[1]         In this matter, there are two cross-petitions.

[2]         The first is a standard foreclosure petition (the “Foreclosure Petition”) in relation to a mortgage (the “First Mortgage”) advanced by 1264777 B.C. Ltd. (the “Mortgagor”) to 0694813 B.C. Ltd. (the “Mortgagee”) over a property located at 74 West 12^th Ave., Vancouver (the “Property”). The relief sought on the Foreclosure Petition includes an order nisi with a one-day redemption period.

[3]         The second (the “Declaration Petition”) seeks various forms of declaratory relief on behalf of the Mortgagor and its sole shareholder, Gurdev Kaur Gill (“Gurdev”). It seeks to set aside the First Mortgage and a second mortgage registered in the name of Emi Herawati (the “Second Mortgage”).

[4]         As many of the parties to this action bear the surname Gill, I will refer to them by their first names in these reasons, but I mean no disrespect by doing so.

[5]         The First Mortgage is in the principal amount of $1,200,000 and was registered on October 16, 2020.

[6]         The Second Mortgage is in the principal amount of $200,000 and was registered on December 11, 2020.

[7]         The First Mortgage is in default, the term of the mortgage expired on May 16, 2021, and none of the monies secured have been paid.

[8]         Emi Herawati is a respondent to the Declaration Petition. I understand that she was served with the Declaration Petition and supporting affidavits but delivered no responsive pleadings. During the course of the hearing, she appeared in the courtroom. A friend, who was permitted to speak for her on the basis of her language difficulties, advised the court that Ms. Herawati opposes the Foreclosure Petition and has an interest in the outcome, being a second mortgagee. She did not participate further in the hearing.

[9]         I note that the Second Mortgage appears to be “out of the money” in the sense that the amount owing on the First Mortgage exceeds the equity in the Property. As a result, it appears unlikely that Ms. Herawati will be entitled to any relief against the Property regardless of whether I determine that the mortgages ought to be set aside or that the mortgages are valid and enforceable.

[10]      The Mortgagor’s position is that the First Mortgage was obtained by fraud, engineered by Tarsem Singh Gill (“Tarsem”) and his spouse Surinder Kaur Gill (“Surinder”). Surinder is a respondent to the Declaration Petition and has been served, but has not appeared or responded.

[11]      Gurdev and her husband Kuldip Gill (“Kuldip”), both of whom made affidavits in this proceeding, made the decision to purchase the Property after Tarsem asked Kuldip in September of 2020 whether his family would be interested in receiving an assignment of a purchase and sale agreement for the Property in the amount of $1,538,000.

[12]      Tarsem is a “distant relative” of Gurdev and Kuldip. They knew him to be a property developer in and around the Greater Vancouver area and were aware that Tarsem had been accused of fraudulent activities in the past. They understood that the allegations against Tarsem had not been proven in the court, and Tarsem told them that he was committed to being entirely honest since those allegations had been made against him.

[13]      Gurdev and Kuldip decided to accept an assignment of the purchase and sale agreement, and then Tarsem suggested that they complete the purchase through a corporate entity that he could incorporate for them.

[14]      Gurdev accepted this offer, and the Mortgagor was incorporated on September 9, 2020. Through this process, it appears that Tarsem became aware of the private login details for the online profile by which the Mortgagor could make filings in the corporate registry.

[15]      Gurdev was the sole director of the Mortgagor when it was incorporated and has always been its sole shareholder. On or about September 21, 2020, the Mortgagor completed the transaction for the purchase of the Property, paying the outstanding balance at closing in the amount of $1,500,000.

[16]      It appears that at some point between September 21, 2020 and October 16, 2020, Tarsem or Surinder unlawfully accessed the Mortgagor’s online portal to make changes to the corporate registry. Tarsem or Surinder proceeded to file a notice of change of directors so that the corporate registry listed Surinder as the sole director of the Mortgagor.

[17]      Subsequently, apparently without Gurdev’s knowledge or consent, Surinder fraudulently presented herself to representatives of the Mortgagee and Ms. Herawati as an authorized signatory of the Mortgagor. She caused the Mortgagor to enter into the two mortgages and an assignment of rents against title to the Property.

