Executive Summary: Key Legal and Evidentiary Issues

• Scope of s. 334 of the Bank Act and whether it permits a Canadian court to grant leave for a derivative action to be brought in a foreign court under foreign law
• Interpretation of the phrase “under this Act” in s. 334 and whether it extends to causes of action and proceedings in Delaware based on Delaware corporate law
• Standing and structure of a double derivative action by shareholders of a Canadian parent seeking to litigate on behalf of a Delaware subsidiary in the Delaware Court of Chancery
• Assessment of whether the proposed derivative claim is in the interests of TD Bank or its subsidiary, given numerous overlapping securities and derivative proceedings in Canada and the United States
• Evidentiary sufficiency of the shareholders’ materials, including reliance on U.S. plea agreement admissions without a draft pleading specifying individual misconduct and limitation issues
• Judicial deference to the business judgment of TD Bank’s and TDBUSH’s boards in deciding not to pursue the claim, in light of litigation strategy and the risk of prejudice in parallel, higher-value actions

Background and parties

The case arises from an application by the Trustees of the International Brotherhood of Electrical Workers, Local 353 Pension Plan and an individual shareholder, Ronald W. Taylor, who together hold shares in The Toronto-Dominion Bank (TD Bank). They sought leave from the Ontario Superior Court of Justice to bring what Delaware law characterizes as a “double derivative” action in the Delaware Court of Chancery. The proposed proceeding would be brought in the name of TD Bank U.S. Holding Company (TDBUSH), a Delaware-incorporated, wholly owned subsidiary of TD Bank, and on behalf of the broader TD Bank Group, against certain current and former directors and officers of TDBUSH. The target individuals were those alleged to have had oversight of, and responsibility for, implementing and monitoring TDBUSH’s U.S. anti–money laundering program, which was operated primarily through the U.S. banking entity TD Bank N.A.

Facts giving rise to the dispute

TDBUSH and its U.S. banking subsidiary, TD Bank N.A., are regulated financial institutions under U.S. law and must comply with the Bank Secrecy Act and other anti–money laundering (AML) requirements. Over an extended period, U.S. regulators and the U.S. Department of Justice investigated systemic failings in the design and operation of TD’s U.S. AML program. These deficiencies related to the Bank Secrecy Act/AML Program resulted in a global resolution reached around 9–10 October 2024. As part of that global resolution, TDBUSH and TD Bank N.A. entered guilty pleas to specified criminal charges and agreed to significant monetary and non-monetary penalties, including a US$3 billion fine. No individual director or officer of TDBUSH or TD Bank N.A. was personally charged by the U.S. Department of Justice in connection with this resolution. Following public disclosure of the U.S. resolution and its consequences, the applicants delivered a notice dated 27 June 2025 of their intention to pursue a derivative action. They alleged that the proposed defendants, a group of 28 current and former TDBUSH directors and officers over an 11-year period, had breached duties owed to TDBUSH under Delaware law by failing to implement and oversee an adequate AML program, thereby exposing the subsidiary and the broader TD Bank Group to criminal liability, regulatory sanctions, and massive financial and reputational harm.

Proposed double derivative action and relief sought

Under Delaware law, a double derivative action allows a shareholder of a parent corporation to enforce, derivatively, the claims of a wholly owned subsidiary where both the parent and the subsidiary have declined to sue. Delaware jurisprudence requires that standing for such a claim be established at the level of the parent company, with leave governed by the corporate law of the parent’s home jurisdiction. In this case, that meant the Ontario-based shareholders had to secure leave under the Canadian statute governing TD Bank, namely the federal Bank Act. The applicants therefore turned to the Ontario Superior Court seeking leave under s. 334 of the Bank Act to commence a derivative proceeding in Delaware, in the name and on behalf of both TDBUSH and the TD Bank Group, alleging Delaware-law breaches of fiduciary and oversight duties. Substantively, the applicants contended that, if successful, the derivative action would recover value on behalf of TDBUSH corresponding to at least some of the losses associated with the U.S. criminal resolution and would indirectly benefit TD Bank and its shareholders. They emphasized that their counsel’s fees would be contingent on success and subject to court approval, and that TDBUSH had already compiled a substantial evidentiary record through its cooperation in the U.S. investigations, thereby minimizing incremental litigation costs.

