COURT FILE NO.: CV-11-425241

DATE: 20141001

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: CANADA MORTGAGE and HOUSING CORPORATION

Plaintiff

AND:

IRINA PASTOUKHOVA and YOUR COMMUNITY REALTY INC., c.o.b. as ROYAL LEPAGE – YOUR COMMUNITY REALTY

Defendants

BEFORE: THEN J.

COUNSEL: Christopher Stanek and Jeffrey S. Klein for the Plaintiff Barry Stork for the Defendant Your Community Realty Inc., c.o.b. as Royal LePage Your Community Realty Allan D. Powell for the Defendant Irina Pastoukhova

HEARD: MAY 27, 2014

ENDORSEMENT

[1] Royal Lepage, defendant in the action and the moving party, seeks leave to appeal to the Divisional Court from the order of Stewart J. dated April 1, 2014, dismissing the defendants’ motion for summary judgment.

[2] The basis for that motion was that the plaintiff’s claims in paragraphs 1(a), 1(b), 1(c) and 1(d) of the Fresh as Amended Statement of Claim, wherein the defendant Irina Pastoukhova was added as a party, are barred by the Statute of Limitations because the cause of action against Irina Pastoukhova arose more than two years prior to the institution of the action.

[3] To meet the criteria for obtaining leave under Rule 62.02(4)(b) the moving party must show that there is good reason to doubt the correctness of the motion judge’s order in the sense that the order is open to serious debate and that the matter raises issues of general importance that transcend the specific interests of the parties.

[4] The moving party’s general position is that the motion judge erred in failing to utilize her fact-finding powers in respect of a Rule 20 motion for summary judgment in accordance with the guidance provided by the Supreme Court in Hryniak v. Mauldin, 2014 SCC 7, 2014 S.C.C. 7, that she failed properly to consider the evidence before the Court, that she erred in applying the discoverability principle by not requiring the plaintiff to put its best foot forward on a summary judgment motion and finally that the reasons for judgment are insufficient.

[5] The respondent submits that none of the issues raise concerns that are open to serious debate and that further that some of the issues raised are fact specific which do not transcend the interests of the parties.

[6] I agree with the position of the respondent and would dismiss the application for leave for reasons that follow.

background

[7] The factual background to this application is accurately summarized in the reasons of Stewart J. in paragraphs 6 to 22 as follows:

[6] Pastoukhova is a salesperson with Royal LePage. The liability of Royal LePage is claimed to arise as a result of its vicarious liability for Pastoukhova’s conduct.

[7] The claims sought to be dismissed arise from mortgage loans made by several different lending institutions secured by the properties described, each of which was listed by Pastoukhova. CMHC insured the mortgage loans in the event of default. Pursuant to s. 10(2) of the Nation Housing Act, R.S.C. 1985, c. N-11, CMHC is subrogated, to the extent of the amount of the payment made, to all the rights and interests of the mortgagee and may maintain an action in its own name respecting those rights and interests.

[8] The mortgages on these properties went into default and judgments on the mortgages were obtained. CMHC then made payments in regard thereto to the lending institutions for each.

[9] At the time of obtaining each judgment, the lending institutions suspected that each of the mortgagors had committed a fraud upon them. Each of the lending institutions pursued the suspected fraudsters at that time the fraud was suspected to the extent that the fraudsters could be identified.

[10] CMHC paid each claim when it was made and each was separately recorded as one of many possible mortgage frauds.

[11] CMHC has commenced this action in its own name and seeks recovery of the amounts paid by it.

[12] CMHC alleges in this action that Pastoukhova listed the properties for which the mortgages were advanced for an amount significantly in excess of their actual value at the time. CMHC also claims that the lending institutions which advanced funds necessary to purchase the properties relied on this inaccurate information when advancing the mortgage funds.

[13] Royal LePage takes the position that both the lending institutions and CMHC had sufficient information to determine that a cause of action existed as against them more than two years prior to the issuance of the Statement of Claim in April, 2011.

[14] On January 24, 2011, the Real Estate Council of Ontario (“ RECO”) published a decision finding that Pastoukhova had allowed false, misleading and/or deceptive listings to be published. The decision contained detailed facts about Pastoukhova’s acts and omissions concerning three different transactions, one of which was the subject of a mortgage insurance application in CMHC’s records. Until this decision was published, CMHC and the lending institutions whose claims it paid assert that they were completely unaware of the facts contained in the decision.

[15] After reading the decision in 2011, CMHC says that it checked its records for all files in which Pastoukhova’s name appeared. Five suspected mortgage frauds were discovered and linked for the first time. CMHC then commenced this action against Pastoukhova and Royal LePage for damages as a result of alleged negligent misrepresentation.

[16] CMHC claims in this action that Pastoukhova negligently allowed five suspected mortgage frauds to take place by failing to meet the standard of care of her profession. It does not claim fraud against her.

