SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Dr. Robert Grossman, Stanley Grossman, Eric Grossman, Stephen Stark, Barbara Stark, Eldridge Capital Ltd., Elkap Financial Ltd., Lodestone Investments Limited and 2035418 Ontario Inc., Plaintiffs

AND:

The Toronto-Dominion Bank, Defendant

BEFORE: D. M. Brown J.

COUNSEL:
J. Larry, for the Plaintiffs

G. Hall and D. Wolski, for the Defendant

HEARD: February 3, 2014

REASONS FOR DECISION

I. Rule 21.01(1)(b) motion to strike out most of a negligence claim against a bank

[1] The defendant, The Toronto-Dominion Bank, moved to strike out portions of the plaintiffs’ Statement of Claim which alleged a cause of action sounding in negligence. For the reasons set out below, I dismiss the Bank’s motion.

II. The pleaded claim

[2] Here are the background facts as pleaded in the Statement of Claim. The plaintiffs were customers of The Toronto-Dominion Bank. At the same time, Eric Inspektor and the Kaptor Group of companies were TD customers. In July and August, 2011, the Bank became aware of a large volume of cheque and wire transfer transactions amongst the 33 separate bank accounts held with TD by entities in the Kaptor Group. On August 18, 2011, TD decided to freeze all of Kaptor’s accounts.

[3] Once the flow of funds amongst the Kaptor Group of companies had stopped, TD found that the accounts were in an overdraft position of approximately $7 million (the “TD Indebtedness”). The plaintiffs pleaded:

In short, TD realized immediately that Inspektor was ‘kiting’ cheques in and between the Kaptor Group’s numerous accounts at TD.[^1]

After some negotiations, on August 23, 2011, Inspektor and the Kaptor Group entered into an Accommodation Agreement with the Bank to repay the TD Indebtedness by August 29.

[4] As to the Bank’s state of knowledge at the time it froze the Kaptor Group accounts, the plaintiffs pleaded:

(i) TD had serious concerns and suspicions about Inspektor’s honesty and integrity and the bona fides of the Kaptor Group generally, including possible fraudulent activities in the TD accounts (Claim, para. 35(a));

(ii) TD knew that the Plaintiffs were unaware that the Kaptor Group’s accounts had been frozen as a result of unusual and suspicious activity (Claim, para. 35(b));

(iii) TD detected suspicious and unusual activity in the Kaptor Group accounts including possible fraudulent activity (Claim, para. 101(a)(ii)); and,

(iv) [TD failed] to advise the Plaintiffs that the Kaptor Group account into which they were depositing funds was frozen as a result of suspicious, unusual and suspected fraudulent activity (Claim, para. 102(c)).

[5] Against that background the plaintiffs asserted claims for damages against TD in respect of the way the Bank subsequently dealt with cheques written by the plaintiffs to the Kaptor Group which the Bank processed and deposited in order to reduce the TD Indebtedness owed by the Kaptor Group. I will describe those allegations in more detail shortly, but first let me turn to the principles which govern a Rule 21.01(1)(b) analysis.

III. Principles governing motions to strike for disclosing no reasonable cause of action

[6] Rule 21.01(1)(b) enables a defendant to move to strike out a statement of claim “on the ground that it discloses no reasonable cause of action”. In R. v. Imperial Tobacco Canada, the Supreme Court of Canada reviewed the purpose of a motion to strike out a claim and the test applicable on such a motion. While the Supreme Court observed that “the power to strike out claims that have no reasonable prospect of success…unclutters the proceedings, weeding out the hopeless claims and ensuring that those that have some chance of success go on to trial”, that Court sounded a note of caution about motions to strike:

Valuable as it is, the motion to strike is a tool that must be used with care. The law is not static and unchanging. Actions that yesterday were deemed hopeless may tomorrow succeed…[^2]

[7] As to the test applicable on a motion to strike out a claim as disclosing no reasonable cause of action, the Supreme Court stated:

A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action… Another way of putting the test is that the claim has no reasonable prospect of success. Where a reasonable prospect of success exists, the matter should be allowed to proceed to trial…

