Liberty Mortgage Services Ltd. v. 123 Street Investments Ltd., 2011 ABQB 542

Court of Queen ’ s Bench of Alberta Citation: Liberty Mortgage Services Ltd. v. 123 Street Investments Ltd., 2011 ABQB 542 Date: 20110906 Docket: 1001 08304 Registry: Calgary Between: Liberty Mortgage Services Ltd. and the Canada Trust Company Plaintiffs Defendants by Counterclaim - and - 123 Street Investments Ltd., Julie Anna Hoffman also known as Julie Hoffman, Geoff Francis Hoffman also known as Geoff Hoffman also known as Geoffrey Hoffman, James Albert Walker also known as James Walker also known as Jim Walker, Rhonda Maureen Pallister also known as Rhonda Pallister, and John Gardner Bennett also known as Jon Gardner Bennett Defendants Plaintiffs by Counterclaim _______________________________________________________ Reasons for Judgment of J.B.

Hanebury, Master in Chambers _______________________________________________________

[ 1 ] This is an application for

summary judgment, including both redemption orders and orders for sale in a foreclosure action against various properties owned by the defendants. [ 2 ] The defendants 123 Street Investments Ltd., Julie Hoffman and Geoff Hoffman defended the action and oppose this application for

summary judgment. FACTS [ 3 ] In June 8, 2007, the defendants signed a mortgage lending commitment with Liberty Mortgage Services Ltd, who described itself as a “broker” and also as a “lender”. The agreement was for the loan of $1,950,000.00 to be secured by mortgages against lands described as the New Haven lands and other corporate and personal security. The agreement refers to an attached brokerage agreement which sets out the broker’s fee. The brokerage agreement, signed contemporaneously, provides the broker with a non-exclusive right for 90 days to obtain mortgage financing from a lender.

Both the commitment letter and the brokerage agreement are signed by 123 Street and the Hoffmans. The mortgage was registered against certain lands owned by 123 Street. [ 4 ] On July 6, 2007, the defendants entered into a second brokerage agreement with Liberty Mortgage Services Ltd. It states that the defendants are seeking mortgage financing on certain lands, being three condominium buildings, the New Haven, Aristocrat and Belvedere buildings. It gives the broker a nonexclusive right for 90 days to obtain mortgage financing from a lender.

The agreement provides for a brokerage fee of 4.75% of the principal amount of the mortgage up to $6.475 million. The agreement provides that the applicant, 123 Street Investments Ltd., and the guarantors, Julie and Geoff Hoffman, will provide “private and confidential personal and financial information to both the broker and the lender”. [ 5 ] On the same date, July 6, 2007, the defendants signed a mortgage lending commitment with Liberty for the same lands, with Liberty as the lender.

A smaller portion of the loan came from an R.R.S.P. account administered by Canada Trust Company, which, for ease of reference, has hereinafter been included in the name “Liberty” when reference is made to the mortgagee. [ 6 ] Both loans were guaranteed by the individual defendants and secured with various security, including the mortgages in issue which are registered against lands owned by 123 Street. [ 7 ] When the loans came due, formal demands were issued and ultimately, the parties entered into new loan arrangements.

The new terms are found in letters dated January 3, 2008, and provide that the borrowers and the guarantors acknowledge and confirm the validity of the security and the amount outstanding. The maturity dates were extended and the interest rates amended and extension fees were to be provided [ 8 ] By letter dated January 20, 2009, the terms of the loans were further amended. Both loans were in default and the lender had commenced legal enforcement proceedings against 123 Street and the guarantors.

The terms of the loans were extended and the interest rate reduced and further brokerage fees were added to the mortgage loan amounts and payment deferred until the maturity date. [ 9 ] Pursuant to an amending agreement dated March 4, 2009, the loans made by the plaintiffs to the defendant 123 Street and guaranteed by the individual defendants were consolidated and certain new security was obtained.

The new security included a promissory note by 123 Street for the amount remaining outstanding, a new mortgage over various residential condominium properties located in the Belvedere building, the New Haven building and the Aristocrat building which were then registered in the names of various of the defendants; a new mortgage over the personal residence of Geoff and Julie Hoffman located in Beaumont Alberta, and a new mortgage over other lands, Strawberry Far, owned by the Hoffmans; a new general assignment of rents and leases in respect of the properties; new guarantees given by the individual defendants; and new general security agreements given by the individual defendants and 123 Street. [ 10 ] The blanket mortgage was registered against 36 condominium units in the Belvedere building, 15 units in the New Haven building, and 21 units and the Aristocrat building.

