Royal Bank of Canada v. Levy, 2011 ABQB 700

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v. Levy, 2011 ABQB 700 Date: 20111115 Docket: 0901 08973 Registry: Calgary Between: Royal Bank of Canada Plaintiff - and - Ilan Levy, Tracy Levy, Harry Levy, Yuval Levy, Andrea Durnan, Denis Franks, Rachell Franks, David Steed, 1229637 Alberta Ltd., Hilltop Properties Inc., 1418650 Alberta Ltd., New Heights Custom Homes Inc., 1165696 Alberta Ltd., Zimmerman & Company, Foothills Real Estate Appraisals Ltd., B.

Grant Banbury, Michael Davidson, Arlene Wiebe, Ronald Vogel, Kevin Kowbel, Charlene Kowbel, Barbara Sabo, Erik Larsen, Devin Allibone, Edmond Fouillard, Yiu W. Mak, 1235631 Alberta Ltd., Aubrey Fraser, Tim Abel, Karen Abel, Dean Mclean, Laurel Sim, Sascha Bouzaara, Jesse Collins, Jean-Paul Fouillard, Michael Rocca, Barbara Rocca, Robert King, Jean King, John MacDonald, Cassandra M. Greve, Paul Thomson, Michael Glossop Defendants _______________________________________________________ Reasons for Decision of the Honourable Madam Justice B.E.

Romaine _______________________________________________________ INTRODUCTION [ 1 ] A defendant in a mortgage fraud action, Barbara Sabo, applied for

summary judgment against the plaintiff Royal Bank of Canada on the basis of the principle of ex turpi causa non oritur actio , the power of a Court to deny recovery to a plaintiff on the basis of

the immoral or criminal conduct. [2] Ms. Sabo submits that ex turpi causa applies and provides her with a complete defence because a RBC employee was theprimary organizing participant in the alleged fraud and therefore the bank should be barred from enforcing its claim. RBC submits thatthis argument fails to distinguish between the culpable acts of a rogue employee and the bank, and that ex turpi causa is not available onthe facts of this litigation. FACTS [3] RBC claims against a number of defendants including Ms.

Sabo on the basis that they planned, organized, participated in orexecuted at least twenty fraudulent residential real estate transactions that defrauded RBC of mortgage loan proceeds. RBC alleges thatthe chief perpetrator of the alleged fraudulent transactions was Ilan Levy, who was employed as a mortgage specialist with the bank. Mr.Levy’s duties included promoting and assisting home purchasers to apply for residential mortgages from RBC. However, RBC allegesthat Mr.

Levy acted outside the scope of his employment, without its knowledge and in concert with some of the other defendants inperpetrating the fraudulent transactions. [4] In this application for

summary judgment, Ms. Sabo submits that all of the material facts for the purpose of the applicationare uncontradicted and are set out in the RBC’s pleadings and affidavits. [5] Thus, the facts accepted by Ms. Sabo for the purpose of this application include: 1. that Mr. Levy and many of the other defendants in this litigation planned, organized, participated in and executed certainfraudulent transactions wherein mortgages secured against the properties that are subject to the litigation were obtained by or throughfraud, fraudulent misrepresentations or deceit; 2. that Mr.

Levy concealed the fraudulent aspects of the fraudulent transactions from other employees, offices, and directors ofRBC; that upon discovery of the nature of the fraudulent transactions and his participation in them, Mr. Levy’s employment wassummarily terminated for cause as a result. There is in addition uncontradicted evidence at this stage of the litigation that RBC did notsanction or approve of Mr. Levy’s conduct and that Mr.

Levy was acting as a rogue employee; 3. that, while there is no evidence that any of the defendants suffered any loss as a result of their participation in the fraudulenttransaction, there is evidence that RBC has suffered loss or damage or has been exposed to the risk of suffering loss or damage in excessof $8,900,000; and 4. that there is uncontradicted evidence that the defendants, including Ms. Sabo, were willing participants in some or all of thefraudulent transactions, and were paid fees to participate. With respect to the property that involves Ms.

Sabo, the uncontradicted evidence is that it is vacant, the mortgage is in arrears, and basedon an April, 2009 appraisal, the anticipated loss to the RBC is approximately $1.6 million. ANALYSIS [6] Rule 7.3 of the Alberta Rules of Court permits the Court to give

summary judgment against a plaintiff where the court issatisfied that there is no genuine issue for trial with respect to any claim. As set out in Canada (Attorney General) v. Lameman, 2008SCC 14 at para. 11, each side to the application must “put its best foot forward” with respect to the material issues. If there are triableissues of fact or law, the matter should go to trial: Suncor Inc. v. Canada Wire & Cable ltd. (1993), (AB KB), 7 Alta.L.R. (3d) 182 at para. 10. Ms. Sabo submits that she is entitled to

summary judgment on the basis that there are no material facts

requiring a trial, and the principle of ex turpi causa provides her a complete defence. [7] The scope of the defence of ex turpi causa in a tort action has been set out by the Supreme Court of Canada in Hall v. Hebert, (SCC), [1993] 2 S.C.R. 159. McLachlin, J. for the majority of the Court makes it clear that the law in Canada is that exturpi causa is a defence, not a power available to the Court to disallow a plaintiff’s claim on account of the plaintiff’s wrongful conductby finding that no duty of care exists: paras. 26-39.