[18]      On July 19, 2021, Gurdev’s lawyer provided a title search to her showing that the two mortgages and an assignment of rents had been registered against title.

[19]      Gurdev’s lawyer also conducted a corporate records search for the Mortgagor which showed that as of May 17, 2021, Surinder was the sole listed director.

[20]      Gurdev’s son Harvinder called Tarsem and confronted him about the unauthorized activities. As a result of their conversation, Tarsem or Surinder filed documents with the corporate registry restoring Gurdev as the sole director of the Mortgagor.

[21]      Gurdev deposes that she and her family did not receive and have never received any money associated with the First Mortgage or Second Mortgage, and that she is not familiar with the Mortgagee nor with Ms. Herawati.

[22]      The Mortgagee’s principal is Paramjit Singh Grewal. Mr. Grewal owned and operated a company called Surrey Tool and Farm Rental between 1996 and 2004. He has known Tarsem since 1996. Tarsem was one of his regular customers and he understood that Tarsem was building a number of houses. As Mr. Grewal became more successful, he became a real estate developer and a private equity lender.

[23]      Mr. Grewal deposes that his lending relationship with Tarsem and members of his family began in or around 2001. At that time, Mr. Grewal assigned an agreement on a property to one of Tarsem’s companies for $200,000 and took out a second mortgage on the property to secure the amount. In or around 2004, he was paid by the trustee for Tarsem after he sold the property. At Tarsem’s request he also made mortgage loans to Tarsem’s children and to a company owned by one of those children. Between May 2008 and October 2020, Mr. Grewal made no further loans to Tarsem or his family.

[24]      In early October 2020, Tarsem and Surinder contacted Mr. Grewal and asked him to borrow money to commence construction of a duplex on the Property, which Surinder said was owned by her numbered company.

[25]      Surinder advised Mr. Grewal that as soon as the duplex was at lockup stage, she could get a bank mortgage and pay him out. She advised that she thought it would take about six months for the construction to reach that stage. (“Lock-up” is the stage of residential construction at which point the walls, windows, and doors are in place so that the structure may be secured.)

[26]      Mr. Grewal deposes that he conducted due diligence, including checking the property’s assessed value, prices of properties for sale in the area, speaking with architects and other builders in the area, and confirming that a duplex could be built on the Property. He agreed to lend Surinder $1,200,000 for the six-month period at a rate of 12% per annum.

[27]      On October 16, 2020, an opinion letter was prepared for the Mortgagee by solicitors. The opinion letter states that the Mortgagor is a British Columbia company in good standing and that it has the corporate power to grant security. Further, the opinion letter confirms that the identities of the authorized signatories of the Mortgagor were verified.

[28]      Also, on October 16, 2020, the Mortgagee provided its lawyers with two bank drafts in the amount of the loan, less an interest reserve and lender’s fee. The same day, the lawyers advanced the appropriate sum, being the net proceeds of the loan less legal fees, to the Mortgagor’s notary by way of trust cheque.

[29]      On May 16, 2021, the loan expired. Mr. Grewal deposes that in or around mid-May 2021, he called Surinder and Tarsem about getting paid. They told Mr. Grewal that they were working on it and that he would get his money.

[30]      On November 9, 2021, counsel for the Mortgagee sent a demand letter to the Mortgagor for all monies due and owing. On February 24, 2022, the Mortgagee filed the Foreclosure Petition.

[31]      Mr. Grewal deposes that prior to this proceeding, he had no personal knowledge of Gurdev or her involvement in the Mortgagor.

[32]      On these applications, there is a threshold question: whether this Court can decide this issue based solely on the affidavit evidence filed by the parties, or whether there is a triable issue that cannot be decided on those materials.

[33]      Rule 22-1(7)(d) of the Supreme Court Civil Rules, B.C. Reg. 168/2009, provides that on a hearing in chambers, the court may “order a trial of the chambers proceeding, either generally or on an issue, and order pleadings to be filed and, in that event, give directions for the conduct of the trial and of pre-trial proceedings and for the disposition of the chambers proceeding." Rule 21-7(5)(k) specifically allows for such an order in foreclosure proceedings.

