A bank customer who was defrauded when hackers accessed his email account to instruct a bank to make unauthorized wire transfers was unable to recover his money from the bank, which followed instructions sent to it by email (as it was allowed and required to do under the banking contract). “The fact that a customer is a victim of fraud does not result in an automatic transfer of liability to the customer’s bank”.
Du v. Jameson Bank, 2017 ONSC 2422, per Beaudoin, J. 
FACTS AND ISSUES:
The Plaintiff Du was victimized by someone who hacked into his email account and instructed the Defendant bank to execute two wire transfers from Du’s account. Du had operated businesses in Canada for 16 years. Before dealing with the Defendant Jameson Bank (the “Bank”) he had operated bank and brokerage accounts and signed many agreements with financial institutions.
In January 2013 Du opened a foreign exchange account with the Bank. This followed email communications from Du at firstname.lastname@example.org to the Bank, and Du signed an application form which provided as follows:
Du acknowledged receiving the Bank’s Terms and Conditions but did not read them, as he trusted banks and never read their contracts. The relevant Terms and Conditions were as follows:
2.2 Reliance on Instructions. Jameson may rely and act upon telephone, facsimile transmission and any other electronically transmitted instructions from or purporting to be from you (including an authorized person) and which Jameson believes in good faith to be genuine.
5. Wire transfers
. . .
d) Absent gross negligence or willful misconduct by Jameson or any of its employees, Jameson shall not be responsible or liable for any damages, losses, expenses or the like that you may directly or indirectly incur or arising from or in connection with any wire transfer. Jameson shall not be responsible for any failure, unavailability or malfunction of communications, electronic or other equipment which may result in mis-delivery, non-delivery or delays in delivery of the funds transferred nor shall it be held responsible for the insolvency, neglect, conduct, mistake, default, delay, misappropriation, negligence or breach of contract by any other bank, entity or person, in connection with the wire transfer, without regard to any agency relationship those persons or entities may have with Jameson.
7. Limitation of Liability
. . .
7.3 Your Responsibility. (A) You are responsible to ensure the accuracy of settlement and delivery instructions in respect of each and every Deal (including, but not limited to, any wire instructions). Jameson shall not, in the absence of gross negligence or wilful misconduct on the part or that of its employees, be responsible for failure, delays or errors in the receipt of such instructions and Jameson shall have no liability for consequential or special damages. (B) You agree to maintain security systems, procedures and controls to prevent and detect (i) the theft of funds; ii) forged, fraudulent and unauthorized instructions and electronic transfer of funds by anyone who is not an Authorized Person; (iii) losses due to fraud or unauthorized access to the service by anyone who is not an Authorized Person.
. . . .
(D) . . . You agree to keep any keys, access codes, security devices and verification procedures safe and confidential, and change them at least as often as the service materials specify. We may establish a routine to verify the source and authenticity of instructions you give us and may verify an instruction before acting on it. We may act on instructions that contain the verification routine without checking the authority.
8.6 Electronic Communications. Jameson may maintain a database in respect of all of your instructions, including recordings of telephone conversations. Jameson’s records will be conclusive and binding on you in any dispute, including in any legal proceeding, as the best evidence of your Deals, in the absence of clear proof that Jameson’s records are erroneous or incomplete. . . . You agree with Jameson that notwithstanding the risks associated with electronic communications, you hereby authorize Jameson to provide such services in compliance with the procedures established by Jameson from time to time. Any electronic communication that Jameson receives from you or in your name will be considered to be duly authorized and binding upon you. Jameson will be authorized to rely and act upon any signature appearing on a facsimile transmission that purports to be the signature of an Authorized Person.
Du listed email@example.com (the email address from which he first contacted the Bank) as his email address for electronic communications. He admitted that he was aware of the risks relating to electronic communications from the beginning, that only he could control his security settings, and that protecting the integrity of his email account was his sole responsibility.
In January and February 2012, Du engaged in email communications with the Bank from firstname.lastname@example.org and instructed the transfer of $32,414 USD to a home builder in Arizona as a down payment on a home there. Jameson complied and Du received notice of the transfer and made no complaints about how that transaction was completed.
In early May 2012, the Bank received (and responded to) several emails from email@example.com which purported to instruct the Bank to make a number of wire transfers from Du’s Bank account, including:
- A May 10 email instructing the Bank to send $45,000 USD to the EBS Bank of Singapore, which Du claimed was fraudulent in the Action. The Bank complied and received an email back from firstname.lastname@example.org acknowledging electronic receipt of the Bank’s confirmation that the transaction had been completed and indicating that an additional wire transfer would soon be requested.
