Royal Bank of Canada v Levy, 2012 ABQB 310

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v Levy, 2012 ABQB 310 Date: 20120510 Docket: 0901 08973 Registry: Calgary Between: Royal Bank of Canada Plaintiff - and - Ilan Levy, Tracey Levy Harry Levy, Yuval Levy, Andrea Durnan, Denis Franks, Rachell Franks, David Steed, 1229637 Albert 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 ] Royal Bank of Canada claims against a number of defendants in this action on the basis that they planned, organized,

[ 1 ] Royal Bank of Canada claims against a number of defendants in this action on the basis that they planned, organized, participated in or executed at least twenty residential real estate transactions that defrauded the Bank of mortgage loan proceeds. The Bank alleges that the 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 the Bank. However, the Bank alleges that Mr.

Levy acted outside the scope of his employment, without its knowledge and in concert with some of the other defendants in perpetrating the fraudulent transactions. Many of the defendants allege otherwise, and defend the action on the basis that the Bank was negligent in its supervision of Mr. Levy, that its policies induced or contributed to the fraud and that it is vicariusly liable for the acts of its employee. [ 2 ] The Bank brought concurrent applications to strike a portion of the pleadings of certain defendants and for

summary judgment with respect to certain properties identified in its statement of claim. I refused

summary judgment with respect to defendants Erik Larsen, Devin Allibone, Edmond Fouillard, Jean-Paul Fouillard, Michael and Barbara Rocca and Michael Glossop (the “Allibone Defendants) and the defendants Tim Abel, Karen Abel and Dean McLean (the “Abel Defendants”). Implicit in this decision was the dismissal of the Bank’s application to strike the pleadings of those defendants. I reserved my decision with respect to the

summary judgment application relating to the defendant Denis Franks. I granted

summary judgment against Aubrey Fraser who did not appear or make submissions. The Bank did not proceed with its application for

summary judgment against Jesse Collins, Yiu W. Mak or 1235631 Alberta Ltd. Relevant Facts [ 3 ] The Bank is a mortgagee with mortgages registered against each of the properties named in the Statement of Claim. Each of the mortgages contains a covenant to pay. Each mortgage was granted pursuant to the National Housing Act , R.S.C. 1985, c. N-11 and is issued by the CMHC. [ 4 ] Each mortgage contains the following term: This mortgage is a high ratio mortgage to which sections 43(4.1) and (4.2) and 44(4.1) and (4.2) of the Law of Property Act apply.

You and anyone who, expressly or impliedly, assumes this mortgage from you, could be sued for any obligations under this mortgage if there is a default by you or by a person who assumes this mortgage. [ 5 ] As high ratio mortgages or mortgages given to secure a loan under the National Housing Act , these mortgages do not benefit from the limitation on a lender’s right to recovery set out under

Section 40 of the Law of Property Act , R.S.A. 2000, c. L-7, and the lender’s common law right of action on the personal covenant to pay remains enforceable. [ 6 ] The Bank submits that the mortgages are all stated to be subject to “Standard Form Mortgage Terms”, including the following:

a) each Mortgage is comprised of the registered mortgage, along with any document renewing, amending, or extending the mortgage, along with the Standard Mortgage Terms [section 1]; and

b) all payments made to RBC will be made in full without any set-off or counterclaim and without deductions or withholdings whatsoever, and that the borrower will not cancel, offset, or reduce any payments that he or she makes [section 13.3]. [ 7 ] Each of the properties that are the subject of these applications but three have been sold pursuant to an order for sale or redemption order, and each of these sale orders adjourned judgment with respect to any shortfall between the net sales proceeds of the sale of the properties and the outstanding balance of the mortgages.

