Case Comment: Lydian Properties Inc. v. Chambers

By Nancy Carruthers and Ross McLeod, QC, Practice Advisors, Law Society of Alberta

In a time when foreclosures are rising, the recent Court of Appeal decision in Lydian Properties Inc. v. Chambers may be of interest to Alberta lawyers. Not only does it deal with the rescission of an unconscionable transaction, but it also raises some interesting ethical issues.

Donna Chambers found herself in dire straits in 2005. In debt, pregnant, and recently divorced, she was facing foreclosure when her mortgage fell into arrears. Lydian offered "honest, lasting solutions to help you out of foreclosure" so she answered their ad. The advertising materials had been sent to her as a result of Lydian's practice of monitoring courthouse foreclosure records, which allowed it to target individuals in vulnerable circumstances.

The arrangement reached with Lydian involved a transfer of title from Chambers to Lydian and a change in her status from homeowner to tenant. Her equity was a deposit for an option to repurchase the home within a year, provided she made her rental payments. She would have been required to pay Lydian $20,000 more than the amount for which it had obtained the property from her, and failure to meet just one monthly payment resulted in default and disentitlement to any of the other terms. The rent was inflated and significantly higher than her existing mortgage payments. It seems obvious she would never be able to exercise the option to repurchase and the suggestion that she would be able to solve her foreclosure problems by entering this transaction was misleading. She, of course, could not keep up with her payments and Lydian immediately sought to evict her.

Chambers was successful in the lower courts, and reacquired the title to her house, subject to the existing mortgages and rental arrears. The justice in the lower

court concluded that the arrangement breached the Unconscionable Transactions Act, the Fair Trading Act, and the criminal interest rate provisions in the Criminal Code. Alternatively, the court rescinded the transaction on the basis of unconscionability. Of interest, the matter proceeded in a summary fashion in Queen's Bench Chambers, and on the basis of affidavit evidence rather than being directed to trial.

The Court of Appeal upheld the finding of the lower court. A presumption of fraud is created when there is:

1. proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker, and;

2. substantial unfairness of the bargain obtained by the stronger party.

The necessary criteria to establish that a transaction is unconscionable are as follows:

1. a grossly unfair and improvident transaction;

2. a victim's lack of independent legal advice or other suitable advice;

3. overwhelming imbalance in bargaining power caused by a victim's ignorance of business, illiteracy, ignorance of the language of the bargain…or similar disability; and

4. the other party knowingly taking advantage of this vulnerability.

The evidence with regard to whether Lydian suggested Chambers seek legal advice was conflicting, though it was clear she had not done so. Each of the required criteria was established by affidavit evidence in Chambers' favour, as required by case law, and Lydian was unable to demonstrate that the transaction was fair and reasonable.

In Arlene Blake's recent presentation of this case at the CBA Real Property subsection, she quite correctly

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Specific Performance and Purchaser's Caveats
By Steve Raby, QC, Bencher, Law Society of Alberta

The Alberta Courts have recently expanded on the obiter dicta of the Supreme Court of Canada in Semelhago v. Paramadevan to the point where current law is likely such that land is no longer to be considered prima facie unique and the onus will be on a purchaser to show that it is. Alberta Courts have concluded, in Chambers applications, that land in specific situations is not unique, with the result that specific performance is not an available remedy to a purchaser. They have further concluded that where specific performance is not an available remedy to a purchaser, then a purchaser's caveat is no longer supportable and the purchaser will essentially be an unsecured creditor of the seller for any damages that might result from the seller's repudiation of the purchase contract. Alberta Courts have suggested that land may not be unique in any circumstance where the purchaser's primary intention is to make a profit from the ultimate re sale of the property.

The Alberta Law Reform Institute has issued Discussion Paper #21 which has suggested that the result of these Alberta decisions is not in the public interest and is requesting feedback with a view to ultimately making recommendations for legislative change.

Until any such change is forthcoming, it is recommended that, where acting for a buyer of real estate, a provision be inserted in the contract to the effect of the following: "The seller and buyer both acknowledge that the Property is unique and that, in the event of default by either party, the other party will be entitled, without limiting any other remedies available in the event of such default, to seek the remedy of specific performance."