A motion to strike for failure to disclose a reasonable cause of action proceeds on the basis that the facts pleaded are true, unless they are manifestly incapable of being proven… No evidence is admissible on such a motion…It is incumbent on the claimant to clearly plead the facts upon which it relies in making its claim. A claimant is not entitled to rely on the possibility that new facts may turn up as the case progresses. The claimant may not be in a position to prove the facts pleaded at the time of the motion. It may only hope to be able to prove them. But plead them it must. The facts pleaded are the firm basis upon which the possibility of success of the claim must be evaluated. If they are not pleaded, the exercise cannot be properly conducted.

[A motion to strike] is not about evidence, but the pleadings. The facts pleaded are taken as true. Whether the evidence substantiates the pleaded facts, now or at some future date, is irrelevant to the motion to strike. The judge on the motion to strike cannot consider what evidence adduced in the future might or might not show.

The question is whether, considered in the context of the law and the litigation process, the claim has no reasonable chance of succeeding.[^3]

IV. The claims pleaded by the plaintiffs

[8] Returning to the review of the claims pleaded by the plaintiffs against the Bank, in their Statement of Claim they made the following allegations, none of which the Bank sought to strike:

33. As described below, leading up to and immediately after the Accommodation Agreement was entered into, Inspektor raised approximately $2.7 million from the plaintiffs. Unbeknownst to any of the plaintiffs at the time, all of these monies were used to partially repay the TD Indebtedness.

34. Inspektor told TD that he was going to raise money from investors to address the TD Indebtedness. Inspektor also told TD that the funds were purportedly being raised for various corporate purposes including funding Insignia’s inventory purchases and purchasing car loans. In reality, and as TD was aware, Inspektor was raising the funds solely for purposes of paying down the TD Indebtedness that resulted from Inspektor’s fraudulent activities.

35. As TD was further aware, Inspektor raised the funds from the plaintiffs, each of whom was a long-time client of TD’s, in circumstances where:

c/ TD knew, or ought to have known, that the plaintiffs were unaware that the Kaptor Group was indebted to TD, much less that the plaintiffs’ funds would be used solely to repay TD;

d/ TD knew that there was no way the plaintiffs, or any of them, would have advanced funds to the Kaptor Group if they were aware that the funds were simply going to repay the TD Indebtedness.

36. Nevertheless, TD intentionally, and impermissibly, closed its eyes to the manner in which the funds were obtained from the unsuspecting investors.

The plaintiffs went on to plead that Inspektor ultimately was unable to repay the TD Indebtedness by the deadline set out in the Accommodation Agreement and shortly thereafter defaulted on its loan facility with its main lender. Ultimately the Kaptor Group of companies were placed into receivership, and the plaintiffs pleaded that they had not recovered any funds from the receivership.

[9] The plaintiffs then pleaded the specifics of their individual transactions with the Bank, some of which the Bank sought to strike.

Eric Grossman

[10] The Statement of Claim pleaded that Eric Grossman was a customer of TD at the material time.[^4]

[11] Insignia, a Kaptor company, was to repay Eric the principal and interest on his $500,000 advance on August 17, 2011. At Inspektor’s request, Eric agreed to advance to Inspektor’s holding company, 2025610 Ontario Limited, $400,000 from the $535,000 repayable by Insignia. An August 15 cheque for $535,000 drawn on Insignia’s TD account and deposited by Eric into his TD account did not clear. Inspektor told Eric he would wire the amount to Eric’s TD account. Unknown to Eric at the time, the August 22 wire transfer of $535,750 to his TD account was not honoured. The statement of claim continued:

53. On or about August 23, 2011, Eric received a phone call from TD. During the call, TD asked Eric to confirm that he wrote a cheque in favour of 202 and that he wanted the cheque to be cleared.

54. Although the phone call seemed strange and out of the ordinary, Eric did not think much of it at the time. Eric advised TD as long as the Insignia payment to him cleared, TD could clear his cheque to 202.

