Royal Bank of Canada v. Rahmani, 2013 ABQB 565

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v. Rahmani, 2013 ABQB 565 Date: 20130927 Docket: 0901 13513 Registry: Calgary Between: Royal Bank of Canada Plaintiff - and - Said Ajan Rahmani Defendant - and - Donald Lal, Amyn Charania, John Condin, 1261373 Alberta Ltd., Sanjeev Sharma, Prabjit Samra, Herdeep Samra, Manmohan Samra and John Doe Third Parties _ ________________________________________ ______________ Reasons for Judgment of

J.L. Mason , Master in Chambers _________________________________________ ______________ Introduction [ 1 ] On October 22, 2008, Said Ajan Rahmani granted a high ratio mortgage to the Royal Bank of Canada in connection with the purchase of a condominium unit in southeast Calgary. The mortgage went into default and the bank commenced foreclosure. [ 2 ] Mr. Rahmani was a straw buyer. He asserts that he entered into the transaction at the urging of his former co-worker, Donald Lal. Mr. Lal asked Mr. Rahmani to help him purchase a house. He led Mr.

Rahmani to believe that title to the property would remain in his name for a maximum of three months, and then the property would be transferred to Mr. Lal. Mr. Lal would make all the mortgage payments. Mr. Lal told Mr. Rahmani that the proposed transaction was completely legal, and that everything would be handled officially through Mr. Lal’s lawyer and banker. Mr. Rahmani thought he was helping out a friend and received no compensation for his role. [ 3 ] Mr. Rahmani is a factory worker educated in Afhanistan to a grade three level.

He has only a basic understanding of English and is unable to read or write in that language. He requires an interpreter to communicate with his lawyer, swear affidavits and submit to questioning. [ 4 ] He defends the action on the basis that the bank did not act with due diligence in lending him the money, a bank employee was involved in the fraud, non est factum and other bases. He issued a third party notice alleging negligence against the lawyer representing him in the transaction, John Condin.

Other third parties have also been named but those claims are not before the court. [ 5 ] By order dated October 12, 2010, the property was sold to the bank at its appraised fair market value. The bank’s application for deficiency judgment was adjourned and is the subject of this special application. Mr. Condin also applies to summarily dismiss the third party notice against him. [ 6 ] For the reasons that follow, the applications are dismissed. There are genuine issues for trial. The test for

summary judgment [ 7 ] Rule 7.3 of the Alberta Rules of Court provides that a party may apply for

summary judgment in respect of all or part of a claim, on the ground that there is no merit to a claim or part of it. [ 8 ] The bar on a motion for

summary judgment is high: Canada (Attorney General) v. Lameman , 2008 SCC 14 , [2008] 1 S.C.R. 372. A party bringing a motion for

summary judgment bears the legal onus of showing no genuine issue for trial: Murphy Oil Co. v. Predator Corp ., 2006 ABCA 69 , 384 A.R. 251. It must be plain and obvious or beyond doubt that the matter should be summarily determined. If there is a conflict in the evidence as to legally relevant facts,

summary judgment cannot be granted. Where the court must necessarily assess the quality and weight of the evidence to reach a decision, the matter is not plain and obvious: Liu v. Tangirala , 2004 ABCA 171 at paragraph 2 . [ 9 ] Several defences have been raised, but only some were advanced by Mr. Rahmani in response to the bank’s application. The court must determine the following questions: Is there a genuine issue for trial as to the bank’s lack of due diligence in granting the loan to Mr. Rahmani?

Is there a genuine issue for trial as to the knowledge or participation by a bank employee in the fraudulent scheme? Is there a genuine issue for trial as to the application of the principles of non est factum ? In regard to Mr. Condin’s application, the court must determine the following question: Is there a genuine issue for trial as to whether Mr. Condin was negligent in discharging his duties to Mr. Rahmani? The bank’s application for deficiency judgment Is there a genuine issue for trial as to the bank’s lack of due diligence in granting the loan to Mr. Rahmani? [ 10 ] Mr.