In each of the sales, the net proceeds were less than the amount owing to the Bank under the mortgages. [ 8 ] Three of the properties remain subject to an order for sale that adjourns judgment with respect to any shortfall between the

net sales proceeds of the sale of the properties and the outstanding balance of the mortgages. The Bank expects from its appraisals that there will be deficiencies. Analysis Application to Strike Pleadings [ 9 ] The Bank applies to strike parts of the Statements of Defence of certain defendants on the basis that those portions of the Statements of Defence are frivolous, irrelevant or improper, and do not disclose a reasonable defence to a claim, relying on Rule 3.62(2). That Rule gives the Court discretion to strike out all or part of a defence if it “discloses no reasonable claim or defence to a claim”.

The Rule is similar to the previous Rule 129(1)(a), except that it adds the word “reasonable”. The new Rule is to be interpreted in accordance with the foundational rule, Rule 1.2, to fairly and justly resolve claims in or by a court process in a timely and cost-effective way: Donaldson v. Farrell , 2011 ABQB 11 , at para. 10 . It is noteworthy, however, that Rule 1.2 also refers to interpreting rules in a manner designed to identify the real issues in dispute, and to encourage the parties to resolve the claim by themselves.

There is nothing in the foundational rule that sacrifices due process for efficiency. [ 10 ] In First Calgary Savings & Credit Union Ltd. v. Perera Shawnee Ltd. , 2011 ABQBN 26 at para. 4, Kent J. confirmed that the test to be applied in an application to strike pleadings under Rule 3.68 remains whether it is plain and obvious that the defence discloses no reasonable defence.

She noted that the test is an onerous one, because striking pleadings will obviously bring an end to certain defences. [ 11 ] The determination is made without affidavit evidence and the Court must assume that the allegations and fact in the defence are true. The Court must then determine whether those facts disclose a cause of action: Tottrup v. Lund , 2000 ABCA 121 at para. 8 .

The Court of Appeal in Tottrup emphasized that caution is required before a Court can conclude that a party has no chance of success, and that the opposing party is entitled to a broad reading of the pleadings. [ 12 ] The portions of the Statements of Defence that the Bank seeks to strike can be broken down into the following categories:

a) defences based on the Bank’s breach of an alleged fiduciary duty to the defendants;

b) defences based on the Bank’s negligence or contributory negligence stemming from the Bank’s breach of an alleged duty to the defendants with respect to due diligence about the transactions, the property, or the borrower;

c) defences based on the Bank’s negligence or contributory negligence stemming from the Bank’s breach of alleged statutory or other duties to the defendants with respect to its internal policies and its relationship with the defendant Mr. Levy; and

d) defences based on the Bank’s alleged representations. [ 13 ] In

summary, the Bank’s applications focus on quashing any line of inquiry that would go behind the conduct of Mr. Levy into the Bank’s conduct and policies. The Bank appears to argue that, even if there is proximity between the Bank’s employee, Mr. Levy, and the straw purchasers, there are policy reasons that may negate the imposition of a duty of care on the Bank. Application for

Summary Judgment [ 14 ] The Bank relies on Rule 7.3. It submits with respect to certain defendants that the Court should be satisfied that there is no defence to their claims or part of their claims, or that the only genuine issue is as to amount, on the basis of the test for

summary judgment as set out by the Alberta Court of Appeal in Eng v. Eng, 2010 ABCA 19 at para. 5 :

. . .The test is a two-step process. First, the plaintiff bears the evidentiary burden of proving its cause of action on a balance ofprobabilities. Then the evidentiary burden shifts to the defendant. The defendant can avoid

summary judgment by proving there is agenuine issue for trial. It must be beyond doubt that no genuine issue for trial exists: Pioneer Exploration Inc. (Trustee of) v. Euro-AmPacific Enterprises Ltd., 2003 ABCA 298, 339 A.R. 165 at paras. 15-19. [15] The Bank has established a prima facie claim to a deficiency judgment, and the evidentiary burden thus moves to thedefendant purchasers to demonstrate there is a genuine issue to be tried and that this application for

summary judgment should bedismissed: Royal Bank v. McLean 1997 CarswellAlta 934 (Q.B.). [16] The Bank submits with respect to all of the defendant purchasers that are the subject of the

