Economic Sanctions Definition

Economic Sanctions are a tool used by countries around the world to put diplomatic pressure on a foreign country by restricting trade and/or their financial dealings. The use of the sanctions is to “advance a range of foreign policy goals, including counterterrorism, counternarcotics, nonproliferation, democracy and human rights promotion, conflict resolution, and cybersecurity.” [1]

From 2006 to 2010, the United Nations Security Council imposed sanctions on Iran, supplemented by additional autonomous sanctions from countries including Canada. A timeline of the sanctions against Iran by Canada can be found on a Global Affairs Canada website. 

While the target of these sanctions were primarily major political players and those who operate within Iran,  innocent individuals abroad can be affected as collateral damage. If financial institutions, while blindly complying with sanctions, do not perform proper due diligence.  The recent case below of Pourshafiey c. Toronto-Dominion Bank demonstrate how the sanctions against Iran affected a TD bank customer Hossein Pourshafiey’s life. 

Background

On October 1, 2012, the Toronto-Dominion (“TD”) Bank closed Mr Hossein Pourshafiey’s personal and business accounts, without any explanation, and was asked to repay almost $767,000 of his home equity line of credit.  The plaintiff, Mr. Pourshafiey, did not receive any written reasons for the termination of the relationship. After the plaintiff initiated a proceeding against the bank, it was learned that the accounts were terminated due to the client’s dealing with Iran [2]. The 2012 sanctions prohibited banks from providing financial services to, from, or for the benefit of anyone in Iran. The plaintiff was seeking monetary relief and as well as a permanent injunction, asking the TD Bank to reopen his bank accounts [3]. 

The Decision of the Quebec Superior Court

The court rejected plaintiff’s permanent injunctions but awarded damages of approximately $76,000.  The reason for which the permanent injunction was not awarded to the plaintiff was due to the fact that the plaintiff signed an agreement with the bank.  The agreement gives the bank the right to close the accounts if they are in violations with the TD banks terms and conditions [3].

Mr. Pourshafiey was awarded damages because the bank had not acted reasonably when it canceled the account without explanation. The Quebec Superior Court referred to a Supreme Court of Canada case Houle v. Canadian National Bank where Justice L’Heureux-Dube stated that bank has the right to close the account but they must exercise their contractual right “in the spirit of fair play.” 

As a comparison, the plaintiff had an account with the Royal Bank of Canada (“RBC”) which was closed as well.  However, the plaintiff was given two-and-a-half months’ notice and doing so RBC, according to the court, acted prudently and reasonable.  

Analysis

The court awarded damages due to the fact that TD bank did not provide proper notice to the plaintiff.  Had the bank provided Mr. Pourshafiey notice, the case might have ended in favour of the bank.  

The bank also did not provide the plaintiff with the explanation as to why his accounts were being closed.  The plaintiff also had an account with Laurentian Bank and they also decided to close the account. However, Laurentian Bank explained to Mr. Pourshafiey the reason for which the account is being terminated. If TD bank would have acted reasonably and explained the client the reason for which the accounts are being closed, the court might have favoured the bank instead of deciding in the favour of the plaintiff.  

References:

[1] https://www.cfr.org/backgrounder/what-are-economic-sanctions

[2] https://www.theglobeandmail.com/news/politics/montreal-man-born-in-iran-sues-td-bank-over-closed-accounts/article37219363/

[3] https://www.canlii.org/en/qc/qccs/doc/2018/2018qccs3202/2018qccs3202.html?searchUrlHash=AAAAAQALUG91cnNoYWZpZXkAAAAAAQ&resultIndex=2

[4] https://www.cbc.ca/radio/asithappens/as-it-happens-thursday-edition-1.4771533/td-bank-must-pay-montrealer-76k-after-closing-his-accounts-with-no-explanation-1.4771539

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