CITATION: 1168760 Ontario Inc. c/o R&R Realty, Peter Clark & J.G. Rivard Limited v. 67006037 Canada Inc. & Denis Bertrand, 2017 ONSC 5149
COURT FILE NO.: 09-44583
DATE: 2017/09/05
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1168760 Ontario Inc. c/o R&R Realty, Peter Clark & J.G. Rivard Limited
Plaintiff (moving party)
– and –
67006037 Canada Inc. & Denis Bertrand
Defendant (responding party)
– and –
The Attorney General for Ontario
Defendant (responding party)
Eric R. Williams and Jeremy R. Rubenstein, for the Plaintiffs
David Debenham, for the Defendant Denis Bertrand
Edward H. Masters, for the Defendant 67003037 Canada Inc.
Judy Im and Peter Spiro for the Defendant the Attorney General for Ontario
HEARD: December 5-9,12-14, 2016, June 8 and 9, 2017
REASONS FOR Decision
R. Smith J.
[1] The Defendant, Denis Bertrand (“Bertrand”) held title “in trust” to approximately 55 acres of land in the village of Cumberland since 1995. The beneficial owners of the land were himself for a 27.03% interest and the Plaintiffs, Peter Clark and R&R Realty, who each had a 36.48% interest in the property.
[2] In 2005, Bertrand sold the whole property to 67006037 Canada Inc. (“670”) owned by Mathieu Joncas, (collectively referred to as “Joncas”) for the sum of $100,000.00 without notice or the consent of the other two beneficial owners. Bertrand took the whole proceeds for himself and did not divide the proceeds in proportion to the beneficial ownership.
[3] Significantly, at the time of the sale, Bertrand had two executions registered against him; one for $329,487.00 plus costs and interest from November 2013 in favour of the National Bank and another for approximately $37,502.00 plus interest from February of 2001 in favour of Caisse Populaire Orleans. Bertrand was able to complete the sale by signing a false affidavit, which was relied on by the Director of Land Titles and Joncas, stating that he was not one and the same person as the Denis Bertrand that was subject to the executions.
[4] The Plaintiffs seek:
(a) a declaration that they are the beneficial owners of a combined 72.97% of the property; and
(b) an order vesting title to the land in accordance with their beneficial interests, with 72.97% to the Plaintiffs and 27.03% to 670.
[5] The Plaintiffs submit that Bertrand held the property in trust as a “bare trustee” on behalf of the beneficial owners; that Bertrand was a fraudulent person because he forged or falsified an affidavit stating that he was not one and the same person as the “Denis Bertrand” who had two executions registered against him totalling over $350,000.00 when he knew this was a false statement which was required to complete the sale; that the purchaser had notice that Bertrand held the title in trust from a source other than the Land Titles Registry, that Joncas was not a bona fide purchaser without notice; and that Joncas now holds title to the property on a constructive trust for the Plaintiffs to the extent of their beneficial interests.
[6] Joncas argues that he was a bona fide purchaser without notice; that he was not required to ensure that Bertrand had authority to sell as a trustee and relies on s. 62(2) of the Land Titles Act, R.S.O. 1990, c. L.5; (the “Act”); that Bertrand was not a fraudulent person as defined in the Act because he did not forge the affidavit stating that he was not the Denis Bertrand with the executions against him, and was not a fictitious person, rather he just signed a false affidavit in order to complete the sale and therefore submits that the title should not be rectified.
[7] The Director of Titles argues that the fact that Bertrand held the property in trust is irrelevant, and that Bertrand was not a fraudulent person as defined under the Act because he did not forge the affidavit falsely stating that he was not the Denis Bertrand subject to executions, and he was also not a fictitious person. As a result, the Director submits that there is no basis on which to rectify the title.
[8] Bertrand submits that his signing of the affidavit falsely stating that he was not the same person as the Denis Bertrand who was subject to two executions is irrelevant; that he was not a “bare trustee”, but a full trustee with authority to sell the property without the consent of the beneficial owners; and that the trust was a conceptually distinct entity from himself, such that he was able to sell the property as a trustee free of any personal judgments against him; and that if he breached the terms of the trust, so did Joncas.
Issues
[9] The following issues must be decided:
Can an individual holding title to property in trust, on behalf of himself and others as beneficial owners, sell the property free and clear of any executions registered against him personally?
Did Bertrand hold the property as a “bare trustee”?
Was Bertrand a fraudulent person as defined in the Land Titles Act as a result of signing a false affidavit, stating he was not the same person as the Denis Bertrand subject to execution creditors?
Did Joncas have knowledge of sufficient circumstances to have put a reasonable person on inquiry?
Is the property held on a constructive trust on behalf of the beneficial owners?
Background Facts Which Are Largely Undisputed
[10] The Plaintiff, 1168760 Ontario Inc. o/a R & R Realty, was at all material times the beneficial owner of a 31.76% interest in the real property (hereinafter referred to as the “Property”).
[11] The Plaintiff, J.G. Rivard Limited, is a corporation incorporated pursuant to the laws of Canada and was at all times the beneficial owner of 4.73% interest in the Property. J.G. Rivard Limited and 1168760 Ontario Inc. are collectively referred to as “R & R Realty.”
[12] The Plaintiff, Peter Clark, is an individual who, at all material times, was a beneficial owner of a 36.48% interest in the Property.
[13] The Defendant, 6706037 Canada Inc. (“670”), is a corporation incorporated pursuant to the laws of Canada on January 21, 2007. The principal and sole shareholder of 670 is Mathieu Joncas, a barrister and solicitor of the City of Gatineau, practicing in the City of Ottawa.
[14] The Defendant, Denis Bertrand (“Bertrand”), is an individual resident in the Province of Ontario, who at the material time, had a 27.03% interest in the Property. At all material times, Bertrand held legal title to the Property in the name of “Denis Bertrand in trust”, pursuant to a Declaration of Trust dated October 20, 1995.