summary judgment applicationthat the fraudulent nature of the mortgages does not vitiate the defendant purchasers’ liability to pay the deficiencies because:

a) the purchasers are liable because of their participation in the fraud;

b) there was no obligation by the Bank when approving the mortgage to obtain an appraisal, complete due diligence or ensure thatthe amount loaned was appropriate;

c) there was no fiduciary relationship between the Bank and the purchasers;

d) the defence of non est factum is not possible on the facts;

e) there is no possible defence of illegality;

f) there is no possible defence of representations made by other defendants, lawyers or Mr. Levy; and

g) the knowledge and actions of Mr. Levy cannot be imputed to the Bank. [17] The defendants all argue, in

summary, that the Bank’s own submissions with respect to the application raise triable issues. Imust agree.

I was satisfied by the evidence before me in this application that, with respect to the Allibone Defendants and the AbelDefendants, there are legally relevant facts that are disputed and cannot at this point in the proceedings be summarily disposed of, andthat there are thus issues that require a trial to be determined. [18] The Allibone Defendants and the Abel Defendants have raised sufficient evidence of the involvement in the fraud of a bankemployee and a lawyer alleged to be a bank agent and alleged misrepresentations by this employee and agent to justify the denial ofsummary judgment at this stage of the proceedings: Toronto-Dominion Bank v.

Khosla, 2010 CarswellAlta 3138 at para. 19. [19] The Bank relies on an exception to the general rule that the actions of an agent in the course of his employment should beimputed to the principal.

It submits that the presumption does not apply if it is in the interest of the agent to conceal the truth from hisprincipal: Re Durbin et al and Manseat Investments Ltd. (1978), (ON CA), 20 O.R. (2d) 181. [20] However, in the circumstances of this case and in view of the unanswered allegations of misrepresentation made by thedefendants, the applicability of this exception cannot be ascertained without consideration of a full record and full legal argument at trial:MCAP Service Corp. v. Allen, 2007 CarswellOnt 943; Bank of Nova Scotia v Villafuerte, 2007 Carswell Ont 523.

[21] The Bank chose to present its submissins on a global basis with respect to all the defendants against whom it sought

summaryjudgment. The defendants made submissions separately. Many of the defendants endorsed and relied upon the submissions of theAllibone Defendants in response to the application, and I will thus review those submissions first. The Allibone Defendants [22] The Bank sought to amend its statement of claim to add claims for default under mortgage contracts and to seek deficiencysummary judgments against the Allibone Defendants. The application to amend the statement of claim was not contested. [23] The Allibone Defendants issued a statement of claim against the Bank, Mr.

Levy and other defendants (the “AlliboneAction”) prior to the Bank filing its Statement of Claim and amending it to include them as defendants. In the Allibone Action and intheir Statement of Defence to the Bank action, the Allibone Defendants allege that they were victims of fraudulent mortgages preparedby Mr. Levy, and allege that Mr. Levy and other defendants made certain representations to them. [24] In particular, the Allibone Defendants allege that Mr. Levy, Michael Davidson, Heather Liska and David Steed approachedthem on the following basis and made the following representations: (

a) that this was a real estate opportunity to acquire property and obtain a mortgage so that a buyer could assume that mortgage. Thedefendants would provide interim bridge financing in which the defendants would receive funds to pay the mortgage payments until thereal buyer could acquire the property and retain a portion of the funds as a fee for acquiring the property on an interim basis by obtainingand qualifying for a new mortgage through Mr. Levy’s employer, the Bank. (

b) that the scheme provided financing for developers or builders to hold mortgages for a short period of time until the developer orbuilder could complete the residence and sell it to a buyer, on the premise that the developer or building could only hold so many houses.The defendants would receive mortgage payments up front together with a retainer as security for their ability to qualify for a mortgage. (

c) that this was a real estate opportunity whereby the property would be purchased with an assumable mortgage to sell for profit to abuyer who is unable to purchase the property at that time due to a poor credit rating as a result of a recent transfer to Canada; and (

d) that this was a real estate opportunity to purchase from motivated sellers at a discount and sell to a buyer for share of the profiton the re-sale. [25] The Bank seeks to strike paragraph 5 of the Statement of Defence of the Allibone Defendants, which alleges that the Bankwas fully aware of the illegality of the purchase contracts and mortgages and which pleads negligence. The Bank submits that theallegations of negligence cannot proceed as there is no duty of care. [26] The Bank relies on the decision of the Ontario Court of Appeal in Baldwin v.

