SCOTIA MORTGAGE CORPORATION PLAINTIFF - v. -, 2023 SKKB 171

KING’S BENCH FOR SASKATCHEWAN Citation: 2023 SKKB 171 Date: 2023 08 21 Docket: QBG-YT-00130-2020 Judicial Centre : Yorkton BETWEEN: SCOTIA MORTGAGE CORPORATION PLAINTIFF - and - RAILENE IRVINE (now HALBACH), COURTNEY HALBACH, ROYAL BANK OF CANADA DEFENDANTS Counsel: Nicholas C. Horlick for the plaintiff No one appearing for Railene Irvine and Courtney Halbach James P. Kroczynski for the Royal Bank of Canada FIAT LAYH J.

AUGUST 21, 2023 Background [ 1 ] Counsel for the mortgagee, Scotia Mortgage Corporation [Scotia Mortgage], seeks a judicial assessment of solicitor-client costs after a judicial sale of mortgaged residential property located in Esterhazy, Saskatchewan.

Two parties, other than Scotia Mortgage, will necessarily be affected by the award of costs: 1) The mortgagors since the quantum of costs will determine their liability for the remaining deficiency; and 2) Royal Bank of Canada because it registered an enforcement charge of $75,260.67 against the mortgaged property on May 22, 2019. [ 2 ] As Scotia Mortgage has stated in its civil chambers appearance memo, the issue at hand is as follows: The mortgaged property has been sold in accordance with the order nisi and the proceeds have been realized.

The plaintiff accounts for the funds received applied against the mortgage debt and seeks a determination of the solicitor-client costs ordered in the order nisi. The Court has set a general benchmark of $5,000 in a standard foreclosure action, plus taxes and disbursement. See – First National

Financial GP Corporation v Maurice, 2021 SKQB 248 .

The plaintiff submits that an award of amounts in addition to this benchmark amount is appropriate in the circumstances. [ 3 ] Counsel for Scotia Mortgage has explained costs incurred on behalf of its client as follows: In an invoice sent to Scotia Mortgage prior to this application: Legal fees $13,710.50 Legal disbursements $3,859.60 Taxes $1,671.14 Additional fees since the invoice, as occasioned by the instance application: Legal fees $720.00 Legal Disbursements $280.00 Taxes $91.70 TOTAL $20,332.94 [ 4 ] Additionally, as counsel for Scotia Mortgage has disclosed, when the mortgaged property was sold, the legal work was taken from the firm’s foreclosure department and assigned to the firm’s real estate department.

Counsel has provided the firm’s “Vendor’s Final Statement of Adjustments.” It shows that the law firm took legal fees of $1,068.22 from the sale proceeds to cover the legal costs to close the sale of the mortgaged property. Counsel for Scotia Mortgage is not seeking the court’s assessment of these fees as part of its application. It has taken those fees from the sale proceeds as a simple function of its real estate department to have the title transferred. The Issues [ 5 ] In assessing costs to be awarded, the court must address the following issues: 1.

Should the legal fees of $1,068.22 to close the sale of the mortgaged property be permissible legal fees outside of the court’s general jurisdiction to assess appropriate legal fees in a judicial sale? 2. Should the standard solicitor-client costs of $5,000.00, as set out in First National Financial GP Corporation v Maurice , 2021 SKQB 248 at para 10 [ First National ], be increased to reflect what Justice Danyliuk termed a “significant deviation from the standard practice”?

Fees to Close the Real Estate Transaction Terms of the Order Nisi for Judicial Sale [ 6 ] Although counsel for Scotia Mortgage did not refer to the terms of the order nisi (which I granted), one might suggest that I permitted legal fees to be taken from the sale proceeds without the court’s assessment. Clause 11 of the order reads as follows: 11. The proceeds from the sale of the Land received by the selling officer shall be paid in the following order of priority: (

a) In payment of any property taxes owing on the Land; (

b) In payment of the expenses of the sale, including the selling officer’s costs and the amount due for real estate commissions, including taxes; (

c) In payment of the principal and accrued interest, taxes and other fees to the sale closing date, due to the plaintiff under the mortgage; (

d) In payment of post-leave legal costs of this action to the plaintiff on a solicitor-client basis, to be assessed; (

e) The balance, if any: i. to be paid into Court to the credit of this cause; and ii. to be paid out or dealt with as may be ordered by the Court, on application of any of the parties. [ 7 ] Although clause 11(

c) states that “other fees to the sale closing date” may be paid from the sale proceeds, the

phrase is modified by the phrase “due to the plaintiff under the mortgage.” Knowing that the only permissible solicitor-client fees under a mortgage are those specifically assessed by the court – a long-standing principle of Saskatchewan foreclosure law – a law firm cannot remove from the court’s scrutiny an assessment of any legal fees that are ultimately payable by the mortgagor.

