Court dismisses leaky condo mortgage case brought by Dan Healey against Royal Bank; no reasonable cause of action



Healey v. Royal Bank of Canada et al,


2003 BCSC 342

Date: 20030305

Docket: S013154

Registry: Vancouver


Dan Healey



Royal Bank of Canada and Canada Mortgage

and Housing Corporation and Attorney

General of Canada





Before: The Honourable Madam Justice Ross


Reasons for Judgment

The Plaintiff:

Appearing on his own behalf

Counsel for Defendant,

Royal Bank of Canada:


A.P. Seckel & M.D. Parrish

Date and Place of Trial:

January 20, 2003


Vancouver, B.C.


[1]            This is an application by the defendant, Royal Bank of Canada (Royal Bank) for an order that the action against the Royal Bank be dismissed pursuant to Rule 19(24) on the basis that the plaintiff's statement of claim discloses no reasonable cause of action.  In the alternative, the Royal Bank seeks summary judgment against the plaintiff pursuant to Rule 18(6) on the basis that there is no merit in the plaintiff's claim. 

[2]            In May and September 1994, Dan Healey, the plaintiff, purchased two condominiums described in the Amended Statement of Claim as the Pacific Property and the Central Property ("the Properties").  Mr. Healey financed the purchases by granting two mortgages to the Royal Bank and executed two mortgage agreements.

[3]            Prior to financing the Properties, the Royal Bank had obtained, for its own purposes, independent appraisals of the market value of the Properties.  The appraisals were not disclosed to Mr. Healey.  The Amended Statement of Claim alleges that Mr. Healey was told that the Properties had "appraised well and had passed inspection".

[4]            In January and March 1997, the Royal Bank transferred the mortgages on the Properties to the Scotia Mortgage Corporation.  Subsequent to the transfer of the mortgages, the value of the Properties was significantly diminished due to water damage caused by building envelope failure.

[5]            Scotia Mortgage Corporation was granted Orders Nisi of foreclosure against Mr. Healey on the Properties.  Sale of the Properties was approved by the Court in June 2001 with a deficiency judgment remaining against Mr. Healey.

[6]            Mr. Healey then commenced the action against the Royal Bank, Scotia Mortgage Corporation, the Canadian Mortgage and Housing Corporation and the Attorney General of Canada for damages alleged to have been suffered as a result of the water damage to the Properties.

[7]            Mr. Healey was granted leave to file a Further Amended Statement of Claim by order of Lowry J. December 3, 2001.  At the time of the hearing of this motion, Mr. Healey had neither entered the Order of Lowry J. nor filed the proposed Further Amended Statement of Claim.  The hearing of the motion proceeded on the basis of the pleadings as contained in the proposed Further Amended Statement of Claim together with further proposed amendments outlined in Mr. Healey's submissions.

[8]            The pleadings directed to the claims against the Royal Bank in the proposed Further Amended Statement of Claim are as follows:

45.   The Defendant Royal Bank of Canada {RBC} is a Chartered Bank and/or a Mortgage and Loan Company with offices throughout Canada and is joined in these proceeding under Joint and Several liability pursuant to Law and Equity Act RSBC 1996 c253 and/or Financial Institutions Act RSBC 1996 c141 and/or The Bank Act RSC 1991 c46 and/or Trust and Loan Companies RS c45 and/or The Negligence Act RSBC 1996 c333 and/or The Crown Liability and Proceedings Act R.S. 1985 c.C50 and/or The Crown Proceedings Act RSBC 1996 c89 and/or The Canada Mortgage and Housing Act RS 1985 c.C-7 and/or The Consumer Protection Act 1996 c69.


46.   The Defendant RBC financed two mortgages one the "Central" mortgage in 1994 and the other the "Pacific" mortgage in 1995.


47.   The Defendant RBC employed an appraiser to determine the value of both properties before providing the financing for both mortgages.  The Plaintiff relied on Statements from the RBC agent the Properties appraised well and then proceeded to enter into the Mortgage agreement.


