Victim can sue bank over fraudulent transfer, B.C. court rules

A British Columbia court ruled that the victim of a foreign fraudster who alleged that her bank didn’t do enough to prevent her from being duped can go ahead with her lawsuit.

The Court of Appeal for B.C. overturned an initial decision (which was upheld by the Supreme Court of B.C.), dismissing a lawsuit brought by Li Zheng against the Bank of China (Canada) Vancouver Richmond branch after she was defrauded out of $69,000.

Zheng sued the bank alleging that it failed to warn her about a possible fraud before she transferred her life savings to an unknown person at the bank’s Hong Kong branch.

The transfer followed a phone call purportedly from the Chinese consulate, alleging that Zheng was being sought in an international money laundering case. She was also sent an arrest warrant.

“She was told to either fly back to China to stay in jail during the investigation or to transfer funds to Hong Kong that would then be returned to her after the investigation,” the court noted in its decision.

After it turned out that she had fallen for a fraud, Zheng sued the bank, seeking the return of her money. She alleged the bank failed to warn her about a scheme that had been reported in the local media before she transferred the money.

The case was dismissed initially, and that decision was upheld by the Supreme Court on the basis that her claim was bound to fail.

However, those rulings have been overturned. The appeal court ruled that there is a “genuine issue for trial as to the bank’s knowledge of the prevailing fraud and its duty to warn the appellant when she first spoke to a teller about making the transfer.”

The Supreme Court also found that the bank may have had a duty to warn Zheng, but said the case was bound to fail due to an exclusion clause in the transfer agreement, which meant she would not be able to establish that her loss was solely caused by the bank’s negligence or misconduct.

On appeal, however, the court found that whether or not the exclusion clause applies will turn on the facts of the case — in particular, the bank’s alleged knowledge of the “prevailing” fraud.

“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,” it said.

“Since there is a genuine issue for trial about those facts, the judge ought not to have interpreted the exclusion clause as barring the claim,” the appeal court ruled. The enforceability of the exclusion clause, and whether it was unconscionable under the circumstances, could also be an issue for trial, it said.

As a result, the court allowed the appeal, set aside the judge’s order, and dismissed the bank’s application for summary judgment, reviving the case.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.