2017 QCCA 726, 2017 QCCA 726

Mortgage Intelligence Inc. c. Tarakanov 2017 QCCA 726 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-025820-150 (500-22-212620-143) MINUTES OF THE HEARING DATE: May 4, 2017 CORAM: THE HONOURABLE NICHOLAS KASIRER , J.A. JEAN-FRANÇOIS ÉMOND , J.A. CATHERINE LA ROSA , J.A. ( ad hoc ) APPELLANT COUNSEL MORTGAGE INTELLIGENCE INC. Mtre MANON LAVOIE ( Joli-Coeur Lacasse ) RESPONDENT COUNSEL VASSILI TARAKANOV Mtre JAMES DJEMIL E. KHAZZAM ( Miller & Khazzam ) On appeal from a judgment rendered on November 25, 2015, by the Honourable Judge Vincenzo Piazza of the Court of Quebec, District of Montreal.

DESCRIPTION : Civil liability – Real Estate Brokerage Act – Liability of agency for act of a mortgage broker . Clerk: Marcelle Desmarais Courtroom: Antonio-Lamer HEARING 9:31 Commencement of the hearing. Identification of counsel. 9:31 Mr. Justice Kasirer summarizes briefly the file. Submissions by Mtre Manon Lavoie. 10 :09 End of Mtre Lavoie’s submissions. 10 :10 Suspension. 10 :14 Resumption. The Court announced that it was not necessary to hear from the respondent. Unanimous judgment rendered by the Honourable Nicholas Kasirer, J.A. – see page 3.

Marcelle Desmarais Clerk BY THE COURT JUDGMENT [ 1 ] Mortgage Intelligence Inc. has appealed a judgment of the Court of Quebec, District of Montreal, (the Honourable Judge Vicenzo Piazza), rendered on November 25, 2015, which ordered it to pay $55,000 to Vassili Tarakanov, with interest and the additional indemnity provided by law, and legal costs. [1] The trial judge held that the appellant, a “mortgage agency” within the meaning of the Real Estate Brokerage Act , [2] was liable for the fault of Kim Tsoi, a “mortgage broker” associated with the appellant at the time. [3] *** [ 2 ] The appellant submits two grounds of appeal. [ 3 ] First, the judge is said to have erred in concluding that a brokerage contract had been formed between the respondent and either Mr Tsoi or the appellant because no written contract exists.

In the circumstances, the appellant cannot, therefore, be held liable in contract for Mr Tsoi’s conduct. Even if a contract existed, says the appellant, Mr Tsoi committed a fraud that cannot be considered to be conduct undertaken in the performance of his contractual duties. [ 4 ] Second, it is argued that the judge was mistaken in characterizing the relationship between the appellant and Mr Tsoi as one of the “principal” and “agent or servant” under the rule for extracontractual liability set forth at

article 1463 C.C.Q. In the alternative, the appellant argues that, even if its relationship with Mr Tsoi was one spoken to in

article 1463, the judge erred in holding that Mr Tsoi was

in the execution of his duties when he defrauded the respondent of the $55,000. *** [ 5 ] It is sufficient to answer the first question to dispose of the appeal. [ 6 ] The judge made no reviewable error in concluding that a valid brokerage contract was formed between the respondent and the appellant agency.

Furthermore, no error has been shown in respect of his finding that the appellant is liable to the respondent for breach of the brokerage contract. [ 7 ] Firstly, the appellant has failed to show that the judge was mistaken in finding that Mr Tsoi, as representative of the appellant, concluded a verbal mortgage brokerage contract with the respondent Tarakanov. [ 8 ] The evidence supports the view that the respondent sought out Mr Tsoi, as a mortgage broker, and that both Mr Tsoi himself and the appellant, on its website, indicated that Mr Tsoi was a broker associated with the appellant. [ 9 ] In response to the respondent’s request for assistance in obtaining hypothecary financing, Mr Tsoi plainly agreed to act on the respondent’s behalf.

A verbal contract was formed at this time. The fact that Mr Tsoi sent the respondent the document attesting guaranteed interest rate for a hypothecary loan is further evidence of the existence of this agreement. [ 10 ] It is not disputed that, at the time, Mr Tsoi was associated with the appellant, and was publicly held out by the latter on its website as one of its team of the best informed, most ethical and professional mortgage financing specialists in the industry.

The judge noted that Mr Tsoi’s email address at Mortgage Intelligence was recorded on the document attesting to the guaranteed interest rate sent to the respondent. The judge found, based on his review of the facts, that Mr Tsoi was acting for and represented the appellant agency for the purposes of the Act.

