Mortgage Obtained By Fraud Not Valid

Le v Chan ( Trustee) 2023 BCSC 1654 confirmed the law that a mortgage obtained by fraud, such a forgery is invalid.

 

 A mortgage obtained by fraudulent means does not constitute a valid or enforceable charge on title to land in British Columbia: Credit Foncier Franco-Canadien v. Bennett (1963), 43 W.W.R. 545, 1963 CanLII 839 (BCCA) and Reliable Mortgages Investment Corp. v. Chan, 2011 BCSC 1080 at para. 39. Further, a mortgage granted by a party who lacks the valid authority to grant the said mortgage is invalid which accords with the legal principle of nemo dat quod non habet – one cannot give what one does not have: Reliable at para. 31; see also Land Title Act, RSBC 1996, c 250, ss. 25.1, 26(1), 26(2).

[34]       Courts have held that when a mortgage application is found to be a forgery, the mortgage registered against title is a nullity, and will be unenforceable and the court will direct the registrar to discharge the mortgage: Homewood Mortgage Investments Ltd. v. Lee, 2008 BCSC 512.

[35]       Put simply, a mortgage acquired fraudulently or for which the supposed mortgagor lacked the authority to grant is invalid and unenforceable. However, to rebut the deemed presumption that the registration evinces an interest, the party alleging the fraud must adduce evidence to establish the fraud. Accordingly, in the case at bar, Ms. Chan bears the evidentiary burden to provide “clear and cogent” evidence to establish, on a balance of probabilities, that the Mortgage was obtained by fraud and registered on title fraudulently through forged documents. As Madam Justice Wedge helpfully explained in Lloyd Investments Ltd. v. Wang, 2023 BCSC 303:

[22] As the plaintiff in this action, Lloyds bears the legal onus to prove its case against Ms. Wang.  However, the evidentiary onus is on Ms. Wang to prove that the Lloyd Mortgage was entered into fraudulently through a forged power of attorney.  The onus of proof with respect to the allegation of fraud advanced by Ms. Wang is on a balance of probabilities.  Some authorities suggest that this onus can be met only with clear and cogent evidence.  In the case of Bank of Montreal v. Chan, 2004 BCSC 841 [Chan], this Court held as follows at paras. 23-24:

It is common ground that the validity of the mortgage rises or falls with the validity of the powers of attorney.

The Chan respondents bear the onus of proving the powers of attorney to be forgeries.  Although the standard of proof is on a balance of probabilities, the onus will not be met except with clear and cogent evidence: Continental Insurance Co. v. Dalton Cartage Ltd., 1982 CanLII 13 (SCC), [1982] 1 S.C.R. 164, 131 D.L.R (3d) 559 (S.C.C.) at 169-170.

[23] The “clear and cogent evidence” standard is not, however, a departure from proof on a balance of probabilities.  In Wanson (Bristol) Development Ltd. v. Sahba, 2018 BCCA 260, the Court, after reviewing the case law on the issue, said at paras. 28-29: “What these cases stress that the party with the burden of proving a fact in issue must prove it on a balance of probabilities and on no higher standard, even if the fact involves criminal or other moral blameworthy conduct.”

[24] Most recently, in British Columbia (Director of Civil Forfeiture) v. Angel Acres Recreation and Festival Property Ltd., [2023 BCCA 70], the Court reminded us at paras. 162 to 164 of the decision of the Supreme Court of Canada in F.H. v. McDougal, 2008 SCC 53.  In that decision the Court “put to rest any debate that a heightened standard of proof applies in civil cases involving criminal or morally blameworthy conduct”.  The level of scrutiny applied by the finder of fact “does not change with the seriousness of the case”.  However, the quality of the evidence required to meet the balance of probabilities standard “will depend upon the nature of the claim and of the evidence” adduced.

Executor Removed For Conflict of Interest

Re Thomspon estate 2023 BCSC 1591 is an excellent review of the law relating to the removal and substitution of an executor.

The executor was removed for a ” disabling” conflict of interest as she had previously sued the estate and could be liable for costs.

Removal of Executor

[38] There are three sources of authority that the Court can draw on to remove an executor or trustee and appoint a replacement: the Wills, Estates and Succession Act, S.B.C. 2009, c. 13 [WESA], the Trustee Act, R.S.B.C. 1996, c. 464, and the Court’s inherent authority: Morelli v. Morelli, 2014 BCSC 106 at para. 29.

[39] Section 158 of WESA governs an application to remove or pass over a personal representation and replace them. The relevant portions of s. 158 include:

(3) Subject to the terms of a will, if any, and to subsection (3.1), the court, by order, may remove or pass over a person otherwise entitled to be or to become a personal representative if the court considers that the personal representative or person entitled to become the personal representative should not continue in office or be granted probate or administration, including, without limitation, if the personal representative or person entitled to become the personal representative, as the case may be, …
(f) is
(i) unable to make the decisions necessary to discharge the office of personal representative,
(ii) not responsive, or
(iii) otherwise unwilling or unable to or unreasonably refuses to carry out the duties of a personal representative,
to an extent that the conduct of the personal representative hampers the efficient administration of the estate, or …

[40] Section 159 of WESA provides the Court with the statutory authority to appoint an executor in circumstances where the Court has discharged or removed an executor.

