Pardhan v. Bank of Montreal, 2013 ONSC 355
CITATION: Pardhan v. Bank of Montreal, 2013 ONSC 355
DIVISIONAL COURT FILE NO.: 410/12
COURT FILE No.: 08-CV-350772 CP
DATE: 20130121
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
(PROCEEDINGS UNDER THE CLASS PROCEEDINGS ACT, 1992)
BETWEEN: Divisional Court File No.: 410/12
Court File No.: 08-CV-350772 CP
ALNASIR PARDHAN
Plaintiff
– and –
BANK OF MONTREAL
Defendant
AND:
B E T W E E N:
Divisional Court File No.: 409/12
Court File No.: CV-08-00353703-00CP
INAYET KHERANI
Plaintiff
- and -
BANK OF MONTREAL
Defendant
Maurice J. Neirinck & Michael McQuade, for the Plaintiff
Irving Marks & Barbara Green, for the Defendant
Maurice J. Neirinck & Michael McQuade, for the Plaintiff
Irving Marks & Barbara Green, for the Defendant
HEARD: October 16, 2012
LEDERER J.:
Introduction
[1] These are motions for leave to appeal orders of Madam Justice Horkins certifying two related class actions. The motions consider two of the conditions necessary for certification: (1) is a cause of action disclosed; and, (2) do the claims raise common issues? Class actions are a tool to bring matters to court that might not otherwise proceed there. They are to provide access to justice for the public and to prevent prospective defendants from avoiding liability where there may be a large number of plaintiffs, but none for whom it is worthwhile to proceed alone. On the other hand, defendants should not be asked to bear the burden of defending class actions that do not have the characteristics required for claims to be dealt with in common.
Facts
[2] Salim Damji was the perpetrator of a fraud. He claimed to have developed a product that would whiten teeth. He told investors that the rights to the product would be sold to Colgate-Palmolive at a return of 2000 percent. Investors provided cheques and bank drafts, payable to “Damji” or “Damji in Trust”. Some investors delivered cheques payable directly to agents who deposited the money in their own accounts and then issued their own cheques or bank drafts payable to Damji. A significant amount of money found its way to the personal accounts of Damji held by the Bank of Montreal (the “Bank”). The court appointed a receiver. The plaintiffs say that the receiver has so far calculated that Damji has defrauded just more than $77 million from his victims. It is said that a total of $54,474,000 was deposited into the bank accounts of 1096166 Ontario Ltd., a numbered company that operated as Cash Plus. Of this, $2,803,000 was returned to the victims of the fraud; $29,658,000 was withdrawn and is included in the amount deposited, by Damji, into his personal accounts; and $22,046,000 was said to have been “otherwise misappropriated and used in various ways”.
[3] All of the money the proposed class members deposited into the accounts of Cash Plus and Damji was apparently dispersed to gambling establishments in Costa Rica and Jamaica.
[4] Damji was arrested, pleaded guilty to fraud and was sentenced to seven and one-half years in jail.
[5] The two class actions were commenced. The distinction between them is the deposit of money directly into the personal account of Damji, as opposed to the interim deposit of money into the Cash Plus account.
[6] In two separate decisions, Madam Justice Horkins certified both actions. It is these decisions from which leave to appeal is sought.
The Test for Leave
[7] Leave is required to appeal an order certifying a class action:[^1]
A party may appeal to the Divisional Court from an order certifying a proceeding as a class proceeding, with leave of the Superior Court of Justice as provided in the rules of court.
[8] In bringing this motion, the Bank relies on Rule 62.04(b) of the Rules of Civil Procedure:
Leave to appeal shall not be granted unless:
(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.
[9] The question is whether there is good reason to doubt the correctness of the decision and, if there is, whether the matters at issue are of such an importance that I should exercise the discretion of the Court and grant the leave that is requested. “Good reason to doubt” means “open to serious debate”.[^2]
[10] If there is no good reason to doubt the correctness of the decision of Madam Justice Horkins, there is no need to consider the second aspect of the test, the importance of the matter.
The Class Proceedings Act [^3]
[11] Certification is governed by s. 5(1) of the Class Proceedings Act. The Bank, the moving party, submitted that the motions judge failed to properly account for the requirements of subsections 5(1)(a) and 5(1)(c). They say:
5.(1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,
(a) the pleadings or the notice of application discloses a cause of action;
(c) the claims or defences of the class members raise common issues;
Subsection 5(1)(a): Is a cause of action disclosed?
[12] In applying subsection 5(1)(a) of the Class Proceedings Act, the test is the same as under Rule 21 of the Rules of Civil Procedure. This was acknowledged by counsel for the Bank.[^4] The issue for the motions judge was whether it was “plain and obvious” that the action cannot succeed.[^5] The Bank submits that it was. The question on this motion is whether the determination that it is not plain and obvious that the action cannot succeed is open to serious debate.
Knowing Assistance (Does s. 437 of the Bank Act protect the Bank?)
[13] The plaintiffs in both actions make claims in “knowing receipt”, “knowing assistance” and “negligence”. The actions in “knowing receipt” have been left to proceed. This motion is concerned with the other two causes of action. The Bank submitted there that there can be no action in either of these causes brought against it. This position holds that s. 437 of the Bank Act provides immunity to the Bank. The judge on the motion for certification did not agree that it was plain and obvious that this was so. The section provides for the responsibility of the Bank in accepting deposits and the returning of both principal and interest. Subsection 437(3) says:
A bank is not bound to see to the execution of any trust to which any deposit made under the authority of this Act is subject.
