastogi’s accounts pending trial is not improved merely because RBC Direct is a subsidiary of RBC. RBC accepts that the credit in Rastogi’s RBC Direct accounts constituted a debt owed by RBC Direct. While the relationship between RBC Direct and RBC permitted the latter to freeze Rastogi’s accounts by what counsel for RBC referred to as an “internal demand”, the subsidiary status does not make the debts of RBC Direct debts of RBC. The two are separate corporate entities. RBC cannot claim any right to set off of a debt owed by RBC Direct to Rastogi against a debt owed by Rastogi to RBC.
 I also agree with the motion judge’s interpretation of s. 437(2) of the Bank Act. That section gives TD the right to hold the funds in Rastogi’s account that it would otherwise be obligated to pay on demand to Rastogi. That right is triggered by RBC’s claim in which it names TD as a defendant. Section 437(2) does not give RBC any rights in respect of the funds in Rastogi’s TD account or inhibit the court’s power to make orders directing payment of funds out of those accounts.
 For the reasons set out above, RBC has offered no legal basis upon which either RBC Direct or TD can withhold the funds held by them to the credit of Rastogi. There are no issues requiring a trial in respect of Rastogi’s entitlement to those funds. Rastogi is entitled to summary judgment on his counterclaim to the extent that the claim seeks judgment directing the return to him of all funds held in Rastogi’s accounts at RBC Direct. He is similarly entitled to judgment on the crossclaim to the extent that he seeks judgment directing that TD release all funds in Rastogi’s joint account to him.
In Dutchmaster Nurseries Inc. v. Jerome Van Vliet (Div Ct, 2020) the Divisional Court dealt with a case of 'contra' accounts:
 The trial judge found that High Spruce Farms and Nurseries had reached a “contra” agreement, in which the parties agreed to offset invoices with products. ...