[34]      In the recent case of Cepuran v. Carlton, 2022 BCCA 76, the Court of Appeal of British Columbia clarified that where a triable issue is raised in a petition proceeding, a judge is not obliged to refer the matter to the trial list under R. 22‑1(7), but has a discretion to do so or to employ other pretrial procedures for the resolution of the issues:

[35]      The Mortgagor cited a decision pronounced prior to Cepuran in which this Court has suggested that the threshold for converting a foreclosure petition into a trial ought to be a low one. In Griffin v. 0904713 B.C. Ltd., 2013 BCSC 273, Justice Fitzpatrick held:

[36]      On the other hand, the Court in Cepuran remarked that in those matters which are properly advanced by petition, the starting point is that a summary procedure ought to be appropriate:

[37]      For the purposes of R. 22-1(7), a triable issue is an issue of fact or law that is not bound to fail: Beedie (Keefer Street) Holdings Ltd. v. Vancouver (City), 2021 BCCA 160 at para. 80.

[38]      In order to raise a triable issue, a party must do more than make bare assertions in response to the claims advanced by the other. In Forjay Management Ltd. v. 0981478 B.C. Ltd., 2018 BCSC 1494, this Court held:

[39]      It is the task of this Court to determine first whether each issue can be determined on the materials before the Court, such that one party or the other is bound to fail. In the event that there are triable issues, the next question is whether the petitions need to be referred to the trial list or whether the triable issues can be determined by a hybrid process within the petition proceeding as described in Cepuran.

[40]      The Mortgagor argues that a fraudulent mortgage is void. In this respect, it cites ss. 25.1(1) and 26(2) of the Land Title Act, R.S.B.C. 1996, c. 250, which provide as follows:

[41]      The Mortgagor relies on the decision of the Court of Appeal of British Columbia in Gill v. Bucholtz, 2009 BCCA 137. In Gill, Amritpal Gill was the registered owner of the subject property. In November 2005, a fraudster forged his signature on a transfer of the property to Gurjeet Gill, who was working in concert with the fraudster. Gurjeet Gill then purported to grant mortgages to the defendants Mr. and Mrs. Bucholtz, who in reliance on the register advanced approximately $40,000 to Gurjeet Gill, and to a corporate defendant who advanced $55,000. The Court held:

[42]      It is my view that Gill and ss. 25–26 of the Land Title Act are inapplicable to the case at bar because they are concerned with title to land.

[43]      The fraudster in Gill forged his signature on a transfer of the property to Gurjeet Gill, who then purported to grant a mortgage to the mortgagees.

[44]      In the passage above, the Court states that a "void instrument" in s. 25.1(1) includes a mortgage taken from a person who obtained her title by fraud or forgery [emphasis added], meaning title to the land. When the Court of Appeal states that “the Act preserves the nemo dat rule with respect to charges - even where the holder has relied on the register and dealt bona fide with a non-fictitious registered owner” [emphasis added], it is clearly referring in this context to the land registry and an owner whose name appears in that registry.

[45]      In the present case, there is no question about who owned the Property: it was owned by the Mortgagor. Rather, the issue was the identity of the director of the Mortgagor. The Land Title Act has nothing to say about that issue. That issue is dealt with in s. 146(1)(b) of the Business Corporations Act, S.B.C. 2002, c. 57 [BCA].

[46]      The Mortgagor also relies on the decisions in Bentley v. Hooton, 2018 ABQB 109, aff’d 2019 ABQB 231, and Homewood Mortgage Investments Ltd. v. Lee, 2008 BCSC 512 [Homewood].

[47]      In Bentley, a mortgage was obtained by use of a forged signature on a power of attorney. The forged power of attorney was employed by the husband to sign a mortgage on behalf of his wife. The Court reviewed the arguments advanced by the parties under the Alberta Land Titles Act, R.S.A. 2000, c. L-4, and concluded at para. 42 that “none of [its] provisions specifically speak to the circumstance where a mortgage was given by fraud as against the interest of the existing innocent owner”. In that context, the Court based its decision on the common law principle that a mortgage having been obtained by fraud is a nullity. However, no reference was made in the decision to the indoor management rule, which is described below. Bentley is distinguishable from the present case for that reason.

