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Torts - Negligence - Proximity (2)

. McDonald v. Toronto-Dominion Bank

In McDonald v. Toronto-Dominion Bank (Ont CA, 2022) the Court of Appeal considered at length the negligence principle of proximity:
[39] In Livent, the court acknowledged that in the past it had on occasion defined established categories of proximity in broad terms but warned that “[p]roximate relationships will not always … be identified so generally”: at para. 27. Depending on the nature of the relationship, a relationship of proximity may only inhere for “particular purposes or in relation to particular actions”: Livent, at para. 27; Maple Leaf, at para. 30.

[40] Indeed, courts are cautioned to “avoid identifying established categories in an overly broad manner because … residual policy considerations are not considered where proximity is found on the basis of an established category”: Livent, at para. 28. Accordingly, courts are advised to “be attentive to the particular factors which justified recognizing that prior category in order to determine whether the relationship at issue is, in fact, truly the same as or analogous to that which was previously recognized”: Livent, at para. 28; Maple Leaf, at para. 65. Similarly, courts are advised, at para. 28 of Livent, to look beyond the mere identity of the parties:
… [A] finding of proximity based on a previously established or analogous category must be grounded not merely on the identity of the parties but upon examination of the particular relationship at issue in each case.
[41] Considering whether a relationship fits within an established or analogous category also involves considering “the scope of activity in respect of which proximity was previously recognized”: Livent, at para. 52. The reason that the scope of activity is significant is that “the proximity analysis not only determines the existence of a relationship of proximity, but also delineates the scope of the rights and duties which flow from that relationship”: Livent, at para. 31 (emphasis in original).

[42] The Supreme Court affirmed these principles in Maple Leaf, reiterating at para. 65, that “[m]erely because particular factors will support a finding of proximity and recognition of a duty within one aspect of a relationship and for one purpose to compensate for one kind of loss does not mean a duty will apply to all aspects of that relationship and for all purposes and to compensate for all forms of loss.” Thus, “to ground an analogous duty, the case authorities relied upon by the [plaintiff] must be shown to arise from an analogous relationship and analogous circumstances” (emphasis added).

[43] Thus, Livent and Maple Leaf signal that broad categories based merely on the identity of the parties are insufficient. Rather, to find a relationship of proximity, a more particularized approach is required, especially where it comes to cases of pure economic loss.

[44] Turning to this case, the trial judge correctly recognized that the mere fact that proximity has been recognized as existing in a bank-customer relationship for one purpose is insufficient to conclude that proximity exists between the same parties for all purposes. She detailed prior cases in which banks had been found to owe duties to customers with respect to the opening and ongoing operation of bank accounts and explained why they were distinguishable. She found that the Joint Liquidators were seeking to impose a novel duty of care and so a full proximity analysis was required:
At its essence, the Joint Liquidators are seeking to impose a duty of care to protect the bank's customer from insider abuse. They submit that at some point, the risk of insider abuse increased to such a level that the bank had a duty to review the relationship, shut down the account, and cease providing services to the customer.

The Joint Liquidators have not presented the court with any case that establishes a duty of this nature. As noted above, all of the cases that have imposed a duty of care on a bank relate to basic procedures on account opening and operational matters during the course of the banking relationship.

What the Joint Liquidators are proposing is a novel duty of care and one that requires a full proximity analysis under the Livent framework.
[45] The Joint Liquidators take issue with the trial judge’s conclusion that the proximate relationship in this case is novel, and her discussion of proximity in terms of a duty “to protect the bank’s customer from insider abuse”, which they say amounts to conflating duty and standard of care. In their submission, the relationship between TD Bank and SIB is at the very least analogous to prior cases recognizing a proximate relationship between a bank and its customer: Toronto-Dominion Bank v. 1633092 Ontario Ltd., 2019 ONSC 1473, at para. 80; Dr. Robert Grossman v. The Toronto-Dominion Bank, 2014 ONSC 3578, at para. 31; Toronto Dominion Bank v. Whitford, 2020 ABQB 802, at para. 133.

[46] I recognize, as did the trial judge, that there are a number of cases, including the three cited by the Joint Liquidators, where banks have been found to owe duties to their customers: Lee v. Canadian Imperial Bank of Commerce, 2001 CarswellOnt 3019 (S.C.), at para. 25; Good Mechanical v. Canadian Imperial Bank of Commerce (2005), 49 C.L.R. (3d) 183 (Ont. S.C.), at para. 34; Don Bodkin Ltd. v. Toronto Dominion Bank (1993), 1993 CanLII 8512 (ON SC), 14 O.R. (3d) 571 (Gen Div.), aff’d (1998) 1998 CanLII 1101 (ON CA), 40 O.R. (3d) 262 (C.A.), at para. 24; Oak Incentives Group Inc. v. Toronto Dominion Bank, 2011 ONSC 3245, at para. 80, aff’d 2012 ONCA 726.