No error has been shown here. [ 11 ] In the circumstances, a brokerage contract was thus formed between the appellant agency, represented by the broker Tsoi, and the client, respondent Tarakanov. [4] [ 12 ] The appellant contends that, because the contract was not in writing, it is not a valid mortgage brokerage contract under the Real Estate Brokerage Act . Counsel argues that the Act and the relevant regulations under the Act require that such an agreement be in writing and that the written deed contain specific clauses in order for the contract to be valid.

Because the arrangement was a verbal one, the appellant says it cannot be held contractually liable. [ 13 ] The appellant is mistaken. [ 14 ] The appellant has wrongly pointed the Court to regulations adopted under the Act in 2012 that were not in force at the time the arrangement between Mr Tsoi and the respondent was made in October of 2011. [5] Whatever the scope of those regulations – and the Court refrains explicitly from deciding whether they require a written contract before a client can take an action for breach of contract against a broker or an agency – the 2012 regulations do not apply here. [ 15 ] Moreover, the appellant did not show how the regulations applicable at the relevant time required a writing as a condition precedent to the very existence of the agreement.

Nor did it show that the clauses that a broker is required to include in an agreement, if they are not recorded in a writing, can be set up against a client so that the broker or the agency can avoid liability. [ 16 ] As for the requirements under the Act itself,

section 24 is invoked by the appellant to substantiate its argument that in the absence of a writing, the agreement between Mr Tsoi and the respondent was not a valid contract. [6] This provision is also inapplicable here. The Act plainly states that sections 23 to 25 apply to contracts between a person and a broker or an agency which undertakes to act as an intermediary for the purchase, sale, lease or exchange of certain residential immovables (s. 23). The appellant and Mr Tsoi were not such intermediaries. As noted, there is no debate here as to the fact that Mr Tsoi was acting not as a broker for a real estate transaction but as a mortgage broker within the meaning of

section 4, para. 2 of the Act. Mortgage Intelligence Inc. was a “mortgage agency / agence hypothécaire” pursuant to

section 13 of the Act at the relevant time. The rule in

section 24 of the Act does not apply on the facts here. [ 17 ] The judge thus has not been shown to be mistaken in finding that the respondent contracted with Mr Tsoi and Mortgage Intelligence Inc. when Mr Tsoi agreed to help him obtain mortgage financing on October 7, 2011 notwithstanding the absence of a writing. [ 18 ] Mr Tsoi committed a fault in the performance of his duties under that contract which is attributable to the agency of which he was a representative. The fact that the conducted amounted to fraud cannot be invoked by the appellant to avoid liability.

Mr Tsoi was acting as representative of the agency when he misrepresented what was necessary for obtaining the hypothecary financing. According to the regime put in place by sections 12 and 18 of the Real Estate Brokers Act , the agency is liable in contract for the broker’s fault in such circumstances. The judge was right to cite

section 12 of the Act which specifies that the broker and the agency are solidarily liable to the client for any prejudice caused by the breach of the brokerage contract. [ 19 ] In sum, the respondent had, therefore, a valid recourse against the appellant agency based on the existence of the contract and the applicable provisions of the Act. The Act provides an agency with recourse against a broker who has acted improperly, under

section 18, paragraph 2, and the respondent in this case should not be deprived of his right of action against the agency because of its broker’s bankruptcy. [7] [ 20 ] The appellant is therefore responsible for the consequential damages of this contractual fault, which the judge held to be $55,000. [ 21 ] In the circumstances, it is unnecessary for the Court to determine, pursuant to the appellant’s second argument relating to the rules of extracontractual liability at

article 1463 C.C.Q., whether the relationship between the appellant and Mr Tsoi was one of

“principal” and “agent or servant”. The claim against the appellant is for breach of contract pursuant to the special regime for liability established under the Act. [ 22 ] Finally, the Court would add that, it was not unreasonable for the judge to infer from the evidence, as he stated at paragraph [43] of his reasons, that the appellant had failed to oversee the conduct of its broker adequately. This was the same broker that the appellant had held out to the public, on its website, as a member of its “well-informed, ethical and professional” team.

The judge suggests that the agency’s supervision fell short of what was required of it under sections 19 and 20 of the Act. We agree with the judge that the agency had a duty to ensure the broker acted according to proper standards. That said, it is unnecessary to decide whether this would have offered an alternate basis for liability of the appellant in respect of the respondent’s loss given our view that the appellant is liable in contract. FOR THE FOREGOING REASONS, the Court : [ 23 ] DISMISSES the appeal, with legal costs. NICHOLAS KASIRER, J.A. JEAN-FRANÇOIS ÉMOND, J.A. CATHERINE LA ROSA, J.A. (ad hoc)