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Banks do not owe a duty of care to their customers

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A recent Ontario case confirms that, absent special circumstances, banks do not owe a duty of care to their customers.

In Royal Bank of Canada v. Dhupar, 2014 CarswellOnt 7281 (S.C.J.), the corporate defendants purchased franchises which were financed by RBC.  The individual defendants, who were the principals of the corporate defendants, guaranteed RBC's loans.  The corporate defendants defaulted in payment and RBC sought to enforce its guarantees.

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One of the allegations the individual defendants raised was that someone unknown to them had provided RBC with fraudulent Bank of Montreal statements which indicated that the defendants had more money in their BMO accounts than they actually had.  Consequently, the defendants alleged that the loans ought not to have been approved and that RBC had breached a duty owed to them to review with them all of the financial information it had in its files which it was relying upon in order to decide whether to make the loans.

The Court followed various other decisions in stating that "...generally speaking, the relationship between a financial institution and its customer borrower is a purely commercial relationship of creditor and debtor."  The Court held that the relationship between a bank and its customer is not a fiduciary relationship where the bank has the responsibility of look out for the best interests of its customer.  Rather, it is a typical commercial relationship where each party protects its own interests.  There were no facts before the Court that would justify elevating the relationship to a fiduciary relationship where the bank owed a duty to defendants to look out for their best interests.  Consequently, if RBC had failed to adequately perform its due diligence it merely failed in a duty that it owed to itself and not its customers.

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