Statutory framework under the Bank Act

The application turned on the interpretation of s. 334 of the Bank Act. That provision allows a “complainant” or the Superintendent of Financial Institutions to apply to a court for leave to bring an action “under this Act” in the name and on behalf of a bank or any of its subsidiaries, or to intervene in an existing action to which the bank or its subsidiary is a party. To obtain leave, a complainant must satisfy three requirements: prior notice to the directors, good faith, and that it appears to be in the interests of the bank or the subsidiary that the action be brought, prosecuted, defended or discontinued. There was no dispute that the applicants, as TD Bank shareholders, qualified as complainants and had given timely notice, and that they were acting in good faith. The real disputes were whether s. 334 empowered a Canadian court to authorize an action in a foreign court under foreign corporate law, and whether the proposed Delaware proceeding was in the interests of TD Bank or TDBUSH in the circumstances.

Interpretation of “under this Act” and extra-territorial reach

The applicants advanced a broad reading of s. 334. They argued that the text, context and remedial purpose of the provision supported using it to authorize derivative claims in respect of any subsidiary—domestic or foreign—and in any jurisdiction where the bank is legally entitled to operate. They pointed to the Bank Act’s definition of “complainant,” its definition of “subsidiary,” and s. 15(4), which confirms that a bank may conduct its business and exercise its powers outside Canada to the extent permitted by the foreign jurisdiction’s laws. They contended that it would be inconsistent with the Act’s purpose to shield fiduciaries of foreign subsidiaries from accountability in the jurisdiction where they operate and where the harm crystallized. The respondents, by contrast, submitted that the key phrase “bring an action under this Act” must be understood as referring to causes of action and proceedings known to Canadian law and adjudicated in Canadian courts. They stressed that the Bank Act is a comprehensive Canadian regulatory code and that its derivative-action machinery is structured around supervision by provincial and territorial superior courts in Canada. They relied on surrounding provisions, including s. 335, which confers powers on “the court” in connection with actions brought or intervened in under s. 334, and s. 336(2), which prevents an action brought under s. 334 from being stayed, discontinued, settled or dismissed for want of prosecution without the approval of such a court. Justice Steele concluded that the statutory framework presupposes that the same Canadian court which grants leave also exercises ongoing supervisory jurisdiction over the action, something not possible if the action were commenced in the Delaware Court of Chancery. Comparative Canadian authority on derivative actions reinforced this conclusion. In LaRoche v. HARS Systems Inc., the British Columbia Supreme Court refused to give the B.C. Companies Act extra-territorial effect by authorizing a derivative claim to proceed in Alberta, holding that the statute was confined to actions within British Columbia. Likewise, in Nova Ban-Corp Limited v. Tottrup, the Federal Court interpreted similar language in the Canada Business Corporations Act to require that the action and the leave application be in the same “court” as defined by the statute. Applying these principles, the judge held that s. 334 of the Bank Act could not be construed as empowering a Canadian court to grant leave for a derivative proceeding in Delaware—a foreign forum applying Delaware law—because that would extend the Act’s reach beyond its intended territorial and institutional limits.