[15] On or about October 7, 2005, the Plaintiffs requisitioned an appraisal of the Property from Donald Raymond of Usher Capordelis Seguin & Associates Ltd. He estimated the market value of the Property at $300,000.00 as of that date. Bertrand sold the property for $100,000.00, 1/3 of this amount approximately 18 months later.
[16] On or about November 30, 2006, Deloitte & Touche, who held a 18.91% beneficial interest in the Property on behalf of Royal Bank of Canada, sold the 18.91% beneficial interest in the Property to each of the Plaintiffs as follows:
• R & R Realty 4.73% beneficial interest
• Peter Clark 9.45% beneficial interest
• J.D. Rivard Limited 4.73% beneficial interest
[17] On or about March 30, 2007, Bertrand conveyed a fee simple interest in the Property to 670, for the sum of $100,000.00.
[18] Bertrand had two (2) writs of execution registered against his when he sold the property in which he held a beneficial interest of 27.03%. To complete the sale, Bertrand signed a false affidavit stating that he was not one and the same person as the Denis Bertrand named in the executions. This false statement was included on the transfer of land from Bertrand to 670.
[19] Bertrand never advised the other beneficial owners of the sale of the property, took all of the proceeds from the sale himself, and did not share them with the other beneficial owners.
Analysis
Issue #1
Can an individual holding title to property in trust on behalf of himself and others as beneficial owners, sell the property free and clear of any executions registered against him personally?
[20] Bertrand submits that Denis Bertrand, as trustee, was a different person from Denis Bertrand personally. Therefore, as a trustee, he could sell the property, including his beneficial interest, free of any executions registered against him personally.
[21] The Plaintiffs submit that while a trust is conceptually a distinct entity, it is not a separate person. Where the trustee is also the owner of a beneficial interest in the property, a writ of execution binds the lands in which the trustee has a beneficial interest.
[22] Section 10(6) of the Execution Act, R.S.O. 1990, c. E.24 states that:
(6) …, a writ of execution… binds the lands against which it is issued from the effective date of the writ.
[23] In the text Osterhoff on Trusts, Commentary and Materials, 7th ed. (Toronto: Thomson Carswell 2009), Chapter 1 at p. 19, the author states as follows:
The trust is, therefore, a relationship involving obligations owed by the person who holds the trust property. The trust, as such, is not an entity. The trust does not hold property; property is held in trust by the trustee.
[24] The fact that the property was registered in the name of “Denis Bertrand in Trust” does not create a person different from Denis Bertrand personally. Denis Bertrand as trustee, and Denis Bertrand who held a 27.03% beneficial interest in the property, are the same person.
[25] In the decision of Kimmiale v. Anderson, 1929 CanLII 367 (ON CA), 63 O.L.R. 428 [1929] 2 D.L.R. 904 (Ont. C.A.), the Court of Appeal held that a trust estate could not be sold under an execution registered against a trustee for his personal debt. A writ of execution against a trustee does not bind the estate, if the trustee has no beneficial interest in the property. This is not the situation before me because Bertrand was both the trustee and a person who held a beneficial interest in the property.
[26] In Dufresne v. Michel 1985 CarswellOnt 381, 2 C.P.C. (2d) 69, the Court dealt with a situation where the trustee was both a trustee and a 1/5 beneficial owner as cestui que trust. At para. 13, the Court stated that “Where the same entity is both, trustee and cestui que trust, the two interests do not merge…, and it would be contrary to logic to find that a writ of execution did not bind its beneficial interest from the date of the delivery of the writ.”
[27] In Dufresne, the Court held that under the Execution Act, a beneficial interest in real property was exigible and that an execution registered against a trustee who was also a beneficial owner, bound the land. The vendor trustee was unable to provide good title to the property free of the writ of execution.
Disposition of Issue #1
[28] Following the Dufresne decision, I conclude that the writs of execution registered against Denis Bertrand bound his 27.03% beneficial interest in the property; and as a result, he was not able to transfer title free and clear of the writs of execution.
Issue #2
Did Bertrand hold the property as a “bare trustee”?
[29] Bertrand argues that he was a full trustee with the ability to sell the property without the consent of the beneficial owners because he was not referred to as a “bare trustee” in the Declaration of Trust and the document did not specifically state that he could not sell the property without the consent of the beneficial owners.
[30] The Plaintiffs submit that Bertrand held the property as a “bare trustee” on the behalf of the beneficial owners and that he did not have the ability to sell the property without the consent of the beneficial owners based on the wording of the Declaration of Trust.
[31] In Yan v. 0797861 B.C. Ltd., 2015 BCSC 1001 at para. 11, the Court stated that a trustee has no discretion when he or she is named as a “bare trustee.” Where the trustee holds property without any other duty to perform except to convey it to the beneficiaries, and where the trustee has no independent powers, discretion or responsibilities, he or she is a “bare trustee.”
[32] In Trident Holdings Ltd. v. Dan and Investments Ltd. (1988), 1988 CanLII 194 (ON CA), 64 O.R. (2d) 65 at para. 75, the Ontario Court of Appeal described a bare trust and the role of its trustee as follows, quoting from Maurice C. Cullity, “Liability of Beneficiaries – A Rejoinder” (1985-86), 7 E. & T.Q. 35 at 36:
The distinguishing characteristic of the bare trust is that the trustee has no independent powers, discretions or responsibilities. His only responsibility is to carry out the instructions of his principles – the beneficiaries. If he does not have to accept instructions, if he has any significant independent powers or responsibilities, he is not a “bare trustee.”
[33] A “bare trust” exists when the trust document provides that:
(a) The beneficiaries are able to call for the property on demand; and
(b) No active duties were ever imposed on the trustee.
