Ontario Court of Appeal Dismisses $5B Negligence Claim Relating to Stanford Ponzi Scheme
Between 1991 and 2009, The Toronto-Dominion Bank (“TD Bank”) provided correspondent banking services to Stanford International Bank (“SIB”), an offshore bank in Antigua, run by Allen Stanford. SIB sold certificates of deposit (CDs) to investors around the world. In February 2009, at the height of the financial crisis, SIB collapsed and was revealed to have been a Ponzi scheme – likely the second largest in history after the Bernie Madoff Ponzi scheme. Court appointed liquidators of SIB (the “Joint Liquidators”) sued TD Bank alleging knowing assistance and negligence, stating that TD Bank should be responsible for essentially all of the losses of the CD investors – an amount in excess of US$5 billion.
Ontario Superior Court of Justice’s Decision
The case went to trial in January 2021, and proceeded virtually for 43 days with 29 witnesses and thousands of documents. On June 8, 2021, Justice Barbara Conway of the Ontario Superior Court of Justice (Commercial List) dismissed the action, finding:
- There had been no knowing assistance: The Joint Liquidators admitted that TD Bank had no actual knowledge of the fraud perpetrated by Mr. Stanford. The question was therefore whether TD Bank was reckless or willfully blind to Mr. Stanford’s breach of his fiduciary duty. The trial judge found that there was no basis to conclude that TD Bank knew or suspected that Mr. Stanford was breaching his fiduciary duty to SIB or that TD Bank became aware of the need to inquire about whether Mr. Stanford was defrauding SIB.
- A duty of care in negligence did not arise as the Joint Liquidators failed to establish the required proximity to give rise to the novel duty of care proposed in the case.
- Even if a duty of care did arise, TD Bank did not breach the standard of care of a reasonable banker.
The Joint Liquidators appealed the trial judge’s decision.
Ontario Court of Appeal’s Decision
On November 17, 2022, the Court of Appeal released its decision, unanimously dismissing the Joint Liquidators’ appeal.
The Court of Appeal considered three issues on appeal:
- Did the trial judge err in her duty of care analysis?
- Did the trial judge err in finding that if there was a duty of care, there would not have been a breach of the standard of care?
- Did the trial judge err in the interpretation and application of Rule 53.07 of the Rules of Civil Procedure?
Duty of Care
The duty of care analysis was divided into two parts: (i) did the relationship between TD and SIB fall within an established or analogous category in which a duty of care has been recognized?; and (ii) was there sufficient proximity to ground a duty of care?
i. No Established or Analogous Category
The Court of Appeal confirmed that under the Anns/Cooper framework, establishing a duty of care requires a two-step analysis. At the first stage, the court asks whether the defendant owes the plaintiff a prima facie duty of care by considering proximity and foreseeability. If a prima facie duty is established, the analysis then moves to the second stage where the question is whether there are residual policy considerations that negate the imposition of a duty of care.
Under the first stage, if a relationship falls within a previously established category, or within an analogous one, proximity will be shown. In these circumstances, so long as the injury is reasonably foreseeable, the first stage of the duty of care analysis will be complete.
Citing the Supreme Court of Canada’s decisions in Livent and Maple Leaf Foods, the Court of Appeal emphasized that broad categories based merely on the identity of the parties are insufficient to ground a proximity relationship. Rather, courts must take a more particularized approach, looking at both the analogous relationship and analogous circumstances, especially where it comes to cases of pure economic loss.
The Court of Appeal found that in this case, the trial judge correctly recognized that the mere fact that proximity has been recognized as existing in a bank-customer relationship in other cases, for other purposes, was insufficient to conclude that proximity exists for all purposes.
The Court of Appeal explained:
“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.
To accept such a broad category would be to ignore that banks undertake an extremely broad range of different activities for very different purposes:… 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.”
As a result, the Court of Appeal concluded that the trial judge was correct in finding that the relationship between TD Bank and SIB did not fall into an analogous category, and therefore a full proximity analysis was required.
ii. Proximity Analysis
The Court of Appeal found that the trial judge did not err in concluding that the Joint Liquidators failed to establish the required proximity.
