• Post category:Court Cases

Pourshafiey c. Toronto-Dominion Bank, 2018 QCCS 3202

Can a bank close a debtor’s account with no explanation?

Moneywise Financial (“MF”) is a money-services business that helps its clients, among other things, transfer money to and from Iran. The Debtor is the principal of MF.

On October 1, 2012, the Toronto-Dominion Bank (“TD”) informed the Debtor, without explanation, that it would end its banking relationship with him. He was given 30 days before TD would close several accounts, including MF’s US and Canadian dollar accounts and the Debtor’s personal investment account. His home equity line of credit would be closed in 60 days and he would have to repay $767,049.38 (the “HELOC Loan”). TD also terminated MF’s wire service without notice and without explanation, so MF was no longer protected against fluctuations in exchange rates. The Debtor had no way of knowing if the wire service would be restored or whether he had to increase the fees that he charged to his clients. The business was unable to general revenue or profits without the wire service.

The Debtor and MF sought permanent injunctions ordering TD to reinstate its banking facilities under MF’s business accounts and the Debtor’s home equity line of credit, and damages for lost profits and mental suffering caused when their accounts and the wire service were terminated. TD argued that it had the right to close the banking facilities without explanation.

Pursuant to section 28 of the Business Banking and Services Agreement(“BBSA”) entered into by the parties in September 2009, TD had the right to terminate a service upon giving written notice. It had the right to act without notice if the client was in default, in financial difficulty, or was using the account or service for illegal activities.

Before closing an account, a bank must provide sufficient notice, the length of which is case-specific. When an account is closed immediately, the bank must exercise its contractual rights in the spirit of fair play. When faced with a contract of indeterminate duration, a bank is at liberty to cancel it provided that it does so in a manner that does not cause prejudice.

The Court held that TD had a reasonable justification for ending its relationship with MF and the Debtor (together, the “Plaintiffs”), and it had the right to do so. However, it had to exercise that right responsibly, and its decision to cancel MF’s wire service immediately and without explanation was not reasonable. TD’s actions put considerable financial pressure on the Plaintiffs. It was not reasonable to encourage the Plaintiffs to transfer many business and personal accounts to TD and then, in one fell swoop, cancel a fundamental business service without notice, close several other accounts with 30 days’ notice, and call for rapid reimbursement of the HELOC Loan.

A prudent and reasonable bank would have provided a notice period to MF before terminating the wire service, or would have explained that it was obliged to cancel the service immediately pursuant to any of the conditions of default enumerated in the BBSA. The Court noted that, by contrast, other banks had treated MF prudently and reasonably when closing their banking facilities. For example, the Royal Bank of Canada had given MF two and a half month’s notice, and explained the reason for its decision. The 30-day notice period that TD gave to MF was too short, given the foreseeable upheaval that closing the accounts would cause to it. A three-month notice period would have been appropriate in the circumstances.

TD pursued its own interests without considering the effect on the Debtor’s business and his personal life. The Court ordered TD to pay $15,000 to MF (which represented the revenue that MF would have earned during a 3-month notice period) for its failure to give notice or explain why it terminated the wire service, $34,000 to the Debtor for the inconvenience and stress suffered, and $27,624.62 for extrajudicial fees claimed.

CounselAlan M. Stein of Tatner & Tatner for the Plaintiffs and Ayse Dalliand Soo Bin Chun of McCarthy Tétrault LLP for the Defendant