[47] However, like the trial judge, I disagree with the Joint Liquidators that there is an all-encompassing category of proximity between banks and their customers in relation to “banking services”. This broad characterization is at odds with the Supreme Court’s admonition in Livent and Maple Leaf to look beyond the mere identity of the parties.

[48] To accept such a broad category would be to ignore that banks undertake an extremely broad range of different activities for very different purposes: banks cash cheques, transfer funds, prepare bank drafts and issue certified cheques, offer bank accounts, issue credit cards, underwrite mortgages, exchange currency, offer investment products and advice, provide safety deposit services, and a host of other “banking services”. Therefore, to define the relationship of proximity as simply that of a “bank-customer” relationship is to ignore the reality that banks and their customers are not engaged in a one-size-fits-all relationship.

[49] Furthermore, I agree with the trial judge that this case is unlike prior cases where banks have been held to owe duties to their customers in carrying out a range of different activities for different purposes, for example, securing loans (1633092 Ontario Ltd., at para. 80), executing bank drafts (Good Mechanical, at para. 34), responding to customer inquiries (Oak Incentives, at para. 80), following customer instructions (Don Bodkin, at para. 24) and cashing cheques (Dr. Robert Grossman, at para. 31). None of these cases establish that a bank has a proximate relationship with a client that extends to monitoring the client for the purpose of detecting internal fraud.

[50] This case is different than prior authorities that suggest that a bank may be liable to a customer where the bank fails to question suspicious banking transactions: see, for example, Groves-Raffin Construction Ltd. v. Canadian Imperial Bank of Commerce (1975), 1975 CanLII 912 (BC CA), 64 D.L.R. (3d) 78 (B.C.C.A.). Here there was no allegation there were any suspicious banking transactions. Rather, it was alleged that there were other “facts and circumstances” that ought to have put TD Bank, which was responsible for transfers between SIB and its customers, on notice of the risk of internal fraud by SIB insiders. Yet, the trial judge found, despite such allegations, that there was no reason to suspect fraud:
Mr. Stanford’s fraudulent scheme was elaborate, highly sophisticated, and tightly concealed. Only four insiders participated in it. They hid the scheme from the approximately 100 employees at SIB, including the most senior ones, who thought they were working at a legitimate financial institution. Mr. Osborne, testified that he did not believe it when he heard the news that his employer was involved in a fraudulent scheme. Indeed, it was not until 2009 that a regulator, the SEC, took any action with respect to the Stanford Group.

Eight former and two current employees of TD Bank testified at trial. They all testified that they did not know that Mr. Stanford was operating a Ponzi scheme nor did they have any reason to suspect it. They felt shocked, distressed and betrayed to learn that their long-time customer was involved in a fraudulent scheme. As Mr. Muzaffar explained, it was similar to the feeling he had on learning the news of 9/11.

I accept their evidence. I find that the TD employees had no reason to believe that Mr. Stanford and the insiders were operating a Ponzi scheme or engaging in fraudulent behaviour. There is nothing in the evidence to suggest that the TD Bank employees had any indication that insider abuse was occurring at SIB. I also find that there were no transactional or operational matters that raised any issues on the part of TD Bank employees. They all testified, credibly, that they had no concerns about SIB or its accounts and that the relationship worked well. [Emphasis added.]
[51] As for the Joint Liquidators’ submission about conflation of duty and standard of care, I recognize that in distinguishing prior case law, the trial judge could be read as talking about the content of the duty of care (i.e., the standard of care). For instance, the trial judge says, at para. 153, that: “the nature of the duty relates to the operation of the account or the use of the bank’s facilities. That includes carrying out the customer’s instructions properly or questioning suspicious transactions involving transfers in or out of the account.”

[52] As this court has recognized, a duty of care “is not a duty to do anything specific; it is a duty to take reasonable care to avoid causing foreseeable harm”: Rausch v. Pickering City, 2013 ONCA 740, at para. 37. What “conduct is required to satisfy the duty is a question of the appropriate standard of care”: Rausch, at para. 38.

[53] That said, despite some of her language, I read the trial judge as recognizing that adopting an overly broad characterization of an established category of proximity – one that fails to consider the scope of the activity in respect of which proximity was previously recognized – may result in a premature imposition of a prima facie duty of care: Livent, at para. 52.

[54] In any event, at the end of the day, the trial judge was correct in concluding that the relationship between TD Bank and SIB did not fall within an established or analogous category and so a full proximity analysis was required.


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