48.   The Defendant RBC knew or it ought to have known by the time and/or before the mortgage was entered into either by their own internal research and/or through their relationship with Canada Mortgage and Housing the plaintiff would likely lose his investment constituting unconscionable bargaining.


49.   The defendant RBC was required to bargain in good faith and enter into the mortgage agreement with clean hands on one hand the defendant RBC generates profit for its share holders by financing the construction of multi family complexes on the other hand they are converting the dwellings into high ratio mortgages then insuring those mortgages with CMHC insurance to limit their liability with the knowledge that many if not all the building envelopes would likely fail.  "Knowing Assistance".


50.   The Defendant RBC owed the plaintiff a duty either contractually or a duty of care to warn that the properties {Central and Pacific} he was financing and that RBC was mortgaging and had been appraised and had been inspected by Canada Mortgaging and Housing Corporation {CMHC} and/or operated by CMHC were constructed in such a way the walls would not provide acceptable performance and that the building envelope would likely fail.


51.   The Defendant RBC was agent and/or alter ego of CMHC by selling the Crown corporations insurance and collecting a fee for CMHC and as such the RBC knew or ought to have known that the subject properties was likely to become a leaky condo before the Plaintiff sought financing for them and because of their proximate relationship with the plaintiff the RBC owed the Plaintiff a duty of care to warn him that the subject properties would likely become leaky condos and that the Plaintiff would likely lose his investment on both properties if he proceeded with the financing it will be pleaded that the RBC breached its contractual duties of duties of care owed to the plaintiff.


52.   The Defendant RBC knew or it ought to have know that CMHC had reported that the type of exterior wall construction used in the properties would not provide acceptable performance, or that the RBC was aware of that from other sources by the time the Plaintiff financed the properties, it will be alleged that the RBC owed the Plaintiff duties to warm him of latent defects in the properties and/or design of which the RBC was aware or of which it ought to have been aware.


53.   The Plaintiff relied on statements from RBC that the properties appraised well and had passed inspection RBC by its statements and silence, represented that the construction of the properties and/or design were sound the plaintiff changed his position to his detriment relying on what the RBC said and/or its position as a financial lending institution and its representations and silence on the issue of weather the properties would become a leaky condo.  Relying on RBC the Plaintiff borrowed the mortgage money and became a member of a strata corporation liable to pay his proportionate share of any special assessments.


54.   The Defendant RBC by the time it financed both the Central Property and the Pacific Property had the required professional credentials to notice and/or determine that notorious problems were developing in the British Columbia Construction industry in regards to Multi Family Complexes but failed to inquire and/or advise the plaintiff of any concerns and/or notorious problems.


55.   The Defendant RBC exercised bad faith and/or gained unjust enrichment in its dealing with the Plaintiff by its continued silence causing the Plaintiff to suffer an economic loss.


56.   Due to the central damage and/or the Pacific damage and/or the breach of contract and/or the breach of trust and/or breach of duty of care and/or knowing assistance and/or failure to warn and/or failure to inquire and/or negligence and/or unconscionable bargaining and/or bad faith and/or unjust enrichment on behalf of the defendant RBC the plaintiff suffered and continues to suffer and economic loss.


[9]            The test to be applied in determining whether a Statement of Claim should be struck is whether there is a question fit to be tried, regardless of the complexity or novelty of that question.  The issue must be decided on the basis of the pleadings as they stand or as they might be amended and on the assumption that the facts asserted in the Statement of Claim are true, see Kripps v. Touche Ross & Co. (1992), 69 B.C.L.R. (2d) 62 (C.A.)at 68 and Hunt v. T & N PLC, [1990] 2 S.C.R 959.

[10]        The purpose of Rule 18 is to reject, promptly and inexpensively, claims and defences that are bound to fail at trial.  The test is whether there is a bona fide issue to be tried, see Memphis Rogues Ltd. v. Skalbania (1982), 38 B.C.L.R. 193 (C.A.).  In considering an application under Rule 18(6) it is not appropriate to attempt to resolve conflicts in evidence.  However, allegations made should be supported by sufficient affidavit evidence to disclose a bona fide issue to be tried, see First City Developments Ltd. v. Landel Holdings Ltd. et al. (1979), 13 B.C.L.R. 358 (B.C.S.C.) and Westminster Savings Credit Union v. 442391 B.C. Ltd. 2000 B.C.S.C. 633.