55. Having taken the unusual step of contacting Eric in the circumstances, TD owed Eric a duty to be forthright about the true purpose of its call including the fact that TD had significant concerns about the unusual and suspicious account activity within the Kaptor Group.

56. On August 23, 2011, after TD called Eric, TD manually cleared and certified Eric’s $400,000 payment to 202.

57. Had TD been forthcoming with Eric, as was required in the circumstances, Eric would never have authorized the $400,000 payment to 202.

The Bank moved to strike out paragraphs 55 and 58.

Dr. Robert Grossman

[12] A somewhat similar transaction was pleaded by Robert Grossman. The Statement of Claim pleaded that Robert Grossman was a customer of TD at the material time.[^5]

[13] Insignia was required to repay him $200,000 come August 17, 2011. Inspektor asked him to refinance; Bob agreed to refinance and increase the amount to $350,000. On August 15, Inspektor presented Bob with a $214,500 cheque drawn on Insignia’s TD account which Bob deposited to his TD account. After a few days Bob noticed that the cheque had not cleared:

63. Accordingly, on or about August 22, 2011, Bob contacted the manager at his TD branch at Bathurst and Eglinton to inquire about why the cheque was not cleared. The branch manager told Bob that she would look into the situation and get back to him. Several weeks later, the branch manager contacted Bob to advise that she did not know what had happened to the cheque. In the meantime, the Insignia cheque was dishonoured and returned to Bob seven days after it was first deposited by him.

64. In the meantime, on August 22, 2011 Inspektor told Bob that a wire transfer or direct deposit would be made to Bob’s account at TD in the amount of $214,750. Inspektor voluntarily added $250 to the payment to compensate Bob for his troubles. Bob observed that this transfer into his TD account occurred the same day.

65. Unbeknownst to Bob at the time, however, this payment of $214,750 had not initially cleared. Rather, the credit to Bob’s account was reversed but subsequently that reversal was canceled. All of this took place without the bank manager (with whom Bob was in contact) advising Bob what was taking place, or why, despite Bob’s direct inquiries.

66. Thereafter, TD manually cleared and certified Bob’s cheque for $350,000 to 202 on August 24, 2011 to allow the funds to reach 202. TD subsequently obtained all of these funds for its own benefit in reduction of the TD Indebtedness.

67. Had TD been forthcoming with Bob about the status of the Kaptor Group’s accounts, Bob would never have issued the cheque to 202.

The Bank sought to strike out the last sentence of paragraph 65 and all of paragraph 67.

Stan Grossman

[14] The Statement of Claim pleaded that Stan Grossman was a customer of TD at the material time.[^6]

[15] Stan agreed with Inspektor to re-advance a portion of the $200,000 Insignia owed to him by August 17, 2011. On August 15 Inspektor presented Stan with a cheque in the amount of $214,500 drawn on Insignia’s account at TD which Stan deposited to his TD account. That same day Stan presented Inspektor with a cheque for $200,000 payable to 202 and drawn on his TD line of credit account. Stan specified that his cheque was to be held by Inspektor conditional upon repayment of the Insignia funds.

73. On August 22, 2011, members of Stan’s personal banking team at TD, Kelly Li and Annie Ho, called him to advise that the Insignia cheque for $214,500 did not clear. Stan was confused and asked Ms. Li to investigate further since it seemed odd to him that a cheque drawn on one TD account and deposited to another TD account should take this long to clear. Later that day, Ms. Li and Ms. Ho confirmed that “something was going on downtown” with the Kaptor Group accounts but told Stan they could not see what it was.

Stan pleaded that he called those two individuals back for more information on August 22, but TD did not provide him with any additional information.

75. On August 22, 2011, Inspektor told Stan that a wire transfer or direct deposit would be made to Stan’s account in the amount of $214,750… Stan confirmed this direct transfer of funds was made into his line of credit account on August 22, 2011.

76. Unbeknownst to Stan at the time, however, this payment of $214,750 had not initially cleared. Rather, the credit to Stan’s account was reversed but subsequently that reversal was cancelled. On August 24, 2011, TD accepted the deposit of Stan’s $200,000 cheque to allow the funds to reach 202. TD subsequently obtained all of these funds for its own benefit.

