The Quebec Court of Appeal (the "Court") recently allowed an appeal touching on a facet of banking law that is infrequently unpacked by the courts: the liability of a bank when a client is the victim of fraud. In Djamad v. Royal Bank of Canada ("Djamad"), the Court dealt with the impossibility for a bank to invoke and rely upon a verification clause (a common exclusion of liability clause found in retail banking contracts) in the context of wire fraud. This marks a rare occasion that the Court reckoned with Article 1474 of the Civil Code of Quebec (the " CCQ"), which disallows a party from relying upon an exclusion of liability, within the context of retail banking.
In Djamad, the appellant sought to reverse the decision of the lower court which did not find the bank liable for damages caused by two fraudulent wire payments totaling $105,000 that were transferred out of his account with said institution. These funds were successfully wired by the malicious actor(s) to a third party account abroad. The appellant alleged at trial that these fraudulent transfers occurred as a result of gross negligence on the part of the bank and thus sought damages to that effect. The trial judge dismissed the action on several grounds, being that the action was prescribed, that the appellant's credibility was lacking, that it was entirely possible that he was the one who actually made the transfers, and finally, that the bank was exonerated due to the verification clause in the contract. This clause provided that the bank would not be liable for errors in a client account if not reported by the client within 45 days of the statement in which it appeared.
The appeal ultimately came down to the lower court's finding that the verification clause applied due to the absence of gross fault on the part of the bank. In the case at bar, the fraudulent transfers were reported several years after their occurrence, thus activating the verification clause (according to the trial judge and the bank). However, the Court found that contrary to the lower court's position, the clause could not apply on these specific facts in light of a gross fault, pursuant to article 1474 of the CCQ.
The Court found that the lower court erred in two ways in treating the existence of a gross fault. First, the Court held that the trial judge erroneously based her appreciation of the lack of a gross fault on an incorrect inference that the appellant could have been the one who made the transfer. Second, the bank was incapable of demonstrating that it was in fact the appellant who wired the funds in question. This evidentiary hurdle for the bank coupled with the Court's assessment of the bank's diligence in following its policies resulted in a finding of gross fault. Therefore, the verification clause which excluded the bank's liability was found to not be available to the bank.
Djamad v. Royal Bank of Canada, 2021 QCCA 371
Docket: 500-09-028122-190 (500-17-081864-145)
Date of Decision: March 1, 2021
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