In a recent case, the principal of a brokerage firm acted for individuals who bought a number of properties and relisted them shortly thereafter at a highly inflated price. Mortgages were then taken out and inevitably the mortgages went into default, so the lenders sustained losses.
The Registrar under the Ontario Real Estate and Business Brokers Act moved to revoke the broker’s license and his company’s registration. The License Appeal Tribunal was not pleased with the broker’s behaviour but decided that he could keep his license because his conduct merely demonstrated a lack of understanding and wilful indifference to the obligations of a registered broker.
This caused the Registrar to appeal to the Divisional Court, which upheld the reasons of the tribunal. The Registrar then took the case to the Court of Appeal.
The Court of Appeal acknowledged that the broker had acted in the real estate industry for many years without any incidents. His conduct in these events however, required him to have further education and guidance regarding his responsibilities and issues facing the real estate industry. The appeal court stated that the tribunal was satisfied that there was wilful blindness and recklessness. However, the court upheld the tribunal’s decision that the broker did not actually turn his mind to the “fraud” that was taking place by the broker’s client.
The Court of Appeal also reasoned that the tribunal was satisfied that there was misconduct because of a failure to appreciate the scope of one’s duties, but this did not amount to dishonesty.
The Law Society of Upper Canada has disbarred a number of individual lawyers or punished them in other ways for acting for clients engaged in what is called an Oklahoma deal. In essence this is a purchaser buying a property and then turning it over on a dishonest appraisal for a much greater price, raising mortgage funds. This enables the client to not only purchase the property but pocket the excess of the mortgage proceeds. After doing this on a number of occasions, the client would then accumulate a sum of money and then disappear.
To attempt to curtail this type of practice, the Law Society has held that real estate lawyers should know or “ought to have known” that these property flips were dishonest because of the sharp increase in the price of the property when it was resold, and the fact that the mortgage is significantly larger than the equity available in the original purchase. (Baxter v. Registrar (REBBA), 2011 ONSC 2497)
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In another recent case, the plaintiffs were landowners and sought injunctions restraining the construction of industrial wind turbines on farmlands. They also sought damages for negligence, nuisance, trespass and strict liability.
The wind project was not yet under construction and legal approval had not been given. The plaintiffs introduced evidence that the harm already incurred was lost property values and the interference with use and enjoyment of the land.
The Ontario court dismissed the actions. The claimants were unable to show that there was a cause of action. Damages could not be awarded without a cause of action giving rise to liability. The loss of property value, which is not linked to the defendants’ conduct and the inability to prove that the wind project would be built meant that the court found there was no harm to be redressed. Because it was possible that the plaintiffs might be wronged (through a tort) in the future, their action was dismissed without prejudice to advancing the same and other claims in the future. (Wiggins v. WPD Canada Corporation, 2013 ONSC 2350)
Full decisions are available at canlii.org.
Donald Lapowich, Q.C. is a partner at the law firm of Koskie, Minsky in Toronto, where he practices civil litigation, with a particular emphasis on real estate litigation and mediation, acting for builders, real estate agents and lawyers.
