Executive Summary: Key Legal and Evidentiary Issues

• Whether a mortgagee seeking indemnity costs must provide privileged legal accounts to mortgagors before the redemption period expires while litigation is ongoing

• The mortgagors' equitable right to redeem their family home was weighed against the lender's right to maintain solicitor-client and litigation privilege

• Genesis Mortgage claimed approximately $104,000 in indemnity costs for what was, for the most part, an uncontested foreclosure proceeding

• Respondents could not determine the exact redemption amount needed to save their home without disclosure of the supporting legal invoices

• Exceptional circumstances under s. 19 of the Law and Equity Act justified halting interest accrual during the appeal period

• Standard of review required determining whether Associate Judge Schwartz was correct, given the ruling raised questions vital to the final issue in the case

Background and the parties involved

Genesis Mortgage Investment Corp. is a company registered pursuant to the laws of the Province of British Columbia that is in the financial services industry and makes loans to individuals and/or other legal entities in the normal course of business. Sebastien Blais and Christine de Vries were formerly the joint owners of the real property known municipally as 943 Fuller Avenue, Kelowna, BC (the "Fuller Property"). Christine de Vries is the sole owner of the real property municipally known as 1018 Wilson Avenue, Kelowna, BC (the "Wilson Property"), which is where she and Sebastien Blais continue to reside as their family home. The appraised value of the Wilson Property, as at January 6, 2025, was between $675,000 and $725,000.

The development project and mortgage financing

In or about 2021, the respondents decided to develop the Fuller Property by building a fourplex (the "Project"). The anticipated cost of the Project exceeded $2,000,000. On October 18, 2022, a mortgage was registered by Genesis for the principal amount of $2,400,000.00 to finance the Project. The Mortgage was secured as a first charge on both the Fuller Property and the Wilson Property. The terms negotiated required $24,000 interest to be paid monthly and deducted from the principal amount available for the various draws, and the loan was renewed twice, resulting in additional renewal charges.

Dispute with the builder and default

In or about September 2024, the dispute between the respondents and FLR Construction Corp. ("FLR") escalated to the point that work on the Project ceased. The Project was only partially complete at that time, with the evidence suggesting it was approximately 68% to 71% complete. The respondents admit that they subsequently defaulted upon the Mortgage. Foreclosure proceedings were commenced by Genesis on February 12, 2025.

The Order Nisi and sale of the Fuller Property

On March 26, 2025, Genesis's application for order nisi and conduct of sale was heard by Associate Judge Schwartz. The orders made included: the redemption date was set to March 27, 2025 (a one-day redemption period); the amount of money deemed to be due and owing to redeem was determined to be $1,936,824.57 plus per diem interest of $1,067.56; conduct of sale of the Fuller Property was granted in favour of Genesis; and Genesis received its costs on an indemnity basis up to the date of the Order Nisi. The respondents did not oppose the substantive relief claimed in the Petition, including conduct of sale of the Fuller Property, but did oppose Genesis's claim for indemnity costs, taking the position that costs should be awarded at Scale A.

The court approved sale of the Fuller Property completed on August 5, 2025, with gross sale proceeds of $1,605,683.99. In accordance with a term of the approval order, $300,000 of the proceeds were held back pending the determination of the Marshalling Application. After payment of outstanding property taxes and utilities, net proceeds of $1,300,875.99 were paid to Genesis on account of the debt owing under the Mortgage.

The costs dispute and request for legal accounts

Within two business days after the sale of the Fuller Property, namely on August 8, 2025, the respondents' counsel requested an accounting, including a bill of costs, to ascertain the updated amount necessary to payout the Mortgage and redeem the Wilson Property. On August 13, 2025, Genesis provided a certificate of results of sale stating that the total amount required to redeem the Wilson Property was $443,238.88 plus costs.

On August 20, 2025, Genesis's counsel sent a letter including a table setting out costs and disbursements claimed in the amount of $104,067.39. Apart from the "admin" fee of $275.00 and the "standby fee" of $31,692.12, the balance of the amount was simply attributed generically to legal fees with no breakdown of amounts claimed for individual tasks, hourly rate of counsel involved and so forth. Genesis consistently maintained its position that it would not provide copies of invoices in support of their indemnity costs until the proceeding was concluded.

