CITATION: The Bank of Nova Scotia v. Russell, 2016 ONSC 1829

DIVISIONAL COURT FILE NO.: 15-2102

DATE: 20160321

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

MARROCCO A.C.J.S.C., MULLIGAN & ELLIES JJ

BETWEEN:

THE BANK OF NOVA SCOTIA Plaintiff (Appellant)

– and –

STEPHEN RUSSELL and STEPHANIE SHAN RUSSELL Defendants (Respondents)

Onofrio Ferlisi and Evan L. Cappe, for the Plaintiff/Appellant

Adrian Scotchmer, for the Defendant/Respondent Stephanie Shan Russell

HEARD at Ottawa: January 26, 2016

MARROCCO A.C.J.S.C.

The issue

[1] Is a Superior Court judge’s jurisdiction to adjourn or hear evidence on a summary judgment motion restricted or confined by the Supreme Court of Canada’s decision in Hryniak v Mauldin 2014 SCC 7? That is the central issue in this appeal of an interlocutory order.

The facts framing the issue

[2] In December 2011, Stephen Russell attended a branch of the Bank of Nova Scotia (the “Bank”) and applied for a line of credit. The line of credit was secured by a charge against a condominium property. The condominium was registered in Mr. Russell’s name.

[3] Mr. Russell told the Bank that he was a trustee of the condominium and that, under the terms of the trust, the proceeds from the line of credit must be used for the benefit of the beneficial owner of the condominium, namely his sister, Stephanie Russell, who was also a customer of the Bank.

[4] Mr. Russell provided the bank with a copy of the trust agreement between him and his sister.

[5] In March 2012, the Bank agreed to lend Mr. Russell $146,200 at 4% under a Personal Credit Agreement secured by a charge registered against the condominium (the “Credit Agreement”). Funds were advanced pursuant to the Credit Agreement.

[6] In September 2012, Mr. Russell defaulted on the loan. Stephanie Russell remained in possession of the condominium.

[7] In August 2013, the Bank commenced an action for vacant possession of the condominium pursuant to its rights under the Credit Agreement and the mortgage.

[8] Ms. Russell delivered a statement of defence; Mr. Russell failed to deliver a statement of defence and was noted in default.

[9] The Bank moved for summary judgment against Ms. Russell, who represented herself on the motion. Ms. Russell requested an adjournment which was initially refused because the matter had been previously adjourned to permit Ms. Russell to file responding material. However, the transcript indicates that the motion judge changed his mind during the course of argument and ultimately adjourned the summary judgment motion on terms.

[10] The motion judge seized himself of the motion and ordered, in part, the issuance of a summons for Mr. Russell to answer Ms. Russell’s claim that he had obtained title to the condominium by fraud and that the Bank should have known that he was using the proceeds from the line of credit for his own benefit and not for hers. Later, when settling his adjournment order, the motion judge withdrew the term ordering the summons.

The order appealed from

[11] A judge granting leave to appeal an interlocutory order may do so only with respect to part or all of the order itself, not the reasons. See section 19 (1)(b) of the Courts of Justice Act.

[12] The order of the motion judge provides:

• he is seized of this matter;

• oral evidence is to be heard on the return of the motion;

• the issues to be determined on the motion are:

o whether a fraud exists,

o whether the fraud should have been picked up by the Bank, and

o whether the Bank was reasonable in discharging its obligation to ascertain whether the person having a relationship of trust was acting on a fraudulent or a bona fide position;

• the Bank can deliver further affidavits of evidence or call witnesses at the return of the motion.

[13] No one suggested that the motion judge lacked the jurisdiction to seize himself with the motion.

Jurisdiction to decide to hear further evidence

[14] Because it is a superior court of general jurisdiction, the Superior Court of Ontario has all of the powers necessary to do justice between the parties. The court’s jurisdiction is unlimited and unrestricted in substantive law in civil matters. The court’s inherent jurisdiction is subject only to the unambiguous expression of Parliament or the Legislature. See 80 Wellesley Street East Ltd. vs. Fundy Bay Builders Ltd. et al, [1972] 2 O.R. 280 (C. A.) at p. 282 and Baxter Student Housing Ltd. et al vs. College Housing Co. Operational Ltd., [1976] 2 S.C.R. 475 at p. 480

[15] The appellant suggests that Hryniak, at para. 66, requires the motion judge to determine that there is a genuine issue requiring a trial based on the paper record and prohibits the judge from deciding to hear further evidence before making that determination.

[16] I do not accept this submission.