[41] Sections 30 and 31 of the Trustee Act, provides the statutory authority for the Court to remove an individual as trustee of an estate and appoint a replacement. In the application of both WESA and the Trustee Act, the same considerations apply, as provided below.

[42] The Court’s discretion to remove an executor should be guided by the principles listed in Parker v. Thompson (Trustee), 2014 BCSC 1916 at para. 37. The will-maker has the right to choose their executor, and as such their decision is entitled to deference and will only be interfered with if there is clear and cogent evidence to do so. The executor’s acts or omissions must be of such a nature as to endanger the administration of the estate.

[43] The Court’s main consideration is the welfare of the beneficiaries: Parker at para. 37; Burke v. Burke, 2019 BCSC 383 at para. 29. It is not the interests of a particular beneficiary that are to be considered, but rather the benefit of the beneficiaries collectively: Conroy v. Stokes, [1952] 4 D.L.R. 124 at p. 128, 1952 CanLII 227 (B.C.C.A.).
[44] The analysis is contextual and each case will turn on its facts: Burke at para. 43.

[45] In Conroy, the Court of Appeal described the four categories of misconduct by an executor that can warrant their removal:

a) Endangerment of trust property;
b) Want of honesty;
c) Want of proper capacity to execute duties; and
d) Want of reasonable fidelity.

[46] The existence of friction between the executor and one or more beneficiaries is generally, in and of itself, not sufficient to warrant the removal of the executor: Letterstedt v. Broers, (1884), 9 App. Cas. 371 at 389 (South Africa P.C.). However, animosity between those parties, or co-executors, can be relevant to whether it hampers the proper administration of the estate: Dunsdon v. Dunsdon, 2012 BCSC 1274 at para. 202; Levi-Bandel v. McKeen, 2011 BCSC 247 at paras. 21–25. In such circumstances, a finding of wrongdoing is not necessary: Dunsdon at para. 202; Weisstock v. Weisstock, 2019 BCSC 517 at para 44.

[47] In Radford v. Radford Estate (2008), 43 E.T.R. (3d) 74, 2008 CanLII 45548 (O.N.S.C.), Justice Quinn comments that removal is not intended to punish past conduct:
Removal not intended to punish past misconduct

[106] “The authorities are, I believe, consistent in placing the emphasis on the future administration of the estate, and the risks to which it will be exposed if the trustee remains in office. The question is whether the trust estate is likely to be administered properly in accordance with the fiduciary duties of the trustee and with due regard to the interests and welfare of the beneficiaries. The sanction of removal is intended not to punish trustees for past misconduct but rather to protect the assets of the trust and the interests of the beneficiaries”: see St. Joseph’s Health Centre v. Dzwiekowski, supra, at para. 28.

[107] But, “past misconduct that is likely to continue will often be sufficient to justify removal …”: see St. Joseph’s Health Centre v. Dzwiekowski, supra, at para. 29.
[Emphasis added.]

Conflict of Interest

[48] An executor’s conflict of interest may warrant removal. In Hall v. Hall (1983), 45 B.C.L.R. 154, 1983 CanLII 396 (S.C.), Justice Proudfoot held that conflict of interest and a conflict of duty demonstrate want of fidelity: see also Pangalia Estate, 2021 BCSC 1070 at para. 22. Further, in Morelli at para. 30, Justice Harvey held that the “welfare of the beneficiaries of an estate may be endangered if there is a conflict of interest”. However, not all perceived or actual conflicts of interest will give rise to the removal of an executor: Burke at para. 43.

[49] In Ching Estate (Re), 2016 BCSC 1111, an executor was passed over due to perceived unequal treatment and conflict of interest, with Justice Affleck holding that the “perception of a disabling conflict of interest is overwhelming”: at para. 20. The Court held that a “perceived” conflict of interest may lead to removal:

[22] The authorities indicate that even a “perceived” conflict of interest between an executor’s personal interests and her obligation to administer the trusts in the will in the interests of the beneficiaries may cause this court to intervene to appoint a new executor or an administrator to avoid even the appearance of conflict.

[50] These cases demonstrate that in situations where the trustee is in a conflict of interest, actual or perceived, if it is to the detriment of the beneficiaries, the executor must be removed.

Section 151 of WESA

[51] Section 151 of WESA gives a beneficiary, wills variation claimant, or intestate successor the right to seek leave to commence proceedings on behalf of the estate, often in circumstances where the personal representative is in a conflict of interest with respect to a potential claim and therefore unlikely to commence proceedings to pursue the estate’s interests: Soo Estate, 2023 BCSC 762 at para. 25.

[52] In Soo Estate at para. 26, Justice Francis concluded that s. 151 of WESA did not remove the requirement that executors be free from conflicts of interest with respect to the estate they seek to administer and an executor is a fiduciary, and like any fiduciary, must be in a position where they can protect the best interests of the beneficiaries without the interference of their own personal interests.