Daubrey, where the Courtstates as follows: [12] It is settled law also that, barring a special relationship or exceptional circumstances, the relationship between a bank and itscustomer is that of debtor and creditor. The motion judge set out the applicable law at para. 78 of the reasons, as recently summarized bythis court in Pierce v. Canada Trustco Mortgage Co. (ON C.A.), (2005), 254 D.L.R. (4th) 79 at para. 27: Generally speaking, the relationship between a financial institution lender and its customer borrower is a purely commercial relationshipof creditor and debtor.

Absent any special relationship or exceptional circumstances such as would give rise to a fiduciary duty (which is

not pleaded by Mrs. Pierce), the courts have consistently held that the lender owes no duty to the borrower in connection with the makingof the loan. In particular, the bank owes not duty to its customer to advise the customer not to undertake the loan: [citations omitted] [emphasis added] [27] The Baldwin case involved a claim by purchasers of mutual funds that did not perform as anticipated against, among otherdefendants, the financial institutions that loaned the purchasers the funds to purchase the investment. The financial institutions weresuccessful in an application for

summary judgment. The Court of Appeal agreed with the motions judge that there were no specialcircumstances or special relationship that would change the general rule, commenting that, while there had been promotional efforts bythe financial institutions, these were directed to the financial advisors who sold the mutual funds and not the appellant investors. [28] The Allibone Defendants submit that a fiduciary duty can arise if there is a special relationship or exceptional circumstancesthat would give rise to such a duty, citing S. Maclise Enterprises Inc. v.

Union Securities Ltd., 2008 CarswellAlta 444; 2009 CarswellAlta2106 (C.A.), at paras. 45 and 46. [29] In that case, Germain, J. referred to the two-part test (the “Anns test”) set out by the Supreme Court in Hercules ManagementLtd. v. Ernst & Young, (SCC), [1997] S.C.J. No. 51 at para. 20 for determining the existence of a duty of care betweena representee and representor in a case of alleged misrepresentation, as follows: (

i) is there a sufficiently close relationship between the parties (the defendant and the person who has suffered the damage) so that,in the reasonable contemplation of the defendant, carelessness on its part might cause damage to that person? If so, (ii) are there any considerations which ought to negative or limit (

a) the scope of the duty and (

b) the class of persons to whom it isowed or (

c) the damage to which a breach of it may give rise? [30] With respect to the duty of care aspect of the first branch of the test, Germain, J. commented: In terms of the first branch of the Anns test, which considers the proximity between the defendant-representor and the plaintiff-representee, the Supreme Court noted that a `special relationship’ will be found to exist and this first branch satisfied, if the followingtwo factors are present: (

a) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and (b)reliance by the plaintiff would, in the particular circumstances of the case, be reasonable: para. 24. [31] The Allibone Defendants submit that they have adduced sufficient evidence to raise a triable issue that representations madeby the Bank through its agent Mr. Levy induced them into transactions, characterized as investments, interim financing or securitisation,on the basis that the transactions were legal and legitimate and condoned by Mr. Levy’s employer, the Bank.

They submit that there issufficient evidence to raise a triable issue with respect to whether the Allibone Defendants relied on the representations of Messrs. Levyand Steed that the mortgage transactions were legal and legitimate. [32] The Allibone Defendants also submit that they have provided sufficient evidence to raise a triable issue about whether theythemselves raised concerns when asked to execute the statutory declarations that accompanied the mortgages. The Allibone Defendantsallege that representations were made by Mr. Levy and Mr. Steed or in the presence of Mr.