[17] Paragraph 66 provides as follows:

“On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[18] Hryniak did not create a rigid formalism which must be adhered to in order to avoid an error of law and it did not erode the inherent jurisdiction of judges of this court.

[19] Properly interpreted, the Supreme Court held in paragraph 66 that a judge hearing a summary judgment motion should not resort to the powers ordinarily exercised by a trial judge where there is no genuine issue requiring a trial. The Court did not purport to limit the motion judge’s ability to receive evidence beyond the paper record in order to determine whether to exercise the powers in Rule 20.04 in an attempt to avoid the need for a trial.

[20] Hryniak is fundamentally a direction from the Supreme Court of Canada mandating judges hearing summary judgment motions to resolve the motion and, where possible, the litigation, in a way that is proportional to the problems presented by the specific case.

[21] The Supreme Court of Canada indicated in Hryniak that ensuring access to justice was the greatest challenge facing the rule of law in Canada today: see para. 1.

[22] The Supreme Court also directed that the powers of judges hearing summary judgment motions are to be used to increase access to justice: see paras. 3, 34, and 36.

[23] An important starting point in interpreting and applying Hryniak is the provision at paragraph 2 that “a culture shift is required in order to create an environment promoting timely and affordable access to the civil justice system.” The culture shift is particularized in that same paragraph as entailing “simplifying pre-trial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case.”

[24] The needs of this particular case are reflected in the following factors:

• the 71-year-old self-represented respondent suffers from Lyme disease and related environmental sensitivities which affect her ability to concentrate for an extended period of time and result in periodic episodes of diminished cognitive capacity,

• the respondent beneficially owns and lives in the condominium for which her brother pledged to secure a line of credit that he then spent on himself,

• the condominium is an essential part of the respondent’s treatment for her environmental sensitivities and is essential to her present and future health,

• the respondent’s contentious claim that the bank, knowing both the terms on which her brother was her trustee and her personal circumstances, should not have continued to advance him money secured by the line of credit.

[25] Even if I agreed with the appellant that paragraph 66 of Hryniak provides that, on a motion for summary judgment, the motion judge is required to conclude there is a genuine issue for trial based only on the evidence before the judge before deciding to engage in further fact-finding, the evidence before the motion judge consisted of an affidavit from the branch manager at the Bank which granted the credit facility to Mr. Russell. The affidavit disclosed that the Bank was aware of both the trust relationship with the respondent and that the proceeds of the line of credit were to be used for her benefit. Further, at the hearing of the motion, counsel for the Bank agreed that it knew Mr. Russell was a bare trustee of the property.

[26] The motion judge could have decided that Ms. Russell could not know what information was provided to the Bank and that exploration of this issue was a genuine issue for trial. Instead His Honour decided to see if he could resolve the matter on the motion.

[27] His Honour’s decision reflects the proportional approach Hryniak contemplates.

The trust issue was not pleaded

[28] The appellant also claims that the trust aspect of this matter was not pleaded.

[29] I do not accept that the issue is not pleaded. Three factors influence this conclusion.

[30] First, the respondent stapled a copy of the trust agreement to her statement of defence. This is an unorthodox way of proving the trust agreement. The trust agreement without anything further is hearsay evidence for the purpose of proving the existence of a trust arrangement and its terms. The existence of the trust and the Bank’s knowledge of its terms is not contentious: a copy of the trust agreement was in the Bank’s productions.

[31] Hearsay evidence can be received on a motion to approve uncontentious facts.

[32] Second, at paragraph 31 of her statement of defence, Ms. Russell pleaded as follows: “it is my submission that the Bank of Nova Scotia should never have accepted this agreement with my brother, especially considering that they had refused to accept my house as collateral in the spring of 2009. I am not unknown to the Bank of Nova Scotia and have been a customer for over 25 years. They would also be aware that I am on ODSP.”

[33] Third, at paragraph 34 of the statement of defence, Ms. Russell pleaded as follows: “in the summer of 2013 I phoned the President’s office of the Bank of Nova Scotia and spoke to Mr. Neil Anderson. I attempted to explain the situation to Mr. Anderson. I explained that my brother entered into the agreement for the loan without my knowledge or consent. Furthermore, I explained that most importantly to me my home is an essential part of my treatment for my environmental sensitivities and as such is essential to my present and future health and well-being. However, Mr. Anderson was not interested. He felt that they had accepted my house as collateral in good faith.”

