2015 QCCQ 11713, 2015 QCCQ 11713

Tarakanov c. Mortgage Intelligence Inc. 2015 QCCQ 11713 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL CIVIL DIVISION No: 500-22-212620-143 DATE: November 25, 2015 ______________________________________________________________________ PRESIDED BY THE HONOURABLE VINCENZO PIAZZA, J.C.Q. ______________________________________________________________________ VASSILI TARAKANOV Plaintiff v. MORTGAGE INTELLIGENCE INC.

Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Vassili Tarakanov was the victim of a fraud perpetrated by Kim Tsoi, who, at the time, was a licensed mortgage broker acting under the Mortgage Intelligence Inc. (“ Intelligence ”) banner. Mr. Tsoi has since gone bankrupt [1] and he did not testify at trial. Mr. Tarakanov claims that Intelligence is liable for the loss he suffered as a result of this fraud, which amounts to $55,000.00. [ 2 ] Mr.

Tarakanov, a Russian national, sold all his assets in Russia and immigrated to Canada in the 1990’s. He bought a house in the West Island, which he paid cash. [ 3 ] On October 6, 2011, Mr. Tarakanov and his wife offered to purchase another property, for a price of $430,000.00 [2] . In this offer, they undertook to take the necessary steps in order to obtain a first-ranking hypothecary loan of $279,500.00 and to supply proof of this financing to the vendor of the property within 10 days. [ 4 ] Mr.

Tarakanov is an educated man but he knows nothing about how real-estate hypothecs work in Canada. [ 5 ] It is in this context that Mr. Tarakanov sought the services of Mr. Tsoi. Mr. Tarakanov came across Mr. Tsoi’s advertisement in a local Russian newspaper [3] . [ 6 ] Mr. Tsoi met Mr. Tarakanov at the latter’s house. He examined Mr. Tarakanov’s finances and advised that it would be difficult to obtain a hypothec. According to Mr. Tsoi, for Mr. Tarakanov to qualify for a loan, he would need to put down at least 35% of the purchase price from his own funds. [ 7 ] In analyzing his financial situation, Mr.

Tsoi discovered that Mr. Tarakanov had cash savings of approximately $55,000.00. [ 8 ] Mr. Tsoi told Mr. Tarakanov that he could obtain an additional $95,000.00 which, added to Mr. Tarakanov’s savings, would suffice to qualify him for the necessary hypothecary loan. [ 9 ] The way to do this, as presented by Mr. Tsoi, was as follows: 9.1. Mr. Tarakanov would lend his $55,000.00 to Mr. Tsoi; 9.2. Mr. Tsoi would immediately lend this sum to another client of his, who also needs $150,000.00 to qualify for a hypothecary loan, but only has $95,000.00 available; 9.3.

Once this other client obtains his hypothec, he would reimburse Mr. Tarakanov’s $55,000.00 and lend him his own $95,000.00, thus qualifying Mr. Tarakanov for the hypothecary loan he requires. [ 10 ] According to Mr. Tsoi, all this could be done within the 10-day period provided by the accepted offer to purchase. [ 11 ] On October 7, 2011, Messrs. Tsoi and Tarakanov attended the latter’s bank. Mr. Tarakanov gave Mr. Tsoi a bank draft drawn to his order (and not that of Intelligence) in the amount of $55,000.00 [4] . [ 12 ] The same day, Messrs. Tsoi and Tarakanov met Notary Robert P. Gosset, who received Mr.

Tsoi’s oath [5] on the document hereinafter reproduced [6] : Kim TSOJ (…), rue (…) à (…)

Québec, (…) Tél : 514-(…) Vasili Tarakanov (…), rue (…) (…), Qc (…) Brossard, 7 octobre 2011. Objet : Reconnaissance de dette Monsieur Tarakanov, Je, soussigné, Mr Kim Tsoj, né le (…) et demeurant à (…), rue (…) à (…), Québec (…) reconnaît avoir emprunté la somme de 55 000$ à Mr Tarakanov le 7 octobre 2011. Je m’engage à respecter mon engagement de remboursement et régler la somme de 57 500$ à la date du 14 octobre 2011. Préciser les accords pris, détails du règlement prévu. Pour valoir ce que de droit, Fait à Brossard, le 7 octobre 2011. (

s) Kim Tsoi Signature ASSERMENTÉ DEVANT MOI À KIRKLAND, QUÉBEC, CANADA LE 7 octobre 2011 Robert P. Gosset, Notaire (

s) Robert P. Gosset, notaire ROBERT P. GOSSET, NOTAIRE 3608 BOUL. ST-CHARLES, BUREAU 2B KIRKLAND (QUÉBEC) H9H 3C3 TÉL : (514) 694-9278 [ 13 ] On October 14, 2011, Mr. Tsoi told Mr. Tarakanov that the notary who was to receive the hypothecary deed for his other client was ill and he asked for a delay. Mr. Tsoi later said that he was now sick and again asked for a delay. [ 14 ] On October 18, 2011, having reached the 10-day limit and not hearing from Mr. Tsoi, Mr.

