Whether via phone call, email, text message, or other means, fraud schemes that ask individuals to transfer funds out of their accounts are on the rise and often target those most vulnerable. Elders and others who may lack the know-how to identify scams are particularly at risk of falling victim to these schemes, which can have devastating effects.
A Bank’s General Obligations to Customers
As part of the bank-customer relationship, a bank has a contractual obligation to exercise reasonable care and skill in carrying out its responsibilities to its customers.
Generally, there is no duty on the part of a bank to inquire of a customer when receiving instructions directly from that customer to transfer funds. Rather, the bank’s contractual obligation is to accept its customer’s instructions: see the B.C. Court of Appeal’s decision in D2 Contracting Ltd v. The Bank of Nova Scotia (2015). However, the bank may have a duty to warn the customer about a prevailing fraud if:
- The bank knows about a prevailing scam targeting people in the customer’s demographic; and
- The intended transaction presents a “clear probability of fraud”, as per the B.C. Court of Appeal’s 2023 decision in Zheng v. Bank of China (Canada) Vancouver Richmond Branch (“Zheng”).
It is important to note that banks are not required to investigate every instruction from their customers or all types of prevailing fraud circulating in the communities in which they do business. However, financial institutions may owe their customers a duty to inquire where there are suspicious circumstances presented by an instruction to transfer funds, and if not satisfied by the inquiry, a duty to warn the customer about the risk of fraud.
Prudence Necessary in Suspicious Circumstances
In Zheng, the plaintiff received a phone call from someone purporting to be from the Chinese consulate, instructing her to transfer $69,000 into a Hong Kong bank account. The scammers threatened the Plaintiff with deportation, imprisonment, and freezing her assets. The plaintiff believed the scammers, visited a Bank of China branch, and instructed the teller to make the transfer to a Bank of China account in Hong Kong. The intended transfer would deplete her account, which only held about $30,000 to start. She was not a sophisticated client and had not made such a large transfer from her account in the past. When she attended the bank, she looked nervous.
Given the value of the transfer amount, the bank’s compliance officer asked the plaintiff about her relationship to the intended recipient. The bank followed the plaintiff’s wire transfer instructions as requested, even though the plaintiff did not answer. After giving instructions for the wire transfer, the plaintiff had also signed an “Application for Remittance”, which contained a clause that excluded the bank from liability under certain terms. When the plaintiff discovered the fraud and reported it to the bank a month later, she also discovered similar types of scams had been reported in the Vancouver area. She then commenced a claim against the bank, where she alleged the bank knew or ought to have known and warned her about the fraud.
Bank’s Failure to Inquire and Warn Can Cause Loss
The Court of Appeal concluded that the plaintiff had a triable case, and could argue that her loss was caused by the bank’s failure to inquire and warn, which arose prior to the wire transfer, and outside of the scope of the exclusion clause:
“The claim, seen this way, is not based on an error in processing the transfer once the Bank accepted the Application for Remittance, but rather, it is based on the Bank not warning Ms. Zheng about the fraud when it first learned she wished to make such a transfer. Seen this way, the claim has nothing to do with the Bank carrying out Ms. Zheng’s instructions on the Application for Remittance, but rather, it has to do with it not intervening and warning her so that she would not give these instructions.”
The determination of liability was not a matter of the hearing.
Ultimately, the viability of each claim will turn on a careful assessment of the evidence and unique set of facts.
Contact Meridian Law Group in Vancouver for Guidance in Elder Abuse and Civil Fraud Claims
If you or a loved one has been a victim of a scam and think your bank may have failed its duties to you, contact Meridian Law Group. The firm’s skilled fraud and elder abuse lawyers will review your materials, advise on the strength of your potential claim, and advocate for your rights. To book a confidential consultation, contact the firm online or call (604) 687-2277.
