In the light of the recent changes in the Agency and Disclosure requirements for Real Estate transactions and the introduction of new mandatory disclosure forms by the BC Real Estate Council, it is appropriate to revive the most basic concepts overarching the realtor-client relationship which involves an utmost trust and fiduciary duties.

Regardless of any changes which governs the real estate activity more tightly in some ways, the nature of the real estate representation remains the same. Despite compliance being mandatory and the adversity of some real estate professionals, public and consumer protection cannot be achieved in an organized society if private interests prevail. A more advanced vision for the Canadian Economy outweighs the pursue of profit.

Areas of Law: Real Estate, Fiduciary Duty, Breach of Confidence, Accessory Liability, Conflict of Interest, Disclosure, Non-pecuniary Loss, Equitable Remedy, Punitive Damages.

 Style of Cause:

Mulligan v. Stephenson, 2016 BCSC 1941

 Procedural History:

Trial decision from the BC Supreme Court in civil action by Thomas Mulligan (“the Plaintiff”) against Geoffrey Stephenson, Greyfriars Realty International Ltd and Greyfriars Mortgage Investment Corp. for alleged breach of fiduciary duty by virtue of the realtor-client relationship and in which the Plaintiff seeks, amongst other reliefs, a non-pecuniary loss award of $40,000 plus a punitive damage award of $115,000.

 Facts:

 The Plaintiff was once a real estate agent who separated from his wife in the early 1990s and subsequently found himself in financial difficulties in the following years until he assigned himself into bankruptcy. His cash flow problems continued throughout the years due mostly to his non-regular income which made him often delinquent in meeting his financial obligations. In the early 2000s and until approximately 2005 the Plaintiff worked as a licensed realtor for Greyfriars Realty Corp. owned by his friend and colleague Geoffrey Stephenson, herein one of the defendants. Mr. Stephenson was a successful real estate agent and mortgage broker and was owner-operator of both Greyfriars Realty and Greyfriars Mortgage (“the Companies”). The Companies intermingled their business affairs as profits not paid to investors were paid to Greyfriars Realty as a management fee. Greyfriars Mortgage activities consisted of providing loans based solely on property equity and not secured by income or other assets. In the course of this trial Credibility was raised by both parties and so it was a significant issue to be determined by the court. Judge approached the testimony of both parties with a high measure of caution.

After being discharged from bankruptcy in 2004, the Plaintiff purchased a property in White Rock, BC, for which he granted a first mortgage to Maple Trust and a second mortgage to Greyfriars Mortgage. In the following years Greyfriars held several mortgages on the property as the Plaintiff repeatedly refinanced and accumulated an increasing amount of debt. At the advice of Mr. Stephenson, the Plaintiff ended up paying out the Maple Trust mortgage and granted a first mortgage to Greyfriars Mortgage. At the end of the one-year term mortgage, the Plaintiff, at that point in time even in more serious financial difficulties, was behind in his mortgage payments and begun to consider selling the property. The Plaintiff retained an outside and prominent realtor in the White Rock area to sell the property but due to the soft real estate market conditions the listing expired in December of 2008 without a sale. The Plaintiff subsequently listed the property with Greyfriars Realty as Mr. Stephenson’s goal was to list the property at a low price to achieve a quick sale. His concerns were based on the size of the Plaintiff’s debt in a declining real estate market which represented a great risk for Greyfriars Mortgage as a mortgagee. Due to the circumstances he was not interested in renewing the mortgage. The first listing agreement was signed in February of 2009 for a price $ 30,000 lower than what had been initially proposed by Mr. Stephenson, followed by two amended listing agreements also for price reduction and to which the Plaintiff agreed with hesitation. During the time the property was listed there were 37 showings, but Mr. Stephenson withheld from the Plaintiff that two verbal offers had been made. In April of 2009 Greyfriars Mortgage finally commenced foreclosure procedure followed by an application for an order nisi. It was known that the Plaintiff also owed over $ 13,000 in outstanding property taxes for 2007, 2008 & 2009 combined. The property was sold, Greyfriars Realty was paid a commission but there was a shortfall left owing of about $ 29,000. Greyfriars Mortgage obtained a further writ of seizure and sale to recover the shortfall but was unsuccessful since the plaintiff had no other assets to secure the debt. The Plaintiff complained to the Real Estate Council about Mr. Stephenson’s conduct as a realtor in representing him by breaking some of the section 3-3 Council Rules. Such rules include acting in the best interest of the client, communicating all offers to the client in a timely manner as well as maintaining confidentiality of information respecting the client. Real Estate Council fined Mr. Stephenson for acts of professional misconduct

