Nathan v. Société hypothécaire Scotia, [2008] R.R.A. 566 (C.S.)

The Superior Court has recently ordered a financial institution to pay its clients punitive damages in the amount of $50,000, as well as compensation for moral and material damages in the amount of $28,000, to be paid jointly to both plaintiffs. The Court concluded that the financial institution committed numerous errors such as: (a) failing to inform its clients that their mortgage would not be renewed; (b) requiring the full reimbursement of the mortgage without giving its clients reasonable time to find another lender; (c) unjustly instituting hypothecary recourses in an abusive and malicious manner; and (d) illegally taking possession of the properties by entering and blocking access to owners without authorization.

In this matter, the Société hypothécaire Scotia (the "Bank") granted two mortgages to two individuals for two properties. Even though the amounts were always eventually paid, the mortgage payments were often late, causing inconveniences to Société hypothécaire Scotia. Without notifying its clients, the Bank decided not to renew their mortgages due to the late payments. Consequently, the defendants paid the arrears and interests to the Bank. However, the Bank claimed that the amounts were insufficient and thus, did not cover the credit verification fees nor the legal fees incurred by the Bank. As a result, the Bank served prior notices for its intention to exercise the hypothecary right of a surrender and sale by judicial authority for the two properties. Prior to the expiry of the period specified in the notice, the Bank concluded that the properties were abandoned and, as such, took possession of both properties. A few days later, an offer to purchase was accepted for one of the properties. The notary in charge of completing the sale requested the Bank to provide details regarding the amount it was owed. In its claim, the Bank included management fees, credit verification fees, the insurance that it subscribed to, as well as legal fees.

Following these events, the Bank found itself in a claim for the reimbursement of the amount that its clients had to pay in order to carry out the sale of their properties. In its decision, the Superior Court states that the legitimacy and reasonability of the fees claimed by a hypothecary creditor may be contested considering the circumstances. The Court asserts that the Bank was not entitled to claim the credit verifications fees, the management fees, nor the fees related to the Bank’s property insurance. As for the legal fees, the Court states that those connected to the notices were erroneous. In fact, the plaintiffs were never informed that their mortgages would not be renewed. They assumed that, by paying the owed amounts, their mortgages would be renewed. Furthermore, even if the Bank was under no obligation to renew the mortgages, it should have given its clients sufficient time to find another mortgage lender. The exercise of hypothecary rights was therefore unreasonable and the Court ordered the Bank to reimburse its clients for the amounts they paid for this proceeding.

Material, moral and punitive damages were also claimed from the Bank for having taken possession of the properties without right. The Court confirmed that, in the present matter, the mere fact of leaving the property or remaining silent after receiving a prior notice of intention to exercise a hypothecary right, does not consist of an intention to surrender the properties. The Bank did not have the right to enter by force a property, nor take possession of it based on the mere appearance of abandonment. Therefore, the Court granted the damages sought by the plaintiffs. Moreover, it granted moral damages for the inconveniences, stress and anxiety suffered, as well as for the illegal entry into their homes. In fact, the Bank’s acts, according to the Court, violated the reputation and privacy of the defendants. In regards to punitive damages, the Court reiterated the rule that such damages can only be granted in the event of gross and intentional violation of fundamental rights. In this matter, the Bank did not act in accordance with the general practice of financial institutions. As well, its violation of its clients’ rights was deemed intentional, since it had acted with full knowledge of the issue.