[17] At the time that CMHC paid out the claims made by the lending institutions for deficiencies with respect to these mortgages, each lending institution had advised CMHC that fraud was suspected. The lending institutions had expended considerable resources in trying to locate each of the individuals who perpetrated these suspected mortgage frauds to no avail. Pastoukhova’s name did not arise as a person of interest or possible complicit fraudster in any of these cases.

[18] Prior to the RECO decision in 2011, CMHC says that it knew only that Pastoukhova was responsible for listing five apparently unrelated properties which were among the very significant number of claims that CMHC paid out in 2007, 2008 and 2009. CMHC therefore says that it did not know, and could not have known, that it had a possible claim in negligence as against the Defendant in 2007, 2008 or 2009 with respect to these different properties.

[19] Discoveries have not yet been held in this action. The affidavit in support of the motions was sworn by a lawyer for Royal LePage. A responding affidavit from an individual at CMHC was filed. Two additional lawyers were examined as witnesses on the motion.

[20] On this motion, the Defendants claim that the financial institutions which advanced the mortgage funds knew or ought to have known in 2007 and 2008 that they had a claim in negligence against Pastoukhova.

[21] CMHC submits that a trial will be required to answer that question. If it is determined that the lending institutions and CMHC had no actual knowledge of their claims, the principle of discoverability will apply in this case to determine whether any of the lending institutions (or all of them) and/or CMHC ought to have known their cause of action existed.

[22] CMHC therefore argues that it should be allowed to proceed to obtain such evidence relevant to the issues of negligence and discoverability on examinations for discovery, and that the proper determination of these issues requires a trial.

the reasons of the motion judge

[8] The brief reasons for dismissing the motion for summary judgment are the following:

[23] In my opinion, CMHC has raised a genuine issue for trial in response to the Defendants’ limitation period defence that requires a trial to determine.

[24] In my view, discoverability in these circumstances is an issue of fact that cannot be determined on a paper record of this nature. A trial is required to hear the evidence and dispose of this and the other issues raised. Assuming that the credibility issues of whether or not actual knowledge of any claims existed is resolved in favour of CMHC, the proper determination of the discoverability issue will involve in all likelihood a thorough canvassing of the mortgage approval practices of the lending institutions and CMHC and an assessment of the adequacy thereof. I consider that an exercise of this nature requires a trial.

[25] I note that the fifth property involved in this action is not affected by this limitation period defence and the determination of liability in connection therewith will be the subject of a trial in any event.

[9] The defendants seek leave to appeal on the basis of Rule 62.02(4)(b) which requires that:

(4) Leave to appeal shall not be granted unless,

a) …

b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.

issue 1 – summary judgment

[10] The moving party submits that the motions judge erred in not utilizing the fact finding powers available on summary judgment in accordance with Hryniak, supra, rather than finding that a trial was necessary and also in considering that the motion for summary judgment was only brought with respect to four of the five claims as a reason for ordering a trial for all five claims.

[11] I do not accept this submission. While the power to order an abbreviated trial as discussed in Hryniak may have assisted the motions judge to obtain the information she lacked in order to properly determine the issue of discoverability, I am not prepared to grant leave on this basis in the circumstances of this case.

[12] First, the decision in Hryniak was released while the motion was reserved. The parties were invited by the motions judge to make further submissions in light of the decision in Hryniak. However no responses or additional submissions had been received. This is not a case where the motions judge refused to utilize her powers on summary judgment when requested to do so, but rather, gave cogent reasons why a trial was necessary. Moreover, while it is true that the motions judge referred specifically to the fact that a trial would be necessary with respect to one of the claims in any event, that reason was deemed to be an acceptable reason in the interest of justice to order a trial for other similar claims in Hryniak, supra, at paragraph 60.

[13] Secondly, the approach taken by the motions judge toward discoverability issues post Hryniak, supra, conforms with the approach taken by the judges of this court faced with similar issues. (Reference may be made to: Leda Furniture Ltd. v. Akso Nobel Wood Coatings Ltd. (2014), ONSC 4312; at paras. 33, 42; Huang v. Mai (2014), ONSC 1156, at para. 34; Gluckowski v. Lister (2014), ONSC 2190 at paras. 8 and 17; Andin Engineering Ltd. v. Steam-Eng. (2014), ONSC 2499 at para. 26; Toronto (City) v. Maple-Crete Inc. 2014 ONSC 2371; Lalonde-Paquette v. Freedman, 2014 ONSC 1678 at paras. 26, 32).

[14] I would not grant leave on the basis that the motions judge erred in not applying her fact finding powers under Rule 20 in accordance with Hryniak, supra, in the circumstances of this case.

(2) Evidence before the court

[15] The essential submission of the moving party is that the motions judge did not explain in terms why the documents in possession of the plaintiff did not lead her to conclude that both the lending institution and CMHC possessed sufficient facts that they knew of the existence of the cause of action or ought to have known of the cause of action.

