Home Case Law Canada Bank Customer Account Closed Because of the United States Sanctions

Bank Customer Account Closed Because of the United States Sanctions

Case Law

Pourshafiey c. Toronto-Dominion Bank

Before The Honorable Gregory MOORE, J.S.C. July 20th, 2018

Facts and background:

Mr. Pourshafiey’s bank account closed because of the United States Sanctions. This case shows what will happen if Canadian banks abruptly close a customer’s account without sufficient notice.

Mr. Hossein Pourshafiey is an Iran native who emigrated to Canada in the 1970s. He founded a money transfer business named Moneywise Financial in 1998, after establishing several other businesses in various industries.

Moneywise Financial allows customers to transfer money to and from Iran for various purposes ranging from family support to tuition and school expenses. It also helps Montreal residents to send and receive from and to the USA.

Mr. Pourshafiey’s contributions to Montreal’s Iranian community are significant, as evidenced by the Seena Cultural Centre he established to help newly arrived immigrants from Iran.

Several business and personal accounts owned by Mr. Pourshafiey, as well as the Seena Cultural Center bank account, are held by the Toronto-Dominion Bank (TD Bank).

On October 1st, 2012, TD Bank informed Mr. Pourshafiey that it would end their banking relationship without providing any further explanation. This notice also informed Mr. Pourshafiey that he was given 30 days before the bank would close Moneywise Financial’s US and Canadian dollar accounts, the accounts of the Seena Cultural Center, and two others of his companies, and his personal investment account. In addition, his home equity line of credit was also to be closed in 60 days, leaving him with a sum of $767,049.38 to repay.

Moneywise Financial filed a suit against TD Bank, claiming:

  • A permanent injunction ordering TD Bank to reinstate its banking facilities under its business accounts; and
  • $275,000 in damages (the value of its business or lost profits).
  • A permanent injunction ordering TD Bank to reinstate his banking facilities under his home equity line of credit;
  • $250,000 for the inconvenience and stress he has suffered since October 1, 2012 ($50,000 per year for 5 years);
  • $50,000 in punitive damages pursuant to section 49 of the Quebec Charter of Rights and Freedoms due to discrimination based on his national origin; and
  • $50,000 in extrajudicial fees.

Questions to be examined by the court:

TD Bank requires the court the dismissal of the claims, affirming that it had the right to close the accounts without explanation.

The court, therefore, had to determine if the bank had such a right and if no, what are the consequences of this termination. Also, the judge was to assess the damage claimed by the plaintiff and exercise its discretion in determining adequate compensation.

Court’s findings:

Concerning the right to close the accounts, the court held that TD Bank had a reasonable justification for ending its relationship with the plaintiffs, and it had the right to do so.  However, the court finds that this right should not be exercised carelessly as the damage caused to the customer could have a significant impact on the customer’s finances and business.

With that said, Justice MOORE considers that TD Bank’s decision to cancel Moneywise Financial’s wire service immediately and without explanation was not reasonable. The wire transfer service provided to Moneywise Financial served as a guarantee against the fluctuations of exchange rates. The immediate suspension of this service exposed Mr. Pourshafiey’s business to uncertainty pertaining to the inability or difficulty in determining the transfer fee he needed to charge for his business to remain profitable.

Hence, failure to act reasonably towards Moneywise Financial, coupled with the simultaneous closing of all of Mr. Pourshafiey’s other business and personal accounts, including the call to reimburse a $767,000 home equity line of credit within 60 days, shut off the plaintiffs’ revenue while demanding a significant repayment, which put considerable financial pressure on Mr. Pourshafiey who said it felt like being hit by a sledgehammer. 

The court proceeded to find that the bank’s notice period was too short, considering the circumstances. As a matter of fact, other banks had decided to close Mr. Pourshafiey’s accounts with a notice period of three months, which was regarded as enough for him to rearrange his business. So, not only was the notice period given by TD Bank too short, but also, their attempt to force the plaintiff to withdraw his case was regarded as intimidation.

In this light, TD Bank was found to have acted in its own interest, without considering the effect on Mr. Pourshafiey’s business and his life.  The lack of explanation left him confused, and, as a result, he couldn’t explain what was happening to him neither to his family members neither to the community to which he belonged. Had Mr. Pourshafiey not sued, he would never have learned why TD Bank decided to act in such an aggressive way, causing his business to collapse and his family to go through hardship. The bank had the opportunity to provide such an explanation by answering to the plaintiff’s letters or its written defense or during pre-trial discovery. Failure to do so until the second-last day of trial was found to be faulty.

This is why Justice MOORE held that TD Bank must compensate for the harm it caused the plaintiffs, including the reimbursement of their legal fees to bring the case to trial.  However, applications for permanent injunctions were dismissed because they could not be issued in violation of the contract existing between the bank and the plaintiff, giving the bank the right to close the accounts.

Mr. Pourshafiey was granted an order for Toronto-Dominion Bank to pay $15,000 with interest at the legal rate from December 19th, 2012 and additional indemnity provided for at article 1619 of the Civil Code of Quebec

He was also granted an order for Toronto-Dominion Bank to pay him $34,000 plus interest at the legal rate from December 19, 2012, and the additional indemnity provided for at article 1619 of the Civil Code of Quebec,

He was also granted an order for TD Bank to reimburse the extrajudicial fees incurred by him in the amount of $27,624.62;

What is the consequence of this ruling?

This ruling shows banks that they have the right to close accounts held in their books if they have lawful justifications for doing so. However, this right should be exercised reasonably by giving sufficient notice period to the customer for instance. The bank must not consider only its own interest but also see to it that its decision doesn’t cause hardship to the customer. If the decision causes harm to the customer, it may be held liable and required to compensate for the loss.

Read the full case law at CanLII




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