Does such a duty of care conflict with a bank's duty of
confidentiality to its customer. These issues were discussed in Grossman v. Toronto-Dominion
Bank, a 2014 Ontario Superior Court of Justice decision.
A group on investors commenced an action against the bank. In
their statement of claim, they alleged that
1. The bank knew
that its customer, a group of related corporations, had been kiting
cheques and ultimately were in a $7 million overdraft position with
the bank. The bank had frozen the customer's accounts.
2. The customer
started to raise funds, via the investors. It issued cheques to its
investors to repay prior indebtedness and received cheques from the
investors as further financing. Unfortunately, the investors'
cheques cleared, but the customer's cheques bounced.
3. The money
that the customer received was used to pay down its debt to the
4. The bank knew
or was wilfully blind to the fact that the investors had no
knowledge of the customer's kiting and dishonesty and the bank
knew or ought to have known that the investors would never have
advanced funds had they known.
The bank moved to dismiss the action. The bank claimed that it
was plain and obvious (which is the legal test) that the action
disclosed no reasonable cause of action. For purposes of this
motion, the court must assume that all of the facts pleaded in the
statement of claim are true.
The bank argued as follows:
1. If a bank
knows of fraudulent activity by its customer, it owes a duty to the
customer's victim to the extent of closing the customer's
accounts or reporting the fraud to the police.
However, it owes no duties to disclose its concerns to the
customer's victims, even if those victims are also the
2. The court
should not recognise a duty of care to disclose because
a) it would
conflict irreconcilably with the bank's duty of confidentiality
to its customer and
obligate the bank to subordinate the bank's own interests to
The judge held that the recognition of a duty of care would not
"create the spectre of unlimited liability to an unlimited
class." Rather, the class was defined as existing
customers of the bank. The judge also noted that previous cases had
held that the bank's duty of confidentiality is not absolute. A
bank must still disclose information to protect interested persons
or the public against fraud. He quoted with approval from another
judgment, stating "It seems to me inconceivable that an
honest banker would ever be willing to do business on terms
obliging the bank to remain silent in order to facilitate its
customer in deceiving a third party."
Based on these finding, the judge concluded that it was not
"plain and obvious" that the investors claims as pleaded
stood no reasonable prospect of success. The judge dismissed the
motion. The action could continue.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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