- On May 11, an email from email@example.com instructed the Bank to wired $138,888.88 USD to a title agency in Arizona to complete the purchase of the home there. The Bank responded that there was only $99,463.93 USD in Du’s Bank account after the $45,000 USD transfer the day before, insufficient to complete this second transfer instruction. Du denied ever seeing this email from the Bank.
- Later on May 11, firstname.lastname@example.org indicating that the funds necessary for the $138,888.88 USD transfer request would be supplied to the Bank at a later date and instructed the Bank to wire a further $90,000 USD to the EBS Bank of Singapore and also to wire $3,000 to Du’s Wells Fargo account.
- Du received an email purporting to be sent from the Bank that this transfer would be completed but this came from a email address slightly altered from that from which previous legitimate emails from the Bank had been sent. The Bank denied sending this email.
- The Bank wired the $3,000 and Du acknowledged that it made its way into his Wells Fargo account.
- In these email exchanges messages from email@example.com to the Bank provided accurate details of Du’s main bank, the person at that bank he was dealing with and details about having a cheque from that other bank certified and delivered to the Defendant Bank which only Du could have known. Du could not explain how these particulars could have been discovered by the hackers.
- The Defendant Bank’s internal policies required the Bank to verify instructions to transfer amounts in excess of $150,000 CAD by telephone with the client. None of the Du transactions exceeded that amount.
On May 14, the Bank learned that the emails instructing it to wire the $45,000 and $90,000 USD amounts to the Singapore bank were fraudulent. Du alleged that the instructing emails had been sent by hackers who had accessed his email account. Criminal proceedings were instituted against individuals in Singapore, but this did not result in Du receiving any restitution. Du filed a complaint against the Bank with the Ombudsman for Banking Services and Investments (“OBSI”) which the OBSI dismissed, finding that there was no basis for the Bank to have to indemnify Du.
In April 2014 AFEX purchased the assets of the Jameson Bank. In May 2014 the Jameson Bank was continued as a corporation under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 as the Jameson International Foreign Exchange Corporation (“JIFEC”).
Du sued Jameson Bank in negligence only. In the case at Bar, Du sought to amend his Statement of Claim to add the causes of action of breach of contract, breach of fiduciary duty, conversion and bad faith, and to substitute JIFEC as the Defendant for its predecessor Jameson Bank, to which the Bank consented. The Bank opposed Du’s application to add AFEX as a Defendant and to add a corporate oppression remedy under the Ontario Business Corporations Act, R.S.O. 1990, c. B-6 and a claim for money laundering under the federal Proceeds of Crim (Money Laundering) and Terrorist Financing Act, S.C. 2000, c. c.17.
The Bank applied for summary dismissal of the claims against it.
HELD: For the Defendant Bank, opposed claim amendments refused and summary dismissal granted.
The Court refused to allow the opposed amendments.
- The Court would not add AFEX as a Defendant because that could only be justified for the sought-after oppression remedy, which the Court dismissed.
- It was not necessary to add JIEFC as a Defendant in light of admissions that any judgment against its predecessor the Jameson Bank would be enforceable against JIEFC.
- No oppression remedy was available to Du under the Ontario Business Corporations Act, since the Bank was never an OBCA corporation but a Bank and then a federal corporation.
- No claim was possible under the money laundering legislation since that legislation’s requirement that a financial institution ascertain the true identity of a proposed customer because there was an exception where the customer had signed a signature card, which Du had done.
The Court summarized the law regarding applications for summary judgment in light of the Supreme Court of Canada decision in Hryniak v. Mauldin, 2014 SCC 7:
52 The Supreme Court of Canada determined at paras. 4 and 5 of Hryniak v. Mauldin, 2014 SCC 7 (S.C.C.) the following:
4. In interpreting these provisions, the Ontario Court of Appeal placed too high a premium on the “full appreciation” of evidence that can be gained at a conventional trial, given that such a trial is not a realistic alternative for most litigants. In my view, a trial is not required if a summary judgment motion can achieve a fair and just adjudication, if it provides a process that allows the judge to make the necessary findings of fact, apply the law to those facts, and is a proportionate, more expeditious and less expensive means to achieve a just result than going to trial.
5. To that end, I conclude that summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims.
53 As a matter of public policy, where a fair and just adjudication can be achieved in a summary judgment motion, a trial is not required.
. . .
