Executive Summary: Key Legal and Evidentiary Issues

• Thomas Sky sued Toronto-Dominion Bank for terminating their banking relationship, alleging breach of the duty of good faith in exercising its contractual discretion.

• A chambers judge struck and refused amendments to Sky's notice of civil claim, finding they constituted an impermissible collateral attack on a foreclosure order nisi and an abuse of process.

• The Court of Appeal determined the disputed pleading did not contradict the order nisi, as Sky acknowledged his default and the Bank's obtaining of the order nisi.

• Sky's claim alleged an independent actionable wrong — breach of the financial services contract — distinct from challenging the validity of the foreclosure order itself.

• During the original order nisi hearing, the Bank's own counsel took the position that Sky's complaints about the termination of the banking relationship were outside the scope of the foreclosure proceeding.

• Permitting the disputed pleading would not result in manifest unfairness to the Bank or bring the administration of justice into disrepute, and the appeal was allowed.

The banking relationship and its termination

Thomas Sky was a customer of the Toronto-Dominion Bank. In the fall of 2018, the Bank decided to terminate its banking relationship with Mr. Sky. It took steps to close his bank and credit card accounts. Mr. Sky owed the Bank money on a home equity line of credit (the "HELOC") secured by a mortgage on his home. The Bank called the loan. Mr. Sky could not repay the whole balance by November 20, 2018, as demanded by the Discontinuing Financial Services Letter. Between mid-August and early October 2018, Mr. Sky was unaware of the fact that TD cancelled its services to him and put a hold on his accounts and lines of credits. As a result, many of his preauthorized payments through his TD accounts were not processed, and TD reported these incidents to the Canadian Credit Bureaus, which in turn brought his credit rating down to near that of a bankruptcy. This poor credit rating prevented Mr. Sky from receiving credit services from all other banks and credit unions to get a replacement loan to pay off the balance of the HELOC.

The foreclosure proceeding and order nisi

In February 2019, the Bank commenced a foreclosure proceeding. On May 1, 2019, the Bank applied for and obtained an order nisi of foreclosure with a six-month redemption period. At the hearing before Associate Justice Dick, Mr. Sky was self-represented. He attempted to raise his complaints about the Bank's conduct in terminating the relationship, but the Bank's counsel took the position that any complaint about the Bank's prior conduct was not relevant to the hearing, and the judge agreed. The judge urged Mr. Sky to retain counsel and consider with them whether he might claim against the Bank for its decision to terminate the relationship. After the order nisi was granted, and to avoid the risk of losing large amounts of equity in the house through a court-ordered sale and paying the associated legal fees, Mr. Sky sold his house for $380,000.00, approximately $40,000.00 less than the fair market value in January 2020.

Mr. Sky's civil action and proposed amendments

In June 2019, Mr. Sky commenced an action against the Bank for terminating their banking relationship. He drafted the notice of civil claim himself. He subsequently retained counsel who amended the notice of civil claim. In May 2022, he retained his current counsel and the claim was amended again, by consent. In May 2024, his current counsel proposed further amendments to the notice of civil claim. The proposed amendments detailed the losses Mr. Sky suffered as a consequence of the Bank's alleged breach of its duty to exercise discretion in good faith in de-marketing him, including loss of equity through the sale of his house, loss of opportunity for early retirement, lowered credit rating, and loss of business opportunity. Mr. Sky also pleaded that he missed an opportunity to gain approximately $164,000.00 in equity based on the value assessed by BC Assessment, which placed the house at about $544,000.00 as of July 1, 2023. He further pleaded that, as a result of TD's discontinuance of the HELOC, he was unable to maintain and upkeep his rental property in Sault Ste. Marie, Ontario and had to sell it at a loss, missing out on a business opportunity. The Bank opposed the proposed amendments.

The chambers judge's ruling on the amendments

A chambers judge heard the application and allowed some amendments but refused others. The judge also struck paragraph 114b from the existing notice of civil claim. The judge reasoned that the order nisi entails "ancillary findings" that the Bank was entitled to demand payment for the HELOC loan, the notice given was reasonable, and the foreclosure proceeding was properly commenced. He considered that the underlying premise of the claim advanced in the disputed pleading contradicts these ancillary findings. The judge characterized the disputed paragraphs as an impermissible collateral attack on the validity of the order nisi and an abuse of process, relying on the decisions in HSBC Bank Canada v. Ba-Oose, Inc. and Hoessmann Estate v. Aldergrove Credit Union. The judge rejected Mr. Sky's argument that his claim was directed at a breach of the contract for financial services and not at the order nisi itself, holding that a judicial determination cannot be characterized as a mere consequence of earlier wrongful conduct.

The appeal and the Court of Appeal's analysis

Mr. Sky appealed to the British Columbia Court of Appeal. The panel — Justices Iyer, Gomery, and MacNaughton — considered the doctrines of collateral attack and abuse of process. The Court noted that the doctrine of collateral attack stipulates that an order made by a superior court may not be set aside in any proceeding other than one whose specific object is its reversal, variation, or nullification. The Court also recognized that abuse of process is a flexible doctrine that bars relitigation where it would undermine the integrity of the administration of justice, while permitting relitigation that is in fact necessary to enhance the credibility and effectiveness of the adjudicative process as a whole. The Court drew upon the decision in Samos Investments Inc. v. Pattison et al, which had not been drawn to the chambers judge's attention, and which held that a claim based on independent actionable wrongs preceding a court-approved plan of arrangement was not a collateral attack on the approval order. The Court found that Mr. Sky's disputed pleading did not contradict the order nisi, as in paragraph 110b Mr. Sky acknowledges his default in payment pursuant to the Bank's demand, and in paragraph 110c he admits that the Bank obtained the order nisi. The Court further found that the disputed pleading alleged an independent actionable wrong — a contractual breach preceding the Bank's demand for payment of the HELOC loan. Critically, the Court concluded that the claim Mr. Sky now seeks to advance was not and could not have been advanced at the order nisi hearing, as the Bank's own counsel had taken the position that any complaint about the Bank's prior conduct was outside the scope of the foreclosure proceeding, and the judge accepted that submission.

The ruling and outcome

The Court of Appeal unanimously allowed Mr. Sky's appeal. Justice Gomery, writing for the panel with the concurrence of Justices Iyer and MacNaughton, concluded that it was not plain and obvious that permitting the disputed pleading undermines the fairness and integrity of the administration of justice. The claim Mr. Sky seeks to advance had not been considered on its merits, was not duplicative of a claim addressed in the foreclosure proceeding, and permitting it would not result in manifest unfairness to the Bank or bring the administration of justice into disrepute. The Court reversed the order striking paragraph 114b from the notice of civil claim and granted Mr. Sky leave to amend the notice of civil claim to include the other disputed paragraphs. The chambers judge was found to have erred in law in concluding otherwise. No monetary award was determined at this stage, as the decision concerned only whether Mr. Sky would be permitted to proceed with his amended claim; the substantive merits of his action remain to be adjudicated, subject to such defences as the Bank may raise.