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Does a Bank Owe a Duty of Care to a Non-customer?

Posted on January 12, 2015 | Posted in Civil Litigation, Collections

            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 bank.

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 bank’s customers.

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

b)         would obligate the bank to subordinate the bank’s own interests to the victims.



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.

Jonathan Speigel


Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.


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