[11]        The first group of claims alleges negligence, negligent misstatement and a breach of a duty to warn.  Central to each of these causes of action is the question of whether a duty of care was owed by the defendant to the plaintiff in the circumstances.  In the absence of a fiduciary relationship, the courts have consistently held that the relationship between a bank and its customer borrower is purely commercial.  Thus there is no special relationship, it owes no duty of care, no duty to warn, or duty to analyze or to advise its customer of concerns with respect to the financial viability of the project, see Bellopede v. North Shore Credit Union 2001 B.C.S.C. 1093 (sub nom. Bel Mar Developments Inc. v. North Shore Credit Union), Westminster Savings and Credit Union, supra.

[12]        The Further Amended Statement of Claim alleges that the Royal Bank was acting as an agent or alter-ego of Canada Mortgage and Housing Corporation ("CMHC") and that the duty of care and duty to warn arises as a consequence of that relationship.  Mr. Healey submits that the Royal Bank conducted business as an agent of CMHC.  Therefore, he submits that if CMHC has a duty of care, then the Royal Bank owes that same duty to the plaintiff.  Moreover, he submits that the knowledge of CMHC will be deemed to be the knowledge of the Royal Bank.

[13]        However, in Kimpton v. Canada (Attorney General) et al. 2002 B.C.S.C. 1645, claims that appear to be virtually identical to those advanced in the case at bar against CMHC were struck as failing to disclose a cause of action on the basis that there was no such duty of care owed by CMHC to the borrower. 

[14]        In dismissing the claim, Mr. Justice Macaulay stated:

[88]  The legal theory underpinning the plaintiff’s claim appears to be that CMHC, by agreeing to insure Ms. Kimpton’s obligation to make her mortgage payments to Pacific Coast Savings Credit Union, thereby warranted to Ms. Kimpton that the security she offered the Credit Union for the mortgage debt was a structurally sound, safe and durable building.  This theory is devoid of any logical or legal coherence.


[89]  There is no relationship of proximity between CMHC and Ms. Kimpton capable of giving rise to a duty of care.  There are no facts alleged in the pleadings as they relate to Ms. Kimpton, or her evidence, from which a special relationship could be found.  Even if I were to assume that a mortgage loan insurer owes a prima facie duty of care to borrowers like Ms. Kimpton, the prospect of indeterminate liability would again loom large and extend to every purchaser of property whose mortgage loan has been insured.  This liability would flow from the insurer doing nothing more than requiring evidence that the building was built in compliance with the law before agreeing to insure the borrower.  The policy reasons against finding such a duty of care are overwhelming.


[90]  Mortgage insurers like CMHC should not be subject to thousands of claims from plaintiffs who illogically rely upon the insurer’s construction requirements for such an unintended purpose.  The commercial ramifications of such a finding would reverberate throughout the industry to the eventual disadvantage of purchasers like Ms. Kimpton who need mortgage loan insurance in order to purchase property with a lower down payment.


[91]  I further find that it is not reasonably foreseeable to a mortgage loan insurer that real estate purchasers would construe the issuance of mortgage loan insurance to a financial institution as a warranty from the insurer to the purchaser regarding the quality, structural sufficiency and durability of a building.  A mortgage loan insurer assesses the financial risk of the borrower defaulting on the mortgage and, for a fee usually charged to the borrower, insures the lender against that risk.


[15]        If CMHC owes no duty of care to the borrower, then the fact that the Royal Bank is acting as CMHC's agent or alter-ego will not assist in creating a duty of care between the Royal Bank and the plaintiff.  Moreover, in my view, Macaulay J.'s policy analysis is equally applicable to the circumstances of the case at bar.