Steed that these Defendants could swear suchStatutory Declarations on the basis that the down payment was built into the equity and that, as long as a purchaser intended to live onthe property he could later change his mind. [33] The Bank submits that the evidence of reliance on representations adduced by the Allibone Defendants has no air of reality toit, relying in part on comments made by the Court in Village on the Park (Re), 2009 ABQB 497.

It is noteworthy that the commentsmade in that case were on the credibility of a witness after a full trial, not on affidavit evidence or mere pleadings. [34] The representations relied upon by the Allibone Defendants were made by two participants in the alleged fraud: Mr. Levy andMr. Steed. Mr. Steed was the lawyer allegedly acting for both the Bank and the purchasers. I am not satisfied that, as submitted by theBank, the state of the law is beyond dispute that where a lawyer acts for both a borrower and a lender, any claim for misrepresentation

can only be made against the lawyer and not the lender. [ 35 ] The Allibone Defendants cite MCAP Service Corporation v. Doiron , 2006 CarswellAlta 1491 , in which Burrows, J. affirmed the decision of Master Breitkreuz dismissing MCAP’s application for

summary judgment in a similar mortgage fraud. In MCAP v. Doiron , the mortgage broker sent a mortgage application to MCAP that contained false information of which the borrower had no knowledge and the lawyer who acted for both the borrower and the lender asked the borrowers to sign documents without explanation and in an apparent rush. Master Breitkreuz held that there was a possibility that the borrowers would be able to prove their allegations of negligent misrepresentation and that therefore a triable issue existed, particularly since there was no evidence submitted contrary to the evidence of the borrowers.

I am satisfied that the Allibone Defendants have adduced sufficient evidence to raise a genuine issue for trial on this allegation. [ 36 ] With respect to representations that are alleged to have been made by Mr. Levy, the Supreme Court in Hercules set out five general indicia to determine whether reliance on representation is reasonable.

The questions to be asked are whether: (1) the Bank had a direct or indirect financial interest in the transaction in respect of which the representation was made; (2) the representor was a professional or someone who possessed special skill, judgment, or knowledge; (3) the advice or information was provided in the course of the Bank’s business; (4) the information or advice was given deliberately, and not on a social occasion; and (5) the information or advice was given in response to a specific inquiry or request. [ 37 ] Again, I am satisfied that the Allibone Defendants have raised sufficient evidence to establish a genuine issue for trial on reliance.

The Bank submits that the claims of misrepresentation are not plausible, “absurd”, “deeply flawed” and “illogical”. While the defendants may indeed face a challenge to credibility at trial on the issues of whether they relied on such advice and whether such reliance was reasonable, it is premature to find such affidavit evidence incredible without the full test of a trial. I note that the Bank has not yet examined Mr. Levy or Mr. Steed, and the defendants have not had the opportunity to examine the Bank.

Thus, the allegations of the Allibone Defendants are largely unanswered. [ 38 ] The Bank submits that there are contradictions between the allegations of representations made by Mr.

Levy and other testimony and documentation, but this strengthens the argument that the evidence should be tested and balanced in a trial setting, with an opportunity to adequately assess credibility. [ 39 ] The Bank submits that it is unreasonable that a financial institution should owe a general duty of care to each borrower from the Bank with respect to the general operating and hiring policies of that financial institution, that such a nexus is too remote and must fail. This ignores the special circumstances and representations pled by the defendant purchasers in this case.

Policy considerations may prevail in a finding on duty of care with respect to such issues at trial, but I am not satisfied that the law is so clear that I could find that it is plain and obvious that the defence discloses no reasonable defence, or that there is no triable issue. [ 40 ] The Bank also asserts that, even if the representations were made, the defendants could not rely on them because they amount to an attempt to vary the mortgage by parol evidence, citing Capital City Savings and Credit Union Limited v. Kembry , 2002 ABQB.