Rahmani asserts that the bank did not act with due diligence in lending him the money. [ 11 ] Alberta case law confirms that the conditions placed on the advancement of the loan are the lender’s, and the lender can choose to enforce, alter or waive them: see for example, Capital City Savings & Credit Union Ltd. v. Prostilo , 2002 ABQB 1004 ; MCAP Service Corporation v. Molina-Tan , 2009 ABQB 472 ; MCAP Service Corporation v. Halbersma , 2013 ABQB 185 .

Further, there is no obligation on the lender to look beyond the documents provided to it in apparent good faith by purchasers: see for example, Mutual Life Assurance of Canada v. Campbell , 2001 ABQB; MCAP Service Corporation v. Halbersma . [ 12 ] The upshot of Mr. Rahmani’s resistance to the bank’s entitlement to

summary judgment on this basis is, the bank should not

have done what he asked of it and lent the money to him. This Court has addressed and rejected this defence on more than one occasionin similar contexts. The alleged lack of due diligence does not raise a genuine issue for trial. Is there a genuine issue for trial as to the knowledge or participation by a bank employee in the fraudulent scheme? [13] Straw buyers face difficulties in asking the court to refuse to enforce the mortgage on the basis of illegality. They typically donot have the requisite clean hands: see for example, MCAP Service Corporation v.

Molina-Tan at paragraph 53. [14] However, as pointed out in First National GP Financial Corporation v. Kulaga, 2012 ABQB 8 at paragraph 24, thatprinciple cuts both ways. If the lender is involved in some way in the fraud, it too may have difficulty in enforcing the mortgage: see also Scotia Mortgage Corporation v. Aab, 2012 ABQB 464 at paragraph 48. Justice Nation confirmed that such cases are rightly sent totrial and not dealt with summarily: MCAP Service Corporation v. Halbersma at paragraph 44. As noted in Kindrachuk v.

Belseck, 2012ABQB 515 at paragraph 9, the bank’s ability to enforce the mortgage in these circumstances is a complicated and nuanced matter. [15] Mr. Rahmani has alleged from the outset that Amyn Charania was involved in the transaction. He alleges in his amendeddefence that Mr. Lal and/or Amyn Charania provided falsified information to the bank regarding Mr. Rhamani and the real estatetransaction. He alleges that an employee of the bank was working “hand in hand” with Mr. Lal. Mr. Rahmani further alleges that Mr. Laland Amyn Charania drove him to Mr. Condin ’s office, and that Mr.

Lal and Amyn Charania waited for him while he signed documentswith Mr. Condin. [16] While Amyn Charania is not identified in Mr. Rahmani’s pleadings as an employee of the bank, it is not disputed that AmynCharania was an employee of the bank: Supplemental Brief of the Royal Bank of Canada at paragraph 4. [17] The bank’s investigator, Jack McGimpsey, confirmed under cross-examination that Royal Bank of Canada mortgage specialistAlim Charania took Mr. Rahmani’s mortgage application, either in person or over the phone.

The bank produced screen shots of theonline mortgage application, which involves the bank employee inputting the information provided using the software program. Mr.McGimpsey further confirmed that Alim Charania would have received Mr. Rahmani’s information in regard to his employment andbank balances as part of the process. For the purposes of this application, the bank accepts that Alim Charania and Amyn Charania areone and the same person employed by the bank. [18] Standing against Mr. McGimpsey’s evidence is Mr.

Rahmani’s evidence that at no time was he required to complete amortgage application or to attend a face to face meeting with any bank representative. He further deposes that the information producedby the bank as to his employment and bank balance is false. Moreover, he deposes that Mr. Charania was in the car that delivered him toMr. Condin’s office, along with Mr. Lal, that Mr. Charania and Mr. Lal waited at reception while he met with Mr. Condin, and that Mr.Charania and Mr.

