Ontario Court Of Appeal Dismisses $5B Negligence Claim Relating To Stanford Ponzi Scheme

• Published date: 22 November 2022
• Subject Matter: Litigation, Mediation & Arbitration, Trials & Appeals & Compensation
• Law Firm: McCarthy Tétrault LLP
• Author: Canadian Appeals Monitor, Geoff Hall, Junior Sirivar, Christine Wadsworth, Alison Bond, Erin Chesney and Jacob Klugsberg

Background

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 Decision¹

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:

1. 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.
2. 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.
3. 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 Decision²

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:

1. Did the trial judge err in her duty of care analysis?
2. 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?
3. 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...