In all but five instances the mortgages are second on title. The plaintiffs do not

anticipate receiving any funds from any of units other than the five where they hold a first charge. The others are in foreclosureproceedings or have been foreclosed and all are in a negative equity position. [11] As of February 9, 2011, there is $1,687,033.43 outstanding pursuant to the loan amending agreement and attendant security.Liberty seeks to enforce its security against the five units where equity remains and against the two parcels of land owned by theHoffmans.

Specifically its seeks an order for sale in relation to the five condominiums where it has a first charge and a one dayredemption period with a three month listing for the two properties owned by the Hoffmans. ISSUES [12] The defendants, 123 Street and the Hoffmans, filed a statement of defence and counterclaim to the action.

They filed noevidence in response to this application, but raised three issues. [13] First, they state that Liberty acted as a mortgage broker and thereby breached fiduciary duties owed to them. [14] Second, they argue that the mortgage documents on which Liberty relies do not charge the lands on which the plaintiff nowseeks to enforce its remedies. [15] Finally they argue that there was a lack of consideration for the mortgages and other security contracts that the plaintiff nowseeks to enforce. [16] At the conclusion of argument counsel were asked to file supplementary briefs setting out the evidence on the record thatindicates when Liberty began acting as a mortgage broker for the defendants and commenting on the definition of “mortgage broker”found in the Real Estate Act R.S.A. 2000, c.

R-5. The Hoffmans and 123 Street filed their argument first and Liberty responded, usingthis opportunity to supplement its argument. As 123 Street and the Hoffmans could not respond to this new case law, it has not beenconsidered in these reasons. The time to file a reply brief, if counsel considered it necessary, was before argument, or subsequently withleave of the Court. ANALYSIS [17] The test for

summary judgment has been described in many cases. The plaintiff must prove the facts necessary to make out its causeof action. If it does so on the balance of probabilities, the defendant must then demonstrate that it has a defence on the merits, or in otherwords, there is a genuine issue to go to trial. The defendant cannot rely on mere allegations in support of its defence; it must rely onevidence: Royal Bank of Canada v. McLean, (AB KB), [1997] A.J. No. 1172 (Q.B.), [1998] A.J. No. 568 (C.A.);Pioneer Exploration Inc. (Trustee of ) v. Euro-Am Pacific Enterprises Ltd., 2003 ABCA 298 , [2003] A.J.

No. 1305 (C.A.). [18] Liberty has filed an affidavit of default that establishes the facts in support of the relief it seeks. In response 123 Street and theHoffmans argue that there are genuine issues to go to trial. Did liberty Mortgage act as a mortgage broker and thereby breach fiduciary duties owed to the defendants? [19] Liberty Mortgage does not deny that it was a mortgage broker. The nature of the relationship between the parties, arguesLiberty, did not obligate it to obtain favourable financing or even act in the best interests of the mortgagors.

It was a non-conventionalmortgage broker, which meant that it was limited to pooling funds from private investors and bringing together borrowers and syndicatesof investors on a project by project basis. This was unlike conventional mortgage brokers who search for the best mortgage for theirclients.

[20] It argues that the relationship was not that of a fiduciary but merely one of creditor and debtor. It states that the onus ofproving the existence of a fiduciary relationship rests with the borrower and cites four cases to support this argument: Meadows v. FirstCalgary Financial Savings and Credit Union Ltd., 1990 ABCA 302 , 1990 ABCA302, Royal Trust Corp. v. Giuggio, [1993]32 R.P.R. (2d) 267, Manufacturers Life Insurance Company v. Executive Centre at Manulife Place Inc., 2011 ABQB 189, andBaldwin v. Daubney, (Ont. S.C.), aff’d on appeal (Ont.

C.A.). [21] These cases deal with different fact situations than the one before this Court. However, they do establish that there is nofiduciary relationship between a creditor and a debtor. For example, a bank owes no duty to its customer to advise it not to undertake aloan: Baldwin at para. 79. Insofar as Liberty was acting as a lender it had no fiduciary obligations to 123 Street. Therefore, if a fiduciaryrelationship exists, it must be as a result of Liberty being a mortgage broker. [22] The Supreme Court of Canada has, on a number of occasions, considered what constitutes a fiduciary relationship.

InHodgkinson v. Sims, [1994] 3 S.C.R. 77, the court discussed the indicia of established fiduciary relationships, such as trustee-beneficiary and agent-principal.