[14] On this basis, the Bank says it is released from any obligation it might otherwise have had to look behind the deposits it received from its client to determine whether the funds were held in trust, by the client, for another. The Bank draws a distinction between “knowing receipt” and “knowing assistance”. “Knowing receipt” is based on unjust enrichment. It connotes the idea that the Bank received proceeds from the fraud and breach of trust for its own benefit and use. For such a claim to succeed, the Bank must be shown to have had constructive knowledge of the fraud. There is case law that has considered predecessors to s. 437 and held that they did not protect banks from claims for “knowing receipt”. [^6] “Knowing assistance” is an equitable doctrine which imposes a liability on a stranger to a trust, in this case the Bank, to a plaintiff with whom it has no direct relationship if the stranger knowingly assisted the fraudulent conduct of the trustee. To succeed, the plaintiff must prove that the stranger participated with actual knowledge of the breach of trust. Counsel for the Bank submitted that, unlike “knowing receipt”, s. 437 does immunize the Bank from a claim for “knowing assistance”. The basis for the distinction is not clear. Certainly, there is nothing in the words of the section which point to such a difference. There is no case relied on by the Bank that establishes the protection allegedly offered in a claim for “knowing assistance” while, at the same time, confirming there is no protection where the claim is for “knowing receipt”. In Arthur Andersen Inc. v. Toronto-Dominion Bank[^7], the decision of the court recognized the uncertainty:
It is not contended in this action that s. 206 [a predecessor to s. 437] represents protection to banks in all circumstances. The real question is, at what stage in its dealings with a customer with trust funds on deposit does a bank's knowledge of its customer’s affairs impose a duty on the bank to inquire as to the possible misapplication of trust funds?
[15] While Fonthill Lumber Ltd. v. Bank of Montreal[^8] refers specifically to “knowing receipt”, it does not foreclose the possibility of an action for “knowing assistance”, even recognizing the presence of predecessors to s. 437 of the Bank Act:
The wording of s. 96(1) of the Bank Act is the same as that of s. 56(1) relating to any trust to which any share of the bank's stock is subject. That provision, of course, is applicable to trusts of which the bank has notice, for there is no responsibility in law for not seeing to the execution of a trust unless the existence of the trust has in some way been brought to the bank's knowledge. In my view, however, the section does not release a bank from liability if it knows not merely of the existence of the trust, but also of the commission of a breach thereof, or of circumstances which should put it on inquiry.[^9]
[16] The idea that a cause of action in “knowing assistance” may exist against the Bank is raised and accepted in the text: Water’s Law of Trusts in Canada,[^10]:
…the bank has an independent obligation, like any other person, not to join in a dishonest and fraudulent design of an express trustee of a fiduciary. Under the Bank Act, merely permitting the withdrawal of money in a trust account will not make the bank liable, even though it knows the money is held in trust. But despite these provisions, a bank is still subject to the general law of knowing receipt and knowing assistance. Therefore, a bank beneficially receiving money will be liable to the beneficiary of a trust or fiduciary relationship where circumstances reasonably raise such suspicions of a breach that an inquiry would be the reaction of the honest, reasonable banker. And ‘failure to inquire (even if not amounting to negligence) can be sufficient in some circumstances to hold a bank privy to such breach’.
[17] It may be, as counsel for the Bank submitted, that the cases on which the authors relied in coming to this conclusion deal with “knowing receipt” and not “knowing assistance”, but that does not mean that they are wrong. This does not render it “plain and obvious” that the action cannot succeed.
[18] This and more was said and reviewed by the motions judge.[^11] For the reasons reviewed, it is not plain and obvious that the action against the Bank alleging “knowing assistance” cannot succeed. There is no reason to doubt the correctness of the decision of the motions judge requiring that this issue move on to trial. It may be that this is a defence that could apply, in common, to all members of the class and can be dealt with as a common issue of both fact and law.
Negligence (The test in Anns v. Merton London Borough Council)
[19] Any examination of whether a cause of action, in negligence, has been established begins with a determination of whether the defendant owed a duty of care to the plaintiff.
[20] The methodology for this sort of inquiry was provided in Anns v. Merton London Borough Council.[^12] It sets a two-stage test. The first stage requires a determination of whether the relationship between the defendant and the plaintiff “…disclose[d] sufficient foreseeability and proximity to establish a prima facie duty of care.” The second asks “...are there any residual policy considerations which ought to negate or limit the duty of care”?[^13]
The Anns Test, Stage 1:
(a) Does this situation fall within or is it analogous to a category of cases where it has been found that prima facie duty of care cannot exist?
[21] Counsel for the Bank submitted that the first stage of the test cannot be satisfied. It begins with an inquiry into whether the case falls within or is analogous to a category of cases in which a duty of care has previously been recognized.[^14] Counsel, on behalf of the Bank, submitted that the case before the motions judge was analogous to the decision in Dynasty Furniture Manufacturing Ltd. v. Toronto-Dominion Bank.[^15] This was not a case where a duty of care was recognized. Despite this, counsel for the Bank submitted it should have been treated by the motions judge as determinative of the issue as to whether there could be a duty of care owed by the Bank to the plaintiffs. As counsel for the Bank sees it, the case found that investors who are defrauded have no cause of action against the bank into which the proceeds of the fraud were deposited when the bank had only constructive knowledge, and not actual knowledge, of the fraud. Since the motions judge was asked to deal only with constructive knowledge, it is said she erred in failing to find there could be no duty of care. A statement to this effect was made, by the Court of Queen’s Bench of Alberta, in Ramias v. Johnson:[^16]
The banks cannot be asked to act as guarantors of the legality of their client’s transactions when they lack actual knowledge of any impropriety.