She comments at para. 31 that “(p)olicy concerns unrelated to the legal rules whichgovern the relationship between the parties to an action have not generally been considered in determining whether a duty of care exists.” [8] McLachlin, J. concludes at para. 25 of the decision that ex turpi causa has a narrow application in cases in which it isappropriate to deny recovery to a plaintiff on the ground that to do otherwise would undermine the integrity of the justice system, eitherby permitting the plaintiff to profit by an illegal act or to evade a criminal penalty.

She gives examples of when the defence may besuccessful. For instance, the principle of ex turpi causa may be invoked where to allow the plaintiff’s tort claim would be to permit theplaintiff to profit from its wrong: para. 11. As evidence in this case makes clear, RBC is not profiting from Mr. Levy’s actions. [9] It may also be appropriate to invoke ex turpi causa where one wrongdoer claims in tort against another for financial lossarising from a joint illegal venture.

Again, that is not the case here, since I must accept the position of the bank at this stage of thelitigation as set out in its pleadings and affidavits that it was entirely unaware of the scheme. RBC submits that the uncontradictedevidence to date establishes that Mr. Levy, in concert with other defendants, intentionally concealed his activities from the bank. Ms.Sabo has adduced no evidence at this stage that Mr. Levy’s actions were authorized by RBC or done at its instructions. [10] Since ex turpi causa is a defence, in order to succeed in her application for

summary judgment, Ms. Sabo bears the onus ofestablishing the exceptional circumstances under which it should apply: Hall at para. 36. Thus she must establish on a balance ofprobabilities that RBC is a wrongdoer guilty of illegal or immoral conduct and that RBC’s claim is for profit in the narrow sense of adirect pecuniary award for

an act of wrongdoing: Hall at para. 11. She has failed to do so with respect to both requirements. There is noevidence that RBC was compliant in Mr. Levy’s alleged fraudulent activities; in fact, the uncontradicted evidence to date is to thecontrary, and the bank asserts that Mr. Levy was acting outside the scope of his employment. RBC’s claim is for compensatorydamages, rather than damages that would represent profit from an illegal act: Hall at para. 18. While at trial RBC will have to establishthat Mr.

Levy was in fact acting outside the scope of his employment or in circumstances where knowledge of his actions should not beimputed to RBC, and may face the defence of contributory negligence, there is insufficient evidence to warrant

summary judgment atthis stage on the basis of the defence of ex turpi causa. [11] Ms. Sabo relies heavily on the submission that, in this application, the Court must decide which of two conflicting publicpolicy considerations better serves the public interest:

a) maintaining public trust in the integrity of the Canadian financial system; or

b) allocating liability for tort arising from the relationship between the alleged tortfeasors and the plaintiff bank. [12] That question has already been determined by the Supreme Court in Hall. At para. 32, McLachlin J. comments that: “(t)herelationship between the plaintiff and defendant [in a tort action] which gives rise to their respective entitlement and liability arises froma duty predicated on foreseeable consequences of harm.

Since this is the concern, the legality or morality of the plaintiff’s conduct is anextrinsic consideration.” [13] While the Court in Hall was prepared to allow ex turpi causa a role in tort actions, that role was limited to situations where itwas necessary to maintain the internal consistency of the law.

The Court notes at para. 40 that compensation for injuries received can bereduced by contributory negligence, but “cannot be wholly denied by reason of [the plaintiff’s] disreputable or criminal conduct.” [14] Deterrence of RBC’s alleged negligence in supervising or overseeing the activities of its employee, if proved, can beaddressed not only by the defence of contributory negligence but also by the principles of vicarious liability and imputed knowledge, andby consideration of whether RBC breached its statutory obligations to oversee the activities of its employees under the Bank Act and, ifso, how that may affect RBC’s right to a remedy.

All these are issues for trial, as is the issue of whether RBC may rely on the exceptions

set out in the Law of Property Act to claim a deficiency judgment with respect to any of the impugned transactions. [ 15 ] Ms. Sabo has failed to established that no triable issue exists with respect to any of these issues, and thus is not entitled to

summary judgment. CONCLUSION [ 16 ] Ms. Sabo’s application for

summary judgment is dismissed. [ 17 ] If the parties are unable to agree on the issue of costs, they may make written submissins within 60 days of the date of this decision. Dated at the City of Calgary, Alberta this 15th day of November, 2011. B.E. Romaine J.C.Q.B.A. Appearances: K. Gregory Senda, Peterson & Purvis LLP for the Applicant Barbara Sabo Ellery Lew, Witten LLP for the Respondent Royal Bank of Canada