ONTARIO SUPERIOR COURT OF JUSTICE

oshawa COURT FILE NO.: 59624/09

DATE: 2012-05-01

BETWEEN :

BERNIECE VERBRUGGE, SUNLITE DEVELOPMENTS LTD., and FILTERCO HOLDINGS LIMITED

Plaintiffs

— and —

JOHN BERNARD OVERZET, JOANNE OVERZET, JACEK THOMAS WROBEL (also known as “JACK WROBEL”), SIDNEY LUBELSKY, BROWN PECK & LUBELSKY, CIBC MORTGAGES INC., trading as “FIRSTLINE”, STEEPLE HILL ON THE LAKE INC., BROAD STONE MANAGEMENT INC., J.B.O. ENTERPRISES INC., and THE CANADA TRUST COMPANY, TRUSTEE FOR SELF-DIRECTED RETIREMENT SAVINGS PLAN NO. 566482S

Defendants

COUNSEL:

Paul D. Mack for the Plaintiffs

David M. Golden for the Defendant CIBC Mortgages Inc., trading as “Firstline”

HEARD: March 16, 2011, followed by final written submissions received January 31, 2012

Salmers J.

ENDORSEMENT

Introduction

[ 1 ] This is a summary judgment motion brought under Rule 20. In this motion, the defendant CIBC Mortgages Inc. (CIBC) asked the court to dismiss the action as against CIBC.

[ 2 ] In this action, the plaintiffs have alleged a complex fraudulent scheme on the part of some or all of the defendants. I will now set out the background facts that are relevant to the plaintiffs’ claims against CIBC.

[ 3 ] In 2003, the plaintiffs, as part of a group of investors, were granted a charge (the Investors Charge) against certain lands that were owned by Broad Stone Management Inc. A partial discharge of the Investors’ Charge was authorized and eventually registered on February 2, 2006. The discharged lands included what will hereafter be referred to as “the Lot.” The Lot was transferred to John Bernard Overzet who then transferred it to the defendant Joanne Overzet on October 4, 2007. On October 9, 2007, Ms. Overzet granted a charge to CIBC (the Overzet-CIBC charge).

[ 4 ] The plaintiffs allege that Broad Stone Management Inc. remains the true owner of the Lot. The plaintiffs allege that the partial discharge was granted due to fraud and, therefore, is void. The plaintiffs also allege that each of the transfer to John Bernard Overzet, the subsequent transfer to Joanne Overzet, and the Overzet-CIBC charge are fraudulent and void.

[ 5 ] In this action, the only relief sought against CIBC is a declaration that the Overzet-CIBC charge is void as against Broad Stone. As stated above, in this summary judgment motion, the defendant CIBC asked the court to dismiss the action as against CIBC.

The Moving Party’s Position

[ 6 ] CIBC argued that it was entitled to rely on the accuracy of the Land Titles parcel register that showed Ms Overzet as the owner of the Lot. Further, CIBC argued that neither it nor its lawyers had knowledge of any fraud concerning the Lot or the Overzet-CIBC charge. Accordingly, CIBC argued that there was no genuine issue requiring a trial and that the action should be dismissed as against CIBC.

The Respondents’ Position

[ 7 ] The respondent/plaintiffs allege that the Overzet-CIBC charge was given as part of a fraudulent scheme. The defendant Lubelsky was the solicitor who represented all parties on the partial discharge and the Overzet-CIBC charge. The respondent/plaintiffs allege that Lubelsky knew that the partial discharge was fraudulent. The respondent/plaintiffs argue that because CIBC’s lawyers had knowledge of the fraud, CIBC also had knowledge of the fraud. Accordingly, it is argued that the Overzet-CIBC mortgage is void as against the true owner of the Lot.

[ 8 ] The respondent/plaintiffs’ alternative position is based on their argument that because Ms. Overzet was not the registered owner of the Lot when she first applied to CIBC for a charge, CIBC should have taken steps to assure itself that no fraud was being perpetrated. CIBC failed to take any steps and, accordingly, the fraudulent Overzet-CIBC charge is void as against Broad Stone, the true owner of the Lot.

[ 9 ] The respondent/plaintiffs argued this summary judgment motion should be dismissed because a trial is required to make dispositive findings about the knowledge of the fraud that was possessed by the defendants Joanne Overzet, Sidney Lubelsky, and his law firm, Brown, Peck, and Lubelsky.

The Applicable Law

[ 10 ] The law with respect to summary judgment motions was clarified by the Ontario Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch [1] . Paragraphs 50 – 55 of that decision explain the “full appreciation test” that a motion judge must use when deciding if summary judgment can be granted or if a trial is required. As stated in paragraph 50, “… the motion judge must ask the following question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?”