[22] It would seem that the Court of Appeal of Ontario is not ready to accept this position. It was asked to consider Dynasty Furniture Manufacturing Ltd. v. Toronto-Dominion Bank and observed:
In these circumstances, we do not find it necessary to decide whether a bank may ever be found to have a duty to a non-customer in circumstances where it does not have actual knowledge (wilful blindness or recklessness) of the fraudulent activities being conducted through an account of its customer. We leave the question of whether such a duty exists and, if so, in what circumstances, to another day.[^17]
[23] From this, it is apparent that the case did not determine the issue on which the Bank relies to say that Dynasty is an analogous case. To the contrary, it left it “to another day”.
[24] In Dynasty, the judge, who heard the motion that was subsequently appealed, considered whether the bank had a general duty to inquire into the legitimacy of the operations of its customer (the party who perpetrated fraud) at the time the new accounts were opened. The duty continued thereafter to ensure on an on-going basis that the facilities of the bank were not being used for a fraudulent purpose. At the same time, it was submitted that the bank failed in a specific duty to investigate certain activities of the customer that were characterized as suspicious. The judge concluded:
The duty of care recognized at law does not encompass either an obligation to ensure the legitimacy of a client's affairs or an obligation to investigate suspicious circumstances”.[^18]
[25] He then went on and acknowledged that this might not be the definitive answer. He observed that:
These are two qualitatively different categories of liability from those that have been recognized at law to date”[^19].
[Emphasis added]
[26] On this basis, the judge did not say with certainty that the law would not recognize a duty of care owed by a bank to a non-customer where the bank did not have actual knowledge of fraudulent activity. He could only say that it had not done so “to date”.
[27] In Dynasty, the circumstances did not fall within and were not analogous to any category of cases in which a duty of care had been recognized. The judge, on the motion in that case, went on to consider whether a new duty of care should be recognized. He continued with the first stage of the test from Anns v. Merton London Borough Council[^20]. The judge examined whether, absent actual knowledge, the circumstances disclosed a reasonably foreseeable harm and proximity sufficient to establish a prima facie duty of care. He examined the particular facts and found that the proximity requirement of the first branch of the “Anns” test required a much more direct relationship to justify the imposition of a duty of care. The facts in that case are different than those found here. In Pardhan[^21], members of the class gave Damji cheques that were “in trust”. The Bank accepted these cheques into an account that was not a trust account. Moreover, the Financial Services Manager at one of the two branches at which Damji held accounts was suspicious of the activity within the accounts. She reported “large money dealings” to the Corporate Security department at the Bank. She did not believe what Damji told her because the amount of money was simply too big (“too many zeros”). She explained that it is standard practice at the Bank to make this report because “we have to make sure it's not money laundering”. She faxed copies of all cheques that were deposited into the accounts to Corporate Security. The accounts were put on “referral”, meaning that the Financial Services Manager received a copy of every cheque written on these accounts. Following a conference call among responsible staff at the Bank, a determination was made that the accounts should be closed. This suggests that the Bank had sufficient knowledge to engender concern regarding the actions of Damji. These facts are particular to this case. Nothing like this is referred to in Dynasty. Consistent with the decision of the Court of Appeal in Dynasty, the question of whether these facts amount to actual knowledge or constructive knowledge sufficient to support a duty of care is an issue that has yet to be answered. As here, in Semac Industries Ltd. v. 1131426 Ontario Ltd.[^22], there were allegations that the bank had already raised concerns internally about suspicious conduct on the part of its customer. The motions judge, in Dynasty, interpreted the situation in Semac to be one where there was actual knowledge. The Court of Appeal, in Dynasty, noted that the raising of concern, internal to the defendant, contributed to a finding that there should be a trial.[^23] It should be said that the motions judge in the case I am dealing with did not agree with the interpretation of Semac made by the judge who heard the motion in Dynasty. In her view, the direction to proceed to trial was not limited to negligence grounded in actual knowledge.[^24] In any event, even as he narrowed and defined the issue he was dealing with, the judge in Dynasty observed that “...the level of knowledge necessary to impose a duty of care that required an investigation by T-D is left imprecise”.[^25] That imprecision is the foundation for a determination that it is not “plain and obvious” that there can be no duty of care imposed on the bank as a result of only constructive knowledge of the fraud.
[28] In considering this, the motions judge took Dynasty into account. She noted that the decision was based on the particular facts of that case. She referred to and relied on the decision of the Court of Appeal.[^26] Contrary to the position of counsel for the Bank, she did not misunderstand Dynasty and read it only as considering a duty of care arising out of a general duty on the Bank to inquire into its customers. She understood that Dynasty took into account a duty of care that could arise from suspicious circumstances that arose in the particular case. Having reviewed Dynasty and the other cases to which she had been referred, the motions judge concluded:
In summary, while these cases do not eliminate the need to conduct the Anns analysis in this case they do offer some guidance. It is apparent that when general and sweeping allegations of a duty are made, a duty will not likely be recognized. Focused allegations of duty that are anchored in specific conduct are less likely to be struck from a pleading. [^27]
[29] She determined that the cases placed before her were grounded in their own unique circumstances which she summarized.[^28]
[30] This and more was said and reviewed by the motions judge. [^29]For the reasons reviewed, it is not plain and obvious that earlier cases have determined that there can be no duty of care attributed to a bank based on constructive, as opposed to actual knowledge. This situation does not fall within and is not analogous to a category of cases where it has been found that such a duty of care cannot exist. There is no reason to doubt the correctness of the decision of the motions judge on this point.
(b) Was the foreseeability and proximity necessary to find a prima facie duty of care present?