Taking legal fees from the sale proceeds cannot circumvent the court’s jurisdiction to assess legal fees in a judicial sale proceeding. [ 8 ] Saskatchewan law is clear: only taxed legal fees are permissible under s. 8 of The Limitation of Civil Rights Act , RSS 1978, c L-16 . Legal fees, whether pre-leave or post-leave, cannot be added to the mortgage without the court’s assessment and approval. [ 9 ] Justice Danyliuk has frequently cited the court’s judicious guarding of the processes of judicial sale, and in particular, the court’s supervision of any award of legal fees.

In Royal Bank of Canada v Viloria , 2014 SKQB 110 , 443 Sask R 121, he wrote: [23] Finally, an equitable reason behind the court’s continued supervision of these matters relates to the mortgagees’ claims for costs. Most often, a clause in the mortgage provides a prima facie entitlement to seek costs on a solicitor-client basis. Those claims, however, are not unfettered. The court determines the reasonableness of such cost claims, considering all the circumstances of the action. The court does not allow those costs to be excessive. Those costs must be assessed by the court.

Rule 11-20 of The Queen’s Bench Rules , (Rule 565 of the former Queen’s Bench Rules ) alerts mortgagees and their counsel that a claim for solicitor-client costs under a mortgage is subject to judicial discretion. [Emphasis added] A Looming Issue [ 10 ] Although I have found that clause 11(

c) does not permit taking real estate closing fees from sale proceeds without a judicial assessment, in the future, I will scrutinize proposed draft orders for judicial sale to ensure that counsel appreciates that all legal fees appropriately paid by the mortgagor must be assessed. [ 11 ] However, I see a looming issue that, to my knowledge, has not been previously addressed. It arises because this Court has given instruction respecting the appropriate types of “payment out” provisions that should be included in an order nisi for judicial sale.

Justice Rothery explained the court’s role and the timing of that role in the distribution of sale proceeds after a sale has been confirmed. In Toronto-Dominion Bank v Schell , 2014 SKQB 344 , 461 Sask R 257 [ Schell ], she wrote: [ 15] Solicitor-client costs must be assessed by the court, upon application with service upon the defendants. The monies cannot be disbursed to the plaintiff until that assessment has been made. See: CIBC v Roberts, 2006 SKQB 44 . [16] Monies owed under the mortgage are to be set by the court on further application; the plaintiff does not receive those funds in advance.

There may be accounting issues that the defendants may wish to address and the application to confirm the sale allows for this relief. The proper forum to disburse funds is the application to confirm the sale, if the judicial sale process has proved successful. THE CONFIRMATION OF SALE APPLICATION [17] The application to confirm the sale must be brought in a timely manner. Form 10-45A refers to that application being made within one month of the sale.

This proposed order provides for two months prior to the confirmation application, which creates uncertainty for the proposed purchaser and unnecessary delay for both the plaintiff and the defendants. [18] Because solicitor-client costs must be assessed by the court on notice of application, it follows that the application for the order confirming sale must also be brought by notice of application. This is the stage in the foreclosure proceeding to not only seek confirmation of the sale, but also to seek the court’s direction on the payment of the purchase monies, including costs.

It is the stage to set the deficiency amount of the judgment, if any. All these outstanding matters ought to be addressed in one final proceeding. [ 12 ] Justice Rothery has stated that the application for an order confirming sale will determine several other issues: payment out of the purchase monies, an award of costs, and determination of any deficiency judgment. [ 13 ] Given Justice Rothery’s instruction in Schell , legal fees will be assessed when the mortgagee applies to have the sale confirmed.