Tarakanov went to his bank and easily obtained a hypothecary line of credit with a limit of $322,500.00, secured by the house he bought cash when he came to Canada [7] . He testified that he then realized that Mr. Tsoi was a liar and that his services were useless to him. [ 15 ] On October 19, 2011, Mr. Tsoi sent Mr. Tarakanov a hypothecary commitment of $279,500.00 from Home Trust Company Accelerator [8] . Obviously, at that point, this commitment was of no use to Mr. Tarakanov. [ 16 ] On October 20, 2011, Mr. Tsoi finally admitted that he had a severe gambling problem and that he had gambled, and lost, Mr.

Tarakanov’s $55,000.00 [9] . QUESTIONS AT ISSUE

[ 17 ] When Mr. Tarakanov gave the bank draft to Mr. Tsoi, was Mr. Tsoi an agent or mandatary of Intelligence? [ 18 ] If so, was Mr. Tsoi in the performance of his duties as agent of Intelligence or in the performance of his mandate for Intelligence? ANALYSIS AND DISCUSSION

a) Was Mr. Tsoi Intelligence’s agent or mandatary? [ 19 ] The Civil Code of Québec (“ CCQ ”) provides: 1463. The principal is bound to make reparation for injury caused by the fault of his agents and servants in the performance of their duties; nevertheless, he retains his remedies against them. 2130. Mandate is a contract by which a person, the mandator, confers upon another person, the mandatary, the power to represent him in the performance of a juridical act with a third person, and the mandatary, by his acceptance, binds himself to exercise the power.

That power and, where applicable, the writing evidencing it are called power of attorney. 2164. A mandator is liable for any injury caused by the fault of the mandatary in the performance of his mandate unless he proves, where the mandatary was not his subordinate, that he could not have prevented the injury. 2163.

Where a person has allowed it to be believed that a person was his mandatary, he is liable, as if there had been a mandate, to a third person who in good faith has contracted with that person, unless he took appropriate measures to prevent the error in circumstances in which it was foreseeable. [ 20 ] The notions of “principal” and “agent” are not defined in the Civil Code . However, some provisions of the Real Estate Brokerage Act [10] , which specifically governs the activities of mortgage brokers such as Mr.

Tsoi and mortgage broker agencies such as Intelligence, shed an additional light on the general principles set out in the Civil Code [11] . In October 2011, these provisions read as follows: 1. This Act applies to any person or partnership that, for others and in return for remuneration, engages in a brokerage transaction relating to (…) (4) a loan secured by immovable hypothec; (…)

CHAPTER II REAL ESTATE BROKERAGE AND MORTGAGE BROKERAGE DIVISION I REAL ESTATE BROKER AND MORTGAGE BROKER 4. Subject to sections 2 and 3 and special authorizations from the real estate self-regulatory organization known as the Organisme d'autoréglementation du courtage immobilier du Québec (the “Organization”), no person except the holder of a broker's licence issued by the Organization may act as or purport to be a real estate or mortgage broker. (…) A mortgage broker is a natural person who engages exclusively in brokerage transactions relating to loans secured by immovable hypothec. 6.

A broker must have an establishment in Québec. In the case of a broker who acts on behalf of an agency , the broker's establishment is the agency's establishment. (…) 7. A broker, when new to the occupation, must carry on brokerage activities for an agency for the period set out in the Organization's regulations before the broker may work for the broker's own account or become an executive officer of an agency. 10. All money received by a broker in the course of the broker's functions that does not belong to the broker must be deposited in a trust account as specified in the Organization's regulations. 11.

A broker may not, while acting on behalf of an agency , act on behalf of another agency or work on the broker's own account. A broker who acts on behalf of an agency must present himself or herself as such to the public. 12. A broker who represents an agency is solidarily liable for any prejudice caused by the breach of a brokerage contract. DIVISION II REAL ESTATE AND MORTGAGE BROKER AGENCIES

13. Subject to sections 2 and 3 and special authorizations from the Organization, no person or partnership except the holder of an agency licence issued by the Organization may act as or purport to be a real estate or mortgage broker agency. (…) A mortgage broker agency is a person or partnership that, through the intermediary of one or more mortgage brokers , engages exclusively in brokerage transactions relating to loans secured by immovable hypothec. 18. An agency is liable for any injury caused to a person or partnership by the fault of one of its brokers in the performance of the broker's functions .

