Mortgage Makers Inc. et al. v. McKeen, (2009) 349 N.B.R.(2d) 115 (CA)

• Judge: Robertson, Richard and Bell, JJ.A.
• Court: Court of Appeal (New Brunswick)
• Case Date: April 15, 2009
• Jurisdiction: New Brunswick
• Citations: (2009), 349 N.B.R.(2d) 115 (CA);2009 NBCA 61

Mortgage Makers Inc. v. McKeen (2009), 349 N.B.R.(2d) 115 (CA);

    349 R.N.-B.(2e) 115; 899 A.P.R. 115

MLB headnote and full text

Sommaire et texte intégral

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2009] N.B.R.(2d) TBEd. SE.044

Renvoi temp.: [2009] N.B.R.(2d) TBEd. SE.044

Randy McKeen and Sharon McKeen (appellants) v. The Mortgage Makers Inc. and Andrew Libby (respondents)

(124-08-CA; 2009 NBCA 61)

Indexed As: Mortgage Makers Inc. et al. v. McKeen

Répertorié: Mortgage Makers Inc. et al. v. McKeen

New Brunswick Court of Appeal

Robertson, Richard and Bell, JJ.A.

September 24, 2009.

Summary:

Résumé:

A mortgage brokerage firm and its owner sued homeowners for breach of two contracts to recover $9,100. The $9,100 consisted of a $3,500 brokerage fee and the loss of a $5,600 finder's fee.

The New Brunswick Court of Queen's Bench, Trial Division, in a decision reported at 339 N.B.R.(2d) 215; 870 A.P.R. 215, allowed the action. The homeowners appealed.

The New Brunswick Court of Appeal allowed the appeal, set aside the judgment below and dismissed the action.

Brokers - Topic 3026

Duties of broker to principal - General principles - Duty of disclosure - A mortgage brokerage firm sued for breach of two contracts to recover $9,100 (a $3,500 brokerage fee and the loss of a $5,600 finder's fee) - The New Brunswick Court of Appeal held that, having regard to the totality of the circumstances, enforcement of the contracts would not be reasonable under s. 5(1) of the Law Reform Act (enforcement of penalty or liquidated damages clause) - The immediate costs of the loan would have exceeded $15,500 - Those costs would have been deducted from the mortgage proceeds, leaving a shortfall when it came to retiring the defendants' outstanding indebtedness - This was accomplished without the defendants meeting the broker and without any prior discussion or disclosure of brokerage fees, the finder's fee and, ultimately, the real cost of the loan - It was the broker who identified the lawyer who was to represent the defendants, but only after the contracts were signed - The fact that the broker did not advance a quantum meruit claim was revealing - It would be difficult to justify claiming $9,100 for several hours of work spread over four weeks - Further, mortgage brokers, as agents, were under a duty to act in good faith and to make relevant and timely disclosure of matters that might reasonably impact their client's ability to make informed decisions - The failure to disclose the finder's fee (secret commission) had the corollary effect of disentitling the broker to the brokerage fee - The same principle applied to a finder's fee that would have been paid by the insurer who was to provide the term life insurance - It was equally objectionable that the broker had entered into an exclusive arrangement with the insurer - Accordingly, there was no presumption that the defendants were being offered the best rate - Also, the broker acted in its own best interests at the defendants' expense by approaching only the lender that paid the largest finder's fee - See paragraphs 44 to 62.

Brokers - Topic 3028

Duties of broker to principal - General principles - Duty respecting conflicts of interest - [See Brokers - Topic 3026 ].

Brokers - Topic 3035

Duties of broker to principal - General principles - Duty to protect principal against improvident transactions - [See Brokers - Topic 3026 ].

Brokers - Topic 4038

Compensation - Right to compensation - Effect of default by broker's principal - [See Brokers - Topic 3026 ].

Brokers - Topic 4076

Compensation - The compensation agreement - Breach by principal - Damages - [See Brokers - Topic 3026 ].

Contracts - Topic 4041

Remedies for breach - Liquidated damages and penalties - General - The New Brunswick Court of Appeal reviewed the common law principles and rules applicable to penalty clauses - See paragraphs 17 to 39.