[31] The question becomes whether this is a situation where a new duty of care should be recognized. This requires the direct application of the test found in Anns v. Merton London Borough Council.[^30] In this case, does the relationship between the parties disclose sufficient foreseeability and proximity to establish a prima facie duty of care? On this motion for leave to appeal, nothing was said with respect to “foreseeability”. Little was said concerning “proximity”. The motions judge concluded that, insofar as certification was concerned, the requirements of both “foreseeability” and “proximity” were met.[^31] As counsel for the Bank see it, the judge found proximity based on the plaintiffs expectations of, and reliance on, the Bank. The judge observed:
The investor who writes a cheque to Damji in trust expects that it will be deposited into a trust account. That investor has an expectation that a bank in the circumstances of this case will act on the alleged suspicions. It is fair and just to impose a duty of care in these unique circumstances.[^32]
[32] Counsel for the Bank submitted that this determination was in error. Reliance was not pleaded and was not found in Dynasty. It may be that the words “rely” and “reliance” do not appear in the Statements of Claim but, to my mind, this does not lead inexorably to the conclusion that they can be taken not to have been pleaded or the Bank not to have been put on notice that the issue may be raised. The motions judge noted that:
The proximity analysis involves a consideration of factors such as expectations, representations, reliance and property or other interests involved: see Cooper at para. 34; Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41, [2003] 3 S.C.R. 129 at para. 23; Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263 at para. 50. [^33]
[Emphasis added]
[33] She also quoted Cooper v. Hobart, as follows:
Defining the relationship may involve looking at expectations, representations, reliance, and the property or other interests involved. Essentially, these are factors that allow us to evaluate the closeness of the relationship between the plaintiff and the defendant and to determine whether it is just and fair having regard to that relationship to impose a duty of care in law upon the defendant[^34].
[Emphasis added]
[34] These references make clear that “reliance” is understood to be a consideration in evaluating the presence of proximity. It is a factor which may be inherent in a claim for negligence. If this is not correct, provision can be made for an amendment if one is necessary.[^35] So far as I can see, there is no prejudice to the Bank that could not be compensated for in costs.
[35] Counsel for the Bank submitted that policy considerations can play an important role in determining proximity.[^36] Counsel returned to s. 437 of the Bank Act. In his view, if s. 437 provides an immunity such that there can be no claim in “knowing assistance”, it would also serve to provide a policy reason for overriding any proximity that might otherwise be present. The determination already made in these reasons that it is not plain and obvious that s. 437 forecloses an action in “knowing assistance” means that, similarly, the section cannot be taken to create a policy rationale for finding that any proximity, which is present, should be set aside.
[36] The motions judge discussed proximity.[^37] For the reasons reviewed, it is not plain and obvious that the necessary proximity was not present. There is no reason to doubt the correctness of the decision of the motions judge on this point.
The Anns Test: Stage 2
[37] Under this part of the “Anns” test, the issue is whether any prima facie duty of care that may arise from the first stage of the analysis should be “negated by broader policy considerations”.[^38]
[38] The motions judge declined to carry out the analysis. Relying on Williams v. Toronto (City)[^39], she concluded that “...[t]he parties must be afforded an opportunity to provide evidence as to whether policy concerns should dictate against imposing a duty of care against [the Bank] for negligence based on constructive knowledge.”[^40] Counsel for the Bank submitted that the motions judge erred in failing to conduct any policy analysis. In Williams v. Toronto (City,) as a result of a reduction in property tax, there was to be an automatic reduction in the rent charged. The City was obligated to send notices to both landlords and tenants advising them of the rent reduction. It failed to do so. A class action was commenced on behalf of affected tenants arguing that, as a result of the failure, they had not benefited from any lowering of rent and, through the passage of time, lost any right to appeal to the applicable tribunal. On the motion considering certification, the judge concluded that the proximity and foreseeability necessary to demonstrate a duty of care owed, by the City, to the tenants had not been established. He went on to find that even if there was a prima facie duty of care, there were policy considerations that would negate that duty. The Divisional Court disagreed. The majority determined that there was sufficient proximity to found a prima facie duty of care and that the motions judge erred in his finding that there were policy considerations that would negate that duty. The Court said:
This is a case where the policy consideration should be determined after a Statement of Defence is filed and on the basis of an evidentiary record. [^41]
[39] In a similar vein, the Court of Appeal has said:
…a Court should be reluctant to dismiss a claim for policy reasons without a full record.[^42]
[40] The cases in which these comments were made suggest that there are circumstances where it is appropriate for the judge, on a certification motion, to defer the issue of policy considerations that may set aside a finding of a prime facie duty of care to trial.
[41] In this situation, it is not for me to review the policy considerations that could be raised, but to determine whether there is good reason to doubt the correctness of the decision of the motions judge in affording the parties an opportunity to provide evidence at a trial.[^43] In considering this question, it is important to remember that the onus shifts. In stage 1 of the Anns test, the onus is on the plaintiff to demonstrate that the foreseeability and proximity necessary to establish a prima facie duty of care is present. The onus demands that this be examined from the perspective of the plaintiff. Thus, the question: Is it plain and obvious that the action cannot succeed? A prima facie duty of care being present “...the evidentiary burden of showing countervailing policy considerations shifts to the defendant...”[^44] The perspective is that of the defendant: Is it plain and obvious that there are policy considerations that will negate a duty of care? If not, it may be that the motions judge will find that the duty of care should be left to stand or, as here, that the case is one where more evidence or a more complete record is required. In such circumstances, it is the defendant who is given the further opportunity to discharge an onus it faces.
