Royal Bank of Canada v. Atkins, 2012 ABQB 762

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v. Atkins, 2012 ABQB 762 Date: 20121213 Docket: 0801 11930, 0901 11455, 1101 04229 Registry: Calgary Between: Royal Bank of Canada Plaintiff - and - Jasmine Atkins and Mary Pearson Defendants - and - Christopher Souster Third Party - and - Bernadette Lim Fourth Party Action No. 0901 11455 And Between:

Colin Pearson Plaintiff - and - Royal Bank of Canada, Rifaat Walli, Canada Mortgage and Housing Corporation, Jamil Damji and Christopher Souster Defendants and - Bernadette Lim Third Party Action No. 1101 04229 And between: Royal Bank of Canada Plaintiff - and - Colin Pearson, Jamil Damji and Athari Ventured Ltd. Defendants _______________________________________________________ Reasons for Judgment of

J.T. Prowse, Master in Chambers _______________________________________________________ [ 1 ] This application deals with the proper scope of questioning of a representative of the Royal Bank of Canada (“RBC”). RBC’s representative has declined to answer various questions posed to him by counsel for Mary Pearson and Colin Pearson. [ 2 ] For the most

part I am allowing the Pearsons’ application and am directing that RBC answer the bulk of the questions to which it objected. In my view, RBC’s refusal to answer the questions results from two erroneous positions, as follows: (

i) a refusal to answer questions based on the premise that RBC’s position at law on the ultimate merits is correct. Perhaps, at the conclusion of the trial, RBC’s legal arguments will be upheld, but in the meanwhile the Pearsons are entitled to ask questions based on their (at least arguable) position as to the law. (ii) a refusal to answer questions because the issue has already been conclusively determined by the initial testimony of RBC’s representative.

In other words, the Pearsons must accept the initial testimony of the RBC’s representative at questioning, and they are not allowed to press on and attempt to locate RBC documents which might be inconsistent with the position already taken by RBC’s representative. [ 3 ] The Pearsons are straw buyers. They signed mortgage documents promising to repay RBC mortgage loans. It appears that a fraudster tricked both the Pearsons and RBC.

RBC’s position is that, while the Pearsons may have been dupes, they were not innocent dupes, and are obliged to repay the RBC mortgage loans. [ 4 ] Lenders, such as RBC, have often sought

summary judgment against straw buyers and have often succeeded. However, in some circumstances the courts have declined

summary judgment on the basis that triable issues have been raised by the borrowers. [ 5 ] Triable issues have been held to exist where there is evidence (as opposed to mere allegations in the pleadings) that: (

a) there is a potential defence of non est factum . It is rare for a borrower to establish a triable issue of non est factum because the borrower is often proficient in both written and spoken English, and has carelessly signed the mortgage documents without bothering to read them. See: Toronto Dominion Bank v. Khosla , 2010 ABQB 652 , 2010 CarswellAlta 2138 at para. 22 . (

b) one lawyer acted on behalf of both the borrower and the lender, and that lawyer was aware of sufficient facts to be alerted to the possibility of mortgage fraud, but provided no warning to either the borrower or lender. See: First National Financial GP Corp. v. Kulaga , 2012 ABQB 8 , 2012 CarswellAlta 27. (

c) an employee of the lender has either been negligent, or blind to the mortgage fraud, or was perhaps a participant in the fraud itself. See: Scotia Mortgage Corp. v. Aab , 2012 ABQB 464 , 2012 CarswellAlta 1278; CIBC Mortgages Inc. v. Lucas , 2012 ABQB 402 , 2012 CarswellAlta 1095; Kindrachuk v. Belseck , 2012 ABQB 515 , 2012 CarswelAlta 1414. This raises, among other things, issues as to whether the lender was negligent in the supervision of its employee. See: Royal Bank v. Levy , 2011 ABQB 700 , 2011 CarswellAlta 2022, 89 C.C.L.T. (3d) 289, 527 A.R. 379 at para. 14 . [ 6 ] Issues (

b) and (

c) have been raised in the evidence by the Pearsons, and they are entitled to ask questions of the RBC representative which are consistent with their theory of the case. They are not obligated to accept, at face value, the initial answers provided by the RBC representative.

[ 7 ] The application before me also raises the issue of litigation privilege. I am concerned that the correct process is not being followed in order to adjudicate that issue. Litigation privilege must be determined in the context of a specific document or record, not in the abstract.

Here is a description of the correct process: - counsel for RBC asks RBC to provide it with any files, notes or other documents or electronic records pertaining to any investigations made by RBC as to the manner in which the RBC employee in question handled the subject mortgage files or other mortgage files involving related parties. Additionally, the personnel record of the RBC employee in question should be obtained. - if such records are found, they are listed in RBC’s affidavit of records. If they are producible they are listed in

schedule 1 to the affidavit of records. If it is asserted that they are not producible, for example, due to litigation privilege, then they are listed in

schedule 2. Regardless of the

schedule where they are listed, information is given as to the document or record. For example, if a memo was sent from one RBC employee to another, then the date is given, the author is identified, the recipient(

s) are identified, and a general description of the subject matter is provided. - if litigation privilege is asserted then counsel for the Pearsons may examine the RBC representative to gather information regarding the circumstances surrounding the creation of the record. For example, was litigation then outstanding, or was it contemplated? If contemplated, why was it contemplated? Was the memo used for other purposes in addition to litigation?

What were the other purposes? - if the issue of privilege cannot be resolved between the parties, then a hearing will be held at which a Master/Justice hearing the matter may choose to review the memo without showing it to counsel for the Pearsons. [ 8 ] I have provided directions to the parties that the procedure set out above be followed, and privilege issues which cannot be resolved then be brought back to me for adjudication. [ 9 ] My directions on specific questions are contained in the transcript of the special chambers application which I heard, and are not reproduced here.

Following submissions at the hearing I awarded costs of this application to the Pearsons. Heard on the 11 th day of December, 2012. Dated at the City of Calgary, Alberta this 13 th day of December, 2012. J.T. Prowse M.C.C.Q.B.A. Appearances: Jeffrey D. Poole Poole Lawyer for the Defendants Colin Pearson and Mary Pearson Coralie J. Schultz Mohr

Witten LLP for the Plaintiff / Respondent