BNY Hit With Final US$11M Fine For SS&C Contract Breach

SS&C Technologies Canada Corp. has won only US$11 million instead of the US$890 million it wanted, but it still scored a final moral victory against Bank of New York Mellon for violating the terms of its market data contract with the financial technology giant.

The Ontario Court of Appeal let stand a lower trial court’s ruling criticizing BNY’s bad conduct and went even further in highlighting the bank’s intentional destruction of legally required documentation. However, the appellate court reduce the Ontario Superior Court’s ruling on damages by CAD$922,887 to about US$11 million from the previous US$12 million including legal fees. The trial court judge, according to the Court of Appeal should not have made a separate award of damages concerning BNY’s distribution of SS&C’s market data to CIBC Mellon Global Securities Services Company on the grounds it would have been double compensation.

The Court of Appeal’s decision, which ends a lengthy convoluted saga between SS&C and BNY, highlights the risks of skirting legal contracts. CIBC Mellon Global Securities Services Company, part of a joint venture between Mellon Financial Corporation and Canadian Imperial Bank of Commerce, was one of two entities in 1999 which had signed a contract with SS&C Technologies to receive market data for Canadian fixed-income and other securities. The other entity was Mellon Trust, which was not a legal entity. Instead, it was a brand name for Mellon Financial Corporation’s custodial business lines. In 2007 Mellon Financial Corporation merged with Bank of New York to form Bank of New York Mellon Corporation, now known as BNY.

CIBC Mellon Global Securities Services Company cancelled its contract with SS&C to receive its data in 2011 on the grounds it no longer needed the information. However, BNY continued to distribute SS&C’s data to CIBC Mellon Global Securities Company and numerous other entities until 2017 when SS&C cancelled its contract with BNY. Market data is typically used to calculate portfolio valuations and performance results. (CIBC Mellon and Mellon Trust actually signed their contracts with Securities Valuation Company, a firm SS&C bought in 2005).

At the crux of the legal dispute between SS&C and BNY is just who was SS&C’s client. SS&C’s contention was that it was strictly Mellon Financial Corporation and later BNY. Therefore, BNY should not have been distributing the data to any of its subsidiaries, joint ventures, and affiliates other than BNY. Instead, BNY had illegally distributed the data to what SS&C says were 65 entities, including CIBC Mellon. When SS&C caught wind of BNY’s possible deception in the fall of 2016, it asked BNY for proof of where it was using the data. BNY countered that it did not have to produce the evidence and in 2017 SS&C sued BNY and CIBC in the Ontario Superior Court for breach of contract.

Justice Markus Koehnen of the Ontario Superior Court ruled that BNY violated the terms of its contract with SS&C because BNY was SS&C’s only client under the 1999 agreement. In July 2023 Justice Koehnen based his award of US$12 million for damages on what the Court of Appeal acknowledged was a best effort attempt to quantify SS&C’s losses given the disparate opinions provided by each side. BNY insisted that CIBC Mellon was the main user of SS&C’s data, while the other entities had minimal use, at best. However, BNY could only demonstrate that CIBC Mellon used 44.6 percent of the data leading Justice Koehnen to decide that the remaining percentage was used by other BNY entities.

Justice Koehnen disagreed with SS&C’s stance that it was entitled to US$890 million based on the technology firm’s analysis. SS&C contended that each of the BNY entities that BNY admitted had access to SS&C’s data should have signed a separate agreement with SS&C; they did not. Each separate agreement, in turn, would have been at the same terms as SS&C’s agreement with Mellon Trust. However, Justice Koehnen also disagreed with a multitude of reasons BNY offered as to why it should pay either no damages, or minimal damages at most. Among those varying arguments were that SS&C knew about where the data was being distributed; SS&C wasn’t damaged by the wide distribution of data; or SS&C should have caught wind of the contract violation earlier than it did.

Unsatisfied with Justice Koehnen’s ruling on damages, SS&C appealed his decision hoping to persuade a higher court of the validity of its position. (A detailed account of the background of the case and lower court’s ruling can be found in an article on www. finopsinfo.com published in March 2024 entitled SS&C: US$890 Million At Stake in Legal Tussle With BNY Mellon).