The October 1, 2025 order under appeal

On October 1, 2025, Associate Judge Schwartz made the order which is now under appeal, providing: (1) Within 14 days of that date, Genesis is to file an appointment to have costs assessed to be heard on a priority basis, with bill of costs attached; and (2) Genesis's application for conduct of sale of the Wilson Property will be adjourned to a date following the date costs are assessed. Associate Judge Schwartz stated in oral reasons: "I do believe that the right to redeem is of paramount importance, and the mortgagors need to know what that redemption amount is."

Genesis's grounds of appeal

Genesis appealed on four grounds: that Associate Judge Schwartz erred in law in ordering Genesis to produce its legal bills and proceed with an assessment prior to the conclusion of the proceeding and in the absence of any protection for litigation privilege and solicitor-client privilege; that there was a palpable and overriding error of fact in finding that the respondents would be able to redeem but for the quantum of costs; that irrelevant considerations were taken into account while failing to consider relevant ones; and that the Associate Judge erred in adjourning the conduct of sale application where the respondents failed to satisfy the test for an extension of the redemption period.

The court's analysis and ruling on the appeal

Justice Hardwick determined that this appeal fell within the category requiring a rehearing, meaning the question was whether Associate Judge Schwartz was correct, not whether she was clearly wrong. Upon consideration of the facts and the law, Justice Hardwick reached the same conclusion as Associate Judge Schwartz, finding that it accords with the principles of natural justice that the respondents are entitled to have Genesis's costs assessed before the redemption period for the Wilson Property expires.

The court held that when Genesis elected to pursue indemnity costs, as opposed to electing to default to seeking costs pursuant to the tariff set forth in the British Columbia Supreme Court Civil Rules, Genesis was required, upon demand, to disclose the invoices supporting its indemnity costs to the respondents such that they could be in a position to have those costs assessed. Justice Hardwick found it does not lie with Genesis to criticize the respondents' failure to provide conclusive evidence of their ability to redeem when Genesis controls the information necessary for the respondents to be able to determine what amount they need to raise to exercise their right of redemption.

The interest application and exceptional circumstances

The respondents' Interest Application sought an order that Genesis be responsible for the accrued interest "from the date they refused to provide their bill of costs to the date their costs are assessed or for such time as the court deems appropriate". Justice Hardwick concluded that the scenario that has arisen in the Petition since October 1, 2025, constitutes exceptional circumstances which merit the exercise of equitable jurisdiction under s. 19 of the Law and Equity Act.

Had the October 1, 2025 order been complied with, Genesis was obligated to deliver its bill of costs within 14 days and the assessment was directed to be heard on a priority basis. Instead, Genesis appealed and successfully obtained a stay of that order pending the hearing of the appeal on its merits. The interest that has been accruing under the Mortgage during this intervening time is significant and further jeopardizes the prospect of the respondents' ability to potentially exercise their equitable right of redemption.

Outcome and orders

Justice Hardwick dismissed Genesis's appeal on the basis that Associate Judge Schwartz: did not err in law in ordering Genesis to produce its legal bills and proceed with an assessment; did not make a palpable and overriding error of fact; did not err in law by concluding that the respondents' equitable right to redeem outweighed Genesis's right to maintain privilege; and did not err in law in adjourning Genesis's application for conduct of sale.

Justice Hardwick ordered, pursuant to s. 19 of the Law and Equity Act, that the interest on the Mortgage is halted from October 1, 2025, until the first business day following the assessment of Genesis's indemnity costs. Genesis is obliged to deliver its bill of costs within 14 days of the reasons for judgment, and the assessment is to be, to the extent possible, given priority by Supreme Court Scheduling.

The respondents, having been successful on the appeal, are entitled to their costs of the appeal, which includes the stay application hearing before Justice Wilson. Those costs shall be assessed pursuant to the tariff on the basis of ordinary difficulty. The costs of the appeal are payable in any event of the cause but are not payable forthwith. No specific monetary amount for the redemption was determined at this stage, as the ultimate redemption figure will depend on the forthcoming assessment of Genesis's indemnity costs.