[ 11 ] As with any motion for summary judgment, the onus is on CIBC as the moving party to establish that there is no genuine issue requiring a trial. Additionally, as confirmed in Combined Air , each side must put its best foot forward with respect to the existence or non-existence of material issues to be tried. On a motion for summary judgment, a party is not entitled to sit back and rely on the possibility that more favourable facts may develop at trial. [2]

Analysis

[ 12 ] Concerning CIBC, the basis of the plaintiffs’ claim is that the 2006 partial discharge was fraudulent. Essentially, the plaintiffs allege that the combination of the partial discharge and the subsequent Overzet-CIBC charge have caused damage to the plaintiffs. From the pleadings and the evidence before me, I find that the plaintiffs’ basis for the allegation of fraud is that the plaintiffs expected that the Lot would always be secured by the Investors’ Charge; therefore, the partial discharge, subsequent transfer to Ms. Overzet, and the Overzet-CIBC charge are fraudulent. To analyze this position and whether a trial is required, a further overview of the chronology of events is helpful.

[ 13 ] The Investors’ Charge (in which the plaintiffs had an interest) was granted and registered on October 31, 2003. The charged lands included the Lot.

[ 14 ] On February 14, 2005, the Land Division Committee of the Regional Municipality of Durham consented to the severance of the Lot from the lands charged in the Investors’ Charge.

[ 15 ] On September 26, 2005, each of the chargees (including the plaintiffs) in the Investors’ Charge signed an acknowledgment and direction (the Acknowledgment). The Acknowledgment directed the defendants Lubelsky and his firm to register a partial discharge of the Investors’ Charge. The Lot was included in the lands to be discharged. The partial discharge that had been acknowledged and directed was registered on February 2, 2006.

[ 16 ] The Overzet-CIBC charge was registered on October 9, 2007.

[ 17 ] In paragraphs 60(d) and 61 of the Amended Amended Statement of Claim, the plaintiffs allege that, prior to signing the Acknowledgment:

• the Acknowledgment was delivered to them without any explanation;

• no statements were made to them that the Acknowledgment was detrimental to the plaintiffs’ interest in the Investors’ Charge;

• the nature, purpose, and effect of the Acknowledgment was not explained to them; and

• they executed the Acknowledgment without explanation and without understanding it because they trusted the defendants Overzet and Lubelsky and his firm and thus they believed that the Acknowledgment was not detrimental to their interest in the Investors’ Charge. (The emphasis is mine.)

[ 18 ] Apart from the pleadings, there was no other evidence that any person explained the Acknowledgment to the plaintiffs or that the plaintiffs made any effort to have the Acknowledgment explained to them so that they understood the nature, purpose, and effect of the Acknowledgment. The plaintiffs signed the Acknowledgment on September 26, 2005. The partial discharge was not registered until February 2, 2006. The Overzet-CIBC charge was not registered until October 9, 2007 - over two years after the plaintiffs signed the Acknowledgment.

[ 19 ] Further, the pleadings and evidence before me on this motion baldly state that CIBC is deemed to have knowledge of a fraud primarily because CIBC’s solicitors, the defendants Lubelsky and his firm, had knowledge that the 2006 partial discharge and subsequent transfers of the Lot were fraudulent. This allegation of knowledge of the defendants Lubelsky and his firm is based only on the fact that Mr. Lubelsky was the longtime solicitor for the defendant, John Bernard Overzet. There was no other evidence that Mr. Lubelsky and/or his firm had actual knowledge of a fraud or that they were willfully blind or should have had knowledge of any fraud.

[ 20 ] Additionally, there was no evidence that Joanne Overzet; 1) had actual knowledge of fraud; 2) conveyed any knowledge of fraud to the defendants Lubelsky or his firm; or 3) gave the defendants Lubelsky or his firm any reason to believe that a fraud was being perpetrated.

[ 21 ] Finally, no authority was presented to me that a solicitor is deemed to have notice of a client’s fraud.

[ 22 ] The plaintiffs also alleged that CIBC had knowledge of a fraud because Joanne Overzet did not own the Lot when she first applied for a CIBC charge on July 12, 2007. Accordingly, the plaintiffs allege that CIBC should have made further inquiries to satisfy itself that a fraud was not being perpetrated. However, on that date, title to the Lot was in the name of John Bernard Overzet, Joanne Overzet’s husband, and he had been the registered owner since February 2, 2006 – i.e. for almost one and one-half years. The mere transfer of property from husband to wife is not sufficient to raise suspicions of fraud. Also, there was no authority presented to me or further evidence that such a situation should have caused the bank to make further inquiries to assure itself that fraud was not being perpetrated. Further, there was no evidence that if the bank had made such inquiries, a fraud would have been discovered.

