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5 December 20223 minute read

Ontario Court of Appeal finds no general duty of care by banks for customer “insider abuse”

When money is lost in fraud cases and similar circumstances, parties often seek recovery from the financial institution involved. In the Ontario Court of Appeal judgment in McDonald v Toronto-Dominion Bank [McDonald]‎, the Court held that there is no all-encompassing duty of care between banks and their customers in relation to “banking services”. Further, on an individual proximity analysis, no such duty exists.

Claim against TD Bank

The case involved an action by the joint liquidators of Stanford ‎International Bank Limited against Toronto-Dominion Bank. SIB was a ‎vehicle used to defraud banking customers in what is considered to be one of the largest Ponzi schemes ‎in history. In Canada, TD Bank acted as SIB’s primary correspondent bank (effectively acting as SIB’s ‎agent in the execution and processing of transactions). In the action, the joint liquidators claimed that TD ‎bank was liable for negligent performance of service and should have taken steps to prevent insider abuse within SIB. The claim was dismissed by the trial judge.

Ontario Court of Appeal finds no duty of care

First, the Court of Appeal held that the law has not established a general category of proximity between banks and their customers relating to “banking services”. The Court noted that “[t]o accept such a broad category would be to ignore that banks undertake an extremely broad range of different activities for very different purposes”. As such, defining the relationship of proximity as simply “bank-customer” would be “to ignore the reality that banks and their customers are not engaged in a one-size-fits-all relationship.” The duty of care of a bank depends on the specific services provided to a customer, given the variety of services banks offer. Further and more specifically, the Court held that the established case authorities do not establish a relationship of proximity that includes a duty to monitor the client for the purpose of detecting internal fraud.

Second, the Court of Appeal considered whether a full proximity analysis resulted in a duty of care owed by TD Bank. The duty was described as a duty to “review the relationship, shut down the account, and cease providing services” once the “risk of insider abuse” had increased. The ‎Court of Appeal affirmed that TD Bank did not undertake to monitor the internal operations of SIB to prevent insider abuse. To impose ‎responsibility on TD Bank to monitor the internal affairs of SIB would go beyond its undertaking as a ‎correspondent bank. A correspondent bank does not assume the role of an auditor. Given the absence ‎of such undertaking, it follows that SIB could not reasonably rely on TD Bank to protect it from insider ‎abuse. The Court agreed with the trial judge that there was not the necessary proximity to give rise to a novel duty of care.


This decision and the finding that there is no general category of proximity between banks and their customers offers a welcome finding for financial institutions. The Court’s understanding of the role of financial institutions and the impact of that role on the duty of care analysis constitutes an important precedent. Further, the specific finding relating to the lack of general duty to “detect internal fraud” makes clear that financial institutions do not have this general role of protection for customers.