Contracts - Topic 4041

Remedies for breach - Liquidated damages and penalties - General - A mortgage brokerage firm and its owner sued for breach of two contracts to recover $9,100 (a $3,500 brokerage fee and the loss of a $5,600 finder's fee) - The defendants asserted that the contracts were unconscionable where they represented approximately 4% of the total financing and were not related to losses sustained as a result of a breach of the contracts - The trial judge allowed the action, holding that the plaintiffs had established that the contracts were not extravagant or unreasonable within the purview of s. 5(1) of the Law Reform Act - Section 5(1) provided that "A party to a contract may enforce a penalty clause or a liquidated damages clause to the extent that it is reasonable in all of the circumstances that the clause should be enforced" - The New Brunswick Court of Appeal noted that the trial judge had not addressed the unconscionability argument - While the court was sympathetic with the argument, it preferred to base its decision on the application of s. 5, where it was the principal focus of the debate on appeal and the general test of "reasonableness in the circumstances" was less cumbersome than the two prong analysis required under the unconscionability doctrine - This was not to deny that there would be overlap between the two tests - See paragraphs 44 to 46.

Contracts - Topic 4041

Remedies for breach - Liquidated damages and penalties - General - Section 5(1) of the Law Reform Act provided that "A party to a contract may enforce a penalty clause or a liquidated damages clause to the extent that it is reasonable in all of the circumstances that the clause should be enforced" - The New Brunswick Court of Appeal disagreed with a trial judge's conclusions that s. 5(b) was a codification of existing common law dealing with penalty and liquidated damages clauses - However, the court agreed with the judge that s. 5(1) effectively reversed the common law onus of proof - At common law the onus was on the defendant to establish that the clause was not a genuine pre-estimate of damages - Under s. 5(1), the onus was on the plaintiff to establish the reasonableness of the clause - See paragraph 47.

Contracts - Topic 4045

Remedies for breach - Liquidated damages and penalties - Enforceability of liquidated damages or penalty clause - [See Brokers - Topic 3026 ].

Equity - Topic 1121

Contracts - Unconscionability - General - [See second Contracts - Topic 4041 ].

Equity - Topic 1121

Contracts - Unconscionability - General - The New Brunswick Court of Appeal stated that the doctrine of unconscionability "has two components; one procedural and one substantive ... The procedural component looks to see whether there was an inequality of bargaining power. The substantive component looks to see whether the inequality lead to an improvident bargain (substantively unfair). Consumers enter into contractual arrangements daily, and even though a procedural inequality exists, this does not mean that the resulting contract is substantively unfair. This is why it is important to recognize that the unconscionability doctrine embraces two components ..." - See paragraph 44.

Contrats - Cote 4041

Recours pour rupture - Dommages-intérêts liquidés et pénalités - Généralités - [Voir Contracts - Topic 4041 ].

Contrats - Cote 4045

Recours pour rupture - Dommages-intérêts liquidés et pénalités - Applicabilité d'une clause de pénalité ou de dommages-intérêts liquidés - [Voir Contracts - Topic 4045 ].

Courtiers - Cote 3026

Devoirs du courtier envers le commettant - Principes généraux - Devoir de divulgation - [Voir Brokers - Topic 3026 ].

Courtiers - Cote 3028

Devoirs du courtier envers le commettant - Principes généraux - Devoir relatif aux conflits d'intérêts - [Voir Brokers - Topic 3028 ].

Courtiers - Cote 3035

Devoirs du courtier envers le commettant - Principes généraux - Devoir de protéger le commettant contre les transactions imprévoyantes - [Voir Brokers - Topic 3035 ].

Courtiers - Cote 4038

Rémunération - Droit - Effet du défaut par le commettant du courtier - [Voir Brokers - Topic 4038 ].

Courtiers - Cote 4076

Rémuneration - Convention de rémunération - Violation par le commettant - Dommages- intérêts - [Voir Brokers - Topic 4076 ].

Equity - Cote 1121

Redressement en equity - Contrats - Marché exorbitant - Généralités - [Voir Equity - Topic 1121 ].