77. Had TD been forthcoming with Stan about the real reason why the cheques were not clearing and the status of the Kaptor Group’s accounts, Stan would never have issued the cheque to 202.

The Bank sought to strike out paragraph 77.

Stephen Stark and his mother, Barbara Stark

[16] The Statement of Claim pleaded that Stephen Stark and Barbara Stark were customers of TD at the material time.[^7]

[17] Stephen agreed to refinance amounts due to him from Insignia in August, 2011. On August 22 Inspektor provided Stephen with an Insignia TD account cheque in the amount of $214,500 which ultimately was manually cleared by TD on August 24, 2011:

81. On August 23, 2011 and believing that the $214,500 was returned to him, Stephen advanced $200,000 to 202 under the Co-Tenancy Agreement.

82. On or about August 24, 2011, Stephen received a call from TD advising that the $200,000 cheque to 202 was being certified and confirming whether that was “ok”. Stephen said it was fine to certify the cheque but viewed the request and the call as unusual. Accordingly, Stephen asked the TD representative why the cheque was being certified or whether there was anything going on that he should know; the TD representative said no.

83. Later that day, Stephen received another call from TD about a $100,000 cheque that his mother, Barbara, had written to 202. At all material times, Stephen handled the banking for Barbara.

84. Stephen confirmed again that the cheque could be certified even though TD did not advise him why.

85. Had TD been forthcoming with Stephen about why his cheque did not clear initially, why these two cheques were being certified and the status of the Kaptor Group’s accounts, neither he nor Barbara would have issued the cheques to 202.

The Bank sought to strike out paragraph 85.

[18] The plaintiffs also pleaded that the Bank had used the funds which they advanced to 202 to repay part of the TD Indebtedness:

After the Co-Tenancy Advances were deposited into 202’s account, TD applied the Co-Tenancy Advances, in full, towards reducing the TD Indebtedness. TD therefore received the full benefit of the Co-Tenancy Advances for itself.[^8]

[19] The Bank sought to strike out several additional paragraphs in the Statement of Claim which pleaded the causes of action asserted by the plaintiffs:

Knowing receipt

96. TD also knew or was willfully blind to the fact that the plaintiffs did not have any knowledge of the Kaptor Group’s suspicious and unusual transactions which had just been uncovered by TD. TD knew or ought to have known that the plaintiffs would never have advanced funds to 202 if they had such knowledge…

Negligence

101. TD owed the plaintiffs, as its clients, a duty of care which included the duty:

a/ to advise the plaintiffs, and each of them, that:

i/ the Kaptor Group’s accounts had been frozen only days before the plaintiffs wrote their cheques;

ii/ TD detected suspicious and unusual activity in the Kaptor Group accounts including possible fraudulent activity;

iii/ the Kaptor Group was indebted to TD in the amount of approximately $7 million even though TD was not even a lender to the Kaptor Group;

iv/ TD was the ultimate beneficiary of the cheques given by each of the plaintiffs to the Kaptor Group;

b/ to make proper inquiry of the plaintiffs, and each of them, as to the circumstances surrounding their respective advance of funds to the Kaptor Group;

c/ to ensure that Inspektor did not solicit the advances through dishonesty and deceit in circumstances where TD had already flagged Inspektor for likely fraudulent activity; and,

d/ to ensure that the plaintiffs were properly informed as to the entire circumstances surrounding the Kaptor Group to whom the plaintiffs were advancing funds.

102. TD was negligent and failed to exercise the requisite duty of care required of it in the circumstances by:

a/ failing to discharge its obligation to “know your client” with respect to the Kaptor Group;

c/ failing to advise the plaintiffs that the Kaptor Group account into which they were depositing funds, was frozen as a result of suspicious, unusual and suspected fraudulent activity;

d/ failing to advise the plaintiffs that TD was going to be the ultimate beneficiary of the funds in circumstances where TD knew, or was willfully blind to the fact that Inspektor did not advise the plaintiffs where their funds were going, and why; and

e/ failing to act as a reasonable banker would have in the circumstances.

