Executive Summary: Key Legal and Evidentiary Issues

• Authority of First Swiss to act as agent for Olympia in receiving mortgage payout and discharging the mortgage was central to the dispute.

• The sufficiency of notice to borrowers regarding the assignment of the mortgage to Olympia was questioned.

• The interpretation and application of the Mortgage Loan Servicing Agreement and Trust and Beneficial Ownership Agreement were pivotal.

• The role of industry standards for mortgage discharge procedures was challenged and ultimately deemed irrelevant.

• The admissibility and necessity of expert evidence on industry standards was considered and rejected.

• The appropriateness of awarding costs to the successful party was addressed.

Facts of the case

In 2019, Calogero Sferrazza and Carmela Romano borrowed $107,990 from First Swiss Mortgage Corp., secured by a one-year second mortgage on their property. Shortly after registration, First Swiss assigned the mortgage to Olympia Trust Company, which acted as a bare trustee for William Loucks and another investor who had provided the loan funds. The borrowers were not informed of this assignment and continued making payments to First Swiss.

Before the mortgage matured, the borrowers refinanced their property, using new loan proceeds to pay off both the first and second mortgages. During the refinancing, a title search revealed Olympia as the holder of the second mortgage. However, a principal of First Swiss assured the borrowers’ mortgage broker and title insurer that First Swiss and Olympia were related, and that First Swiss would handle the payout. First Swiss provided a payout statement and directed the borrowers to send the necessary funds to First Swiss, which they did on October 6, 2020.

Despite this payment, the second mortgage was never discharged from the property title. First Swiss failed to forward the payout funds to Olympia, instead continuing to send Olympia monthly payments purportedly for the mortgage.

Events leading to litigation

In March 2023, First Swiss was assigned into bankruptcy and a receiver was appointed to investigate alleged misappropriation of funds. Olympia subsequently sent a notice of default to the borrowers, claiming default on the mortgage. The borrowers then discovered that their payout had not reached Olympia and the mortgage remained undischarged.

The borrowers moved to have the mortgage discharged as part of the receivership proceedings. The receiver did not oppose, but Olympia and Mr. Loucks did.

Discussion of policy terms and agreements

The case turned on the interpretation of two agreements: the Mortgage Loan Servicing Agreement and the Trust and Beneficial Ownership Agreement between First Swiss and Mr. Loucks. The motion judge found that these agreements, along with the parties’ conduct, established that First Swiss had both actual and apparent authority to act as Olympia’s agent for the purposes of receiving the mortgage payout and discharging the mortgage. Olympia, as a bare trustee, had no independent power to administer the mortgage and could not interfere with the administration arrangements between Mr. Loucks and First Swiss. The agreements explicitly authorized First Swiss to execute documents and receive payments on behalf of Mr. Loucks and Olympia.

Arguments on appeal

Olympia and Mr. Loucks argued that First Swiss was not authorized to act as their agent for the mortgage payout and discharge, relying on what they claimed were industry standards requiring direct dealings with Olympia. They also challenged the motion judge’s application of agency law and the exclusion of expert evidence on industry standards.

Court of Appeal’s reasoning and outcome

The Court of Appeal upheld the motion judge’s findings, confirming that First Swiss had both actual and apparent authority to act as Olympia’s agent. The court found no legal error in the application of agency principles or in the reliance on the agreements and course of dealings. The court also agreed that industry standards were irrelevant once agency was established, and that the exclusion of expert evidence was within the motion judge’s discretion.

The appeal was dismissed. The respondents, Sferrazza and Romano, were awarded costs in the agreed amount of $28,082.76, inclusive of disbursements and HST, as the successful parties.