A British Columbia court has ruled that a Canadian cryptocurrency exchange is not liable for a customer’s loss of C$671,000 (US$480,000) after it ignored multiple warnings that a woman was being targeted by a scam.
British Columbia Supreme Court Justice Lindsay LeBlanc last Monday dismissed a lawsuit filed by Victoria resident Yang Li Hsu against Calgary-based exchange NDAX Canada, ruling in favor of the platform. The Supreme Court judge said NDAX fulfilled its obligations and acted appropriately to ensure she was not defrauded.
NDAX issued four warnings before moving
According to written judgment Xu, who was released on Monday, transferred more than C$671,000 in digital assets through NDAX to an external wallet for online investment opportunities, which was later found to be fraudulent.
NDAX, which is registered as a money services business with the Financial Transaction Reporting and Analysis Center of Canada (FINTRAC), warned Xu four times about possible fraud before completing the transaction.
Judge LeBlanc wrote that NDAX “identified suspicious financial activity and warned Plaintiff not to proceed, but Plaintiff did not heed the warning.”
The first warning was issued when Mr. Xu accepted the exchange’s crypto risk disclosure and admitted that cryptocurrency trades are irreversible. “By clicking I agree on the pages of these platforms, I confirm to defendants that I have received and understand the virtual currency risk disclosures,” Xu said.
A second warning soon followed, reminding Mr. Xu that virtual currency withdrawals cannot be reversed once they are processed. The disclosure states:
“I understand that withdrawals of crypto assets are final and irrevocable. NDAX is not responsible for any losses due to my inaccurate information or delays due to network issues outside of NDAX’s control.” Xu clicked “Yes” again.
The third time was on April 18, 2023, when an NDAX employee personally called Mr. Xu to confirm the transaction. During that conversation, the employee explicitly warned her that she “might be being scammed” and strongly advised her not to proceed.
Mr Xu insisted on proceeding, escalating the matter by labeling the staff as a “risk factor”. The recorded phone call became part of the court evidence.
“I believe that the defendant’s warning to the plaintiff could not have been clearer,” Judge LeBlanc said in his decision.
The fourth and final warning came from NDAX Compliance Officer Julia Baranovskaya, who called Mr. Hsu again to ensure he understood the implications. Baranovskaya explained to Xu that he could be a target for crypto fraud and reiterated that once the transfer is made, it cannot be reversed.
“Ms. Baranovskaya testified that the defendants did not know who controlled the recipient’s wallet because that information was not known to the defendants, and all they could do was warn the plaintiffs that the initial transaction showed signs of potential fraud. This evidence was also not challenged,” Judge LeBlanc surmised.
During the conversation, Mr. Xu assured the officer that he had experience in financial matters. She reportedly said she had been trading stocks for more than 20 years, was an accountant by profession, and was using her own investment savings.
NDAX fulfilled its obligations, Canadian court rules
Judge LeBlanc concluded that NDAX went beyond reasonable steps to protect its customers. “While I am sorry for the plaintiff’s loss, I do not believe that the defendant is responsible in any way,” she wrote.
The ruling also asserted that NDAX acted responsibly by flagging suspicious activity, communicating directly with customers, and issuing written and verbal warnings.
In response to Xu’s lawsuit, which argued that NDAX should have blocked her trade entirely to prevent losses, the judge said:
“Although the plaintiff has not been able to establish that the defendant breached a duty of care, I find that in any event the loss experienced by the plaintiff was not caused by the defendant.”
Canada strengthens oversight of cryptocurrencies
The ruling comes as Canadian regulators are increasing scrutiny of crypto trading platforms and compliance violations. Authorities are calling for increased enforcement of anti-money laundering (AML) and counter-terrorist financing laws in the digital asset industry domestically and internationally.
as reported by Cryptopolitan On Wednesday, the Canadian Center for Financial Transactions and Reporting Analysis announced it had imposed a C$176.9 million fine against the Vancouver-based cryptocurrency platform, the largest fine in the history of the regulation.
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