It’s not you, it’s me: RBC

A Quebec court has ordered damages against Royal Bank of Canada (RBC) for cutting off a business’s credit line with just two days notice, which caused the company to lose contracts. 

According to a decision of the Quebec Superior Court, in 2019, the bank terminated its relationship with the operator of a food import business, Anatoli Gutin, and his company, 7141564 Canada Inc. (AGI International).

The firm sued the bank, alleging that its actions caused over $440,000 in lost profits. Additionally, Gutin sought damages of $200,000 for reputational damage and $100,000 for stress and inconvenience.

The court allowed the claim in part, ruling that the bank “acted unreasonably in terminating AGI’s access to its credit facility in June 2019 without sufficient notice.”

According to the decision, the company opened its first account with RBC in September 2013 and established a $200,000 line of credit in 2016. That was bumped up to $500,000 in mid-2017, and again to $750,000 in April 2019 at the recommendation of the bank’s account manager, who noted that AGI posted healthy net profits and was growing its accounts receivable and inventory.  

However, in early June 2019, the bank abruptly ended the relationship, saying in a letter to the company that, “recent activity in your accounts is outside of RBC’s client risk appetite, and consequently, we are no longer in a position to continue our banking relationship with you.”

Two days later, the company’s credit facility was blocked, and Gutin testified that he couldn’t login to the online banking platform.

After the company appealed to RBC for time to find a new bank, it agreed to reinstate access to the credit facility from June 11 until July 29, 2019.

The court said that AGI alleged that in the five days when it had no access to its credit facility, it lost three contracts, and that its sales dropped over the next couple of months as it had to find a new bank. It sought damages for the lost contracts and alleged lost profits due to reduced sales.

The court agreed, at least in part, finding that the bank didn’t provide the company adequate notice that it was ending the relationship.

“RBC knew the credit facility was integral to AGI’s business, that the credit facility had just been increased to $750,000 two months prior, that AGI was subject to monthly margin calculations and that AGI never once had an issue meeting the margin requirements,” the court said. 

It also noted that the company never defaulted, didn’t miss a single payment over the course of the relationship, and that the company’s finances hadn’t changed between April and June 2019.

The underlying reason for the bank’s decision to end the relationship was never made clear.

“The present case is peculiar in that RBC vigorously maintained, throughout the proceedings, that it had cause to terminate its relationship with AGI, only to abandon that position at trial,” the court said.

“At trial, RBC led no evidence to substantiate what is written in the termination letter,” it noted.

As a result, the court found that “RBC did not act reasonably towards AGI when it restricted access to the credit facility … effectively providing a mere two days’ notice.”

Ultimately, the court found that the loss of two contracts “are a direct, immediate and foreseeable consequence of RBC restricting access to AGI’s credit facility with insufficient notice. AGI needed access to credit to complete precisely this type of transaction. This is why RBC increased AGI’s credit facility a mere two months prior.”

The court added, “It should come as no surprise to RBC that if it abruptly restricted access to the credit facility, AGI risked losing pending contracts. This risk materialized and RBC is liable to repair the damage caused by its fault.”

However, for a third contract, it found that there the evidence was “insufficient to establish a causal link between RBC’s fault in restricting access to AGI’s credit facility without sufficient notice and the cancellation of the contract.” 

It also rejected the argument that the time the company had to spend finding a new bank in the summer of 2019 led to a drop in sales that could be blamed on RBC. 

Ultimately, the court ruled that AGI is entitled to $171,231 in lost profits for two contracts that were cancelled as a result of the loss of the banking relationship —  and it also found that Gutin was entitled to claim damages for stress and inconvenience, but dismissed the claim for loss of reputation.

“RBC did not act as a prudent and diligent bank would have acted, and this conduct caused a distinct damage to Mr. Gutin, who suffered a great deal of stress and inconvenience in the aftermath of RBC’s conduct. This distinct damage, suffered personally by Mr. Gutin, is a logical, direct and immediate consequence of RBC’s fault,” the court said.

The court noted that calculating these kinds of damages is not an exact science. 

Ultimately, it decided to award $10,000, concluding, “The stress Mr. Gutin experienced in the circumstances of this case was palpable and RBC’s callousness towards Mr. Gutin continued up until trial as it maintained a cloud of cause that it made no attempt to prove. However, the period of acute stress while access to AGI’s credit facility was restricted was of a shorter duration, and while Mr. and Mrs. Gutin genuinely feared losing everything, this was not the case.”