The agency nevertheless has a right of action against the broker concerned. 19. An agency and its directors and executive officers must oversee the conduct of the brokers who represent the agency and ensure that they comply with this Act . 20. An agency must ensure that its directors, executive officers and employees comply with this Act. [Emphasis added by the Court.] [ 21 ] In deciding to retain Mr. Tsoi’s services, Mr. Tarakanov relied on Mr. Tsoi’s advertisement, which identifies him as an Intelligence broker. [ 22 ] He also consulted Intelligence’s website, where Mr.

Tsoi, as at October 20, 2011, is still praised as being a professional, ethical and experienced mortgage broker, member of the Intelligence team [12] . [ 23 ] In light of the definition contained in

section 13 of the Act, it appears that the very raison d’être of a mortgage broker agency such as Intelligence is to engage in brokerage transactions relating to loans secured by immovable hypothecs through the intermediary of mortgage brokers such as Mr. Tsoi . [ 24 ] Intelligence produces its contract with Mr. Tsoi, where it is indicated that he is an independent contractor and that he is not an employee, a partner nor a mandatary of Intelligence and that there is no joint-venture between Intelligence and him [13] . [ 25 ] Needless to say, the provisions of this 24-page contract were absolutely unknown to Mr. Tarakanov when he dealt with Mr. Tsoi. On this,

article 1440 CCQ states that a contract has effect only between the contracting parties and that except where provided by law, it does not affect third persons, such as Mr.

Tarakanov. [ 26 ] Moreover, the Court considers that such a private contract may not be set up against the rules of public order contained in the Act [14] , which clearly purport to impose strict obligations of superintendence and control by mortgage broker agencies over their brokers’ professional activities. [ 27 ] These obligations and the very essence of the relationship between a mortgage broker and a mortgage broker agency, as defined by the Act, lead the Court to conclude that it was the legislature’s intent that this relationship be, if not a mandate, at least of a principal/agent nature. [ 28 ]

Section 11 of the Act is clear: when a broker acts for an agency, he can not work on his own account; when a broker works on his own account, he can not act for an agency. This entails that whenever someone retains the services of a broker who acts under the banner of an agency, he enters into a contract of service not with that broker, but with the agency itself. [ 29 ] Mr. Tarakanov, in view of all the circumstances, was well founded to believe that Mr. Tsoi was Intelligence’s agent [15] and that he was entering into a contractual relationship not with Mr. Tsoi, but with Intelligence.

b) Was Mr. Tsoi in the performance of his duties as agent of Intelligence? [ 30 ] Natalia Guba is a former client of Mr. Tsoi. [ 31 ] In August 2011, Ms. Guba lent $35,000.00 to Mr. Tsoi. Mr. Tsoi had discovered that she had these funds in the context of a mandate she had previously given him as a mortgage broker. He never repaid her. [ 32 ] She testifies that on September 21, 2011, she met Mr. Robert Perrier, vice-president of Intelligence for Québec, and advised him of this situation. [ 33 ] Mr. Perrier no longer works for Intelligence and he did not testify at trial. [ 34 ] On November 3, 2011, Ms.

Guba writes Mr. Perrier an email in which she recounts the meeting of September 21 st and asks Intelligence to indemnify her [16] . [ 35 ] Intelligence dismissed this request on the grounds that this loan was a private transaction which had nothing to do with mortgage brokerage [17] . [ 36 ] In her testimony, Ms. Guba recognizes that she made this loan in hopes of making a profit, thinking that it was to be used by Mr. Tsoi in a very lucrative investment opportunity. The loan was not made in the context of, or with a view to obtaining a hypothecary loan. [ 37 ] Intelligence pleads that Mr.

Tarakanov’s situation is the same and that he entered into a private transaction with Mr. Tsoi in order to make a quick profit of $2,500.00.

[ 38 ] The Court disagrees. [ 39 ] Mr. Tarakanov explained that the $2,500.00 difference between his loan and the amount to be refunded was agreed upon to compensate him for the currency exchange charges from U.S. dollars to Canadian and back. The Court sees no reason not to believe this testimony. [ 40 ] Intelligence also tried to attack Ms. Guba’s credibility and questioned the date of her meeting with Mr. Perrier. Be that as it may, whether or not Mr. Perrier was advised of Ms. Guba’s complaint in September 2011 is not decisive. [ 41 ] In Axa Assurances inc. c.