Assessing Special Costs in Estate Litigation

Re Derco Estate 2023 BCSC 1622 involved the assessment of special costs for a two day passing of accounts hearing 

The following is an excerpt of the principles of law used by the court in the assessment of the parties special costs:

 

[14]       Part 25 of the Supreme Court Civil Rules, B.C. Reg. 168/2009 [SCCR], governs estate proceedings. Rule 25-13(1) provides that a personal representative may apply for an order for the passing of the personal representative’s accounts, which Miles did in November 2021. Rule 25-13(7) expressly provides that unless the court on an application otherwise orders, if costs are payable under an application for the passing of accounts, those costs must be assessed as special costs and that Rules 14-1(3) and (5) of the SCCR apply.

[15]       Rule 14-1(3) stipulates that on an assessment of special costs, a registrar must allow those fees that were “proper or reasonably necessary to conduct the proceeding”, which requires the registrar to consider all of the circumstances of the case, including the following factors listed in R. 14-1(3)(b)(i) through (viii):

(i)            the complexity of the proceeding and the difficulty or the novelty of the issues involved;

(ii)           the skill, specialized knowledge and responsibility required of the lawyer;

(iii)         the amount involved in the proceeding;

(iv)         the time reasonably spent in conducting the proceeding;

(v)          the conduct of any party that tended to shorten, or to unnecessarily lengthen, the duration of the proceeding;

(vi)         the importance of the proceeding to the party whose bill is being assessed, and the result obtained;

(vii)        the benefit to the party whose bill is being assessed of the services rendered by the lawyer;

(viii)       Rule 1-3 and any case plan order.

[16]       Rule 1-3 establishes that the object of the SCCR is to secure the just, speedy and inexpensive determination of every proceeding on its merits, which includes, so far as is practicable, conducting the proceeding in ways that are proportionate to the amount involved, the importance of the issues in dispute, and the complexity of the proceeding.

[17]       In Gichuru v. Smith, 2014 BCCA 414 [Gichuru], at para. 155, the Court of Appeal noted that when assessing special costs, the assessor “must only allow those fees that are objectively reasonable in the circumstances …. the purpose of a special costs award is to provide an indemnity to the successful party, not a windfall.”  In order to determine if a legal fee is reasonably objective, “it is often necessary to know the particulars of what the lawyer did to accrue it … the fact that a lawyer has billed a certain sum does not necessarily make the fee reasonable” (Gichuru, paras. 104-105). An assessment of special costs must be guided by some evidence to permit an objective assessment of a reasonable fee: Gichuru, para. 156.

[18]       The assessment of special costs is objective, as opposed to the subjective review of a lawyer’s bill conducted under the Legal Profession Act, S.B.C. 1998, c. 9. In Bradshaw Construction Ltd. v. Bank of Nova Scotia, 1991 CanLII 4019 (BC SC), 54 B.C.L.R. (2d) 309 [Bradshaw], [aff’d 1992 CanLII 4038 (BC CA)], Justice Bouck noted at p. 319 that special costs “are not necessarily the fees that the successful solicitor would recover from his or her client … [but] are the fees that a reasonable client would pay a reasonably competent solicitor for performing the work described in the bill.”

[19]       Rule 14-1(5) provides that a registrar must determine which disbursements have been necessarily or properly incurred in the conduct of the proceeding, and must allow a reasonable amount for those disbursements. The authorities establish that whether a disbursement was necessarily or properly incurred is case and circumstance specific and must include consideration of proportionality under R. 1-3 (see, for example, Brown v. Goodacre, 2019 BCSC 1008, para. 30, citing Turner v. Whittaker, 2013 BCSC 712 at para. 5). These authorities also confirm that the time for assessing whether a disbursement was necessarily or properly incurred is when the disbursement was incurred, without the benefit of hindsight.

[20]       The law is clear that special costs may be awarded to a self-represented litigant; however, there is a lack of clarity in the authorities regarding how special costs for self-represented litigants should be calculated: Neural Capital GP, LLC v. 1156062 B.C. Ltd., 2022 BCSC 1800 [Neural Capital], at para. 75; see also K.L.M. v. L.K.M., 2023 BCSC 1414, at para. 41. The authorities regarding the calculation of a self-represented litigant’s special costs are discussed further in the assessment of the special costs Miles claims.

[21]       Rule 25-13(7) expressly provides that if costs are payable under an application for the passing of accounts, those costs must be assessed as special costs, unless the court otherwise orders. This rule codifies the general principle that in estate litigation, courts award special costs to executors payable out of the estate, recognizing that executors are entitled to be indemnified for the costs that they properly and reasonably incur while acting within the ambit of their fiduciary duties (see, for example, Mawdsley v. Meshen, 2011 BCSC 923, at para. 39).

[22]       In recent jurisprudence, the Court of Appeal has concluded that there is no general rule that a party is entitled to special costs of an assessment of those costs, unless the judge orders special costs are awarded “of a proceeding”, which encompasses the assessment: 567 Hornby Apartment Ltd. v. Le Soleil Restaurant Inc., 2020 BCCA 69 [Le Soleil], paras. 137-141.