Executive Summary: Key Legal and Evidentiary Issues

• The court examined whether NDAX Canada, a crypto asset trading platform, was liable for the plaintiff’s losses resulting from a cryptocurrency scam.

• The sufficiency and clarity of NDAX’s risk disclosures and warnings to the plaintiff were central to the case.

• The existence and scope of a duty of care owed by NDAX to the plaintiff was analyzed under negligence principles.

• The plaintiff’s actions, including disregarding repeated warnings and providing false information about the recipient wallet, were considered.

• The effectiveness of NDAX’s compliance procedures, including transaction monitoring and escalation, was assessed.

• The court determined whether any breach by NDAX caused the plaintiff’s losses.

Facts of the case

Yan Li Xu, the plaintiff, was befriended by an individual whose identity she could not confirm. This individual convinced Xu to send small amounts of money, which were returned with generous returns. After gaining her trust, the individual persuaded Xu to invest a much larger amount, promising a return of approximately 1% per day. Xu remortgaged her house and borrowed money from a friend to fund the investment. On April 10, 2023, Xu opened an account with NDAX Canada and provided personal information and government-issued identification as required for FINTRAC compliance. She accepted the User Agreement and a separate Risk Statement without reading them. Between April 11, 2023 and May 17, 2023, Xu deposited $671,000 into her NDAX account and used the funds to purchase Ethereum.

Warnings and disclosures provided by NDAX

On April 18, 2023, Xu initiated a withdrawal of Ethereum to an external wallet. NDAX provided her with a withdrawal crypto risk disclosure, warning of the risks of sending cryptocurrency to untrusted wallets and the potential for permanent loss of funds. Xu confirmed receipt and understanding of this disclosure. She also received a secondary warning stating that crypto asset withdrawals are final and irreversible, and that NDAX would not be liable for losses from inaccurate information or network delays. An NDAX employee contacted Xu by phone, warning her that she was likely being scammed and advising her not to proceed. Xu insisted on continuing and threatened legal action if the withdrawal was not processed. NDAX escalated the matter, and a compliance officer, Julia Baranovskaya, contacted Xu to confirm her understanding of the risks. Xu affirmed her understanding, stated she was an experienced investor and accountant, and insisted on proceeding. NDAX processed the transaction as instructed. Xu subsequently made two additional transfers to the same wallet, each time receiving and accepting the risk disclosures and warnings. All of the purchased Ethereum was transferred to a wallet controlled by a third party, resulting in the loss of the funds.

Discussion of policy terms and user agreement

Xu was presented with a User Agreement and a separate Risk Statement during the account opening process. She did not read these documents but clicked “accept” to proceed. The User Agreement and risk disclosures stated that crypto asset withdrawals are final and irreversible, and that NDAX would not be liable for losses resulting from inaccurate information or network issues outside its control.

Legal principles and analysis

The plaintiff argued that NDAX breached a duty of care by not advising her that the recipient wallet was controlled by a scammer. The court reviewed the legal principles of duty of care and negligence, referencing Supreme Court of Canada and British Columbia Court of Appeal decisions. The court found that NDAX provided routine and specific warnings, conducted a BitRank analysis of the recipient wallet, and escalated the matter appropriately. The evidence showed that NDAX did not know who controlled the recipient wallet and that the plaintiff provided false information about the wallet’s ownership. The court found that NDAX satisfied any applicable standard of care and that the plaintiff’s losses were not caused by any breach on NDAX’s part.

Outcome and ruling

The court dismissed the plaintiff’s claim and found that NDAX Canada was not liable for the plaintiff’s losses. The defendant was entitled to its costs on Scale B. The specific amount of costs was not stated in the decision and will be determined according to the court’s cost rules. No damages were awarded to the plaintiff.