Background
Kenneth James, a lawyer, opened personal, commercial, and trust accounts with HSBC Bank of Canada and investment accounts with HSBC Securities (Canada) Inc. in late 2011. Within six months, a bank employee detected suspicious large cash deposits into his trust account. In June 2012, James and an employee were charged with possession of proceeds of crime, money laundering, and fraud over $5,000. HSBC froze his accounts, a Criminal Code restraint order was later imposed on his personal accounts, and the Law Society of Ontario suspended his licence to practise law. HSBC Securities separately sold options James held in Google and Priceline — after he failed to respond to a request to close them — generating an $86,551 profit for him.
James was ultimately acquitted of all criminal charges. The restraint order was vacated, HSBC lifted the account holds, and he recovered all remaining funds with accrued interest. Nonetheless, in August 2012 he commenced an action against HSBC claiming damages for wrongful conversion of funds, intentional interference with economic relations, conspiracy and collusion, and defamation. He also claimed funds allegedly withdrawn from a separate HSBC Hong Kong account, even though he acknowledged by 2019 that his Hong Kong funds had never left that bank.
The respondents moved for summary judgment in February 2024, after the action had been set down for trial but before any trial date was scheduled. The motion judge granted summary judgment, finding no genuine issue for trial on any claim, and awarded costs of $225,000 on a substantial indemnity scale — covering both the motion and the underlying action. James appealed both orders to the Court of Appeal for Ontario.
The Court’s Holding
The Court of Appeal unanimously dismissed the appeal from summary judgment. It agreed with the appellant that the motion judge ought to have addressed the issue of delay in bringing the summary judgment motion — a point argued by James before both the Regional Senior Judge and the motion judge — but found the omission non-fatal. On the record, the case was plainly appropriate for summary judgment: no trial date had been set when the motion was heard, the action was stale, and the appellant had been “completely unsuccessful” on the merits. Ordering a fresh summary judgment hearing, as James requested, would have been pointless given his own position that summary judgment was inappropriate in the first place.
The court also rejected the argument that the motion judge misapprehended the evidence. The finding that the Hong Kong funds never left that bank was grounded in James’s own affidavit, and the conclusion that there was never a genuine issue for trial on that claim was open to the motion judge. All other factual findings were equally supported by the record.
On costs, the court granted leave to appeal and allowed the appeal in part. It confirmed that substantial indemnity costs were available on the facts: the refusal of the respondents’ January 2018 offer to settle (dismissal without costs) could be weighed under the broad discretion in r. 57.01(1), and the motion judge was entitled to consider James’s unfounded allegations impugning HSBC’s integrity. However, the court found it was an error in principle to apply the elevated scale to costs incurred in the roughly six years before the offer was made. The costs award for the underlying action was reduced from $150,000 to $100,000, bringing the total award down from $225,000 to $175,000.
Key Takeaways
- A motion judge’s failure to address a delay argument in summary judgment reasons is not automatically fatal where the record plainly supports summary judgment and no prejudicial trial date existed.
- Under r. 57.01(1), a court may consider any written offer to settle — even one falling outside r. 49.10 — when exercising its broad discretion to award costs, including on a substantial indemnity scale.
- Substantial indemnity costs are available not only under r. 49.10 or for egregious misconduct, but also where a litigant pursues unfounded allegations that impugn a party’s integrity and refuses a reasonable offer in a hopeless case.
- An offer to settle can only justify elevated costs from the point of its rejection onward; applying a higher costs scale to pre-offer litigation is an error in principle.
- Account agreements authorizing freezing of accounts, combined with criminal charges and a Criminal Code restraint order, provided complete justification for HSBC’s actions — leaving no genuine issue for trial.
Why It Matters
This decision clarifies the interplay between Ontario’s costs rules when a settlement offer does not technically engage r. 49.10 — confirming that courts retain broad discretion under r. 57.01 to award substantial indemnity costs where a litigant refuses a reasonable offer and pursues baseless allegations over many years of litigation. The ruling gives practical guidance to counsel: the elevated scale is not limited to the two narrow circumstances described in Clarington, but the temporal scope of any uplift must be tied to the date the offer was rejected.
For banks and financial institutions, the case reaffirms that account-freezing in response to criminal charges and restraint orders — where expressly authorized by account agreements — will not ground liability for conversion or economic interference. It also underscores the risk facing plaintiffs who contradict discovery admissions by affidavit and pursue damages claims for funds held by legally distinct foreign entities: such conduct can combine with an unaccepted offer to justify substantial indemnity costs even absent conduct rising to the level of a formal sanction.