[34] The issue concerning the Bank’s actual knowledge of the terms of Ms. Russell’s trust relationship with her brother, her health, and the implications of that knowledge is raised in the pleadings. While perhaps not precise in claiming that the Bank should have known that Mr. Russell was using the mortgage proceeds for his own benefit and therefore should have known that he was committing a fraud, Ms. Russell’s assertion to this effect before the motion judge was not surprising. Even if the assertion was surprising, the remedy was an adjournment, which is exactly what happened.

[35] Further, no one has suggested that the motion judge could not amend the pleadings.

The use of the Rules

[36] Despite the fact that the motion judge removed the requirement that Mr. Russell attend for cross-examination on the return of the motion, the appellant claims that the motion could not be adjourned for such a purpose due to the wording of Rule 20.04(2.2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[37] Rule 20.04(2.2) provides that a judge may hear evidence for the purpose of weighing evidence, evaluating credibility and drawing inferences under rule 20.04(2.1). It does not say that a judge may not hear evidence for any other purpose. That would be inconsistent with Rule 39.03(4), which contemplates a judge hearing a motion granting a party leave to call oral evidence. The only restriction in the Rule on a summary judgment motion judge’s use of the power to order oral evidence is that he or she must be satisfied that doing so will assist in determining whether there is a genuine issue for trial.

[38] However, consideration of the Rule does not define the judge’s jurisdiction to hear evidence.

[39] The Superior Court of Justice has all the jurisdiction, power and authority historically exercised by a court of equity. The equitable jurisdiction, power and authority of this Court is sometimes forgotten although its shadow falls from time to time on this Court’s proceedings and Rules. It is for this reason that Rule 2.03 provides that the court may, in the interests of justice, dispense with compliance with any Rule.

[40] Because this is a court of equity, the Rules inform judges; they do not imprison them.

[41] Trusts are creatures of equity. The motion judge had an inherent equitable jurisdiction, power and authority to receive oral evidence on a motion, if he thought hearing evidence would help resolve whether there existed a genuine issue for trial. For reasons that are not clear the motion judge did not include this term in his order. That was a matter for him, but there must be no doubt that he had the jurisdiction to order Mr. Russell’s appearance for cross-examination. Although completely unnecessary for the purpose of establishing the court’s jurisdiction to order Mr. Russell’s appearance, such an order is also contemplated by Rule 39.03(4).

The respondent did put her best foot forward in her own way

[42] The appellant submitted that the respondent failed to put her best foot forward when she appeared before the motion judge.

[43] I do not accept this assertion.

[44] The respondent attempted to prove that she was not able to file written materials because she had Lyme disease. She attended with a letter from her doctor. The letter was hearsay evidence of the factual statements in it. The fact that the respondent suffers from Lyme disease is not contentious. Hearsay evidence can be used to prove uncontentious facts on a motion; See Rule 39.01(4).

[45] The respondent suggested that she was the victim of a fraud perpetrated by her trustee and that this affected the Bank’s position. Ms. Russell contended that the terms of the trust were that her brother was not entitled to use the proceeds from mortgaging her property for his own benefit and that the Bank should have known he was doing just that.

[46] The motion judge wanted to know “whether the bank was an innocent victim of that fraud or should have picked up on its existence in forwarding the monies in question.” The motion judge was prepared to hear evidence on that issue on the motion for summary judgment, presumably in an effort to employ a procedure proportional to the issues at stake in the litigation. This is what Hryniak contemplates.

[47] Ms. Russell took the position before the motion judge that the Bank’s title flowed from the mortgage and the mortgage was fraudulent. She referred the court to Lawrence v. Maple Trust Company, 2007 ONCA 74. Her decision to rely on this case was an appropriate one. Ms. Russell was advancing the proposition that the Bank acquired its mortgage from her brother, who obtained title to her condominium by committing a fraud against her, and as a result the Bank’s claim to a valid mortgage was vulnerable to a contrary claim from her because she was the true owner.

[48] She also suggested to the judge that the Bank had not acted reasonably in advancing funds to her brother. Ms. Russell’s suggestion that the Bank should have known about her condition and should have paid attention to her brother’s use of the money it advanced before providing further sums was reasonably open to her.

[49] The respondent’s condominium is, of course, registered in Land Titles. The Land Titles Act, R.S.O. 1990, c. L.5, does not defeat the common law principle of actual notice: see United Trust v. Dominion Stores, [1977] 2 S.C.R. 915, although regard must be had to the Court of Appeal’s decision in Lawrence, the case referred to the motion judge by the respondent.