Plaintiff subsequently filed a Notice of Civil Claim alleging Mr. Stephenson and Greyfriars Realty acted as his fiduciaries within their realtor-client relationship and that both repeatedly breached their fiduciary duty. Plaintiff also submitted that Greyfriars Mortgage assumed fiduciary duties by participating in the breaches. Defendants denied breach of any fiduciary duty alleging the Plaintiff freely and knowing agreed to all transactions in relation to the property and his financial affairs and that both Mr. Stephenson and Greyfriars Realty acted within the terms of the listing agreements. They also submitted that Greyfriars Mortgage owned no fiduciary duty to the Plaintiff.

 Issues:

1.      Did Mr. Stephenson and the Companies breach any fiduciary duty owed to the Plaintiff and, if so, how?

2.      If there was a breach of fiduciary duty, what consequences, if any, should result?

 Decision:

 The court found that both Mr. Stephenson and Greyfriars Realty in fact owed the Plaintiff a fiduciary duty based on their realtor-client relationship. The fact the parties were known to each other prior to the start of the debtor and creditor relationship does not eliminate the scope of the duty. As such, realtor and brokerage were expected to act in the best interests, with loyalty and transparently throughout the course of their relationship. In addition, Court found that as owner of Greyfriars Mortgage, Mr. Stephenson was in a much serious conflict of interest position once he agreed to act as the Plaintiff’s realtor and that there was a substantial risk that Mr. Stephenson’s representation would be materially stained by his own interest in Greyfriars Mortgage Corp. Mr. Stephenson and Greyfriars Realty repeatedly breached their fiduciary duties to the Plaintiff as they acted as their realtor without fully disclosing their conflict of interest or obtaining a former waiver. In the view of the court this clearly favoured the interests of the mortgagee over the Plaintiff’s interests.

 Court also added that as the Plaintiff’s realtor, Mr. Stephenson very seriously breached his confidence in all stages of the relationship and particularly in relation to the foreclosure materials presented to the court in which Mr. Stephenson and Greyfriars Realty disclosed information that they obtained as a realtor, including but not limited to appraisal of the property not disclosed to the Plaintiff and two offers to purchase the property never presented to the Plaintiff.

 In their submissions Defendants also relied on the doctrines of res judicata, abuse of process and estoppel against he Plaintiff raising that the allegations he pursued in this civil action were raised in the foreclosure proceedings and should have been adjudicated then. However, Court disagreed and concluded that the plaintiff’s civil claims were not barred by res judicata nor related doctrines. Court further clarified that “the focus of this action was Mr. Stephenson’s breaches of duty as his realtor, which was not a matter for adjudication in the foreclosure proceedings”.

 Finally, court concluded that the Plaintiff suffered a non-pecuniary loss and determined the appropriate quantum of compensation to be $ 15,000. Court also awarded the Plaintiff with punitive damages in the order of $ 25,000 with the view that a compensatory award of $ 15,00 was insufficient to express the court’s disapproval of Mr. Stephenson’s professional misconduct as a realtor which involved disloyalty and breach of trust at a large. Court further declared that Greyfriars Mortgage would not be entitled to set off any part of the award against the shortfall owing by the Plaintiff.