The Court of Appeal confirmed that in cases of pure economic loss arising from negligent performance of a service, the proximity analysis is driven by two factors: the defendant’s undertaking and the plaintiff’s reliance.
The Court accepted the trial judge’s finding that the purpose of TD Bank’s undertaking was to act as SIB’s agent for the purpose of transferring funds to and from SIB and its customers.
The Court of Appeal conversely rejected the Joint Liquidators’ position that a bank should have a duty of care to protect its customers from insider abuse. According to the Court, finding such a duty of care would “expand TD Bank’s responsibilities well beyond what it undertook as a correspondent bank. It agreed to provide correspondent banking services; it did not, in the words of the trial judge, ‘assume the role of a regulator, auditor or insurer’.”
As such, the Court concluded that given the scope of TD Bank’s undertaking, “it is simply not believable that SIB detrimentally relied on TD Bank to effectively protect SIB from itself.” 
Standard of Care
On the standard of care issue, the Court of Appeal went through each of the Joint Liquidators’ alleged legal and factual errors that were made by the trial judge. The Court found that the trial judge carefully assessed the evidence, including the expert evidence as to what a reasonable bank ought to have done, made findings of fact, and ultimately concluded that TD Bank, in its capacity as a correspondent bank, acted reasonably in the circumstances.
In rejecting the Joint Liquidator’s arguments, the Court of Appeal emphasized that a trial judge is entitled to reject a witness’ evidence on certain issues and accept it on others, stating: “This is the very work of a trial judge and it does not lie to an appeal court to redo that work. It lies to an appeal court to defer to those reasoned factual findings.”
The Court concluded their analysis on the standard of care issue by affirming that the Court of Appeal “is not the forum in which to try the case. That has already happened.”
The Joint Liquidators appealed a procedural ruling made by the trial judge which had allowed TD Bank to recall a number of witnesses to testify, despite the fact that they had already been cross-examined by the Joint Liquidators under Rule 53.07 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
Rule 53.07 allows a party to summons an adverse party who has not been called or been undertaken to be called as a witness. That witness may be cross-examined by the party who called them or by any other adverse party and re-examined by a party who is not entitled to cross-examine.
At trial, the Joint Liquidators sought an undertaking from TD Bank to call ten of its current and former employees. TD Bank would not provide the undertaking, and so the Joint Liquidators sought to summon and cross-examine those witnesses pursuant to Rule 53.07.
The trial judge found it was in the interests of justice to permit the Joint Liquidators to cross-examine these witnesses pursuant to Rule 53.07 and to allow TD Bank to re-examine them.
Once the Joint Liquidators closed their case, TD Bank sought to recall three of the witnesses who had already testified pursuant to the first procedural ruling, which the Joint Liquidators opposed. The trial judge allowed the recall of the witnesses while at the same time directing TD Bank not to duplicate evidence that the recall witnesses had previously given.
The Court of Appeal rejected the Joint Liquidator’s appeal on this issue, providing the following reasons:
- There is nothing in the wording of Rule 53.07 that precludes a party from recalling a witness after refusing to undertake to call that witness in the first place.
- Pursuant to Rule 1.04(1), all rules, including Rule 53.07 are to be construed liberally in order to secure “the just, most expeditious and least expensive determination” of every proceeding based on its merits. To adopt the Joint Liquidators’ interpretation would, be at odds with Rule 1.04(1), as it would undermine the truth-seeking function of the trial.
- The trial judge’s direction allowed Rule 53.07 to fulfill its clear purpose: it allowed the Joint Liquidators to elicit evidence through cross-examination from adverse witnesses in building their case.
- The trial judge’s interpretation prevents strategic behaviour that could deprive the finder of fact of relevant evidence. For instance, if the Joint Liquidators were correct in their interpretation of the rule, there would be nothing to stop a plaintiff from strategically summoning a witness, asking a single question, and then having that witness effectively prevented from giving their evidence on cross-examination or on the subsequent re-examination.
The Authors acted for TD Bank at both the Ontario Superior Court of Justice and Ontario Court of Appeal.
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