[34] The evidence that indicates that the trust was intended to be a “bare trust” are as follows:
(a) Denis Bertrand agreed that he held the property in trust in the same manner as described in the declaration of trust document signed between the parties (found at Tab 22 of Exhibit 1, Volume 1), which did not provide any powers to the trustee or specify any active duties;
(b) The Declaration states that the trustee: “shall respectably stand possessed of all interest in the said mortgage (property) in trust for the parties named aforesaid for their own use, benefit and advantage in the aforesaid interest; and
(c) The Declaration also states that the beneficiaries could call for a conveyance of the property. The second paragraph of the declaration of the trust document states that the trustee covenants as follows: “I will at any time hereafter upon request of any of the beneficial loaners, transfer the said mortgage (property) as directed as to the interest of any of the parties aforesaid.”
[35] The four severance applications that were filed as Exhibits refer to R&R Realty as a “second owner” which was inserted in handwriting on the applications and the applications were amended to indicate “we” instead of “I”. While the applications for severance support the finding that Denis was a “bare trustee”, the fact that Mr. Clark, who was also a beneficial owner did not sign the applications, is evidence to the contrary. However, if Mr. Bertrand was a trustee in its full sense as opposed to a “bare trustee”, then he would have signed the applications on his own without either of the other beneficial owners signing. When actions were taken to apply for severance, at least two of the three beneficial owners consented in order to deal with the trust property. Based on their actions and the wording of the Declaration of Trust, I infer that the parties intended that a majority of the beneficial owners had to consent to any transfer or other dealings with the trust property.
[36] The declaration of trust sets out the beneficial ownership percentage and states that Bertrand holds the property in trust for the following persons in the following proportions. The Trust Declaration does not give any powers or authorizations associated with the property to Mr. Bertrand. The evidence also indicates that the parties shared the expenses by dividing the various expenses that were incurred in proportion to their beneficial ownership.
[37] In 2005, Mr. Obagi wrote a letter to Mr. Bertrand when he acted for the 1st American Title Insurance Company to correct title to prevent Ms. Masson’s land from being landlocked. He reminded Mr. Bertrand that he was “an owner in trust of the land” and he confirmed that “the persons for whom you hold these lands in trust have consented to the transfer of this strip of land to the City of Ottawa and now we require your signature on the transfer/dead of land.” This was prudent practice on the part of the solicitor.
[38] When the Royal Bank conveyed its beneficial interest to the Plaintiffs, it referred to Denis Bertrand as “the nominee” and the recital stated: “whereas; the nominee is the registered owner of title of the real property and all assets related thereto as bare legal trustee.” From the Royal Bank’s transfer and the transfer to correct title through Mr. Obagi and by signing the severance applicants with one of the other beneficial owners, the parties actions support the inference that the parties intended that Bertrand was a “bare trustee” and not a trustee with full powers to sell the property without a majority of the beneficial owners’ consent.
[39] Finally, the trust document does not give Bertrand any authority to sell the property, mortgage the property, or any other rights to deal with the property.
[40] I do not accept Bertrand’s evidence that he believed that the other beneficial owners had lost interest in the property and therefore he assumed that he could proceed to sell the property without their consent. The Plaintiffs had purchased the additional beneficial interest of the Royal Bank in 2005 very shortly before Bertrand sold the property. This contradicts his evidence that the other beneficiaries had lost interest in the property. Mr. Clark testified that he went to City Hall to check the tax rolls to make sure they were up to date, which is conduct that is inconsistent with the beneficial owners having lost interest. I also accept Mr. Rivard’s evidence that, as a developer, he often held land for decades on the possibility that conditions will change, which was his experience in both the former municipalities of Carp and Manotick. Finally, Mr. Bertrand did not share the proceeds with Mr. Clark and R&R Realty but kept one hundred percent of the proceeds and sold the property while he was subject to over $300,000.00 owed to two execution creditors.
[41] The decision of Di Michele v. Di Michele, [2014] ONCA 261, dealt with a situation where three brothers were jointly beneficiaries of a property under their mother’s will. One of the brothers was named as the estate trustee and without the knowledge of his brothers, mortgaged the estate property to pay his own business debts. The Court of Appeal found that the land registrar was entitled to register the estate trustee as owner in place of the deceased and that the person registered in place of the deceased owner was in the same position as if that person had acquired the land under a transfer for valuable consideration.
[42] The Di Michele decision is distinguishable from the case before me because the terms of the will specifically transferred “all of my estate, both real and personal, …. to my trustee upon the following trusts.” Also, in Di Michele, the will specifically included a power of sale clause which stated:
in order to carry out the provisions of this my will, I give my trustee power to sell, called in and convert to money from all my estate at such time or times and such manner and upon terms as my trustee in his discretion may decide upon, with power and discretion to postpone such conversion of my estate.
[43] In the Di Michele fact situation, the will specifically transferred all of the real and personal property to the trustee, and gave him the power to sell or convert the assets as the trustee decided in his discretion. This is quite different from the situation where the trust declaration did not contain a power to sell, and there was no process similar to an estate where the lands are transferred to the Estate Trustee who replaces the deceased as the owner. A title search would have disclosed that the will gave the estate trustees the required authority to sell and the certificate of appointment of the estate trustee was granted by the Court.
[44] The factors in favour of finding that Mr. Bertrand was a trustee with full powers are the fact the Declaration of Trust did not state that he did not have the full powers of a trustee, did not state that he was a “bare trustee”, and did not limit his power to deal with the property. I find that these factors are outweighed by the evidence outlined above that support a finding that the parties intended him to hold the property as a “bare trustee.”
Disposition of Issue #2
[45] I find that the preponderance of the evidence supports a finding that the parties intended that Denis Bertrand was a bare trustee of the property and that he did not have authority to sell the lands without the consent of at least a majority two of the three beneficial owners, which was consistent with their conduct over many years.
Issue #3
Was Bertrand a fraudulent person as defined in the Land Titles Act as a result of signing a false affidavit, stating he was not the same person as the Denis Bertrand subject to execution creditors?