[42] This is the sort of analysis the Divisional Court went through in Williams v. Toronto (City).[^45] It began by acknowledging that there were cases where the courts have taken into account policy considerations at the motion stage.[^46] The Divisional Court examined the issue from the perspective of the presence of conflicting policy demands on the defendant (the City in that case, the Bank in this one).[^47] It then reviewed the policy considerations, as discussed by the motions judge, and found there was “no evidence to support his conclusions”.[^48] It was on this basis that the Divisional Court concluded that the policy determinations should be founded on an evidentiary record (see: para. [38], above).
[43] As in Williams v. Toronto (City), the motions judge, in the case I am asked to consider, was not prepared to find that it was plain and obvious that there were policy considerations that demonstrated that any prima facie duty of care should be set aside. She determined to defer the final consideration of this question to trial, when a full record would be available. Counsel for the Bank seeks leave to appeal, saying that it is plain and obvious that any duty of care should be negated and that there is good reason to doubt the correctness of the decision of the motions judge. In making this submission, counsel relied on Dynasty Furniture Manufacturing Ltd. v. Toronto-Dominion Bank.[^49] As I have already noted, the motions judge made clear her view that Dynasty was decided on its own facts.[^50] The judge, who dealt with the motion in Dynasty, reviewed a variety of concerns in examining the possibility of policy considerations that might negate the finding of a prime facie duty of care. His findings are responsive to the facts of that case. In considering whether the bank confronted an indeterminate liability (a policy concern relied on to negate the finding of a duty of care) the judge, in Dynasty, noted that “...[o]n the plaintiff’s theory the [bank] could be held to be liable to all parties who have dealt with [the customer of the bank] and have claims against it”[^51]. The liability would not have been restricted to those who bought the certificates of deposit, valued at $17 million, that “...were issued as part of a ‘Ponzi scheme’ that collapsed...” and were the demonstration of loss by the plaintiffs.[^52] In the case before this court, there is no suggestion that the liability of the Bank extends beyond those who invested in the scheme thinking it represented a tooth-whitening process that would be sold to their considerable advantage. The value of the liability is referred to in the Statements of Claim as representing the amounts that were invested, as well as amounts on account of punitive damages. Based on the evidence available, this is not an indeterminate liability and would serve to distinguish this case from the finding in Dynasty.
[44] In Dynasty, in the process of examining policy considerations, the motions judge distinguished the case he was dealing with from Semac Industries Ltd. v. 1131426 Ontario Ltd.[^53] In Semac, the party committing the fraud adopted a program of stopping the payment of cheques made out to its suppliers after it had received the goods it had purchased. It relied on the confidentiality of the bank in responding to inquiries that were made by other of its suppliers. In other words, it utilized the facilities of the bank in undertaking the fraud. The situation in Dynasty was different. In Dynasty, the judge on the motion found that “...the use of the [bank’s] facilities were not per se illegal. Instead, it was [the customer’s] business itself that was conducted fraudulently”.[^54] It may well be, as the decision of the motions judge suggests, that more evidence is required to determine whether, in this case, the facilities of the Bank were utilized as part of the fraud. Interestingly, it is alleged in Pardham [^55] that cheques made out to Damji “in trust” were deposited in an account held at the Bank by the numbered company that operated as Cash Plus. The funds were then transferred to Damji’s personal account, not to a trust account. It is not for me to determine, but could this be a use of the Bank’s facilities of the sort that occurred in Semac[^56] and, unlike Dynasty, allow for the claim in negligence to proceed?
[45] In Dynasty, the judge reviewed other policy considerations in arriving at a conclusion that, if there was a duty of care, there would be policy considerations that should negate it.[^57] For the most part, these considerations deal with the impact the imposition of a duty of care would have on the Bank and the difficulties it would have in meeting the requirements the duty of care would impose. It is not possible to know what record the judge had before him or if any was necessary to support the findings he made.
[46] Much the same can be said for Ramias v. Johnson[^58], which the Bank also relied on. In that case, the court found that neither of the two stages of the test in Anns v. Merton London Borough Council [^59] were met. An investment advisor solicited and received funds which he utilized in a Ponzi scheme. A consent judgment in the amount of $3 million was entered against the advisor. The plaintiff commenced an action against three financial institutions and sought, by a motion, to add three others. At the same time, one of the original three moved to strike the claim as showing no cause of action. The court determined that the cause of action “...fail[ed] at both stages of the Anns inquiry, because it raises the spectre of indeterminate liability to an indeterminate class, with a standard of conduct that cannot be articulated with sufficient, or any precision”.[^60] There is no discussion or explanation of the facts that are said to give rise to this “spectre”. The court went on to say: “The volume of transactions conducted daily by financial institutions is immense. To create tort duties to non-customers in relation to unknown underlying fraudulent transactions would impose a disproportionate and unwieldy burden”.[^61] This may be so, but there is no discussion as to the basis on which that circumstance necessarily applied to any facts alleged in the case.
[47] The motions judge decided that “all that can be said to this point is that it is not plain and obvious that the cause of action as pleaded will fail”.[^62] In effect, she determined that, in this case, the issue of whether the Bank could satisfy the onus placed upon it to demonstrate that there were policy considerations that would negate any prima facie duty of care should be left to the trial. There is no reason to doubt the correctness of the decision of the motions judge on this point.
Subsection 5(1)(c): Do the claims of the class members raise common issues?