33 As I read Hryniak, the court on a motion for summary judgment should undertake the following analysis:
1. The court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial;
2. On the basis of this record, the court decides whether it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits;
3. If the court cannot grant judgment on the motion, the court should:
a. Decide those issues that can be decided in accordance with the principles described in 2), above;
b. Identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues;
c. In the absence of compelling reasons to the contrary, the court should seize itself of the further steps required to bring the matter to a conclusion.
The Court summarily dismissed the other various claims made by Du. The Court confirmed that where parties like Du who sign agreements without reading them are bound by them (paragraphs 58 – 61). The Court essentially held that the Bank had only acted in accordance with Du’s instructions and pursuant to the term of its Terms and Conditions (to which Du had agreed).
- The Court held that “[t]he fact that a customer is a victim of fraud does not result in an automatic transfer of liability to the customer’s bank” (paragraph 64).
- With respect to breach of contract, the Court held:
55 At the time of the critical events in issue; namely May 2012, Jameson had a contractual relationship with Du which can be best described as a creditor and debtor relationship.2 Jameson was not in any type of advisory relationship with Du. Du opened a foreign exchange account with Jameson which specifically permitted him to give instructions electronically to Jameson through a specific email address controlled solely by Du.
56 Jameson had a common law and contractual obligation to honour its customers’ instructions and was entitled to treat its customer’s mandate at its face value. Jameson was required to act on its customers instructions so long as he or she had sufficient credit. Pursuant to the terms of the agreement, Jameson was not obligated to question any transaction which was in accordance with its mandate and was not required to question the instructions received for Du’s account.3
57 In this case, Jameson was merely complying with the instructions received from Du via the email address provided by him in his application. This is the same email address subsequently used for the purposes of communicating instructions for an authorized transfer on February 6, 2012. Jameson had no reason to believe the instructions to wire transfer money from Du’s foreign exchange account to beneficiaries located in Singapore, received just over two months later, were fraudulent. The emails made reference to Du’s personal banker “Julie” at BNS and to a cheque that had been delivered to BNS for certification and disclosed other details that could only be known to Du.
. . .
62 The terms of the application and the account agreement are clear. Du was entitled to provide instructions to Jameson by email address and he did so without complaint to effect a wire transfer to a US account shortly after his opening of the foreign exchange account. Jameson was contractually entitled to rely on those instructions. Du had the sole ability and responsibility to control the security of the email account which was the source of the impugned transactions.
63 There was no obligation in law for Jameson to question the purported transfer. Jameson’s compliance with the instructions received from Du’s email address did not breach any internal policy or any term of the agreement. The money value of the wire transfers did not require Jameson to obtain his further authorization and confirmation.
- More specifically, the Court held that the contractual liability exclusion clause in the Terms and Conditions immunized the Bank from liability as Du had tendered no evidence of “gross negligence” or “willful misconduct” required by that clause. There was “no basis in law that would preclude the Defendant from relying on the exclusion of liability clause” (paragraph 74).
- With respect to negligence, the Court held:
68 The agreement between the parties identified the risks associated with this account, namely operating on the basis of electronic communications. The agreement made it clear that Du assumed the duty of care in relation to that risk. Furthermore, the agreement established standard of care by which Jameson could be held responsible; namely “gross negligence” or “wilful misconduct.”
69 The facts and the evidence establish that the alleged loss suffered by Du was caused by a purported fraud committed against Du by an unknown fraudster using Du’s email address to give instructions to Jameson. This is the email address used by Du in his initial contact with Jameson. Jameson had historically used that address to communicate with Du and had successfully completed a transaction while relying on that email address.
70 There is nothing on the face of those instructions that should have alerted Jameson to a fraud or that Jameson should have rejected the instructions it had duly received from Du’s authorized email address. Those emails contain information that could only be known to Du; knowledge of a cheque to be certified and its amount, the reference to “Julie” at BNS, a reference to her phone number, and the knowledge of a Wells Fargo account in Florida.
The Court concluded as follows:
78 There is no doubt that the Plaintiff is convinced that Jameson should be held responsible for his loss. His counsel has attempted to present every possible argument to support that conclusion. Regrettably, the facts and the law do not support him. The agreement he signed with Jameson is complete bar to his claims. Du and Jameson were the unfortunate victims of a fraudster who hacked Du’s email account. It was Du’s failure to secure that account that led to the loss. He assumed that responsibility and I am satisfied on the record before me that there is no genuine issue requiring a trial and that summary judgment should be granted in favour of the Defendant.