[46] The Land Titles Act defines a “fraudulent instrument” and a “fraudulent person.” A “fraudulent instrument” is defined as an instrument,
a) under which a fraudulent person purports to receive or transfer an estate or interest in land,… and
d) that perpetrates a fraud as prescribed with respect to the estate or interest in land affected by the instrument;
[47] A fraudulent person is defined as follows:
“a fraudulent person” means a person who executes or purports to execute an instrument if,
a) the person forged the instrument,
b) the person is a fictitious person, or
c) the person holds oneself out in the instrument to be, but knows that the person is not, the registered owner of the estate or interest in land and affected by the instrument
[48] The Defendants submit that Bertrand was not a fraudulent person within the definition of the Land Titles Act because he did not forge the transfer or the false affidavit declaring that he was not one in the same person as the Denis Bertrand subject to the writs of execution. Secondly, they submit that he was not a fictitious person because he was the real Denis Bertrand; he simply signed a false affidavit.
[49] The Plaintiffs submit that by signing the false affidavit stating that he was not one in the same person as the Denis Bertrand who was subject to two writs of execution, that he acted as a fictitious person within the definition under the Act. Bertrand pretended to be someone he was not, namely, that he was not the Denis Bertrand that had several executions registered against him. The Plaintiffs also submit that the transfer, under these circumstances also amounted to a forgery and therefore Bertrand falls under the definition of a fraudulent person.
[50] The Plaintiffs also submit that the transfer was a fraudulent instrument because Bertrand could not transfer the property free and clear of the execution creditors. The Plaintiffs submit that the definition of “fraudulent person” in the Act should be interpreted in accordance with the intended purpose of the legislation. The plaintiffs argue that a person who forges an instrument should be interpreted to include a person who falsifies an instrument, as an incremental adjustment to the law which would be consistent with the legislature’s intention and would advance the underlying public policy of the legislation.
Was Denis Bertrand a “fraudulent person” as defined in the Act?
[51] In Rizzo and Rizzo Shoes Ltd., Re, 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2 at para. 21, the Supreme Court of Canada adopted Elmer Driedger’s principles of statutory interpretation and stated as follows:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
[52] In Durrani v. Augier, 2000 CanLII 22410 (ON SC), [2000] Carswell Ont 2807, [2000] O.J. No. 2960 at para. 41, the Court set out the essential purpose of the Land Titles Act as follows:
The essential purpose of land titles legislation is to provide the public with security of title and facility of transfer: Di Castri, Registration of Title to Land, vol. 2 looseleaf (Toronto: Carswell, 1987) at p. 17-32. The notion of title registration establishes title by setting up a register and guaranteeing that a person named as the owner has perfect title, subject only to registered encumbrances and enumerated statutory exceptions.
This decision was cited with approval by the Court of Appeal in the Lawrence v. Wright, 2007 Carswell Ont. 522, 2007 ONCA 74.
Intention of the Legislature
[53] The Land Titles Act was amended in 2007, specifically to make amendments to section 78(4) of the Act to address ongoing concerns with fraud in the real estate context. The policy objectives of the amendments to the Land Titles Act include protecting innocent land owners from fraud, shielding innocent purchasers for value without notice of fraud, and maintaining the integrity of the land registration system.
[54] The 2007 amendments to the Act, defining a fraudulent instrument and a fraudulent person, were intended to be consistent with the Court of Appeal’s decision applying the doctrine of deferred indefeasibility. The definitions of fraudulent instrument and fraudulent person as integrated in the amendments should be interpreted contextually and purposely in accordance with the legislature’s intent to provide protection for innocent land owners against fraud, shielding innocent purchasers for value without notice of the fraud, maintaining the integrity of the land registration system and also implementing the doctrine of deferred indefeasibility set out by the Court of Appeal.
[55] In the CIBC v. Computershare decision at para. 28, the Divisional Court quoted from the statement made in the legislature by the Honourable Mr. Gerry Phillips, the Minister of Government Services, when introducing Bill 152 when it was tabled for the first reading on October 19, 2006. The legislation was intended to protect innocent homeowners from fraud. Minister Phillips said:
one of these important areas is an issue of real concern to property owners across the province: real estate fraud. The people of this province work hard to make a house into a home. They deserve to know that their property is secure. This legislation will ensure that property owners do not lose their home as a result of real estate fraud or become responsible for fraudulent mortgages. If passed this legislation would ensure that ownership of a property cannot be lost as a result of the registration of a falsified mortgage, fraudulent sale, or a counterfeit power of attorney. Instead, an innocent homeowner’s title will be restored to them and the fraudulent document will be nullified.”
[56] The intention of the legislature was further clarified by Minister Phillips when he added the following on October 26, 2006:
The legislation does several things. The most important one is --- by the way, disposition is retroactive to the day we introduced the bill --- but it ensure that the ownership of a property cannot be lost as a result of the registration of a falsified mortgage, fraudulent sale or counterfeit power of attorney; in other words nobody is going to lose title to their property as a result of fraudulent activity, nor can a fraudulent document be registered against title.
[57] In this case, Denis Bertrand falsified a document. He stated in his affidavit that he was not one in the same person as the Denis Bertrand subject to the writs of execution. The transfer also contains the same false statement based on Denis Bertrand’s false affidavit that he is not the same person as the Denis Bertrand subject to execution creditors with writ numbers 0200-0000725 and 03-0001960. The transfer contains this false statement: “the party is not one in the same as the party named in this writ.” This is a false statement on the face of the transfer which was based on Bertrand’s false affidavit.
Fraud
[58] In the decision of R. v. Theroux 1993 2 SCR 579 CCC 3d 449, 100 DLR 4th 67, the Supreme Court dealt with the elements of criminal fraud. Justice McLaughlin stated that while she did not provide a precise definition for civil fraud and was dealing with criminal fraud stated in summary:
It can be seen that the essential elements of fraud are dishonesty, which can include non-disclosure of important facts, and deprivation or risk of deprivation.