[16]        In the course of the hearing, Mr. Healey advised that he intended to bring a further amendment alleging the existence of a fiduciary relationship between himself and the defendant bank.  Where, as here, the relationship is one of commercial parties dealing at arms length, a fiduciary relationship will only be found to exist where circumstances of dependency and vulnerability are shown, see Lac Minerals Ltd. v. International Corona Resources Ltd., [1989], 2 S.C.R. 574; Westminster Savings and Credit Union, supra; Bellopede, supra

[17]        There is nothing in either the proposed pleadings or in the affidavit evidence that would suggest that such dependency and vulnerability were present.  Accordingly, there is no basis upon which a fiduciary relationship could be found in the circumstances.  Therefore, these claims do not disclose a bona fide issue to be tried.  The Bank did not owe the plaintiff a duty of care as alleged, no special relationship existed between the plaintiff and the Bank that would form the basis for a claim of negligent misrepresentation.  The Bank owed no duty to warn the plaintiff as alleged.  Nor is there a basis upon which a fiduciary relationship could be found.

[18]        The next claim is that of breach of contract.  The pleadings do not state the contract or the terms which are alleged to have been breached.  In submissions, Mr. Healey stated that the contract relied upon was the standard mortgage contract.  The breach he alleges was that the Royal Bank knew "that the contract shouldn't be entered into because of their knowledge."

[19]        There are no express terms in the mortgage contract that impose upon the Royal Bank a contractual duty to advise Mr. Healey the Properties might suffer from building envelope failure.  There is, in my view, no basis upon which to impose an implied term creating such an obligation.  Accordingly, the claims of breach of contract do not disclose a bona fide issue to be tried.

[20]        The next group of claims is: breach of trust, knowing assistance, bad faith, unconscionable bargaining and unjust enrichment.

[21]        With respect to the claim of breach of trust, no particulars of the alleged trust were set out in either the pleadings or in submissions or by way of affidavit.

[22]        Mr. Healey has not stated whether the trust is an express trust or a trust arising from the operation of law.  Nor has he stated the identity of the trustee, the beneficiary or what is claimed to be held on trust.  If it is an express trust, he has failed to state the intention, object or subject of the trust.  It is a trust arising by operation of law, he has failed to plead the necessary facts capable of supporting a claim that such a trust exist.

[23]        In light of the fact that Mr. Healey has failed to plead any facts capable of supporting any type of trust known at law, the plaintiff's claim of breach of trust must fail.

[24]        The equitable doctrine of knowing assistance operates to create liability for a third party for breach of a trust to which the third party is a stranger.  A stranger to a trust will be liable under the doctrine of knowing assistance if he, with actual knowledge, assists the trustee in a dishonest and fraudulent breach of trust.  The liability of the stranger is justified because he has acted in a way that equity considers unconscionable.

[25]        To prove a claim of knowing assistance of breach of trust, the plaintiff must establish the following:

(a)   the existence of a trust;


(b)   that the trustee fraudulently or dishonestly breached his equitable duty;

(c)   the stranger defendant had actual knowledge of the trustee's fraudulent or dishonest conduct; and

(d)   the stranger defendant knowingly assisted in the fraudulent or dishonest scheme.


Air Canada v. M&L Travel Ltd. (1993), 108


[26]        Mr. Healey has failed to plead any particulars of the alleged trust, including whether the trust alleged is an express trust or a trust arising by operation of law.  Even if it is assumed that a trust existed and that he was a beneficiary of such a trust, he has failed to plead or to provide such in submissions or by way of affidavit any facts capable of supporting a claim of knowing assistance against the Royal Bank.  In the result, his claim of knowing assistance against the Royal Bank is bound to fail.