Where a relationship has, as its essence, discretion, influence over interests, and an inherentvulnerability, there can be a rebuttable presumption, arising out of the inherent purpose of the relationship that one party has a duty to actin the best interests of the other party. [23] Where there is not an established category with an acknowledged fiduciary responsibility, evidence is required of a mutualunderstanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party.

For example, therelationship of an investor to a discount broker will not give rise to a fiduciary duty. [24] The defendant argues that a mortgage broker is someone for whom the Courts have already acknowledged the existence of afiduciary duty, citing DeJesus v. Sharif, 2010 BCCA 121, and Mortgage Makers Inc. V.

McKeen 2009 NBCA 61. [25] The first case, DeJesus, is not of assistance as it discusses the fiduciary responsibilities of a real estate broker, a differentrelationship than that of a mortgage broker. [26] The second decision, Mortgage Makers, considers whether a mortgage broker has a fiduciary duty to a client. The Court heldat para. 53 that “the law recognizes that mortgage brokers owe certain ‘fiduciary duties’ to the borrower”.

The Court said, that for thepurposes of the case in front of it, “it is sufficient to affirm the broad proposition that mortgage brokers, as agents, are under a duty to actin good faith and to make relevant and timely disclosure of matters that might reasonably impact their client’s ability to make informeddecisions”. The Court then found that the plaintiff had made a secret commission as a result of its dealings with the defendant, which itwas not entitled to collect. [27] In support of this analysis the Court in Mortgage Makers relied only on G.H. L.

Fridman, The Law of Agency, 7th ed.(Toronto: Butterworths, 1996), at p. 181. No other case law was cited in this decision, nor was any other case law provided by the partiesthat considered whether a mortgage broker had fiduciary obligations, and if so, the nature of those obligations. [28] For the purposes of this decision, I will assume, without deciding, that there was a duty on Liberty to act in good faith andmake relevant and timely disclosure of matters that might impact 123 Street’s ability to make informed decisions.

Starting from thisassumption, the defendants must still establish that there is a genuine issue to go to trial on the question of whether there was a breach ofthose obligations. [29] The breach of these duties has been alleged in the Statement of Defence and Counterclaim, but allegations are not evidence:The defendants have an obligation to demonstrate that there is something behind those allegations. They do not need to file an affidavit;they may rely on the evidence of the plaintiff: Montreal Trust Co. of Canada v. Sagars Investments Inc., (1995) (AB KB), 167 A.R. 290 (Master), Tucson Properties Ltd. v.

Sentry Resources Ltd., (AB KB), [1982] 22 Alta. L.R.(2d) 44, para. 15, and Jason Development Corp. v. Robertoria Properties Ltd., (1980) 42 A.R. 369 (Master). There is no evidencebefore this Court of how the alleged fiduciary duty was breached, nor what damages were suffered. While the fees and interest mayarguably be high, there is nothing to indicate that a more reasonable rate could have been found elsewhere. The brokerage agreement wasnot exclusive. The defendants were free to look elsewhere.

[ 30 ] There is no evidence before the Court that commissions were secret or hidden. The defendants, in their supplemental brief, acknowledge that the only evidence before the Court as to the date Liberty began acting as a mortgage broker for 123 Street is the first brokerage agreement, which was signed on June 8, 2007, the same date as the first loan. The second brokerage agreement was also signed contemporaneously with that loan. The defendants could read the documentation. Nothing was hidden. There is no evidence of misrepresentation as to the nature, contents or purpose of the documents.

When the funds were advanced, full disclosure had been made. [ 31 ] Subsequent changes in the security did not involve the advance of new principal funds, but the adjustment of the security granted to Liberty as a result of the financial problems of the defendants. It is not unusual in a commercial context that a fee is charged when the security is extended or amended. In this case the fee was termed a brokerage fee. There is no evidence that it was an unusual amount or was hidden from the borrowers.

The borrowers knew Liberty was a broker and their lender and they signed the documents that clearly outlined the fee to be paid. [ 32 ] The Real Estate Act , R.S.A. 2000, c. R-5, s. 1 (

r) defines a mortgage broker as: a person who acts on behalf of another person for consideration or some other compensation and solicits a person to borrow or lend money to be secured by a mortgage; negotiates a mortgage transaction; collects mortgage payments and otherwise administers mortgages, or buys, sells or exchanges mortgages or offers to do so, or someone who holds out that he does so. Under the Real Estate Act a mortgage broker has the right to lend money. It is not forbidden: Rule 75. What is required is that the broker reveal to the borrower the fact that it is a broker. Liberty did so.