Lal were in the car when he was driven back from the appointment. [19] It is at least arguable that this evidence gives rise to an inference that a bank employee was aware of or involved in thefraudulent transaction to some extent. The bank did not offer any substantive evidence as to the involvement of its employee in thismatter. Mr. McGimpsey did depose that Mr. Charania no longer worked for the bank and that it is no longer in contact with him. That isnot sufficient in the circumstances to dispel the existence of a triable issue as to the potential involvement of the bank’s employee.

Is there a genuine issue for trial as to the application of the principles of non est factum? [20] Mr. Rahmani asserts that the principles of non est factum should apply to relieve him of the consequences of the mortgage hesigned. The leading case on non est factum is Marvco Color Research Ltd. v. Harris, (SCC), [1982] 2 S.C.R. 774. TheSupreme Court of Canada confirmed that where a person carelessly fails to read a document before signing it, and the document permitsa fraud to be perpetuated on an innocent third party, the defence of non est factum is not available.

Whether carelessness will obviate aparty’s right to disavow a document they have signed depends on the facts in each case. [21] Mr. Rahmani was not capable of reading the documents he signed. However, he admits he signed them, relying onrepresentations from Mr. Lal that Mr. Lal would be responsible for all the payments and that the transaction was legal. Mr. Rahmanifurther admits he owns a home and obtained a mortgage to finance that purchase.The bank asserts that Mr.

Rahmani understood he wassigning a mortgage and was careless. [22] However, an issue has been raised as to whether the bank is an innocent third party in the transaction, given the evidence ofthe potential implication of its mortgage specialist in the fraudulent transaction. In these circumstances, the allocation of loss as betweenthe bank and Mr. Rahmani should also be determined at trial: Scotia Mortgage Corporation v. Aab at paragraph 61; MCAP ServiceCorp. v. Molina-Tan, at paragraphs 23-33; Toronto Dominion Bank v. Khosla, 2010 ABQB 652 at paragraphs 15-22. [23] In

summary, there are genuine issues for trial as to the knowledge or participation by the bank’s employee in the transactionand the allocation of loss as between the bank and Mr. Rahmani. The bank’s application for

summary judgment for the deficiencyagainst Mr. Rahmani is dismissed. Mr. Condin’s application to summarily dismiss Mr. Rahmani’s third party notice Is there a genuine issue for trial as to whether Mr. Condin was negligent in discharging his duties to Mr. Rahmani? [24] The third party notice alleges that Mr. Condin was negligent in his representation of Mr. Rahmani in this transaction. Mr.Condin denies the allegations in his defence.

[ 25 ] Mr. Condin deposes in his initial affidavit sworn March 8, 2011 that he “undertook all appropriate steps and provided all appropriate services as would normally be required and expected of a reasonably competent real estate conveyancing solicitor”. Mr. Condin says that on October 23, 2008, he deposited $1050.25 from Mr. Rahmani into a trust account, and that he sent Mr. Rhamani an account which indicates that monies had been received from Mr. Rahmani in payment of that account. [ 26 ] Mr. Condin does not specify the steps he took and the services he provided.

These surely must include a basic level of advice in regard to the consequences of granting a high ratio mortgage. The most critical component of such advice is that, unlike in a conventional mortgage, the mortgagor is liable on the covenant to pay, pursuant to the Law of Property Act, R.S.A. 2000, c. L- 7,

section 40. Mr. Condin’s reporting letter to Mr. Rahmani and the Buyers’s Acknowledgment appparently signed by Mr. Rahmani exhibited in Mr. Condin’s supplemental affidavit constitute some evidence that this advice was given. [ 27 ] Mr. Rahmani’s evidence paints a very different picture. He says that he was only in Mr. Condin’s office for a very short period of time, during which he was presented with several documents and told where to sign. He says he received no explanation of the documents, that no discussion took place about the documents being signed or the transaction, and that Mr.