Necessarily, this application will pre-date the legal fees that will later be incurred when the mortgagee’s legal counsel deals with receipt of the sale proceeds and the delivery of the order confirming sale to the Land Titles Office. [ 14 ] A conundrum results – how can the mortgagee recover legal fees that are invariably incurred to complete the judicial sale if the court assesses fees that are unknown at that time? Can a mortgagee’s counsel provide an affidavit showing anticipated costs of the closing fees and include them in an assessment of costs when seeking an order confirming sale?

Are these fees in addition to the “standard” $5,000.00 fee set out in First National or are they part of the “standard” fee? Or, perhaps closing fees, like pre-leave legal costs, should ordinarily be absorbed by the mortgagee and not foisted upon the mortgagor or subordinate interest holders. [ 15 ] In this application, the “discovery” of closing costs taken from the sale proceeds was rather inadvertent. Neither legal counsel at the hearing had forewarning that these closing costs might be an issue. Accordingly, this is not the application to make a conclusive finding respecting these fees.

Instead, to complete this sale and bring closure to this action, I will take judicial liberty and allow one-half of the closing costs (namely $534.11) to be added to the standard costs as I would have otherwise assessed. Should Assessed Costs Exceed $5,000.00? Current State of the Law [ 16 ] Necessarily, the court begins with what has been most recently accepted as a “standard” amount of legal fees in

a judicial sale action. In First National , Justice Danyliuk wrote: [13] Justice Mills decided Greyeyes [2017 SKQB 313 , 17 CPC (8 th ) 410 ] and set the $4,500.00 standard in October of 2017. He referenced the Consumer Price Index in considering inflation and in making the $500.00 increase in that standard.

In the four years since that decision the CPI rates of inflation, based on the information contained at https://www.inflation.eu/en/inflation-rates/canada/historic- inflation/cpi-inflation-canada.aspx have been: 2018: 2.27% 2019: 1.95% 2020: 0.72% 2021: 2.58%. [14] Applying these rates roughly (as a guide only), and considering generally the passage of time and the effect on legal fees, I agree with plaintiff’s counsel that it is time for an increase.

I would set the “standard” legal fees awarded as solicitor-client costs on a foreclosure/sale matter at $5,000.00, going forward. [15] Accordingly, I assess the plaintiff’s legal fees in this case at $5,000.00, plus the disbursements claimed, plus the applicable taxes on the amounts set.

I arrive at the total sum of $7,110.67 calculated as follows: Legal Fees $5,000.00 Taxes on Legal Fees (11%) $550.00 Disbursements $1,486.35 Taxes on Disbursements (5%) $74.32 Total: $7,110.67 [ 17 ] In the application in First National , Justice Danyliuk saw “no significant deviation from the standard practice.” The question, then, in this application is whether the judicial sale action deviates from what the court would consider as “standard practice.” [ 18 ] In this instance, Scotia Mortgage sought leave to commence its action in July 2020.

In the supporting affidavit, Scotia Mortgage stated that the mortgagors occupied the property; their last payment was on November 1, 2019; the fair market value of the property (by a drive-by opinion of value) was $65,000 to $75,000; and the mortgagors owed $23,620.01 under the mortgage. The court record shows that the leave application initially set for October 6, 2020 was adjourned eight times, principally because of representations from the mortgagors. Leave was ultimately granted seven months later, on April 27, 2021. Counsel for Scotia Mortgage attended the hearings by telephone.

The action was noted for default of defence respecting the mortgagors on May 31, 2021 and against RBC on June 9, 2021. [ 19 ] Scotia Mortgage applied without notice for an order nisi for judicial sale in September 2021, asking for a 60 day redemption period. The affidavit of default states that the mortgaged property was possibly vacant. The mortgage had matured, and the entire amount was due, namely $27,262.44. Oddly, when compared to the previous opinion of value, the branch manager of the mortgagee attached another drive-by viewing of the exterior of the mortgaged property.

This valuation was provided by a different realtor, who provided an opinion of value of $131,000. Based on this opinion of value, Scotia Mortgage’s order nisi included an upset price of $111,350.00. No explanation was provided for the widely different opinion of value. [ 20 ] Approximately eight months later, in May 2022, Scotia Mortgage applied without notice to lower the upset price. In a supporting affidavit, Scotia Mortgage’s officer stated that the property was vacant and abandoned as early as October 19, 2021. The property manager, Veranova, gained access to the property and reported as follows: (

a) there are unfinished renovations throughout; (

b) the front door window is broken; (

c) the furnace is not operational; and (

d) there is evidence that water intrusion occurred in the basement at some point. [ 21 ] Blythe Agencies completed an interior inspection on May 16, 2022, and concluded that the property’s value was $71,000. Scotia Mortgage’s officer explained why the upset price should be adjusted: 7.