[48] The question asked is whether there is some evidence that would support each of the common issues found to be present.[^63] The motions judge found that there is. She reviewed the claims and made findings that there was some evidence to support each of the following common issues:
• knowing assistance [^64];
• knowing receipt [^65];
• constructive trusts [^66];
• negligence [^67];
[49] The test of demonstrating the presence of a common issue is a limited one:
While only a minimum evidentiary basis is required, there must be some evidence to show that this issue exists and that the common issues trial judge is capable of assessing it in common. Otherwise, the task for the common issues trial judge would not be to determine a common issue, but rather to identify one.[^68]
[50] At the certification stage, some evidence is to be identified, but no evaluation is undertaken:
It should be kept in mind, however, that in certifying a common issue the court is not concluding that it will be answered in a manner favourable to one party or the other. The requirement that there must be an evidentiary basis for the existence of a common issue is a far cry from proof of the issue on the balance of probabilities.[^69]
[51] What is required is something beyond a bare pleading:
While the evidentiary basis for establishing the existence of a common issue is not as high as proof on a balance of probabilities, there must nonetheless be some evidentiary basis indicating that a common issue exists beyond a bare assertion in the pleadings. To be clear, this is simply the Hollick standard of ‘some basis in fact’. [^70]
and
In my view, the class representative must show some basis in fact for each of the certification requirements set out in s. 5 of the Act, other than the requirement that the pleadings disclose a cause of action.[^71]
[52] There has to be some basis in fact supporting the common issues:
There must be a basis in the evidence before the court to establish the existence of common issues: Dumoulin v. Ontario, [2005] O.J. No. 3961 (S.C.J.) at para. 25; Fresco v. Canadian Imperial Bank of Commerce, above, at para. 21. As Cullity J. stated in Dumoulin v. Ontario, at para. 27, the plaintiff is required to establish ‘a sufficient evidential basis for the existence of the common issues’ in the sense that there is some factual basis for the claims made by the plaintiff and to which the common issues relate.[^72]
[53] The motions judge found that: “The common issues criterion is not a high legal hurdle, but a plaintiff must adduce some basis in evidence to show that the issues are common”.[^73]
[54] What is needed to satisfy this test? As the finding of the motions judge suggests, the purpose is to confirm that the claims of class members raise issues of fact or law that are capable of being resolved in common. That is, the resolution of the issue for one class member resolves it for all class members. This is a basic premise of a class action and, pursuant to s. 5(1)(c) of the Class Proceedings Act, a requirement for certification. It does not mean that there must be some evidence of every individual element of the applicable cause of action. This would take us beyond common issues and into the realm of evidence supporting all the factors that would have to be proven at trial. Except in the clearest of cases, there is likely to be some aspect of every action where the necessary evidence cannot be developed until later in the process, perhaps, even at trial. Such a requirement would become a barrier to certification that would impede the proper operation of the Class Proceedings Act.
[55] The decision of the motions judge is consistent with this understanding. In both cases, she observed that the available evidence “may not satisfy proof of the knowledge element”.[^74] This is what would be required at trial. It is not what is needed for certification. In Kherani, the motions judge did recognize that “...the ‘some evidence’ rule does not require the plaintiff to provide some evidence of each element of the cause of action”. She said that, before her, this was acknowledged by counsel for the Bank.[^75]
[56] Counsel for the Bank submitted that, in order to meet the “some evidence” test, it would be necessary for there to be some evidence that the Bank had actual knowledge. At trial, this would be true with respect the claim of “knowing assistance”. The plaintiffs will be required to provide proof of actual knowledge of the fraudulent breach of trust. It is not required at certification where the obligation is to provide some evidence that there is a common issue shared by the members of the class, being a claim for knowing assistance.
[57] Counsel for the Bank took the same position in respect of the claim for negligence. In his view, there must be some evidence of actual knowledge. These reasons confirm the conclusion of the motions judge that the case for negligence may proceed based on the possibility that a demonstration of “constructive knowledge” may prove to be sufficient to found the claim. This indicates that, at trial, it may be that constructive knowledge of a breach of trust or fraud will be what has to be proved. The question is: Can the issue of constructive knowledge be determined on a common basis so that the finding applies to the claims of all class members? As the motions judge saw it, the trial judge will have to “...consider the negligence cause of action in two stages: actual knowledge and constructive knowledge”.[^76] For certification, what is required is some evidence of a common issue shared by the class, being a claim for negligence. As expressed by the motions judge, this included two issues. First, did the Bank owe a duty of care to the members of the class, in each action, with respect to the money deposited in its accounts and with respect to its dealings with Damji? Second, did the Bank breach any duty of care that it owed to the plaintiffs?[^77]
[58] In Kerhani, the motions judge found that “...while there is evidence that [the Bank] knew that suspicious circumstances existed, the plaintiff had not yet gathered evidence of [the Bank’s] actual knowledge of the fraud”.[^78] The evidence referred to would not satisfy the requirements of trial, but was enough to demonstrate that “...the claims ...of the class members raise[d] common issues”.[^79]
[59] The motions judge reviewed the evidence with respect to the claim in “knowing assistance”. She noted that the Financial Services Manager was aware of the number of bank drafts being deposited into Damji’s account. The Financial Services Manager did not believe Damji when he explained that he expected to sell the teeth-whitening process for a great deal of money. She reported him to Corporate Security at the Bank because she had to make sure that what he was doing was not money-laundering. The Financial Services Manager put the accounts of the Damji “on referral”. She saw the cheques that were written to Cash Plus and she knew there was a connection between Damji and Cash Plus. There was evidence of a similar time-frame that supported the presence of common issues and evidence which suggested that the frauds had taken place in a common way. Once the money was deposited into the account at the Bank, the Bank treated it all in the same way. Finally, the receiver’s reports were further evidence that the common issues could be managed in common. The receiver’s detailed analysis tracks the bulk of the money that came into the [Bank’s] accounts and records where it went.