Groupe de sécurité Garda inc. [18] , the Superior Court states that: (1) a business which creates a risk must be held accountable for this risk, and; (2) the objectives of allowing useful indemnification and motivating principals to exert effective control over the acts of their agents, can now be considered as underlying the principle of vicarious liability, in common law and civil law alike. [ 42 ] In this decision, the Superior Court adopts and imports in civil law the common law approach which the Supreme Court of Canada established in Bazley v. Curry [19] .

In the judgment she delivered for the Court, the Honourable Justice McLachlin (as she then was) wrote: [41 ] Reviewing the jurisprudence, and considering the policy issues involved, I conclude that in determining whether an employer is vicariously liable for an employee’s unauthorized, intentional wrong in cases where precedent is inconclusive, courts should be guided by the following principles:

(1) They should openly confront the question of whether liability should lie against the employer, rather than obscuring the decision beneath semantic discussions of “scope of employment” and “mode of conduct”.

(2) The fundamental question is whether the wrongful act is sufficiently related to conduct authorized by the employer to justify the imposition of vicarious liability. Vicarious liability is generally appropriate where there is a significant connection between the creation or enhancement of a risk and the wrong that accrues therefrom, even if unrelated to the employer’s desires. Where this is so, vicarious liability will serve the policy considerations of provision of an adequate and just remedy and deterrence.

Incidental connections to the employment enterprise, like time and place (without more), will not suffice. Once engaged in a particular business, it is fair that an employer be made to pay the generally foreseeable costs of that business. In contrast, to impose liability for costs unrelated to the risk would effectively make the employer an involuntary insurer.

(3) In determining the sufficiency of the connection between the employer’s creation or enhancement of the risk and the wrong complained of, subsidiary factors may be considered. These may vary with the nature of the case. When related to intentional torts, the relevant factors may include, but are not limited to, the following: (

a) the opportunity that the enterprise afforded the employee to abuse his or her power; (

b) the extent to which the wrongful act may have furthered the employer’s aims (and hence be more likely to have been committed by the employee); (

c) the extent to which the wrongful act was related to friction, confrontation or intimacy inherent in the employer’s enterprise; (

d) the extent of power conferred on the employee in relation to the victim; (

e) the vulnerability of potential victims to wrongful exercise of the employee’s power. [ 43 ] Intelligence’s brokers are given almost absolute latitude and liberty in the organization of their work. They can work from home and are not supervised in their day-to-day activities. This constitutes a tremendous opportunity for Intelligence’s brokers to abuse their powers. [ 44 ] It is clear that a mortgage broker agency creates a risk for the public if its brokers are dishonest.

A mortgage broker agency that authorizes pathological gamblers or drug addicts to act as its brokers obviously creates a very dangerous likelihood of the public being defrauded. [ 45 ] It is also obvious that Mr. Tarakanov was vulnerable when he sought Mr. Tsoi’s assistance. He had no previous experience in real-estate mortgages. He honestly believed that the deal elaborated by Mr. Tsoi was legitimate. He insisted that the transaction be validated by a notary and enquired as to its legality. [ 46 ] There is a clear connection between Intelligence’s business and the scam orchestrated by Mr. Tsoi.

Intelligence has not established that Mr. Tarakanov had any other reason to deal with Mr. Tsoi than to obtain a hypothec for the purchase of his new house. [ 47 ] For all these reasons, the Court concludes that when he extorted Mr. Tarakanov, Mr. Tsoi was in the performance of his duties as agent of Intelligence within the meaning of

article 1463 CCQ. [ 48 ] Finally, Intelligence has not contested the quantum of the claim, nor has it demonstrated on a balance of probabilities that Mr. Tarakanov was gullible to a point where it constituted a contributing fault on his part. Mr. Tarakanov’s action will thus be granted in full. FOR THE FOREGOING REASONS, THE COURT: GRANTS the action; CONDEMNS Mortgage Intelligence Inc. to pay $55,000.00 to Vassili Tarakanov, with interest at the legal rate, plus the additional indemnity provided by law, to accrue from May 30, 2014;

WITH COSTS . __________________________________ VINCENZO PIAZZA, J.C.Q. Mtre James E. Khazzam Miller Khazzam Attorney for the Plaintiff Mtre Armand J. Elbaz Colby Monet llp Attorney for the Defendant Hearing date : October 21, 2015