Cases Noticed:

Dunlop Pneumatic Tyre Ltd. v. New Garage and Motor Co., [1915] A.C. 79 (H.L.), refd to. [para. 18].

Elphinstone (Lord) v. Monkland Iron and Coal Co. (1886), 11 App. Cas. 332, refd to. [para. 20].

Canadian General Electric Co. v. Canadian Rubber Co. (1915), 52 S.C.R. 349, refd to. [para. 25].

Wallis v. Smith (1882), 21 Ch. D. 241, refd to. [para. 25].

Thermidaire Corp. v. Clarke (H.F.) Ltd., [1976] 1 S.C.R. 319; 3 N.R. 133, refd to. [para. 27].

Collins (J.G.) Insurance Agencies Ltd. v. Elsley's Estate, [1978] 2 S.C.R. 916; 20 N.R. 1, refd to. [para. 29].

Federal Business Development Bank v. Fredericton Motor Inn Ltd. (1980), 32 N.B.R.(2d) 108; 78 A.P.R. 108 (T.D.), refd to. [para. 33].

Federal Business Development Bank v. Eldridge (1986), 76 N.B.R.(2d) 399; 192 A.P.R. 399 (C.A.), affing. (1985), 67 N.B.R.(2d) 93; 172 A.P.R. 93 (T.D.), refd to. [para. 33].

Lee et al. v. OCCO Developments Ltd. (1996), 181 N.B.R.(2d) 241; 460 A.P.R. 241 (C.A.), refd to. [para. 34].

Béton Brunswick ltée v. Martin (1996), 176 N.B.R.(2d) 81; 447 A.P.R. 81 (C.A.), refd to. [para. 35].

New Brunswick Power Corp. v. Westinghouse Canada Inc. et al. (2008), 337 N.B.R.(2d) 138; 864 A.P.R. 138; 2008 NBCA 70, refd to. [para. 37].

Morrison v. Coast Finance Ltd. (1965), 55 D.L.R.(2d) 710 (B.C.C.A.), refd to. [para. 44].

Harry v. Kreutziger (1978), 95 D.L.R.(3d) 231 (B.C.C.A.), refd to. [para. 44].

Lloyds Bank Ltd. v. Bundy, [1975] Q.B. 326 (C.A.), refd to. [para. 44].

Advanced Realty Funding Corp. v. Bannink (1979), 27 O.R.(2d) 193 (C.A.), refd to. [para. 56].

Atlanta Industrial Sales Ltd. et al. v. Emerald Management & Realty Ltd. (2006), 399 A.R. 1; 2006 ABQB 255, refd to. [para. 57].

St. Louis Estate v. CIBC Mortgages Inc. et al., [2004] O.T.C. 533; 12 C.C.L.I.(4th) 135 (Sup. Ct.), refd to. [para. 57].

Statutes Noticed:

Law Reform Act, S.N.B. 1993, c. L-1.2, sect. 5(1) [para. 40].

Authors and Works Noticed:

Fridman, Gerald Henry Louis, The Law of Agency (7th Ed. 1996), p. 181 [para. 53].

McCamus, John D., The Law of Contracts (2005), pp. 897 to 904 [para. 31].

New Brunswick (Attorney General), Law Reform Branch, Commentary on the Law Reform Act (1993), generally [para. 41].

Peel, Edwin, The Law of Contract (12th Ed. 2007), pp. 1074 to 1079 [para. 20].

Swan, Angela, Canadian Contract Law (2nd Ed. 2009), pp. 784 to 792 [para. 44]; 834, 835 [paras. 28, 31, 37]; 836 to 839 [paras. 28, 31]; 841 [para. 34].

Waddams, Stephen M., The Law of Contracts (5th Ed. 2005), paras. 449 to 462 [para. 31].

Counsel:

Avocats:

John D. Townsend, Q.C., for the appellants;

Jason T. Dempsey, for the respondents.

This appeal was heard on April 15, 2009, by Robertson, Richard and Bell, JJ.A., of the New Brunswick Court of Appeal. The following decision of the court was delivered in both official languages, by Robertson, J.A., on September 24, 2009.