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A Bank's Obligation to Act In Good Faith

In a recent case out of the Quebec Superior Court, Pourshafiey v Toronto-Dominion Bank 2018 QCCS 3202, a former client of the Toronto-Dominion Bank, Hossein Pourshafiey, sought an injunction and damages against TD Bank when TD Bank, without explanation, ended its banking relationship with him and his company. TD Bank provided 30 days' notice that it was closing a number of his and his company's accounts, 60 days' notice of closing his home equity line of credit, and no notice that it was closing the wire service that Mr. Pourshafiey's company relied upon in order to be able to transfer money to and from Iran for its clients - the crux of its business.

TD Bank defended its actions saying that it had a right to close the accounts without explanation. The court did not agree and held that, while TD Bank did have a reasonable justification for ending its relationship and had the right to do so, it had to exercise that right responsibly. TD Bank was required to act in good faith and to exercise its contractual rights in the spirit of fair play. TD Bank had not done so as it had acted in its own best interests without considering or tempering the impact of its actions on Mr. Pourshafiey or his company. The court held that a prudent and reasonable bank would have provided Mr. Pourshafiey's company with a notice period before it cancelled the wire service and the various accounts, which in this case would have been three months.

TD Bank was held liable for the foreseen and foreseeable damages it caused Mr. Pourshafiey and his company when it failed to provide reasonable notice. Accordingly, among other awards, the court awarded damages to Mr. Pourshafiey and his company equal to three months' lost revenue (in lieu of the notice he should have received) plus $34,000 to Mr. Pourshafiey for the stress and inconvenience he endured when TD Bank acted unreasonably and caused him prejudice.

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