[59] In this case, Denis Bertrand acted dishonestly by signing the false affidavit and did not disclose the fact that he was subject to two (2) executions and did not disclose that he was the bare trustee and did not have the authority to sell the property. His conduct wrongfully deprived the beneficial owners of their interest in the property without authority and deprived the execution creditors of their interest in his beneficial interest in the lands. As a result, Bertrand’s conduct was both dishonest, failed to disclose that he was subject to executions and deprived the Plaintiffs of their beneficial ownership of the Property.
[60] In Lazarus Estates Ltd. v. Beasley, 1956 1 ALL ER 341 at page 6, Lord Denning stated that fraud unravels everything. He stated:
I cannot accede to this argument for a moment. No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of the Court no order or administer can be allowed to stand if it has been obtained by fraud. Fraud unravels everything.” The Court is careful not to find fraud unless it is distinctly pleaded and proved; once it is provided it eviciates judgments, contracts, and all transactions whatsoever … So, here I am of opinion that, if this declaration is proved to have been false and fraudulent, it is a nullity and void and the landlords cannot recover any increase of rent by virtue of it.
[61] Black’s Dictionary defines civil fraud as “a tort arising from a knowing misrepresentation, concealment of a material fact, or a reckless misrepresentation made to induce another to act to their detriment.”
[62] In this case, the innocent owners of over a 70% beneficial interest in the property are the plaintiffs R&R Realty and Peter Clark. Bertrand made a misrepresentation and concealed a material fact by signing a false affidavit stating that he was not one in the same person as the Denis Bertrand who was subject to two (2) writs of execution. By signing the false affidavit, Bertrand knowingly made a misrepresentation to Joncas and the Land Titles Registrar stating that he was not one in the same person as the Denis Bertrand subject to the execution creditors. As a result of his misrepresentation, he was able to sell the beneficial interests of the Plaintiffs and deprive them of their interest in the lands.
[63] I find that Denis Bertrand’s actions of signing the false affidavit was a misrepresentation which induced the Land Titles Director to transfer the title of the property to the detriment of the plaintiff beneficial owners who had not consented, and also to the detriment of the execution creditors and constitutes a fraud. In this situation, Joncas was an intermediate owner and not a differed owner and as such would not be protected by the deferred indefeasibility doctrine, to which the amendments were intended to be consistent.
Deferred Indefeasibility
[64] I agree with the submission by the Attorney General (Ontario) that by defining a fraudulent instrument and a fraudulent person in the amendments contained in Bill 152 the legislature intended to codify the doctrine of deferred indefeasibility. In Lawrence v. Maple Trust Co., 2007 ONCA 74, 84 O.R. (3d) 94: at paras. 67 and 68, the Court of Appeal outlined the doctrine of deferred indefeasibility as follows:
67 The theory of deferred indefeasibility accords with the Act and must be taken into consideration in an analysis of s. 155 and its relationship with other provisions in the Act. Under this theory, the party acquiring an interest in land from the party responsible for the fraud (the "intermediate owner") is vulnerable to a claim from the true owner because the intermediate owner had an opportunity to avoid the fraud. However, any subsequent purchaser or encumbrancer (the "deferred owner") has no such opportunity. Therefore, in accord with s. 78(4) and the theory of deferred indefeasibility, the deferred owner acquires an interest in the property that is good as against all the world.
68 Wright never took valid title to the Property because he obtained it by fraud. He was, therefore, not a registered owner. In accordance with s. 68(1) of the Act, only a registered owner may give valid charges on land. Maple Trust is the intermediate owner of an interest in the Property. It had an opportunity to avoid the fraud. It did not take from a registered owner. Therefore, despite registering its charge, Maple Trust loses in a contest with the true registered owner, Ms. Lawrence. Accordingly, the charge against the Property in favour of Maple Trust should be set aside.
[65] In CIBC Mortgages Inc. (c.o.b. Firstline Mortgages) v. Computershare Trust Co. of Canada, 2016 ONSC 7094 at para. 43, the Divisional Court stated as follows:
Similarly, In Lawrence v. Maple Trust Co., although the Court found that the LTA was predicated on the theory of deferred indefeasibility, a theory that permits the common law to remain part of the law of Ontario relating to land unless expressly abrogated, the Court nonetheless made this important point, at para. 31: “While a consideration of the two theories of indefeasibility is inevitable in this case, it is the relevant legislative provisions that must drive the analysis.” The Court identified the relevant provisions as ss.155 and 78(4). Now, of course, ss. 78(4.1) and 78(4.2) must also be taken into account.
[66] At para. 46 of the CIBC v. Computershare decision, the Divisional Court stated:
However, in light of the amendments to the LTA, s. 78(4) no longer needs to be read in a manner that recognizes that the LTA gives effect to the theory of deferred indefeasibility. Sections 78(4.1) and 78(4.2) spell out explicitly, for the first time, that the Act establishes a scheme of deferred indefeasibility only with respect to “fraudulent instruments”. In addition, the two sections spell out explicitly how deferred indefeasibility will work. Specifically, s.78 (4.2) provides that “[n]othing in subsection (4.1) invalidates the effect of a registered instrument that is not a fraudulent instrument described in that subsection, including instruments registered subsequent to such a fraudulent instrument.”
[67] The facts in CIBC v. Compuershare are distinguishable from the facts in this case. In that decision, the Court found that there was no fraud in the instrument conveying the mortgage to CIBC. Danbrot J. wrote for the Court at para. 61 as follows:
The mortgage to CIBC was perfectly valid. It was not a fraudulent reconveyance of the Computershare first mortgage to CIBC. It was simply a conveyance of a charge on the property that the Lowtans were the registered owners of in return for a mortgage loan. The fraud was in the concealment of the mortgage to Computershare, and cannot be found in the instrument. If the value of the property had doubled by the time of the defaults in the mortgages, Computershare and CIBC would both be entitled to recover their interests.