[16] On the evidence adduced before her the motions judge found in para. 5 of her judgment that after reading the RECO decision which disciplined Pastoukhova for negligence CHMC checked all files in which Pastoukhova’s name appeared and that five suspected mortgage frauds were discovered and linked for the first time.

[17] The motions judge found in paragraphs 17-18 of her decision that prior to the RECO decision, fraud with respect to the five mortgages was suspected and indeed the lending institution conducted an investigation which did not identify Pastoukhova as a fraudster. CHMC relied upon this investigation. While there was documentary evidence that Pastoukhova was the listing agent and that the properties had been overvalued, there was also evidence that overvaluation by itself is not determinative of either fraud or negligence.

[18] In these circumstances while no specific reference was made by the motions judge as to why the documents were not sufficient to trigger the limitation period, I accept the respondents’ submission that her judgment illustrates that she was alive to the issues and submissions pertaining to discoverability and that in the circumstances it is far from clear that this issue of fact could be determined on the paper record. In my view, there is in the circumstances of this case no reason to doubt that there was a genuine issue for trial. Furthermore, as the factual outline illustrates, it is also clear that this is a very fact specific case in which the plaintiffs’ credibility is in issue.

[19] In my view, some deference must be given to the motions judge in articulating her conclusions and the reasons for them and, accordingly, I concur with the observation of Wilton-Siegel J. in Benson v. Bird where at para. 14 he states:

The Court must also give some deference to the motions judge in respect of his conclusion that he did not believe that he had a full appreciation of this issue, among others, based on the record before him.

(See also Efimovski v. Faris (2014), ONSC 2476 at para. 50; Lalonde-Paquette v. Freedman 2014 ONSC 1678 at para. 15).

(3) discoverability

[20] The moving party submits that the motions judge erred in applying the discoverability principle in a way that allowed the plaintiff to be able to gather further evidence thereby essentially reversing the onus on the plaintiff to put its best foot forward on a summary judgment motion.

[21] It would appear that this submission arises from paragraph 22 of the judgment of the motions judge where she stated:

[22] CMHC therefore argues that it should be allowed to proceed to obtain such evidence relevant to the issues of negligence and discoverability on examinations for discovery, and that the proper determination of these issues requires a trial.

[22] In my view, it is evident that the motions judge is merely recording the submission of CMHC. More importantly, there is nothing in her judgment that she accepted this submission. To the contrary, in the following paragraphs 22-23, the motions judge clearly states that she is ordering a trial because there are genuine issues of credibility and that a proper determination of discoverability will involve a thorough canvassing of the adequacy of the mortgage approval practices of the lending institutions and of CMAC. Of course, once it is determined that a trial is appropriate both parties are entitled to discovery.

[23] I can discern no issue for serious debate with respect to this ground.

(d) Insufficiency of Reasons

[24] The moving party submits that the reasons of the motions judge are insufficient to enable the parties to know whether the evidence was properly considered.

[25] This ground of appeal in effect reiterates the ground advanced in ground 2 above and I would not grant leave on this ground for the same reasons.

[26] In its factum the respondent refers to the decision of the Supreme Court in R. v. R.E.M., 2008 SCC 51, [2008] 3 S.C.R. 3 where at para. 25 the authorities with respect to the sufficiency of reasons are summarized as follows:

(1) Appellate courts are to take a functional, substantive approach to sufficiency of reasons, reading them as a whole, in the context of the evidence, the arguments and the trial, with an appreciation of the purposes or functions for which they are delivered [references omitted].

(2) The basis for the trial judge’s verdict must be “intelligible”, or capable of being made out. In other words, a logical connection between the verdict and the basis for the verdict must be apparent. A detailed description of the judge’s process in arriving at the verdict is unnecessary.

(3) In determining whether the logical connection between the verdict and the basis for the verdict is established, one looks to the evidence, the submissions of counsel and the history of the trial to determine the “live” issues as they emerged during the trial.

[27] In my view, it is clear from the reasons of the motion judge and an examination of the record as a whole the she appreciated the legal issue which she was required to decide, the essential facts pertinent to that issue, and the submissions of counsel. While it may have been preferable for her to have given a more fulsome explanation for her conclusion that the documents in the possession of the plaintiff were insufficient to found a cause of action against Pastoukhova prior to the obtaining of the RECO decision by the plaintiff, it is nevertheless clear to the defendant that she did not accept the documents as determinative. In my view the reasons of the motions judge do not inhibit the moving party in advancing its grounds of appeal nor does the insufficiency of reasons constitute a free standing ground of appeal in the circumstances of this case.

[28] For these reasons the application for leave to appeal is dismissed.

[29] If the parties cannot agree as to the issue of costs brief written submissions may be made to the court through the Divisional Court Office within 21 days of the release of this decision.

THEN J.

RELEASED: October 1, 2014