[48]      In Homewood, the mortgage itself was forged. As in Bentley, there was no issue of the identity of directors and no reference to the indoor management rule. For that reason, Homewood is also distinguishable from the present case.

[49]      As a result of the foregoing, no triable issue arises in respect of the Mortgagor’s arguments that a fraudulent mortgage is void. It is my view that those arguments are bound to fail.

[50]      The Mortgagee relies on the indoor management rule which is codified in s. 146 of the BCA. That section provides as follows:

[51]      At the time the First Mortgage was made, the register of directors stated that Surinder was the Mortgagor’s director. Therefore, s. 146(1)(b) is applicable and supports the Mortgagee’s position. Subject to the constructive knowledge exception in s. 146(2), it precludes the Mortgagor from asserting against the Mortgagee that Surinder was not its director at the time the First Mortgage was granted.

[52]      The Mortgagee also relies on s. 146(1)(c) of the BCA. I do not agree that sub-section (c) applies, as there is no evidence before me that Surinder was held out by the company as a director.

[53]      On this issue, the Mortgagee argues that the loan agreement between the parties was signed by Surinder on behalf of the Mortgagor in the presence of a notary public. A certificate was signed by the notary public attaching a copy of the register of directors showing Surinder to be the director together with the certificates of incorporation, notice of articles, and central securities register. It certifies that the attachments remained in full force and effect as of October 16, 2020. However, the fact that a notary public signed documents stating that Surinder was a director, in circumstances wherein the notary public appears to have been retained and directed by Surinder, does not assist the Mortgagee on this issue.

[54]      On the issue of the applicability of s. 146(1), the Mortgagor cites Lee v. Kassam, 2020 ABQB 608, a Master’s decision from the Court of Queen’s Bench of Alberta. That case deals with s. 19 of the Alberta Business Corporations Act, R.S.A. 2000, c. B-9, which states in part:

[55]      In Lee, at para. 13, the Court found that the notice referred to in s. 19(b) was not filed by the Registrar and so the section was inapplicable for that reason in the circumstances of that case. As no similar notice requirement exists in the case at bar, Lee is distinguishable from the case at bar.

[56]      There is no evidence that, and at the hearing of the petitions the Mortgagor did not take the position that, the Mortgagee had actual knowledge that Surinder was not a lawful director.

[57]      Rather, the Mortgagor takes the position that the Mortgagee is not entitled to rely upon s. 146(1)(b) because of the constructive knowledge exception in s. 146(2). If the Mortgagee had the constructive knowledge set out in that subsection, the First Mortgage will be set aside. If it did not, the Mortgagee was entitled to rely on the indoor management rule and the First Mortgage will be valid and enforceable.

[58]      The grounds for the Mortgagor’s argument that the constructive knowledge exception in s. 146(2) applies are set out in the Mortgagor’s Response to the Foreclosure Petition at para. 12. The Mortgagor asserts that the Mortgagee knew or ought to have known that the charges arose as a result of fraud. It submits:

[59]      In my view, the Mortgagor’s position on the constructive knowledge exception is bound to fail because its allegations, even if true, do not bring it within the words of s. 146(2). Subsection (2) states that subsection (1) does not apply in respect of a person who “by virtue of the person's relationship to the company, ought to have knowledge of a situation described in paragraphs (a) to (e) of that subsection”.

[60]      Paragraphs (a) to (e) specifically deal with compliance with a company’s memorandum or notice of articles, the authority of directors, officers or agents, and the records issued by directors, officers or agents, or kept by the company – not with circumstances that might lead one to suspect fraud.

[61]      In the other words, the question under s. 146(2) is not whether the Mortgagee ought to have known, in general terms, that there were suspicious circumstances. The question in this case is whether the Mortgagee knew, or ought to have known by virtue of the person's relationship to the company, that

[62]      There is no evidence that Mr. Grewal had any relationship to the company – that is, the Mortgagor. Therefore, there is no basis for asserting that he ought to have known that Surinder was not the company’s director by virtue of Mr. Grewal’s relationship to the Mortgagor.