103. Had TD discharged its duty to the plaintiffs properly, the plaintiffs would have never advanced any of the funds to the Kaptor Group and would not have suffered the losses claimed herein.

Notwithstanding the inclusion of paragraph 96 of the Statement of Claim in those paragraphs the Bank sought to strike, in its Factum the Bank stated that it took no issue with the allegations of knowing receipt which it intended to defend in due course.

V. The positions of the parties

The Bank

[20] In its submissions the Bank offered three main reasons why the attacked portions of the plaintiffs’ negligence claims against it should be dismissed.

[21] First, the Bank argued that the line of cases which limited the tort liability of a bank to third parties in connection with the fraudulent activity of a bank customer set the currently recognized limit of bank liability. TD acknowledged that if a bank is fixed with knowledge that a customer is committing a fraud, it may owe a duty in negligence to the customer’s victims to the extent of closing the fraudster’s account or reporting the fraud to law enforcement authorities. However, TD contended that it owed no duty to the fraudster’s victims to disclose its concerns to them. TD contended that the cases to date had not recognized a duty of care which required the bank to disclose to the potential victims of a fraudster customer any information which the bank knew about the customer and its activities. The Bank contended that the fact the victims of the fraudster also were customers of the Bank did not alter the nature of the duty of care because the plaintiffs were third parties to the relationship between TD and the Kaptor Group.

[22] Second, TD argued that the Court should not recognize such a duty of care because it would conflict irreconcilably with a bank’s duty of confidentiality towards it customers, in this case the Kaptor Group.

[23] Finally, the Bank contended that the duty pleaded by the plaintiffs would obligate TD “to subordinate its own interests to those of the Plaintiffs, again as a result of the Plaintiffs’ good fortune of banking with TD rather than some other financial institution”.

The plaintiffs

[24] The plaintiffs submitted that TD had mischaracterized the true nature of their pleading. The plaintiffs were not asserting negligence claims as “third parties”, but were alleging that:

TD owed them duties in their capacity as TD customers in the unique circumstances of this case where, among other things, TD took active steps to clear the plaintiffs’ cheques through the frozen accounts for TD’s own benefit. The plaintiffs do not allege, nor is it a necessary implication of their pleading, that TD owed any duties of any kind to non-customers or even that TD had a duty to contact its other customers and warn them about Eric Inspektor or the Kaptor Group…

The plaintiffs allege that TD had an obligation to warn them given that they were dealing with the Kaptor Group in circumstances where the Kaptor Group accounts were already frozen…

VI. Analysis

A. The Anns/Cooper test

[25] The Bank submitted the one must assess the legal tenability of the plaintiffs’ negligence claims through the lens of the two-stage analysis re-affirmed by the Supreme Court of Canada in Cooper v. Hobart for determining the existence of a duty of care in negligence. Restating the test from Anns v. Merton London Borough Council,[^10] the Supreme Court of Canada in Cooper stated that the analysis must focus, first, on whether the harm that occurred was the reasonably foreseeable consequence of the defendant’s act and, second, whether, notwithstanding the proximity of the parties, residual policy considerations outside of the relationship between the parties existed that might negative the imposition of a duty of care.

[26] On the first branch of the test, reasonable foreseeability of the harm must be supplemented by proximity. The inquiry a court should make under the first branch is whether the case pleaded “falls within or is analogous to a category of cases in which a duty of care has previously been recognized”.[^11]

[27] On the second branch, the focus is on the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally. As to the sequence of the analysis, the Supreme Court of Canada stated:

The second step of Anns generally arises only in cases where the duty of care asserted does not fall within a recognized category of recovery. Where it does, we may be satisfied that there are no overriding policy considerations that would negative the duty of care…However, where a duty of care in a novel situation is alleged, as here, we believe it necessary to consider both steps of the Anns test as discussed above. This ensures that before a duty of care is imposed in a new situation, not only are foreseeability and relational proximity present, but there are no broader considerations that would make imposition of a duty of care unwise.[^12]