In its decision, the three-member Ontario Court of Appeal also decided to split SS&C’s damages into two categories– one for the use of the data by CIBC Mellon and the other for use by the BNY entities. The Court of Appeal elaborated on the lower court’s ruling on the misuse of data by multiple BNY entities. “Mellon Trust’s agreement only authorizes BNY itself, not also the custodial entities Mellon Trust owned at the time it entered into the contract, to access the data,” wrote Chief Justice Michael Tulloch on behalf of the Court of Appeal.

The Court of Appeal also upheld Justice Koehnen’s rationale for calculating damages. “I have no doubt the award is imperfect, but the standard of perfection is not required,” wrote Justice William Hourigan in his opinion. “This is especially so in a situation such as the case at bar where the parties clung to damages positions that were legally untenable and unsupported by the record.” The only way the Court of Appeal could have overturned the lower court’s decision on damages, according to Justice Hourigan was if the trial judge had been seriously wrong in his methodology. That meant he made an error in principle or misunderstood the evidence.

However, the Court of Appeal disagreed with Justice Koehnen’s conclusion that BNY was liable for sharing data with CIBC Mellon in an amount equal to the revenues SS&C would have earned from CIBC Mellon between April 1, 2011 when CIBC ended its agreement with SS&C and February 28, 2017 when SS&C ended its agreement with BNY. “SS&C was not entitled to be paid under the Mellon Trust Agreement for the usage of this data and at the same time also have the judge require CIBC Mellon to continue to make payments in accordance with its previous contractual arrangements,” wrote Justice Hourigan on behalf of the Court of Appeal.

The Canadian appellate court’s decision is surprising for two reasons, several US legal experts told FinOps Report on the condition of anonymity. First, the higher court noted that BNY itself acknowledged it might be liable for compensating SS&C for misuse of its data even if the Court of Appeal dismissed BNY’s other arguments. The second reason was that the Court of Appeal decided not to penalize BNY for destroying the documentation needed to determine how extensively BNY had used SS&C’s data without SS&C’s consent.

The Court of Appeal didn’t buy BNY’s argument that it didn’t have to produce or preserve evidence since no breach of contract had occurred. The terms of its contract with SS&C compelled it to do so regardless of whether SS&C could prove breach of contract. BNY, said the appellate court, knew the litigation would occur after being warned by SS&C’s outside counsel Chris Paliare to preserve the evidence. “The reasonable inference is that BNY destroyed the evidence to suppress the truth,” wrote Justice Hourigan adding that BNY’s position smacks of contempt for the justice system. Paliare is a partner in the Canadian law firm of Paliare Roland Rosenberg Rothstein which represented SS&C before the Ontario trial and appellate courts.

Justice Hourigan’s stance was far harsher than Justice Koehnen’s who concluded that BNY’s destruction of evidence merited a ruling of “adverse inference.” However, the Court of Appeal was not willing to penalize BNY for its serious offense which could otherwise have amounted to “spoilation”– or intentional destruction of evidence. The Court of Appeal also singled out BNY’s unidentified previous legal counsel at the Canadian law firm of McCarthy Tetrault for taking the position that BNY would not produce the documentation proving use of SS&C’s data on the grounds the claim had no merit. However, the appellate court spared the legal counsel from personal criticism on the grounds the court “must assume that he advised his client that its position was untenable.” McCarthy Tetrault, which represented BNY before the Ontario trial and appellate courts, declined to comment.

The fact that BNY will pay far less in damages than SS&C thinks it should have is just fine with BNY. “Though we continue to strongly deny SS&C’s claims, we are pleased that the Court of Appeal reduced the damages award, agreeing that SS&C is entitled to only a small fraction of its claimed damages,” wrote BNY in a statement to FInOps Report. SS&C declined to comment.

However, SS&C should still be somewhat satisfied and BNY even more worried. Anyone reading the appellate court’s publicly available decision will know that it highlighted how BNY illegally distributed SS&C’s data and intentionally prevented what would have been indisputable evidence of the extent of its contractual violation from coming to light. As a result, the truth will never be known. For any financial services firm, the Ontario appellate court’s ruling sends a clear message. If financial risk doesn’t scare a firm from violating a data contract, reputational risk should.