[60] From this, and other evidence, the motions judge concluded that there was “some evidence” of a common issue of “knowing assistance”. There is no reason to doubt the correctness of this finding.
[61] In Pardhan, the motions judge went further. In that case, having said that the available information “...may not satisfy proof of the knowledge element” she went to observe that “...it is nevertheless some evidence of [the Bank’s] knowledge”.[^80] The motions judge reviewed the evidence. She noted that the Bank knew of the existence of the trust because numerous cheques, totalling $46,636,000, marked “in trust”, payable to Damji were deposited into the Cash Plus account. On each occasion, an employee of the Bank accepted a cheque payable to Damji, in trust, and deposited into a non-trust account belonging to Cash Plus. The motions judge concluded that there was evidence that the Bank was wilfully blind or reckless. The Financial Services Manager advised that it was Bank policy to deposit trust cheques into a trust account and yet, in the circumstances, the Bank accepted for deposit numerous trust cheques into a non-trust account. There was some evidence that the Bank knew what the trust monies were being used for. Employees at the bank knew that money was being transferred out of the Cash Plus account to offshore gambling organizations and a large amount of trust money was transferred from the Cash Plus account to Damji’s personal account at the Bank. Damji told the Financial Services Manager that bank drafts being deposited into his account were related to shares of a company and to the teeth-whitening product he said he was going to sell for a large amount of money. The Financial Services Manager did not believe him. The Corporate Security department of the Bank was advised of the situation.
[62] From this, and other evidence, the motions judge concluded that there was “some evidence” of actual knowledge of the Bank to support a common issue of knowing assistance. There is no reason to doubt the correctness of this finding.
[63] The motions judge reviewed the evidence with respect to the negligence claim. She observed that the relationship between the Bank and the plaintiffs were similar. The investors were not customers of the Bank. They all came into contact with the Bank because the money they invested was all deposited in its accounts, to the credit of Damji. The fraud having been discovered, the court appointed a receiver. Its reports, and reports prepared on its behalf, demonstrated that the money was deposited within the applicable time-frame. There was evidence that the cheques were deposited as investment in the same fraudulent scheme. For all the investors, Damji used the facilities of the Bank to carry out the fraud. He used the accounts to deposit the money and then arranged to have it disbursed for his benefit to the detriment of the investors. The Financial Services Manager referred and continued to refer, concerns to the Corporate Security department at the Bank.
[64] From this, and other evidence, the motions judge concluded that there was “some evidence” to support the common issues reflected in the claim for negligence. There is no reason to doubt the correctness of this finding.
Conclusion
[65] For the reasons reviewed, the motions are dismissed.
Costs
[66] If the parties are unable to agree as to costs, I will consider written submissions on the following terms:
On behalf of the plaintiffs, no later than fifteen days after the release of these reasons. Such submissions are to be no longer than five pages, double-spaced, not including any Costs Outline, Bill of Costs or case law that may be included.
On behalf of the defendant, no later than ten days thereafter. Such submissions are to be no longer than five pages, double-spaced, not including any Costs Outline, Bill of Costs or case law that may be included.
On behalf of the plaintiffs, in reply, no later than five days thereafter. Such submissions are to be no longer than two pages, double-spaced.
LEDERER J.
Released: 20130121
CITATION: Pardhan v. Bank of Montreal, 2013 ONSC 355
DIVISIONAL COURT FILE NO.: 410/12
COURT FILE No.: 08-CV-350772 CP
DATE: 20130121
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
(PROCEEDINGS UNDER THE CLASS PROCEEDINGS ACT, 1992)
BETWEEN: Divisional Court File No.: 410/12
Court File No. 08-CV-350772CP
ALNASIR PARDHAN
Plaintiff
– and –
BANK OF MONTREAL
Defendant
AND:
B E T W E E N: Divisional Court File No.: 409/12
Court File No.: CV-08-00353703-00CP
INAYET KHERANI
Plaintiff
- and -
BANK OF MONTREAL
Defendant
JUDGMENT
LEDERER J.