Or, as explained by that Court in its later decision in Hill v. Hamilton-Wentworth Regional Police Services Board:

Proximity may be seen as providing an umbrella covering types of relationships where a duty of care has been found by the courts. The vast number of negligence cases proceed on the basis of a type of relationship previously recognized as giving rise to a duty of care…The categories of relationships characterized by sufficient proximity to attract legal liability are not closed, however. From time to time, claims are made that relationships hitherto unconsidered by courts support a duty of care giving rise to legal liability. When such cases arise, the courts must consider whether the claim for sufficient proximity is established. If it is, and the prima facie duty is not negated for policy reasons at the second stage of the Anns test, the new category will thereafter be recognized as capable of giving rise to a duty of care and legal liability. The result is a concept of liability for negligence which provides a large measure of certainty, through settled categories of liability - attracting relationships, while permitting expansion to meet new circumstances and evolving conceptions of justice.[^13]

[28] The Bank argued that the duty of care proposed by the plaintiffs was not recognized by any existing authorities and, as well, the proposed duty failed both stages of the Anns/Cooper test because it would create an irreconcilable conflict between a bank’s contractual duty of confidentiality towards its customers and its tort duty towards third parties. The plaintiffs submitted that it was well-established that a duty of care arises in the relationship between a bank and its customer.

B. The existing jurisprudence concerning the duty of care owed by a bank to its customer

[29] In the context of a motion brought under Rule 21.01(1)(b), the question to be posed in respect of the first stage of the Anns/Cooper test is as follows: is it plain and obvious, assuming the facts pleaded to be true, that the claim in negligence pleaded does not fall within, or is not analogous to, a category of cases in which a duty of care has previously been recognized?

[30] The parties could not point to another case into which the facts pleaded in this action could fit four-square, but that does not end the first step analysis. Are the plaintiffs’ negligence claims analogous to a category of cases in which a duty of care has previously been recognized?

[31] Certainly the law recognizes that the relationship between a bank and its customer is one based not only on contract, but one which may be supplemented by a standard of reasonableness in tort.[^14] In Don Bodkin Leasing Ltd. v. Toronto-Dominion Bank this Court described the duty of care as a duty to exercise a reasonable standard of care – i.e. to act towards the customer as a prudent banker would act in the circumstances.[^15] A bank owes a duty of care to a customer to verify the corporate existence and signing authorities of the customer,[^16] and it owes a duty of care to a customer to ensure that all cheques drawn on the customer’s account reflect authorized signing authorities.[^17]

[32] From a contract law perspective, the law has recognized that a bank has a duty under its contract with its customer to exercise reasonable care and skill in performing all banking services with its customer. The standard of reasonable care and skill is an objective one. Whether or not it has been attained in any particular case has to be decided in the light of all the relevant facts, which can vary almost infinitely.[^18]

[33] In the present case, the plaintiffs have pleaded that (i) they were customers of the Bank at the material times, (ii) the Bank had formed “serious concerns and suspicions about Inspektor’s honesty and integrity and the bona fides of the Kaptor Group generally, including possible fraudulent activities in the TD accounts”, (iii) as a result, the Bank had frozen the accounts of the Kaptor Group, (iv) the Bank had entered into an Accommodation Agreement with the Kaptor Group to repay the overdraft of some $7 million, and (v) Inspektor had told the Bank that he would raise money from investors to satisfy the TD Indebtedness. For the purposes of this motion, I must proceed on the basis that those facts are true.

