FARM CREDIT CANADA PLAINTIFF - v. -, 2023 SKKB 213

KING’S BENCH FOR SASKATCHEWAN Citation: 2023 SKKB 213 Date: 2023 10 10 Docket: KBG-BF-00142-2023 Judicial Centre: Battleford ___________________________________________________________________________ BETWEEN: FARM CREDIT CANADA PLAINTIFF - and - WILLOW RIDGE BISON RANCH LTD., GARTH SANDER and SHERRY SANDER DEFENDANTS Counsel: Conrad D. Hadubiak, K.C. for the plaintiff No one contra for the respondents ___________________________________________________________________________ FIAT CLACKSON J.

October 10, 2023 ___________________________________________________________________________ Introduction [ 1 ] The defendants, Garth Sander and Sherry Sander collectively [Sanders], granted a mortgage to the plaintiff on two parcels of farmland. The mortgage matures on January 15, 2024 and is currently in arrears. [ 2 ] The plaintiff obtained an order declaring that subsection 9(1) (

d) of The Saskatchewan Farm Security Act , SS 1988-89, c S-17.1 , does not apply to the mortgage and on August 14, 2023 issued a statement of claim seeking foreclosure. Willow Ridge Bison Ranch Ltd. is identified as a defendant in the action along with the Sanders but is not a mortgagor nor registered owner of the

mortgaged property. On the date the statement of claim was issued, the Sanders’ total indebtedness under the mortgage was $69,875.24 including interest arrears. All of the defendants were noted in default of a defence. [ 3 ] The plaintiff now applies, without notice to the defendants, for judicial sale of the mortgaged property. The form of order sought is that which is mandated by Rule 10-47(5)(

c) of The Queen’s Bench Rules with one exception: the plaintiff seeks to appoint its own lawyer as selling officer rather than an independent lawyer as required in Form 10-47C. Legal Context [ 4 ] In Farm Credit Canada v Lundback , 2002 SKQB 376 , 225 Sask R 315, Wright J. concluded: [3] In my respectful view, it is not appropriate for the Court to appoint, as selling officer, the solicitor for the applicant creditor. There are obvious difficulties with conflict of interest.

Who does the selling officer serve: the Court, from which his or her authority originates; or the client? [ 5 ] This statement has become the governing law in Saskatchewan; see Toronto-Dominion Bank v Sader , 2021 SKCA 154 at para 7 , 464 DLR (4th) 692 [ Sader ]. [ 6 ] Conflict of interest and the potential for conflict of interest is inherent in mortgage foreclosures and judicial sales. The appointment of an independent selling officer is intended to ameliorate that conflict; Sader at para 10 . Nevertheless, whether to appoint or who to appoint as selling officer is discretionary.

To properly exercise that discretion the court must consider the circumstances of the case before it. If the circumstances of the case warrant the appointment of the mortgagee’s lawyer as selling officer then relying only on the governing law to refuse that remedy would constitute an improper fettering of the court’s discretion. In sum, proper exercise of the court’s discretion requires some analysis of the specific circumstances of the case; Sader at para 11 .

Issue and Analysis [ 7 ] The question to be answered is therefore whether, in the circumstances of this case, it is appropriate to appoint the plaintiff’s lawyer as selling officer. In my view, it is not. [ 8 ] It is important to note that no evidence from any of the defendants was presented on this application. Consequently, the court is unaware of whether the defendants know of the plaintiff’s request to appoint its own lawyer as the selling officer much less whether they approve of that request.

I mention this because the plaintiff suggests in its brief that mortgagors often consent to such appointments when given the option. If that is true, there is no evidence that any such consent was provided in this case. [ 9 ] In support of its position the plaintiff first notes that it is not seeking permission to bid at the sale of the property nor to have the selling officer’s fees paid directly from the sale proceeds. Thus, the plaintiff argues, it has eliminated the avenues through which a conflict of interest typically arises.

Given that neither of these forms of relief are sought in this case it is not necessary to consider whether or how either might lead to a conflict of interest for the selling officer. [ 10 ] In my view, the thrust of the plaintiff’s argument is that appointing its lawyer as selling officer does not create an actual or potential conflict of interest in this case because the mortgagors’ and the mortgagee’s interests are aligned.

In that respect the plaintiff notes that where the value of the property is insufficient to cover the entire debt, thus exposing the mortgagor to a deficiency judgment, “All Mortgagees would rather receive payment than secure a large deficiency judgment (which is typically entirely unrecoverable)” and therefore both parties would seek to sell the property at the highest possible price. But, once again, this scenario does not describe the case before me. In this case, the fair market value of the property far exceeds the amount due under the mortgage.

According to the plaintiff’s evidence the fair market value of the property is opined to be $483,000. [ 11 ] The plaintiff’s brief does not address the possibility of an actual or potential conflict of interest in this context except to state that “The fact that there is equity in a property is not sufficient to establish an inherent conflict.” I disagree. The mortgagee’s goal in foreclosing on a mortgaged property is to recover as much of the indebtedness and the expenses it has incurred as is possible. The longer it takes to complete the debt recovery process the more expensive it becomes for the mortgagee.

Where the mortgage indebtedness is less than the mortgagor’s equity in the property there is an incentive for the mortgagee to secure a quick sale to minimize the time and expense of foreclosure proceedings. It is in the mortgagee’s financial interest to sell the property to any person willing to pay the upset price rather than wait for a better offer. The mortgagee loses nothing by accepting an offer at the upset price, but, at least in this case, the mortgagors could suffer a $53,000 reduction in their equity.

In a nutshell, where the equity in the mortgage property is more than sufficient to cover the mortgage debt, the mortgagee desires a quick sale at the upset price while the mortgagors desire a sale at a price that will preserve as much of their equity as possible.

If the mortgagee is the selling officer’s client then the selling officer is placed in a conflict of interest: serve the client by accepting the low offer or risk losing the offer by making a counter- offer at a higher price and/or waiting for a better offer. [ 12 ] Although not addressed in the context of the above scenario, the plaintiff suggests that improperly selling the property below its fair market value can be overcome when the court is asked to approve the sale.

The difficulty with this proposition is that it firstly places the onus on the court to detect objectionable conduct by the mortgagee while placing the selling officer in a position where he/she must choose between promoting the client’s interests or complying with his/her duty to the court.

Additionally, where there is sufficient equity in the property to more than cover the mortgage debt, waiting until the confirmation stage to detect and address improper conduct by the mortgagee lessens the integrity of the judicial sale process, lengthens the process to the detriment of the mortgagor alone, and risks the possibility that market forces occurring after the aborted sale negatively impact the price at which the property can be sold. [ 13 ] In the circumstances of this case I am not convinced that there would be no conflict or potential of conflict of interest if the mortgagee’s lawyer is appointed as selling officer, and I therefore exercise my discretion to refuse the mortgagee’s request to appoint T.

Joshua Morrison, a member of the firm of lawyers retained by the mortgagee, as selling officer of the subject property.

[ 14 ] The application for an order nisi for sale by real estate listing is accordingly dismissed without prejudice to the plaintiff to reapply for judicial sale to be overseen by an independent lawyer as selling officer. J. C.D. CLACKSON