[68] Here, the concealment and the false statement is found in the actual transfer from Denis Bertrand to Joncas as the transfer contains the false statement that he was not one in the same person as Denis Bertrand subject to the executions. In CIBC v. Computershare, the fraud was committed in falsely discharging of the Computershare Trust prior mortgage and not in granting the subsequent CIBC mortgage. Also in the CIBC v. Computershare decision, CIBC would have been the “deffered” owner following the theory of differed indefeasibility, whereas in the facts before me, Joncas is the “intermediate” owner.
[69] In this situation, Joncas is an “intermediate” owner because he acquired the land from a party responsible for the fraud, namely Bertrand. As an intermediate owner he is vulnerable to a claim from the true owner because he had the opportunity to avoid the fraud. Joncas is not a “deferred” owner as defined under the Lawrence v. Maple Trust Co. decision because there was no subsequent transfer or an encumbrance to him.
Was Denis Bertrand a fictitious person?
[70] A “ fictitious person has not been defined in the Act but was judicially considered by the Supreme Court of Canada in the Fok Cheong Shing Investments Co. Ltd. v. The Bank of Nova Scotia 1982 CanLII 57 (SCC), [1982] 2 S.C.R. 488. In Fok, the purported “fictitious” person was a real person – and in fact gave evidence at the trial. It was argued that this meant that he (the fraudster) could not be a fictitious person. The Supreme Court nevertheless found that the individual was a “fictitious” person by focusing on the fraudulent intent in developing the scheme to perpetrate a fraud. The Supreme Court borrowed its reasons from Lord Hershel and relied on the following passage at para. 4:
“Whenever the name inserted as that of the payee is so inserted by way of pretence merely, without any intention that payment shall only be made in conformity therewith, the payee is a fictitious person within the meaning of the statute, whether the name be that of an existing person, or of one who has no existence …”
[71] Denis Bertrand, who was subject to two writs of execution, is an existing person. However, Bertrand purported to transfer the property under a pretence of being someone other than the Denis Bertrand that was subject to the executions. He signed the transfer as the Denis Bertrand that was not subject to the executions, who was a different from himself. I find that the Denis Bertrand, who was not subject to the executions was a fictitious person within the meaning of the Act because this interpretation is consistent with the intention and purpose of the 2007 amendments, is consistent with the Supreme Court’s decision in Fok, and with the deferred indefeasible doctrine.
Was Denis Bertrand a person who forged a document?
[72] The word forged is not defined in the Act. The Canadian Oxford Dictionary defines “forged” as “to write a document or signature in order to pass it off as written by another”. Denis Bertrand was one in the same person who was subject to two writs of execution but he signed a false affidavit swearing that he was not the execution debtor named in the writs of execution.
[73] Black’s Law Dictionary defines “forgery” as a false or altered document made to look genuine by someone with intent to deceive. In this case the affidavit is a false document and also the transfer instrument itself is a false document because it states that Denis Bertrand is not one in the same person as the Denis Bertrand subject to the writs of execution. Denis Bertrand signed the affidavit pretending that he was another person than the Denis Bertrand that was subject to the executions to make the transfer look genuine and with the intent to deceive the Land Registrar and the purchaser. Bertrand’s actions would be consistent with this definition of forgery.
[74] The intention of the legislature was to ensure that property owners did not lose their homes or their interest in the land as a result of real estate fraud. The protection to the owners of their property from real estate fraud such as that committed by Mr. Bertrand, would be fulfilled if the definition of a person who forges an instrument is interpreted to mean a person who executes or purports to execute an instrument if a person falsified the instrument.
[75] This interpretation is also consistent with the deferred indefeasibility doctrine set out by the Court of Appeal in Maple Trust, and is be consistent with the intention of the legislature to protect innocent homeowners from losing their property as a result of real estate fraud, namely losing your property by someone forging an instrument by falsifying documents to complete the transaction.
[76] The intermediate owner in this case was Joncas who purchased the property directly from the person committing the real estate fraud, could have verified the statement that Denis Bertrand was not one in the same person as the person subject to execution creditors. The purchaser noticed that the writs of execution were registered against a person with the same name and could have easily verified with the National Bank to check the social insurance number, or driver’s license number, address, or birthdate of the individual and obtain similar identification evidence from Denis Bertrand selling the property to determine if he was the same person.
[77] The lawyer acting for the purchaser, who discovered that there was a person subject to writs of execution with the same name as the vendor, should have to take reasonable steps to check with the execution creditors to confirm the details of the identity of the execution debtor and to compare those details with the identification information for the vendor. In this case, the solicitor acted for both the vendor and the purchaser and failed to take steps to verify the identity of the vendor to confirm that he was not one in the same person and the person subject the executions.
[78] The Director of Titles, who was presented with a transfer for registration from a vendor with the same name as an individual subject to two (2) writs of execution, should have required evidence from someone other than the vendor, in this case the fraudster. The Director required an affidavit from the vendor’s lawyer stating that Bertrand was not the same person. However, the solicitor’s affidavit amounted to a bold assertion unsupported by any details of the results of his inquiry into the identity of the vendor, demonstrating that they were different from the execution debtor. An affidavit unsupported by any details confirming a different identity does not reasonably protect the rights of the execution creditors from a fraudster conveying his or her interest in property free and clear of execution creditors. The affidavit required to be provided by the solicitor, should contain sufficient identity details of the vendor and the execution to allow the Director to reasonably rely on the identification information provided, to determine that the vendor and the execution debtor are not the same person. This did not occur for this transfer.
[79] If reasonable details of the identities of the vendor and the execution debtor with the same name, demonstrate that they were not one in the same were provided in the affidavit, the integrity of the title to property would be protected, and any delay would be minimal as the solicitor is able to search for executions against the vendor in advance of closing and obtain reasonable evidence that they are not one in the same person prior to closing. This approach would also reasonably protect the interest of execution creditors so they would not be deprived of interest in the execution debtor’s lands by simply allowing him or her or their lawyer to sign a false affidavit stating that they are not one in the same person as the execution debtor.