That decision is distinguishable on its rather unique facts, in that the negligent misrepresentation by the bank’s employee, if it was made, was not material to or relied upon by the purchaser in entering into the mortgage contract. In this case, the Allibone Defendants submit, and have raised sufficient evidence to make this assertion a genuine issue for trial, that the fraudulent representations made by the Bank through its employee, Mr. Levy, were made prior to and induced the defendant purchasers to enter into the mortgage contract.

[41] The Bank submits that negligent misrepresentation is not a defence, but a counter-claim, which, it submits, raises only theissue of set-off and ought to be dealt with separately. In other words, the Bank submits it should be entitled to

summary judgment on thecovenant to pay, and that the allegations of negligence against them ought to be pursued by the defendants as a subsequent action. [42] The Bank relies on Royal Bank of Canada v. Parmar et al, 2005 BCSC 1155 for this proposition. That case was a foreclosureaction against a single property that included an application for personal judgment against the mortgagor. One of her defences was set-offon the basis that she was induced into the mortgage by the bank’s employee.

From the decision, there does not appear to have been thekind of representations alleged by the defendants in this case made to the mortgagor, who entered into the scheme merely on the promiseof a fee. [43] In oral reasons, Shabbits, J. found that the target of the fraud was the bank. He noted that the only cause of action that themortgagor may have against the bank in negligence appeared to rest on her submission that because one of the bank’s employees wasinvolved in the fraud, the bank was vicariously liable.

He concluded that if the mortgager had a cause of action, she should pursue it in aseparate action independent of the foreclosure proceedings. He referred to the terms of the mortgage, which he interpreted to mean that aclaim for set-off was to be pursued in separate proceedings. [44] However, Shabbits, J. acknowledged authority for the proposition that, except for express contractual agreements otherwise,equitable set-offs ought to be considered in the same proceeding as the main claim.

He concluded that, if there was to be a trial involvingissues of fraud, it ought to be a proceeding involving not only the individual claims of the mortgagor in the foreclosure proceedings butalso claims against the persons she alleged were the principal perpetrators of the fraud. [45] That is precisely what this litigation is about. It is not a solitary action for foreclosure.

It is the appropriate venue to considerthe entirety of the claims, defences and counter-claims relating to this alleged fraud, and it would be counter-productive andinappropriate to begin to fragment the action. [46] The Allibone Defendants submit that they have established a genuine issue for trial; being whether the Bank has “crossed theline of that of a mere debtor-creditor relationship to that of a fiduciary relationship: Scavarelli v. Bank of Montreal, 2004 CarswellOnt115, para. 30. [47] The Bank submits that vicarious liability is not a bar to a

summary judgment application. As the Allibone Defendants note,that is not the issue. The issue raised by the defendant purchasers is that there is a triable issue on whether the misrepresentations thatinduced the purchasers to enter into a mortgage contract with the Bank were in fact misrepresentations by the Bank, as it is alleged assuch representations were made by an employee within the scope of his authority and entirely connected and related to the mortgagetransaction. [48] The issue of vicarious liability is a live issue in this litigation.

The Allibone Defendants point to the principles set out by theSupreme Court of Canada in Bazley v. Curry (1999), (SCC), 2 S.C.R. 534 at para. 41 to aid a court in determiningwhether an employer can be found vicariously liable, which are as follows: (

a) confront the question of whether liability should lie against the employer rather than entering into

summary discussions of scopeof employment and mode of conduct; (

b) determine whether the wrongful act is sufficiently related to the conduct authorized by the employer to justify the imposition ofliability. Vicarious liability is generally appropriate where there is a sufficient connection between the creation or enhancement of a riskand the wrong that accrues therefrom, even if unrelated to the employer’s desires; (

c) determine the sufficiency of the connection between the employer’s creation or enhancement of the risk and the wrongcomplained of. The following subsidiary factors should be considered: (

i) The opportunity of enterprise afforded the employee to abuse his or her power;