The defendants executed the brokerage agreements contemporaneously with the mortgage commitment letters. [ 33 ] In

summary, the evidence does not support any inappropriate advantage being taken by Liberty Mortgage. There is no evidence that the borrowers did not know what they were getting when they signed the commitment and the brokerage agreement on the same day. The brokerage agreement was not exclusive. This fact situation does not support a claim for a breach of a fiduciary duty. It supports the lender fulfilling a legislative requirement necessary due to the nature of its business. [ 34 ] Furthermore, there is no evidence of damages suffered by the defendants had such a breach occurred.

This defence does not raise a genuine issue for trial. Mortgage Documents do not Charge the Lands [ 35 ] No case law was cited in support of the contention that the blanket mortgage fails to adequately describe the lands and the parties and therefore does not charge the lands. [1] A review of the blanket mortgage reveals that it clearly lists which lands are being encumbered, the owners of each of the lands, and the amount outstanding. There is no confusion or inability to ascertain the lands being charged. The mortgage does not violate s. 102(2) of the Land Titles Act R.S.A. 2000, c. L-4 .

The mortgage is adequate to charge the lands. This argument does not raise a genuine issue for trial. Mortgage Fails for a lack of Consideration [ 36 ] The mortgages in issue claims to charge the land in consideration of the advance of $1,457,496.71 by Liberty and Canada Trust. The defendants argue that those funds were not advanced in favour of the mortgagors and therefore the mortgages fail.

Past consideration, 123 Street and the Hoffmans argue, is not valid consideration. [ 37 ] It is correct that pre-existing consideration will not support a promise and “in consequence, [it]...will not be valid unless there be some new consideration moving from the promissee.”: Bank of Montreal v. Sperling Hotel Co. , 1973 CarswellMan 32 (Q.B.) para. 29 . As pointed out in The Law of Contract in Canada , G.H.L.

Fridman (5 th ed.) Carswell: p. 110, a text cited by the Defendants, when a new factor is introduced such as an extension of time, there will be sufficient consideration. [ 38 ] In this case the parties executed a loan amending agreement in January, 2008, another on January 20, 2009, and a variation on March 4, 2009. The January, 2008, agreement acknowledged the debt and the validity and enforceability of the security. The January, 2009, agreement acknowledged: that the original loans had fallen into default; the amount outstanding; and, that the lender had commenced legal proceedings.

It confirmed that, as a result, the borrower had requested that the loans be further amended, including the

extension of the maturity date and the lowering of the interest rate. The lender agreed to do so on certain terms. As a result of this agreement various security, including the mortgages in issue, were granted and registered. [ 39 ] There was adequate consideration flowing to the defendants for the security granted to Liberty. They were in default under the mortgages and the guarantees. It was entirely appropriate for the new mortgages to refer to the advance of the amount outstanding. That sum had never been repaid. [ 40 ] The mortgage is a valid mortgage for the amount claimed.

CONCLUSION [ 41 ] The statement of defence is summarily dismissed as is the counterclaim. [ 42 ] The plaintiff may purchase the condominium units in the Aristocrat Building at the fair market values as found in the appraisal. The Beaumont and Strawberry Farm properties will be subject to a one day redemption period in light of the circumstances. The mortgage has come due over a year ago and remains unpaid. An order for sale by judicial listing at the fair market value for a period of 90 days will follow.

This relief is granted without prejudice to Liberty’s right to seek judgment against the defendants or seek to enforce its other security. The order should follow the format for relief as set out in the template order provided by the Courts. [ 43 ] The plaintiffs are entitled to their solicitor and client costs. Heard on the 30 th day of June, 2011. Dated at the City of Calgary, Alberta this 6 th day of September, 2011. J.B. Hanebury M.C.C.Q.B.A. Appearances: Inna Lazman Fleming LLP for the Plaintiffs,

Defendants by Counterclaim Kari L. Sejr Bishop & McKenzie LLP for the Defendants, Plaintiffs by Counterclaim 123 Street Investments Ltd., Julie Anna Hoffman also known as Julie Hoffman, Geoff Francis Hoffman also known as Geoff Hoffman also known as Geoffrey Hoffman [1] Kendell v. Kendell 2006 ABQB 664 , cited by the defendants, merely states that the mortgage must adequately describe the interests protected.