Canada: Use Of AI Algorithm Triggers Lawsuit And Countersuit

Last Updated: September 19 2019
Article by Kirsten Thompson and Adam Allouba

As artificial intelligence (AI) becomes less of a curiosity and more of an everyday tool, disputes are increasingly arising over its operation and, when things go wrong, the question inevitably arises: whose fault is this and who's liable? One high-profile example is the ongoing dispute between Hong Kong businessman Samathur Li Kin-kan and London-based Tyndaris Investments, in which Tyndaris is suing its client for $3 million in allegedly unpaid fees. In a countersuit, Mr. Li is claiming $23 million in damages allegedly resulting from Tyndaris' use of algorithmic trading in managing his portfolio.

Tyndaris Case

The dispute centers around whether Tyndaris misled its client as to the AI's capabilities, which means that the AI's performance itself will be adjudicated. Media reports say that Tyndaris' AI would comb through online sources (e.g., real-time news, social media posts, etc.) to gauge investor sentiment and make predictions on U.S. stock futures. It would then send instructions to a broker to execute trades, adjusting its strategy over time based on what it had learned. Media reports about the case report that back testing – simulating returns based on historical data – suggested that the AI was highly effective at generating significant returns on an original investment. However, when actually tasked with managing a $2.5 billion portfolio, it is alleged that it regularly lost money, including an alleged a $20 million loss in a single day. The legal issues involved are novel as the case is among the first (if not the first) in which the issue is whether an AI's actions give rise to civil liability.

Bases for Liability of AI In Quebec and Common Law Canada

One issue that will presumably come before the court is whether Tyndaris' actions failed to meet the standard required for financial advisors under applicable securities laws. But a broader legal question – and the one analysed below in a Canadian context – would be on what basis a person can be liable for the acts or omissions of AI in the first place.

Setting aside contractual recourse, in the absence of a liability regime specific to AI, a party claiming damages caused by AI might invoke the rules governing what Quebec law refers to as "an act of a thing." The applicable provision, Article 1465 of the Civil Code of Quebec (CCQ), simply states that "the custodian of a thing is bound to make reparation for injury resulting from the autonomous act of the thing, unless he proves that he is not at fault."

Under such an analysis, the court would need to determine who is the AI's "custodian" and whether the AI's actions constitute an "autonomous act of the thing." Although Quebec courts have yet to adjudicate the question, since AI operates without direct, ongoing human intervention its actions could reasonably be considered as "autonomous acts of the thing."

The concept of "custodian" is, however, less clear. The custodian – who need not own the thing – is the person who exercises a power of surveillance, control and direction over it. In this case, the use of AI reportedly resulted from a partnership between Tyndaris and a company called, which had developed the AI itself. Tyndaris then used the technology to create the AI-managed investment fund at issue in the litigation.

In Quebec, it may be possible for investors such as Tyndaris' clients – whose portfolios were being managing based on the AI's analysis – to argue that, from their perspective, Tyndaris had surveillance, control and direction over the AI. After all, they bought the service from Tyndaris and presumably had no interaction with any other party in the supply chain.

In reality, however, "control" and "direction" are strong words to apply in an AI context. Tyndaris presumably monitored how the AI managed portfolios, arguably exercising a power of surveillance over the AI. But, as a third party reseller, could it really be said to exercise "control" or "direction" over an algorithm that it has not designed, and of whose inner workings it likely has no intricate technical understanding and the actions of which it cannot predict?

Crucially, Article 1465 merely creates a presumption that the custodian is liable for acts of the thing, a presumption that the custodian can rebut by showing an absence of fault. As a general rule, that burden can be met by showing that the act of the thing was unforeseeable and that nothing could reasonably have been done to avoid it. As a result, AI's sometimes mysterious behaviour might actually provide grounds for relief since even its programmers, who presumably understand the AI best of all, are often unable to foresee exactly how the AI will act. Therefore, it is possible to argue that even if the AI acted in an undesirable way, there was nothing that they could reasonably have done to avoid it. Indeed, outside special circumstances such as AI being designed, trained, sold, etc. with wanton disregard for any harmful effects or total indifference to algorithmic transparency – to a point that it is unduly difficult to explain the AI's behaviour – any custodian may have good arguments as to why it is without fault and therefore should not be held liable for the AI's actions.

It is important to note that Article 1465 is not the only means of bringing a suit over damages caused by AI: other options under the CCQ include the warranty of quality under Article 1726 (available to buyers against sellers, manufacturers and certain other parties in the supply chain) or the general liability regime for fault under Article 1457 (likely difficult, given that the plaintiff must prove the existence of fault). A consumer who has purchased an AI product for personal use might also invoke the Consumer Protection Act, for example sections 37 (requiring that goods be fit for the purposes for which goods of that kind are ordinarily used) as well as 40 and 41 (requiring that goods and services conform to the description of them in the contract and in advertising statements).

Outside of Quebec, the situation appears even muddier. As the common law has no regime specific to acts of a thing, the avenues available to a plaintiff are likely to be similar to those described in the preceding paragraph: a claim under the tort of negligence (the equivalent of Article 1457 of the CCQ), or under statute (primarily laws governing product liability).

For a claim of negligence to succeed, the plaintiff must establish that the defendant owed the plaintiff a "duty of care." While there might be a duty of care in the case of a loss due to a decision made by AI, it is not obvious whose duty it would be. It could not be the AI itself, since the duty has to be owed by someone with legal personality and, under the law, AI is nothing more than some code. As a result, the duty of care would have to be owed by someone else, such as the owner, manufacturer, user or service provider.

Law makers could, one day, elect to give AI legal personality (like a corporation). While that could allow AI to be sued, it would be useless to sue the AI unless it had assets on which to collect damages awards. More practically, it could also mean that persons responsible for the conduct of the AI could also be held vicariously liable for the AI's actions. Vicarious liability is well-recognized in Canadian common law, and most commonly arises in the employment context, in which an employer is held to be responsible for the acts of its employees when the employees are acting in the course of their employment.

AI that has legal personality could even be held criminally liable for its actions, which could give rise to the same considerations as when a corporation is found to be criminally liable. The law creates a legal fiction of a "directing mind", typically a senior officer within the organization who has an important role in setting policy or someone who manages an important part of the organization's activities. Certain individuals, by virtue of the position they hold (e.g., CEO, CFO) will automatically be considered senior officers/directing minds. As a result, if the AI has legal personality and can be found criminally liable, the organization and its directing minds could become parties to offence. Until then, however, even if AI were to be simply considered part of the overall organization, directors and officers could still be found individual liable if they knowingly played a role in the AI's bad decisions.

Takeaways for Business

The Tyndaris dispute is scheduled to go before the London commercial court in 2020. It will be interesting to see how the judge handles the issue. While the ruling will have limited value for Canadian law purposes, the reasoning is likely to be informative since many of the fundamental legal principles are similar between the two countries.

In the meantime, it will remain essential that buyers and sellers of AI products or services remain mindful of how to address liability both between themselves (most importantly, in their contract) and with respect to third parties.

Note: All dollar amounts are in USD
Disclaimer: The description of the facts in the litigation matter described above are based entirely on media reports. We are unable to independently verify the facts as stated by these media reports.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions