A B.C. court has set aside an order for a local frozen-fruit packing company to pay nearly $377,000 ahead of an upcoming trial.
The original prejudgment garnishing order was intended to force B.C. Frozen Foods Ltd. (BCFF) to pay the potential sum of a judgment against it in a lawsuit filed by California supplier Rigby Foods Inc.
The American supplier argued the Mission, B.C., company owed hundreds of thousands of dollars in unpaid invoices.
Funds from the garnishing order would have been held by the court until the point of judgment.
But BCFF successfully argued the pre-judgment order was based on an affidavit by Rigby Foods that failed to adequately outline the plaintiff’s own potential role in the unpaid invoices: Alleged fraud resulting from an email hack for which BCFF pins the liability on Rigby Foods.
Rigby Foods began supplying frozen fruit to BCFF in the spring of 2020. BCFF had made orders adding up to at least US$2.5 million by June 2021, according to the B.C. Supreme Court decision, penned by court master John Bilawich.
Included in the invoices is a warning: “Please note WE NEVER CHANGE OUR BANK ACCOUNT WITHOUT PHONING YOU!!!”
Rigby Foods reportedly issued seven invoices of US$45,000 to US$55,000 each between Aug. 5 and Aug. 19 in 2021.
Rigby Foods began notifying BCFF by September that it would be changing its payment details, as its bank was merging with another, according to the decision.
However, Rigby Foods president Marianne Rigby noted on Sept. 9 that the seven invoices should be paid using the existing bank details.
But a few days later, using a slightly modified variation of the president’s email address, a fraudster accessed the email chain and provided new wire payment instructions.
BCFF paid the seven invoices to the fraudster’s accounts, according to the decision.
The ensuing month would then see the two companies trying to reconcile their differing records of which invoices had and hadn’t been paid, as the fraudster continued to impersonate both Rigby and a BCFF employee, further confusing the matter, Bilawich noted.
By Oct. 16, the two parties came to realize that fraud had occurred. But Bilawich said each company claims the other was liable for the fraud. Each company retained its own cybersecurity or IT experts, who found they were unlikely to be the target of a hack.
BCFF claims it later learned from multiple people in the industry that Rigby Foods’ email system had been hacked in the past and that another customer wound up paying a fraudster.
According to Rigby, Rigby Foods fell victim to a phishing attack in 2018, but it was discovered early and nearly all funds were recovered.
Rigby Foods authorized the release of the remaining containers of food to BCFF on Oct. 27, even though the two parties hadn’t come to an agreement about who was responsible for the fraud, according to Bilawich.
At the same time, Rigby Foods reportedly demanded payment for the seven invoices, while BCFF claimed it had made payments, and even if it was to a fraudulent account, there was no outstanding balance.
The companies engaged in settlement discussions and BCFF made a payment of an unspecified amount to Rigby Foods. Rigby Foods ultimately filed a lawsuit in June 2022 and was granted the garnishing order shortly thereafter.
But BCFF filed an application to set aside the order, noting that Rigby Foods’ affidavit to secure the order failed to disclose that there was a dispute over whether it owed any debt at all and which party was responsible for the hack.
BCFF argued its counterclaim would either defeat or offset the claim by Rigby Foods, and as such, the garnishing order should not be enforced.
BCFF also argued it has the financial means to pay damages to Rigby Foods in the event of the latter company’s success, as it works with about $65 million of product each year.
Bilawich accepted BCFF’s arguments that it had an arguable defence or claim to offset Rigby Foods’ claims and ordered that the garnishing order be set aside.