[80] This approach would be consistent with the intention of the legislature, with the scheme of the Act, with the objectives that are sought to be achieved by the 2007 amendments, to interpret the definition in context and to achieve the purpose of the Act interpret a fraudulent person as a person who forged the instrument to include a person who falsified the instrument to make it appear genuine with the intent to deceive.
Disposition
[81] For the reasons given above, Denis Bertrand’s action of signing a false affidavit and the false statement made on the transfer to Joncas, with the intent to deceive made him a fraudulent person as defined in the Act as he forged the instrument. As a result, the transfer to 670 was accomplished by a fraudulent instrument as defined by the Land Titles Act and is therefore null and void.
Issue #4
Did Joncas have knowledge of sufficient circumstances to have put a reasonable person on inquiry?
[82] The integrity of the Land Title System rests on the validity of registrations, hence the policy of differed indefeasibility. However, a third party that acquires an interest in the disputed title is only protected where he or she is a bona fide purchaser for value. In the decision of MacIsaac et al. v. Salo et al. 2013 ONCA 98 at para. 54, the Ontario Court of Appeal stated:
54 The Court’s powers of rectification under ss. 159 and 160 of the Land Titles Act are qualified by reference to the indefeasibility of title that follows from registration. A purchaser only obtains the benefit of indefeasible title if he or she is a bona fide purchaser for value without notice. This continues to be the law in Ontario, despite any suggestion to the contrary by the motion judge.
[83] The transfer of the land contains the false statement that Denis Bertrand was not one in the same person as the Denis Bertrand who was subject to the execution creditors. The false statement in his affidavit made him a fraudulent person who conveyed an interest in land which made the instrument a fraudulent instrument which was null and void.
[84] Whether Joncas had actual notice of the fraud committed by Denis Bertrand is not critical to the outcome because Joncas was an “intermediate” owner and was not a “deferred” owner who would take the property free and clear provided they were a bona fide purchaser for value without notice of any fraud.
[85] Joncas did not acquire notice of the fact that the property was held in trust based on a search of the land titles system, because the search of title was made after the offer to purchase had been signed. The offer to purchase was prepared by Joncas himself, and was not prepared by his lawyer although he did seek legal advice about terms to be inserted. Joncas had notice of the trust either from the vendor or through viewing a tax bill or from some other source, but it was not through the Land Titles System.
[86] In the Bank of Nova Scotia v. Russell, 2016 ONSC 1829 (Ont. Div. CT.) para. 50 stated:
The appellant in this Court relied upon Randvest Inc. v. 741298 Ontario Ltd. (1996), 1996 CanLII 8207 (ON SC), 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, 2012 ONSC 400 (Div. Ct.) at paras. 19 and 20.
[87] Mr. Joncas became aware of the existence of the trust before making any investigation of title, and as a result, he did not rely on any documents registered in the Land Titles System.
[88] In the decision of Gold v. Rosenberg, 1997 CanLII 333 (SCC), [1997] 3 S.C.R. 767, [1997] S.C.J. No. 93, Justice Iacobucci writing for the Supreme Court of Canada set out the requirements for a beneficiary to validate their claim and interest in trust property that was purchased by a stranger to the trust labelled as “knowing receipt cases.” At para. 53, he stated as follows:
Therefore, to conclude my discussion of the applicable legal principles, in order to recover the disputed property, the plaintiff must prove the following:
(1) That the property was subject to a trust in favour of the plaintiff. In this case Mr. Joncas was aware that the property was subject to a trust.
(2) That the property, which the defendant received, was taken from the plaintiff in breach of trust; In this case, I found that the trust was a bare trust and that Denis Bertrand was not authorized to sell the property without the consent of at least two of the three beneficial owners. Therefore, he was acting in breach of trust;
(3) That the defendant did not take the property as a bona fide purchaser for value without notice. The defendant will be taken to have notice if the circumstances were such as to put a reasonable person on inquiry, and the defendant made none, or if the defendant was put off by an answer which would not have satisfied a reasonable person.
[89] In Citadel General Assurance Co. v. Lloyds Bank of Canada, 1997 CanLII 334 (SCC), [1997] 3 S.C.R. 805 at para. 24, the Court held that the trial judge does not need to make a finding that a breach of trust was fraudulent to find the purchaser liable for “knowing the receipt of trust property.” In Gold Justice Sopkina laid out the criteria that would be suggestive of “notice” in cases where trust property is acquired by a third party as follows:
(a) actual knowledge;
(b) willfully shutting one’s eyes to the obvious;
(c) willfully and recklessly failing to make such inquires as an honest and reasonable man would make;
(d) knowledge of circumstances which would indicate the facts to an honest and reasonable man;
(e) knowledge of circumstances which would put an honest and reasonable man on inquiry.
[90] I accepted Mr. Raymond’s evidence as an expert witness in this matter as a participant expert and not as a Rule 53 independent expert. I find that his comparables were reasonable and his reasoning made rational sense for this unique property. He has been a real estate appraiser for many years and I find that he was a credible and knowledgeable witness.
[91] I also agree with Mr. Raymond’s opinion that the highest and best use for this property is for future residential development and not for use as a single residential lot as was proposed by Mr. Granleese, who was the expert called by the defendants. Mr. Granleese stated that the highest and best use for the property was as a single development lot for one residence, which I do not find was a realistic opinion for 55 acres of land within the former village of Cumberland in close proximity to the centre of the City of Ottawa.
[92] The assessment of the value of land with future residential development potential is a complex matter. It is difficult to determine the possibility of future water services being brought to the village of Cumberland from Ottawa, however the City of Ottawa has brought water services to both Carp and to Manotick, which are residential areas surrounding the city of Ottawa. It remains a possibility.
