Court upholds account freeze amid fraud charge

The Court of Appeal for Ontario upheld a lower court’s decision to summarily dismiss a lawsuit against a bank and its investment dealer affiliate over their decision to freeze the accounts of a client who was facing fraud charges — although those charges were ultimately dismissed.

Last year, in a summary judgment, the Ontario Superior Court of Justice rejected a lawyer’s claim against HSBC Bank of Canada and HSBC Securities (Canada) Inc., seeking damages (including punitive damages) for actions they took back in 2012 — including freezing a client’s bank accounts, and closing out a large short position in his brokerage accounts, after he was charged with fraud, money laundering and possession of the proceeds of crime.

According to the court’s decision, in 2016, after the client was acquitted of the charges against him, the firms returned his financial assets to him with interest — and so, they argued that there was no genuine issue for trial, since they had returned all of his money to him, and they argued that there was no evidence of any other conduct that would warrant punitive damages.

The court agreed, dismissing the case, ruling that the firms were fully within their rights to freeze the accounts — indeed, they were legally obliged to freeze the accounts based on the conditions of the client’s bail order, it noted.

Moreover, it found that the firms lifted the account freezes and promptly refunded the client’s money once he was acquitted of the fraud charges — and that there was no basis for other claims for damages.

The court also ordered $225,000 in costs against the plaintiff, finding that the litigation dragged on for 12 years, and that he should have accepted an offer to settle without costs that the firms made in 2018.

The plaintiff appealed those decisions, arguing that the lower court judge misapprehended the evidence, and failed to address the firms’ delay in bringing their motion for summary judgement. He also appealed the costs order.

The appeal court upheld the decision to dismiss the case, rejecting the argument that the motion judge misunderstood the evidence — finding that the “motion judge properly concluded” that there was no genuine issue for trial.

However, the appeal court did grant leave to appeal the costs order, and agreed that the original costs order was “excessive.” It ultimately reduced the costs order to $175,000.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.