The upset price contained in the Order Nisi was set based on a drive-by opinion of value, completed by Elyce Wilson, who was unable to gain access to the interior of the Property in August, 2021, which opinion was attached as Exhibit “B” to the Affidavit of Default sworn by me on September 1, 2021, and which Affidavit forms part of the Court file. Based on this information contained in this Affidavit which account for the state of the Property’s interior.

I believe an amendment to the upset price is necessary to achieve a sale of the Property. [ 22 ] By order of May 26, 2022, the court accepted this explanation and allowed an order lowering the upset price to 85% of the newly submitted appraised value of $71,000, namely $60,350.

[ 23 ] A further application without notice asking for a further listing period of 90 days was allowed by order on September 12, 2022. [ 24 ] By notice of application returnable on February 14, 2023, and served on the mortgagors, Scotia Mortgage sought a further reduction of the upset price. The realtor and a certified appraiser filed affidavits. The appraisal, conducted December 14, 2022, stated that the property’s value was $51,000. The realtor’s opinion of value differed only slightly, suggesting the property’s value was $52,475. The realtor described an offer she had received earlier for $39,000.

The selling officer countered at $60,350, which, in turn, was met with a further offer of $42,000, which, finally, the selling officer rejected as being too low. The realtor also commented on the poor workmanship of plumbing and electrical repairs done without proper inspection or permits. She described that in the previous year, properties in Esterhazy had sold for approximately 75% of their asking price. Neither mortgagor attended the hearing nor provided a telephone number to the court.

Based on this evidence, the court reduced the upset price to $44,603.75 by order of February 16, 2023. [ 25 ] By notice of application, Scotia Mortgage successfully sought an order confirming sale of the property for $48,000, which was granted March 28, 2023. [ 26 ] The court, undoubtedly comforted by the apparent large amount of equity in the property, permitted the application for leave to be adjourned eight times before an order was granted. Seemingly Scotia Mortgage was similarly comforted since it often consented to the adjournments.

From the original application in October 2020, seven months elapsed before an order granting leave was issued in April 2021. Although leave applications are frequently adjourned, they are seldom adjourned eight times. In many instances, Scotia Mortgage attended these hearings, albeit by telephone, adding non-standard legal fees. [ 27 ] The record of proceedings described above shows that as Scotia Mortgage dealt with the property, it progressively learned about increasing numbers of problems, occasioned by the mortgagors’ care of the property.

Rather than one order nisi , which would ordinarily see mortgaged property sold, Scotia Mortgage repeatedly returned to the court to lower the upset price or extend the listing price. Judges presiding at these applications must have been satisfied that Scotia Mortgage had presented sufficient evidence to permit the upset price to be lowered (as required by CIBC Mortgages Inc. v Taylor , 2018 SKQB 118 , [2018] 9 WWR 340). In total, after the initial order nisi , Scotia Mortgage returned to the court three times before applying to have the sale confirmed.

This is another reason why the proceedings deviated from the expected. [ 28 ] I have considered that Scotia Mortgage has successfully sought three judicial interventions beyond what one might think is necessary in a “standard” judicial action. When asked, counsel for RBC (the second encumbrance holder) suggested that a fee of approximately $1,000 for each of these additional applications might be appropriate.

I think that suggestion is reasonable. [ 29 ] As Justice Danyliuk considered in First National, one might also generally consider a rise in the Consumer Price Index, which, the court notes, has gained significant public attention in 2022 and the first half of 2023. [ 30 ] The court also accepts that the mortgagors abandoned the property and any engagement with the court, particularly when they were served with the last notice of application to lower the upset price. [ 31 ] For these reasons, the court fixes costs at $8,500 plus applicable taxes and disbursements.

Additionally, as explained above, an additional cost of $534.11 is awarded, for a total of $9,034.11. Of this amount, Scotia Mortgage has already recovered $1,068.22. Accordingly, the amount of recoverable, unpaid costs is $7,965.89. J. D. H. LAYH