Released: 20130121
[^1]: Class Proceedings Act, 1992 S.O. 1992, Ch. 6, s. 30(2). [^2]: 1176560 Ontario Ltd. v. Great Atlantic & Pacific Co. of Canada Ltd., [2003] CarswellOnt 998 (Div. Ct.), at para. 39; and, Heward v. Eli Lilly, [2007] CarswellOnt 4363 (S.C.J.), at para. 24). [^3]: See note 1. [^4]: Factum of the Defendant, at para. 32. [^5]: Hunt v. Carey Canada Inc., [1990] 2 SCR 959; Labourers’ Pension Fund of Central and Eastern Canada v. Sino-Forest Corporation, 2012 ONSC 1924, at paras. 67 and 70; and, Spina v. Shoppers Drug Mart Inc., 2012 ONSC 5563, at paras. 3,9,12 and15. [^6]: Fonthill Lumber Ltd. v. Bank of Montreal, [1959] CarswellOnt 169 (Ont. C.A.), at para. 27; and, Arthur Andersen Inc. v. Toronto-Dominion Bank, [1994] CarswellOnt 233 (Ont. C. A.), at para 40. [^7]: See note 6, at para. 41. [^8]: See note 6. [^9]: Fonthill Lumber Ltd. v. Bank of Montreal, see note 6 at para. 27. [^10]: 3rd ed. Toronto: Thomson Carswell 2005 at p. 499. [^11]: Pardhan v. Bank of Montreal 2012 ONSC 2229, at paras 131-141; and, Kerhani v. Bank of Montreal 2012 ONSC 2230, at paras. 117-127. [^12]: [1978] A.C. 728. [^13]: Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41, [2007] 3 S.C.R. 129, at para. 20. [^14]: Cooper v. Hobart, 2001 SCC 79, [2001] 3 SCR 537, at para. 41. [^15]: [2010] CarswellOnt 1241 (S.C.J.) upheld at [2010] CarswellOnt 169 (O.C.A.). [^16]: 2009 ABQB 386, [2009] A.W.L.D. 3266, at para. 42. [^17]: See note 15 (C.A.), at para. 9. [^18]: See note 15 (Ont. Sup. Ct.), at para. 61. [^19]: See note 15 (Ont. Sup. Ct.), at para. 61. [^20]: See note 12. [^21]: See note 11. [^22]: (2001), 12 B.L.R. (3d) 88 (Ont. Sup. Ct.). [^23]: See note 15, (Ont. Sup. Ct.), at para. 51; and, (C.A.), at paras. 7-8. [^24]: See: note 11, Pardhan, at para. 183; and, KerhaniI, at para. 169). [^25]: See note 15, (Ont. Sup. Ct.), at para. 30). [^26]: See note 11, Pardhan, at paras. 165 and 166, as well as Kerhani, at paras. 151 and 152. [^27]: See note 11, Pardhan, at para. 194; and, Kerhani, at para. 180). [^28]: See note 11, Pardhan, at paras. 175, 176 and 178, as well as Kerhani, at paras.161, 162 and 164). [^29]: See note 11, Pardhan, at paras. 159-194; and, Kerhani, at paras. 145-180). [^30]: See note 12. [^31]: See note 11, Pardhan, at para. 213; and, Kerhani, at para. 197. [^32]: See note 11, Pardhan, at para. 210; and, Kerhani, at para. 196. [^33]: See note 11, Pardhan, at para. 201; and, Kerhani, at para. 187. [^34]: See note 14, at para. 34, as quoted in Pardhan, at para. 203; and, Kerhani, at para. 195; and see as well Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, at para. 30F. [^35]: See note 11, Pardhan, at para. 116; and, Kerhani, at para. 102. [^36]: Cooper v. Hobart, see note 14, at paras. 25, 28 and 30. [^37]: See note 11, Pardhan, at paras. 200-213; and, Kerhani, at paras. 186-197. [^38]: See note 11, Pardhan, at para. 214; and, Kerhani, at para. 198, quoting from Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, at para. 12. [^39]: 2011 ONSC 6987, 2011 CarwellOnt 14735. [^40]: See note 11, Pardhan, at para. 218; and, Kerhani, at para. 202. [^41]: See note 39, at para. 50. [^42]: Haskett v. Trans Union of Canada Inc., 2003 CarswellOnt 692, 63 O.R. (3rd) 577, at para. 52, referred to in Williams v. Toronto (City), supra, at para 47. [^43]: See note 40. [^44]: Childs v. Desormeaux, see note 38, at para. 13. [^45]: See note 39. [^46]: Williams v. Toronto (City), see note 39, at para 47. [^47]: Williams v. Toronto (City), see note 39, at para 48. [^48]: Williams v. Toronto (City), see note 39, at para 49. [^49]: See note 15. [^50]: See note 11, Pardhan, at para. 165; and, Kerhani, at para. 151. [^51]: See note 15, at para. 2. [^52]: See note 15, at para. 73. [^53]: See note 22. [^54]: Dynasty, see note 15, at para. 81. [^55]: See note 11. [^56]: See note 22. [^57]: See note 15, at paras. 74-77. [^58]: See note 16. [^59]: See note 12. [^60]: See note 16, at para. 42. [^61]: See note 16, at para. 42. [^62]: See note 11, Pardhan, at para. 219; and, Kerhani, at para. 203. [^63]: Glover v. Toronto (City), [2009] CarswellOnt 1985 (S.C.J.), [2009] O.J. No. 1523, at para. 56. [^64]: See note 11, Pardhan, at para. 260: and, Kerhani, at para. 244. [^65]: See note 11, Pardhan, at paras. 263-264; and, Kerhani, at para. 250. [^66]: See note 11, Pardhan, at paras. 268-269; and, Kerhani, at paras. 254-255. [^67]: See note 11, Pardhan, at paras. 270 and 279; and, Kerhani, at paras. 256 and 264. [^68]: Fresco v. Canadian Imperial Bank of Commerce, at para. 61, subsequently the decision to refuse to certify the class was overturned by the Court of Appeal but in a fashion that would detract from this observation, see: 2012 CarswellOnt 7956, 2012 ONCA 444. [^69]: Fulawka v. Bank of Nova Scotia, 2010 ONSC 1148, at para, 109 cited with approval by the Court of Appeal, supra, at para. 78. [^70]: Fulawka v. Bank of Nova Scotia, [2012] CarswellOnt 7951, at para. 79. [^71]: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 SCR 158, at para. 25. [^72]: Singer v. Scherling-Plough Canada Inc. 2010 ONSC 42, [2010] CarswellOnt 79 (S.C.J.), at para. 140(c). [^73]: See note 11, Pardhan, at para. 235; and, Kerhani, at para. 219. [^74]: See note 11, Pardhan, at para. 254; and, Kerhani, at para. 238. [^75]: See note 11, Kerhani, at para. 238. [^76]: See note 11, Pardhan, at para. 271; and, Kerhani, at para. 257. [^77]: See note 11, Pardhan, immediately following para. 269; and, Kerhani, immediately following para. 255. [^78]: See note 11, Kerhani, at para. 235. [^79]: Class Proceedings Act, s. 5(1)(c). [^80]: See note 11, Pardhan, at para. 254.