[50] The appellant in this court relied upon Randvest Inc. v. 741298 Ontario Ltd. (1996), 30 O.R. (3d) 473 (Gen. Div.), for the proposition that the Land Titles Act has essentially eliminated the common law doctrine of actual notice with respect to the existence of a trust. The Randvest case was a vendor and purchaser’s motion, and reference to the trust in that case was in the transfer. The Randvest decision relied upon section 62(2) of the Land Titles Act for the proposition that a prospective purchaser will not be given notice of a trust by the inclusion of the terms of the trust in a previously registered transfer. Given the very specific wording of s. 62(2) of the Land Titles Act, Randvest is distinguishable from this case, as in this instance notice of the specific terms of the trust was conveyed to the Bank quite apart from documents registered in Land Titles: see Black v. Owen, 2012 ONSC 400 (Div. Ct.) at paras. 19 and 20.

[51] Contrary to the appellant’s submission, Ms. Russell’s opposition to the motion for summary judgment was based on more than her unsworn submissions before the motion judge.

[52] I am satisfied that Ms. Russell, albeit in an unorthodox way, put her best case forward for her claim that the bank was unable to obtain possession of her home because it was relying upon a fraudulent mortgage in circumstances where it knew the actual terms of the trust between her and her brother and it knew or should have known that her brother was using the line of credit contrary to the terms of that trust.

Conclusion

[53] The motion judge did not determine that there was a genuine issue for trial; he simply adjourned the motion seeking additional evidence.

[54] No one has yet suggested that a Superior Court Judge has no jurisdiction to adjourn a motion: see, for example, Dempster v. Mutual Life of Canada (2001), 55 O.R. (3d) 409 (Div. Ct.), at para. 10.

[55] Hryniak directs summary judgment motion judges to use their jurisdiction, power and authority to resolve disputes in a manner proportional to what is at stake in the litigation. That is what the motion judge did.

[56] The motion judge had jurisdiction to declare each term of the order under appeal.

[57] Accordingly, this appeal is dismissed.

[58] The appellant will reimburse Ms. Russell for out-of-pocket expenses including any out-of-pocket expenses incurred by the firm of Koskie Minsky, who represented Ms. Russell on a pro bono basis on this appeal. In order to avoid any confusion, the respondent’s personal out-of-pocket expenses comprise of:

• a round-trip bus ticket to Ottawa,

• courier costs and filing fees,

• long distance charges,

• photocopy charges and

• legal research charges from LEXIS-NEXIS Canada Inc.,

which totaled $966.81 including HST, as set out in Schedule B of the Koskie Minsky Costs Submissions dated February 2, 2016.

[59] The respondent’s expenses set out in Koskie Minsky’s Schedule C of the same date are allowed in part as follows:

• the respondent’s transportation to and from the courthouse, lawyers’ offices and Staples to have documents scanned, in the amount of $300,

• scanning costs in the amount of $240,

• transcript costs in the amount of $250,

• a legal consultation fee to assess the trust agreement in the amount of $312.84.

[60] The respondent’s claim for medical costs and for legal fees paid to a lawyer dismissed because the respondent thought the lawyer was not performing are denied.

[61] The respondent’s out-of-pocket expenses incurred in connection with the application for leave to appeal will also be paid by the appellant.

[62] Costs associated with the motion for summary judgment itself are in the discretion of the motion judge.

[63] I do not wish to leave this matter without commenting on three matters.

[64] First, we would like to commend the appellant for instructing counsel to advise the court that, if the appellant was successful in obtaining summary judgment, it would not enforce the order before the end of May, so that the respondent would not be forced out of her home in the winter.

[65] Second the court wishes to formally express its thanks to Koskie Minsky LLP for permitting counsel from that firm to appear here on a pro bono basis on behalf of the respondent. The fact that the respondent was represented made it much easier for the court to appreciate the issues presented by this appeal.

[66] Third, on October 24, 2014, the motion judge adjourned the appellant’s motion to April 13, 2015. The appellant then applied for leave to appeal the adjournment order. Leave to appeal was granted on March 13, 2015. Immediately upon leave being granted, the April 13, 2015 return date was vacated. The motion for summary judgment has, of course, yet to resume. Appeals of interlocutory rulings on summary judgment motions can have the effect of impeding rather than facilitating access to justice contrary to the spirit of Hryniak. The delay inevitably resulting from such appeals makes the decision to launch and permit an appeal of an interlocutory ruling difficult from the perspective of both the litigants and the Court.

MARROCCO A.C.J.S.C.

MULLIGAN J.

ELLIES J.

Released: 20160321