(ii) The extent to which the wrongful act may have furthered the employer’s aims (enhanced to be more likely to have been committed by the employee); (iii) The extent to which the wrongful act was related to friction, confrontation or intimacy inherent in the employer’s enterprise; (iv) The extent of power conferred on the employee in relation to the victim; (

v) The vulnerability of potential victims to wrongful exercise of the employee’s power. [ 49 ] I agree that at this stage of the proceedings, without discovery or any evidence from the Bank with respect to the scope of Mr. Levy’s employment, the supervision exercised by the Bank and the procedures imposed by the Bank on Mr. Levy, I cannot make a determination from these guiding principles.

RBC submits that the so called “twin policy goals of fair compensation and deterrence” that underlie the doctrine of vicarious liability as set out in Bazley are not met when a party seeking to rely on the doctrine was a participant in the employee’s intentional tort. While that may be found to be the case when full evidence is put before the Court at a trial, I cannot find that there is no triable issue of vicarious liability on the evidence before me in this application. [ 50 ] The Bank relies on MCAP Service Corporation v.

Molina-Ton 2009 ABQB 471 , at para. 53 , a decision of Master Hanebury, for the preposition that the Allibone Defendants cannot ask the court to refuse to enforce a contract on the basis of its illegality. That case is distinguishable on its facts, in that the Master noted that the pleadings of the defendant purchaser alleged that no agents and employees of the financial institution discussed any aspect of the transaction with the purchaser. While a lawyer was named, it was not alleged that he was the agent of the financial institution.

I am not satisfied on the circumstances of this case that there is no triable issue with respect to the defence of illegality raised by the Allibone Defendants, given the allegations of misrepresentation by both Mr. Levy and Mr. Steed. [ 51 ] The Bank also submits that the defendants are bound by the Standard Mortgage Terms that are incorporated as part of the mortgage and which include a set-off provision similar to the one relied upon by Shabbits, J. in Parmar . The distinctions between Parmar and this litigation has already been discussed. There is a further distinction.

The Allibone Defendants submit that the issues of whether the purchasers are contractually bound by clauses that in this case were incorporated by reference and whether the wording of those clauses, whatever they are established to be (which may differ among defendants), is sufficient to bar equitable set-off are triable issues, and I must agree. [ 52 ] I therefore found that the application for

summary judgment against the Allibone Defendants must fail. I also find that the application to strike the Allibone Defendant’s pleading is premature and improper and must fail given that the Bank has not been able to establish that it is plain and obvious that the pleadings, broadly read, disclose no reasonable defence. I therefore dismiss the applications against the Allibone Defendants. The Abel Defendants [ 53 ] The Bank sought to strike paragraphs 11 of the Statement of Defence of the Abel Defendants (including McLean), and to amend its Statement of Claim to add claims for default under the mortgage contracts. The Bank also sought

summary judgments against the Abel Defendants. [ 54 ] The Abel Defendants rely on the same kind of representations relied upon by the Allibone Defendants, and make the same submissions on the Bank’s applications. Specifically, they allege that they were assured by Mr. Levy that the transactions were legal and that his supervisors knew about it. They do not object to the Bank’s application to amend. [ 55 ] For the same reasons as set out with respect to the Allibone Defendants, I find that the application to strike the Abel Defendants’ pleadings is premature and improper and that they have demonstrated sufficient evidence of genuine issues for trial to warrant dismissal of the Bank’s

summary judgment application.

Denis Franks [ 56 ] The Bank applied for

summary judgment against Denis Franks. Counsel for Mr. Franks did not file a brief, but appeared at the hearing and made limited submissions, including a last-minute reference to the Land Titles Act . I cannot decide the

summary judgment application against Mr. Franks on the record before me, and I allow leave to the Bank to reargue its application with respect to this defendant, with a brief specific to Mr. Frank and with a responding brief from Mr. Frank’s counsel. Arlene Wiebe [ 57 ] The Bank applies to strike certain factual allegations in Ms. Wiebe’s Statement of Defence and paragraphs of her counter- claim that allege, generally, that the Bank created the opportunity for Mr. Levy to commit fraudulent acts and to misrepresent the terms of the Wiebe property purchase and is therefore liable for the acts of its employee Mr.