[27]        Mr. Healey alleges that the Royal Bank had a duty to bargain in good faith in entering into the Mortgage Agreements and that duty was breached when the Bank failed to disclose its alleged knowledge concerning the likelihood that the Properties would experience building envelope failure.  However, there is, apart from certain types of contracts or special relationships, no free standing duty of fairness at common law; see Midwest Management (1987) Ltd. (c.o.b. A Joint Venture) v. BC Gas Utility Ltd. 2000 B.C.C.A. 589.  No facts were provided by way of pleading or otherwise that would bring this relationship into the special circumstances in which such an obligation arises.  Accordingly, this claim does not disclose a bona fide issue to be tried.

[28]        Mr. Healey has pleaded that by entering into the Mortgage Agreements, the Royal Bank committed unconscionable bargaining.  However, there is no cause of action in Canadian jurisprudence of unconscionable bargaining.  Rather, the doctrine of unconscionability permits a party, in certain circumstances, to escape the enforcement of an agreement on the basis that it is unconscionable.  In order to prove unconscionability, a defendant must establish:

(a)   inequality in the position of the parties arising out of the ignorance, need or distress of the weaker party, which left him in the power of the stronger party; and


(b)   that the bargain made was improvident to the weaker party.


Klassen v. Klassen (2001), 91 B.C.L.R. (3d) 237 (C.A.).


[29]        As the Royal Bank is not seeking to enforce the Mortgage Agreement against Mr. Healey (having transferred them to the Scotia Mortgage Corporation in 1997), there can be no operation of the doctrine of unconscionability in the case at bar.  As a result, the plaintiff's claim of "unconscionable bargaining" does not disclose a reasonable claim.

[30]        The equitable doctrine of unjust enrichment operates where one party has and retains money or benefits which in justice and equity belong to another party.  Where certain circumstances exist, equity will create a constructive trust over the monies or benefits on behalf of the person to whom they rightfully belong.  In order to establish a claim based on unjust enrichment, a plaintiff must establish the following:

(a)   an enrichment of the defendant;


(c)   a corresponding deprivation of the plaintiff; and


(c)   the absence of any juristic reason for the enrichment.

Bratsch Holding Inc. Aktiengesellschaft (c.o.b. Bratsch Inc.) v. Zen (22 March 1996), Vancouver No. CA019094 (C.A.).


[31]        In the case at bar, Mr. Healey has not pleaded as to how the Royal Bank has been enriched, or how he has been correspondingly deprived.  The relationship between Mr. Healey and the Royal Bank is that of borrower and lender.  The Royal Bank loaned money to Mr. Healey to enable him to purchase the Properties.  The Royal Bank was not enriched in any way other than receiving interest on the Mortgages.  Mr. Healey was not correspondingly deprived in any way in that in consideration for the interest paid, the Royal Bank agreed to loan him money.  Even if it is found that there was an enrichment of the Royal Bank and a corresponding deprivation of Mr. Healey, there was clearly a juristic reason for the enrichment, i.e., the Mortgages and Mortgage Agreements.  Accordingly, I conclude that the plaintiff's claim of unjust enrichment does not disclose a triable issue.

[32]        Finally, Mr. Healey has alleged that the Royal Bank is "joined in these proceedings" by reference to the Law and Equity Act, the Financial Institutions Act, the Bank Act, the Trust and Loan Companies Act, the Negligence Act, the Crown Liability and Proceedings Act, the Crown Proceeding Act, the Canada Mortgage and Housing Corporation Act, the Consumer Protection Act.  No particulars of the sections of statutes relied upon were provided; no allegations were particularized, nor were the facts upon which the allegations were founded particularized.  During the course of submissions, no reasonable claim or question to be tried was identified.  Accordingly, the references in the pleadings to the various statues do not disclose a cause of action or question to be tried.

[33]        In the result, I have concluded that the claims both in the proposed Further Amended Statement of Claim and with reference to the addition proposed amendments referred to in submissions are bound to fail.  There is no bona fide issue to be tried.  The claims against the Royal Bank are dismissed.

[34]        The Royal Bank sought special costs of this application.  There was nothing identified in the conduct giving rise to these proceedings or in the litigation that would warrant such an award.  The defendant shall have its costs at Scale 3.


“C. Ross, J.”
The Honourable Madam Justice C. Ross