Condin did not provide any advice in this regard. He deposes that Mr. Condin did not tell him that he was signing a a mortgage carrying personal liability on the covenant to pay. Had he done so, Mr. Rahmani deposes, he would not have signed the mortgage, as he had been informed that Mr. Lal would be legally responsible for payment. [ 28 ] Mr. Rahmani further deposes that he provided no funds to the credit of the transaction. He denies paying the $1050.25 mentioned by Mr. Condin and reflected in the receipt for this sum attached to Mr. Condin’s affidavit. He says he did not pay any fees to Mr.

Condin, contrary to the statement of account also exhibited to Mr. Condin’s affidavit. [ 29 ] Mr. Condin’s evidence does not address how he provided explanation or communicated his advice to Mr. Rahmani, who as noted, speaks only basic English. [ 30 ] The evidence demonstrates that there are live issues as to whether or not Mr. Condin explained the documents to Mr. Rahmani and provided him with advice on the transaction, whether it should have been apparent that Mr. Rahmani needed an interpreter, and whether under the circumstances, Mr.

Condin could or should have identified a potential fraud and advised his client accordingly. Mr. Rahmani’s own culpability in not asking for an interpreter will need to be considered, as will his failure to advise Mr. Condin of Mr. Lal’s involvement and assurances. Mr. Rahmani’s failure to tell Mr. Condin about what he knew of the transaction will reduce the likelihood of his claim succeeeing, but this factor is not determinative; it needs to be considered along with all the evidence of the circumstances of the meeting between Mr. Rahmani and Mr. Condin: Kulaga v.

First National Financial GP Corp ., 2013 ABQB 377 paragraph 25 . An assessment of Mr. Rahmani’s credibility will be important to the determination of these questions. [ 31 ] At the hearing, counsel for Mr. Condin relied on Toronto Dominion Bank v. Poon , 2012 ABQB 606 , a case in which Justice Kent summarily dismissed a straw buyer’s third party notice against his lawyer on the basis of ex turpi causa . [ 32 ] As noted in that case, a successful defence of ex turpi causa depends upon a finding that the straw buyer was a willing participant in an illegal act.

There, the straw buyer was an educated man (a professional engineer) with previous experience in the real estate market, and who received a large fee for his participation in the scheme. There is no suggestion that he had difficulty with English. Justice Kent easily made the requisite finding: ...What possible legal reason could there be for Nixious to pay him $11,000. Why, if he was innocent, did he not find out more about the obligation he swore he was aware of – to occupy the property? His claim of innocence is not credible. [ 33 ] Mr.

Rahmani is a factory worker with a grade three education who speaks only basic English. He does not read or write English and his evidence is that Mr. Condin did not explain any of the documents he was told to sign. He received no fee for his participation in the transaction. In all the circumstances, Mr. Rahmani’s belief in the legality of the transaction is not as suspect as the straw buyer’s belief in Toronto Dominion Bank v. Poon . In the circumstances, it is not clear and beyond doubt that ex turpi causa will provide a defence to Mr. Condin. Any liability in negligence in the face of Mr.

Rahmani’s involvement in this mortgage fraud should be determined at trial with the benefit of full evidence. [ 34 ] The application for

summary dismissal of the third party notice is accordingly denied. Conclusion [ 35 ] The applications are dismissed. [ 36 ] If the parties cannot agree on costs, they may approach me within 30 days of the date of this memorandum. Heard on the 19 th day of September, 2013. Dated at the City of Calgary, Alberta this 27 th day of September, 2013.

J.L. Mason M.C.C.Q.B.A. Appearances: Ellery Lew Witten LLP for the Plaintiff Royal Bank of Canada Salimah F. Janmohamed for the Defendant Said Ajan Rahmani James B. Rooney, Q.C. Fraser Milner Casgrain LLP for the Third Party, John R. Condin