No leave jurisdiction to authorize a Delaware derivative action

On this basis, Justice Steele determined that the court simply lacked jurisdiction under s. 334 to grant the leave requested. The phrase “under this Act” was interpreted to require that the cause of action be one recognized by Canadian law and pursued within the Canadian court system, not a Delaware corporate claim in a U.S. court. The existence of a perceived procedural “gap” under Delaware law—namely, that Delaware’s double-derivative standing rules required leave from the Ontario court before the claim could proceed—did not justify reading additional words into the Bank Act. If there was a procedural void, it arose from the design of Delaware law and was a matter for Delaware institutions to address, not for a Canadian court to cure by stretching Canadian legislation beyond its text and structure. While Canadian decisions such as Churchill Pulpmill and Ottawa Civic Hospital had interpreted “under this Act” expansively in other corporate statutes, those cases involved Canadian causes of action litigated in Canadian courts and did not suggest that Parliament or provincial legislatures intended their derivative-action regimes to underwrite foreign litigation in foreign courts.

Assessment of whether the proposed claim was in the bank’s interests

Justice Steele went on to consider, in the alternative, whether leave should be granted even if jurisdiction existed under s. 334. On this point, the focus was on the third leave criterion: whether it appeared to be in the interests of TD Bank or TDBUSH that the derivative action be brought. In line with authorities interpreting similar provisions in other corporate statutes, the court held that applicants must demonstrate at least an arguable case and that the court is entitled to consider the corporation’s broader interests, including its litigation posture and exposure in other proceedings. A key evidentiary concern was the lack of a detailed draft pleading. The applicants relied primarily on their Notice of Intent and on admissions in the U.S. plea agreement. However, the Notice of Intent largely reproduced the plea agreement record without mapping specific allegations to each of the 28 proposed defendants, such as who did what, when, and how, over an 11-year period. The agreed statement of facts from the U.S. criminal resolution also did not identify which officers were involved in particular conduct at particular times. In addition, there was no expert evidence addressing limitation periods or other timing constraints under Delaware law, which could materially affect the viability and scope of the proposed claims. The court also placed weight on the decision by the boards of TD Bank and TDBUSH—excluding any potentially conflicted defendants—to decline to pursue the proposed action. At a joint informal meeting, with sophisticated external counsel in attendance, the boards considered the Notice of Intent and unanimously determined not to advance the claim at that time, citing procedural irregularities and the potential impact on a suite of pending civil and regulatory proceedings arising from the same U.S. AML failures. Those other actions included large securities class actions in Ontario, Quebec and the Southern District of New York, as well as an existing derivative complaint in New York state court against current and former TD directors, officers and employees. The judge accepted that authorizing the Delaware derivative claim could materially prejudice TD Bank and TDBUSH in these overlapping cases. Evidence and findings developed in the derivative action could be used by plaintiffs in the other suits, changing alignment between the bank group and certain individuals and complicating its defence strategy in proceedings that, in aggregate, involved claims far exceeding the proposed derivative recovery. Applying the business judgment framework from cases like BCE and Sandpiper, Justice Steele held that the boards’ refusal to pursue the derivative claim fell within a reasonable range of outcomes. The court was not persuaded that the applicants had demonstrated that bringing the Delaware action was in the best interests of TD Bank or TDBUSH, especially given the already extensive litigation landscape and the risk of collateral prejudice.

Outcome and monetary consequences

In the result, the Ontario Superior Court of Justice dismissed the shareholders’ application in its entirety. Justice Steele held first that s. 334 of the Bank Act does not empower a Canadian superior court to grant leave for a derivative action to be brought in Delaware under Delaware law, so the requested order could not issue. In the alternative, she found that even if such jurisdiction existed, the applicants had not shown that the proposed double derivative claim appeared to be in the interests of TD Bank or its subsidiary, given evidentiary gaps, the breadth and uncertainty of the proposed claims, and the potential prejudice to TD’s defence in multiple, larger actions already on foot in Canada and the United States. Because the leave application was dismissed, no damages or other substantive relief were awarded on the underlying claims, and the matter ended at the preliminary stage. The respondents—the Toronto-Dominion Bank and TD Bank US Holding Company—were the successful parties. The court ordered the applicants to pay the respondents’ costs fixed at $85,000 inclusive of taxes and disbursements, and no further monetary award or damages were granted beyond this quantified costs order.