[ 23 ] On the evidence before me, a trial is not required to fully appreciate the evidence and issues that are required to make dispositive findings on: 1) the issue of the CIBC’s knowledge of fraud; and 2) whether CIBC should have taken additional steps to look into the possibility of fraud because Joanne Overzet applied for a charge prior to obtaining ownership of the Lot. Those findings can be made based on the record before me and based on that record I find that: 1) CIBC had no actual, deemed, or constructive knowledge of fraud; and 2) CIBC was not obligated to take additional steps to look into the possibility of fraud simply because Joanne Overzet applied for a charge prior to obtaining ownership of the Lot.

[ 24 ] Also, on the facts of this case, prior to sustaining any damages, the plaintiffs had ample opportunity to obtain an explanation and understanding of the nature, purpose, and effect of the Acknowledgment. The plaintiffs’ carelessness and their failure to obtain an explanation and understanding has contributed to the plaintiffs’ damages, if any, and to possible eventual damages being sustained by CIBC in the event that the Overzet-CIBC charge were to be declared void as sought by the plaintiffs. In this case, where the plaintiffs allege that nobody talked to them about the nature, effect, and purpose of the Acknowledgment, it is no justification for the plaintiffs to state that they did not obtain an explanation and understanding because the plaintiffs trusted others and did not believe that the Acknowledgment would be detrimental to the plaintiffs’ interest in the Investors’ Charge.

[ 25 ] To put their position at its best, the plaintiffs received and signed an unexpected document (the Acknowledgment). The plaintiffs signed that document without taking reasonable care to ascertain the nature, purpose, and effect of the document. The plaintiffs’ carelessness is compounded by the fact that for over two years after they signed the Acknowledgment, they had the opportunity to ascertain the nature, purpose, and effect of the document. If they had taken advantage of that opportunity and believed that there was fraud, the plaintiffs had over two years prior to registration of the Overzet-CIBC charge to register notice of the plaintiffs’ claim or interest on the Land Titles parcel register for the Lot. If the plaintiffs had done so, CIBC would have had notice of the plaintiffs’ claim that, if valid, would have priority over any subsequently registered instrument, including a subsequently registered Overzet-CIBC charge. Accordingly, timely registration of notice of the plaintiffs’ claim or interest would have protected the plaintiffs from all damages allegedly arising from the registration of the Overzet-CIBC charge.

[ 26 ] The plaintiffs’ reasonable care would have prevented all damages now alleged to have been sustained due to the registration of the allegedly fraudulent Overzet-CIBC charge. To allow the plaintiffs to now disown the Acknowledgment and declare the Overzet-CIBC charge to be void would create damages for CIBC. For the reasons stated earlier, the moving party has satisfied me that CIBC cannot be found or deemed to have knowledge of any fraud or that CIBC was obligated to take additional steps to inquire into the possibility of fraud. Accordingly, CIBC is an innocent party. The principle of non est factum is not applicable and cannot be relied upon by the plaintiffs to impose a loss on an innocent party, (in this case, CIBC), when that loss could have been avoided if the plaintiffs had exercised reasonable care in ascertaining the nature, purpose, and effect of signing the Acknowledgment and/or registered notice of their claim or interest in the Lot [3] . As stated earlier, over two years passed between the plaintiffs signing the Acknowledgement and the registration of the Overzet-CIBC charge – more than enough time for the plaintiffs to exercise reasonable care that would have protected any claim or interest that they may have possessed. These findings can be made on the record before me. No trial is required to make the necessary dispositive findings. CIBC should not suffer damages when reasonable care by the plaintiffs would have prevented all damages to the plaintiffs.

[ 27 ] For all of these reasons, the moving party has satisfied me that there is no genuine issue for trial.

[ 28 ] Accordingly, the motion is granted and the action is dismissed as against CIBC.

[ 29 ] If the parties cannot agree on costs, then, through the trial coordinator in Oshawa, they are to set a date for oral costs submissions.

The Honourable Mr. Justice Salmers

DATE RELEASED: May 1, 2012

[1] 2011 ONCA 764

[2] Supra , paragraph 56

[3] Marvco Color Research Ltd. v. Harris , 1982 SCC 63 , [1982] 2 S.C.R. 774