[93] I also find that the comparables used by Mr. Raymond were more realistic than the comparables used by Mr. Granleese. Mr. Granleese’s assessment was based on the use as a single residential lot on a 55 acre parcel land. I prefer the evidence of Mr. Raymond on this issue. The actual fact is that the land was bought by individuals who are developers and their planned use was for future residential development. That was their intended use and that was the use that they were making of the property based upon the evidence of Mr. Rivard and Mr. Clark which I accept. Mr. Rivard had developed 27 other subdivisions in the Ottawa area and had knowledge and expertise with the use that he was making of the property.
[94] Mr. Granleese’s assessment on a use of one building lot of $170,000.00 is still substantially more than the $100,000.00 paid for the property by Mr. Joncas. Mr. Joncas bought the property without using the services or advice of a real estate agent, was buying from an individual holding the lands in trust, decided not to obtain any appraisal information, any zoning information, or conduct or any water or soil testing. Because of these factors, I infer that he was aware that he was getting a very good financial deal. The fact that Mr. Joncas was a friend of Mr. Bertrand’s son is a factor from which I infer that Mr. Joncas was aware that he was getting a very good deal on the property. However, Joncas was not aware of the appraisal of the property at $300,000.00, three times his purchase price.
[95] The circumstances which should have put Mr. Joncas on inquiry as an honest and reasonable person are the following:
(a) Joncas, though his solicitor was aware that two writs of execution were registered against a person with the same name as the vendor. Mr. Joncas and his lawyer would have known that the executions against the vendor would bind the land and form an encumbrance on the property. Mr. Joncas and his lawyer could have and should have obtained the identification details from the execution creditors and compared those details with those from Mr. Bertrand and they did not make reasonable inquiries;
(b) Joncas knew the property was held in trust because he prepared the offer to purchase before the title was searched;
(c) Joncas is a lawyer and I infer would have known that there are different types of trusts and that the trust declaration would set out the authority of the trustee and specify whether or not it was a bare trust. This is a different situation from an estate trustee that is appointed by a will which contains a power of sale and the authority to sell property is expressly given to the estate trustee. The purchaser could have inquired about whether the trustee had authority to sell or whether the consent of the beneficial owners was required.
(d) The fact that Joncas entered into a private sale agreement for trust property where the property had not been listed for sale with a real estate agent, is a suspicious circumstance. Joncas would have known that Bertrand as a trustee owed a fiduciary duty to the beneficial owners, that Bertrand had a duty to act reasonably to obtain the highest value, and that to do so generally requires exposing a property to the market for a period of time to determine the types of offers that would be received in order to comply with his fiduciary duties. This is particularly so where the property was a unique property of 55 acres in the village of Cumberland that has potential future development possibilities, which could make it very valuable.
(e) Bertrand advised Joncas that he was not going to use a lawyer if Mr. MacLean would not act in a conflict situation. While it was not against the rules of professional conduct at that time for Mr. MacLean to act for both purchaser and vendor, given the undisclosed details of the trust, that the sale was proceeding without any real estate agent, it was a suspicious circumstance where vendor proposed not to use his own lawyer on such a conveyance.
(f) Joncas and Bertrand used the same lawyer and therefore in accordance with the consents signed they are deemed to have knowledge of each other’s communications with their jointly retained lawyer. I infer that Joncas would also have known through his lawyer’s search of titles that the property was acquired more than 10 years earlier for $50,000.00 more than the agreed purchase price of the $100,000.00.
(g) Bertrand’s insistence that 50% of the purchase price be paid as a deposit directly to Mr. Bertrand and not to his lawyer in trust is also a suspicious circumstance. Normally, deposits on a real estate sale are held by the real estate broker in trust or by the lawyer in trust. I infer that deposits of one half of the purchase price are rarely paid directly to the vendor before closing;
(h) The fact that Bertrand wanted the sale to be completed quickly is a minor factor;
(i) I find that while Mr. Joncas testified that he was not aware of the appraised value of $300,000.00; it is a suspicious circumstance that the property was appraised at $300,000.00 in 2005 for purposes of the purchase of the Royal Bank of Canada’s beneficial interest in the property.
Disposition of Issue #4
[96] For the above reasons, I find that Joncas had knowledge of sufficient circumstances to put a reasonable person on inquiry and as a result in the circumstances was not a bona fide purchaser without notice.
Issue #5
Is the property now held on a constructive trust on behalf of the beneficial owners?
[97] Given my findings that Bertrand was a fraudulent person and that Joncas had knowledge of sufficient circumstances, to have put a reasonable person on notice it is not necessary to decide this issue. The transfer to Joncas was a fraudulent instrument and is null and void.
Remedy
Rectification
[98] Section 159 and 160 of the Land Titles Act gives the Court the power to order rectification of the register where it determines that a person has an interest in registered land.
Final Disposition
[99] In the circumstances I find that having found that Denis Bertrand was a fraudulent person and that the transfer was a fraudulent instrument which was void. The appropriate remedy is to undo the fraud and to rectify the title to its original state. I therefore grant the order requested vesting title to the property in accordance with the beneficial ownership interest namely, 1168769 Ontario Inc. c/o R&R Reality 31.76%, Peter Clark 36.48%, J. G. Rivard Ltd. 4.73% and Denis Bertrand 27.03%.
Costs
[100] The Plaintiffs shall have 15 days to make submissions on costs; the Defendants shall have a further 15 days to respond and the Plaintiff shall have 10 days to reply.
Justice Robert J. Smith
Released: September 5, 2017
CITATION: 1168760 Ontario Inc. c/o R&R Realty, Peter Clark & J.G. Rivard Limited v. 67006037 Canada Inc. & Denis Bertrand, 2017 ONSC 5149
COURT FILE NO.: 09-44583
DATE: 2017/09/05
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1168760 Ontario Inc. c/o R&R Realty, Peter Clark & J.G. Rivard Limited
Plaintiff (moving party)
– and –
67006037 Canada Inc. & Denis Bertrand
Defendant (responding party)
– and –
The Attorney General for Ontario
Defendant (responding party)
REASONS FOR decision
R. Smith J.
Released: September 5, 2017