[34] The plaintiffs’ negligence claims concern how the Bank acted towards and communicated with them after it had frozen the accounts of the Kaptor Group and was armed with the knowledge the plaintiffs allege the Bank possessed about Kaptor’s fraudulent activities and intention to use investor funds to repay the TD Indebtedness. Specifically:

(i) The allegations asserted by Eric Grossman were based on a telephone call which the Bank had made to him, as a customer, on August 23, 2011, asking him to confirm that he had written a cheque in favour of 202 and that he wanted the cheque to be cleared: Statement of Claim, paras. 55 and 58;

(ii) The allegations asserted by Robert Grossman, another TD customer, stemmed from a call which he had made to the manager at his TD branch to inquire why an Insignia cheque made out to him, and which he had deposited into his TD account, had not cleared: Statement of Claim, paras. 65, 66 and 67;

(iii) The allegations made by another Bank customer, Stan Grossman, flowed from a call he had received on August 22, 2011, from his personal banking team at TD: Statement of Claim, paragraphs 73, 76 and 77; and,

(iv) The allegations made by Stephen Stark, another Bank customer, stemmed from communications made to him by the Bank on August 24, 2011, asking him to confirm that it would be “ok” to certify cheques which he, then his mother, had written in favour of 202: Statement of Claim, paras. 82 to 85.

Common to all those allegations were the assertions that had the Bank been forthright with their plaintiff customers in those bank-customer communications, the plaintiff-customers would not have suffered losses.

[35] As pleaded, the allegations of negligence advanced by the plaintiffs turn on around what the Bank did or did not say to its customers in communications which it had with them. Tort law already recognizes a duty owed by a bank to act towards its customer as a prudent banker would act in the circumstances. Contract law also recognizes a similar duty arising out of the terms of the contract between the bank and its customer, and in Central Trust Co. v. Rafuse the Supreme Court of Canada held that the existence of a contract does not preclude reliance on concurrent or alternative liability in tort.[^19] In those circumstances, given the focus of the first step in the Anns/Cooper test on the element of proximity and foreseeability in the relationship between the plaintiffs and the defendant, I conclude that it is not plain and obvious that the negligence claims asserted by the plaintiff-customers against their Bank do not fall within, or are not analogous to, a category of cases in which a duty of care has previously been recognized.

[36] The Bank disputed that proposition, but before turning to its arguments, let me refer to a pair of cases which, although they did not involve claims sounding in negligence, did deal with the obligation of a bank to be forthright with its customers about the financial position of other bank customers with whom they were dealing. The cases involved the fallout back in the late 1980s from the failure of the Stonebridge Group of companies. In the first case, Canadian Imperial Bank of Commerce v. Brown, that bank made available loans to investors to whom another one of its customers, the Stonebridge Group of companies, was promoting units of a limited partnership engaged in the breeding and showing of Egyptian Arabian horses. One set of investors, the Browns, borrowed money from the CIBC to purchase a unit in the limited partnership. Prior to the loan the Browns had not had any banking relationship with the CIBC. At the time it made the loan the bank was aware that the Stonebridge Group was in financial difficulty and the bank had called its loans to the Stonebridge Group; the CIBC did not disclose that information to the Browns.

[37] After the Browns took out the loan, Stonebridge’s business went south. The bank thereupon sued the Browns on their promissory note for the loan. Gillese J., as she then was, dismissed the bank’s action, holding that the loan was an unconscionable transaction. Her reasons are worth quoting at some length:

(decision text continues verbatim as above until the end of the judgment, including sections VI–VII and the full footnote list, unchanged)

[58] For those reasons, I dismiss the Bank’s motion. At the conclusion of the oral hearing counsel agreed that the successful party on this motion should be entitled to an award of costs in the amount of $15,000.00. Accordingly, I order the Bank to pay the plaintiffs costs fixed at $15,000.00 within 30 days.

D. M. Brown J.

Date: June 12, 2014

[^1]: Statement of Claim, para. 28.
[^2]: [2011] 3 S.C.R. 46, paras. 19 to 21.
[^3]: Ibid, paras. 17, 22, 23 and 25 (emphasis added).
[^4]: Statement of Claim, paras. 2, 35, 50 and 101.
[^5]: Statement of Claim, paras. 3, 35, 61 and 101.
[^6]: Statement of Claim, paras. 4, 35, 70 and 101.
[^7]: Statement of Claim, paras. 35 and 101.
[^8]: Statement of Claim, paras. 33 and 45.