[63]      In any event, the allegations set out above which form the basis of the Mortgagor’s argument under s. 146(2) are not supported by the evidence.

[64]      In particular, there is no evidence regarding whether the Mortgagor “could have readily obtained a standard mortgage from an institutional lender, on terms that would have been drastically more advantageous”. I observe that the loan amount of $1,200,000 was more than 78% of the purchase price. Mr. Grewal deposed that Surinder asked him to increase the loan amount to $1.4 million, which he refused.

[65]      Regarding the short-term nature of the loan at 12% interest, Mr. Grewal deposed that he was told by Surinder that “as soon as the duplex was at the lock-up stage, she could get a bank mortgage and pay me out.”

[66]      There is no evidence before this Court that the other financial terms of the loan agreement were “absurd”, “one-sided” or higher than market in the context of a six-month loan from a private lender at 78% of the purchase price.

[67]      The Mortgagee also argued that suspicions ought to have been raised by the Mortgagor based on the facts that the company was incorporated by Gurdev on September 9, 2020, that she was the sole director at the outset, and that the directorship was changed to Surinder approximately five weeks later. However, I do not agree that these submissions are sufficient to raise a triable issue that Mr. Grewal or the Mortgagee fall within the constructive knowledge exception in s. 146(2).

[68]      Finally, there was some suggestion during the course of the hearing that the Mortgagee’s solicitors ought to have known about Surinder’s conduct. However, even if there were any evidence to that effect, this suggestion was dealt with in Smith v. 0878841 B.C. Ltd., 2013 BCSC 775, wherein the Court held:

[69]      For the foregoing reasons, I find that the Mortgagor’s case in respect of the constructive knowledge exception in s. 146(2) is bound to fail. The Mortgagee is entitled to the protection of the indoor management rule codified in s. 146(1).

[70]      The Mortgagee claims special costs of this proceeding on the basis that the Mortgagor has made and maintained allegations of fraud without foundation.

[71]      It is my view that Gurdev and Kuldip had reasonable grounds to allege that the First Mortgage was fraudulent: in particular, in its pleadings, the Mortgagor repeatedly alleges that Surinder behaved fraudulently.

[72]      However, I do not read the Declaration Petition or the Response to the Foreclosure Petition to contain allegations of fraud against Mr. Grewal. Rather, the Mortgagor took the position that the Mortgagee knew or ought to have known that the First Mortgage arose as a result of fraud, because “the Charges have characteristics and terms that are suspicious and indicative of fraud”.

[73]      In these circumstances, I decline to award special costs.

[74]      In conclusion, I find that the Mortgagor has not raised a triable issue or defence in relation to the First Mortgage.

[75]      As a result of the foregoing, I grant the foreclosure orders (A), (B), (D), (F), (G), and (H) set out at Part 1 of the Foreclosure Petition, as modified by the updated statement of relief sought filed November 25, 2022.

[76]      I order that the redemption period be set for 30 days from the date of these reasons. Although the loan balance appears to exceed the equity in the Property, I am not aware of all of the facts that may be relevant to the determination of a longer redemption period and this Order is intended to provide the Mortgagor with an opportunity to seek an extension if one is warranted. I will not be seized of that application, in the event that the Mortgagor seeks to advance it.

[77]      The applications for the orders sought at paras. 1–4 of Part 1 of the Declaration Petition are dismissed.

[78]      I decline at this time to address the applications for the orders set out at paras. 5–6 of Part 1 of the Declaration Petition, which deal with the Second Mortgage advanced by Emi Herawati. As stated above, it appears that there will be no equity in the property after the Mortgagee’s realization on the First Mortgage in any event, but if any party to the Declaration Petition wishes to seek any further relief concerning those orders, they have liberty to apply to me.

[79]      Costs of the petitions shall be payable at scale B by the respondents to the petitioner in the Foreclosure Proceeding, and by the petitioners to the Mortgagee in the Declaration Proceeding.