FIRST NATIONAL FINANCIAL GP CORP v KULAGA, 2012 ABQB 8
7.3: Summary Judgment (Application and decision)
The Plaintiff sought Summary Judgment against one of the Defendants, Kulaga, for the amount outstanding on an insured mortgage. Kulaga alleged that the subject property was flipped to inflate the price just before it was transferred to him, and that the Plaintiff knew or ought to have known that the transaction was fraudulent.
Kulaga learned of an investment in which he would hold a mortgage on a house for two to four months until the buyer could acquire the property. He would be paid a fee for providing the financing during that period. Kulaga claimed that he was advised by an alleged Mortgage Specialist from the Royal Bank of Canada and a Mortgage Broker that the transaction was legal.
Kulaga argued that Summary Judgment could not be granted as the mortgage contract was tainted by illegality by way of participation in the fraud by the Lender. Indeed, two other Real Estate Purchase Contracts had been forwarded to the Lender in respect of the same property. In this context, Kulaga claimed that the Plaintiff knew or ought to have known of the fraud and chose to lend the funds regardless. Kulaga further argued that the lawyer, as agent for the Plaintiff, failed to disclose the true transaction to him and thereby committed a misrepresentation upon which he relied.
Master Hanebury held that Summary Judgment may only be granted if there is no genuine issue for Trial. The evidentiary burden is initially on the Applicant to prove its cause of action on a balance of probabilities. The evidentiary burden then shifts to the Respondent to show that there is no genuine issue for Trial.
Master Hanebury held that participants in a fraudulent or illegal scheme cannot ask the Court to refuse to enforce the contract they signed on the basis of its illegality. However, Master Hanebury further held that this legal principle cuts both ways. If the lender was involved in the fraud, it too may have difficulty enforcing the contract due to its illegality.
Master Hanebury held that the Plaintiff provided no response to Kulaga’s claims that it knew or ought to have known of the fraud. Further, the Plaintiff did not deny that it received notice of the back-to-back offers showing a significant increase in the value of the property in a short period of time. Although Kulaga was not an innocent party, it was not obvious that the Plaintiff came to Court with clean hands. As such, Master Hanebury held that Summary Judgment was not a remedy available on the facts as presented, and dismissed the Application.
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