Breaking Fraud Cases from Canadian Courts

At Canadian Fraud News, we report on decisions issued by Canadian Courts related to fraud, that are not reported in the main stream media, and that contain legal issues the Canadian public and fraud recovery experts should be aware of. The following is one such story.

On September 5, 2017, the Ontario Superior Court of Justice in Ottawa released its decision in a land transaction case involving a trustee and a purchaser where two other beneficiaries to a trust were not told their interest in 55 acres of land in the Village of Cumberland had been sold without notice to them.

The story is somewhat complex, and involves the interpretation of the term “fraudulent person” pursuant to the Land Titles Act. The case is now under appeal. That said, the legal concepts are novel and are of interest to those involved in the fraud recovery industry. The facts, as set out by the Court, are as follows:

A Trust Created for Holding Real Property

Since 1995, the defendant Denis Bertrand (“Bertrand”) held title “in trust” to approximately 55 acres of land in the village of Cumberland (the “Property”).

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. The beneficial owners of the Property were:

· Bertrand 27.03% interest,

· Peter Clark 36.48% interest, and

· R&R Realty 36.48%.

Transfers of Trust Property without Notice to the Beneficiaries

In 2005, Bertrand sold the whole property to 67006037 Canada Inc. (“670”) for the sum of $100,000.00 without notice or the consent of the other two beneficial owners Peter Clark and R&R Realty. On March 30, 2007, Bertrand conveyed a fee simple interest in the Property to 670.

670 was owned by Mathieu Joncas. Mathieu Joncas, a barrister and solicitor of the City of Gatineau, practicing in the City of Ottawa.

At the time of the sale, Bertrand had two executions registered against him; one for $329,487.00 plus costs and interest and another for approximately $37,502.00.

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.

When Peter Clark and R&R Realty learned of what happened, they sued Bertrand and 670.

Submissions at Trial

The Plaintiffs submitted that:

1. Bertrand held the property in trust as a “bare trustee” on behalf of the beneficial owners; 2. Bertrand was a “fraudulent person” as defined by the Land Titles Act, R.S.O. 1990, c. L.5; (the “Act”) 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 totaling over $350,000.00 when he knew this was a false statement which was required to complete the sale;

3. the purchaser 670 had notice that Bertrand held the title in trust from a source other than the Land Titles Registry,

4. Joncas was not a bona fide purchaser without notice; and that

5. Joncas held title to the property on a constructive trust for the Plaintiffs to the extent of their beneficial interests.

Bertrand submitted that:

1. his signing of the affidavit falsely stating that he was not the same person as the Denis Bertrand who was subject to two executions was irrelevant;

2. he was not a “bare trustee”, but rather a full trustee with authority to sell the property without the consent of the beneficial owners;

3. 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

4. if he breached the terms of the trust, so did Joncas.

Lawyer Joncas argued that:

1. he was a bona fide purchaser without notice;

2. he was not required to ensure that Bertrand had authority to sell as a trustee; and that 3. 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” as defined in the Act , rather he just signed a false affidavit in order to complete the sale and therefore submits that the title should not be rectified.

The Director of Titles argued that Bertrand was not a “fraudulent person” and he was also not a “fictitious person” as defined in the Act . As a result, the Director submitted that there is no basis on which to rectify the title.

In other words, Bertrand submitted that he, 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.

The Plaintiffs submitted 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.

The Court’s Findings Related to Bertrand

The Court held that the fact that the property was registered in the name of “Denis Bertrand in Trust” did not create a person different from “Denis Bertrand” personally. Bertrand as trustee, and Bertrand who held a 27.03% beneficial interest in the property were the same person.

The Court further held the trust document did not give Bertrand any authority to sell the property, mortgage the property, or any other rights to deal with the property. The Court rejected 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 Court found that 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… This is a false statement on the face of the transfer which was based on Bertrand’s false affidavit.

The Court held that 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 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.

The Court found Bertrand liable for civil fraud, and that 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.

The Court’s Findings Related to Joncas

The Court held that Joncas was not a bona fide purchaser without notice from Bertrand. The Court held that it did not need to make a finding that a breach of trust was fraudulent to find that Joncas liable for “knowing the receipt of trust property.” On this basis the Court found that Joncas had constructive knowledge of Bertrand’s breach of trust for the following reasons:

1. Joncas, though his solicitor was aware that two writs of execution were registered against a person with the same name as the vendor. Joncas and his lawyer would have known that the executions against the vendor would bind the land and form an encumbrance on the property. 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;

2. Joncas knew the property was held in trust because he prepared the offer to purchase before the title was searched;

3. Joncas, as a lawyer, 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 was a different situation from an estate trustee that was appointed by a will which contained a power of sale and the authority to sell the property was expressly given to the estate trustee. In this case, Joncas could have inquired about whether the trustee had authority to sell or whether the consent of the beneficial owners was required;

4. the fact that Mr. Joncas entered into a private sale agreement for trust property where the property had not been listed for sale with a real estate agent, was 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 was 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;

5. Bertrand advised Joncas that he was not going to use a lawyer if Joncas’ lawyer would not act in a conflict situation. While it was not against the rules of professional conduct at that time for Joncas’ lawyer 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;

6. 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. The Court inferred 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;

7. Bertrand’s insistence that 50% of the purchase price be paid as a deposit directly to Bertrand and not to his lawyer in trust was 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. The Court noted that deposits of one half of the purchase price are rarely paid directly to the vendor before closing;

8. the fact Joncas was not aware of the appraised value of $300,000.00 was a suspicious circumstance when 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

The Court held that as a result of having found that Denis Bertrand was a fraudulent person and that the transfer was a fraudulent instrument was void, that the appropriate remedy was to undo the fraud and to rectify the title to its original state. The Court, therefore, ordered the title to the property is rectified in accordance with the beneficial ownership interests, namely:

· R&R Reality 31.76%,

· Peter Clark 36.48%,

· J. G. RivardLtd. 4.73%, and

· Denis Bertrand 27.03%.

The Court further held that on this 200,000 claim, that the Bertrand and Joncas’ company 670 pay costs to the Plaintiffs of approximately $200,000.

The Reported Decisions

As mentioned above, this case is now under appeal.

The Court’s decision reported at 1168760 Ontario Inc. c/o R&R Realty, Peter Clark & J.G. Rivard Limited v. 67006037 Canada Inc. & Denis Bertrand, 2017 ONSC 5149, and is publically available on-line at: https://www.canlii.org/en/on/onsc/doc/2017/2017onsc5149/2017onsc5149.html?searchUrlHash=AAAAAQAPYmVydHJhbmQgam9uY2FzAAAAAAE&resultIndex=2

The cost endorsement is reported at 1168760 Ontario Inc. c/o R&R Realty, Peter Clark & J.G. Rivard Limited v. 6706037 Canada Inc. & Denis Bertrand, 2017 ONSC 7497, and is publically available on-line at: https://www.canlii.org/en/on/onsc/doc/2017/2017onsc7497/2017onsc7497.html?searchUrlHash=AAAAAQAPYmVydHJhbmQgam9uY2FzAAAAAAE&resultIndex=2

Inquiries

For further information on this case, or any other fraud recovery inquiry, contact Canadian Fraud News Inc. at Devin@Canadianfraudnews.com .

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