Levy. [ 58 ] Ms. Wiebe concurrently applies to amend her pleadings to reflect the sale of the property, including reference to sums received and expended on completion of the property for sale, (which the Bank does not oppose), and to amend her counter-claim to add an allegation that the losses incurred by Ms. Wiebe were caused or contributed to by the Bank through its employment policies and practices relating to Mr. Levy and the position of mortgage specialist.

The Bank submits that such proposed pleading should also be struck. [ 59 ] The Bank submits that the pleadings should be struck primarily on the basis that the Bank owed no duty of care to Ms. Wiebe that could found an action in negligence. For the reasons set out in the discussion of the

summary judgment application relating to the Allibone Defendants, the Bank cannot meet the onerous test that it is plain and obvious that the defence discloses no reasonable defence, particularly if the facts alleged in the pleadings are assumed to be true. [ 60 ] In addition, there is a fundamental difference between Ms. Wiebe’s position in this litigation and the other defendants in that Ms. Wiebe committed $536,497.32 toward the completion of the Wiebe property.

Therefore, she suffered personal loss, said loss forming the primary thrust of her counterclaim. [ 61 ] Thus, the Bank’s submission regarding the inability of participants in an alleged fraudulent scheme to claim contribution from a defrauded plaintiff does not apply to Ms. Wiebe as she alleges that she was likewise defrauded. [ 62 ] I agree that it is premature to strike portions of Ms. Wiebe’s pleadings, and the Bank’s application to do so is dismissed. I allow Ms. Wiebe’s application to amend the pleadings. Barbara Sabo [ 63 ] The Bank applies to strike paragraphs of Ms.

Sabo’s Statement of Defence that allege that the Bank owed a duty of care to Ms. Sabo and was negligent, including in the preparation of the mortgage documents. The pleadings sought to be struck included particulars that the Bank through its employee Mr. Levy made negligent or alternatively innocent misrepresentations to Ms. Sabo, that the Bank had a special relationship with Ms. Sabo as a mortgage lender, and that the Bank made negligent or innocent misrepresentations, that without such representations Ms.

Sabo would not have executed the mortgage documents and that she was induced to do so by the misrepresentations, that the Bank’s system of remuneration of Mr. Levy contributed to the fraud and that the Bank was contributorily negligent. [ 64 ] Ms. Sabo applies to amend her pleadings to allege breaches of the Bank Act and the Real Estate Act. [ 65 ] Again, for the reasons set out in the discussion of the

summary judgment application relating to the Allibone Defendants, the

Bank cannot meet the onerous test that it is plain and obvious that these defences disclose no reasonable defence, assuming the facts alleged in the pleadings are assumed to be true. [ 66 ] It is premature to strike parts of Ms. Sabo’s pleadings, and the Bank’s application to do so is dismissed. I allow Ms. Sabo’s application to amend her pleadings. Conclusion [ 67 ] Other than with respect to Mr. Franks and Mr. Fraser the applications of the Bank are dismissed. The Bank has leave to re- argue its application with respect to Mr. Franks, with proper briefing provided by both parties.

Dated at the City of Calgary, Alberta this 10th day of May, 2012 B.E. Romaine J.C.Q.B.A. Appearances: Ellery Lew of Witten LLP for the Plaintiff Norman K. Machida, Q.C. of Machida Shewchuk James for the Allibone Defendants David R. Francoeur of Knaut Johnson for the Abel Defendants David Corrigan of Bryan & Company LLP for the Defendant Arlene Wiebe K. Gregory Senda of Peterson & Purvis LLP

for the Defendant Barbara Sabo Dennis McDermott, Q.C. of McDermott & Company for the Defendant Denis Franks