A mortgage broker (“Broers”) was successful in obtaining judicial review of the decision of the Executive Director of the Real Estate Council of Alberta (“RECA”) where the Court found that the Executive Director improperly cancelled Broers mortgage licence in a summary manner rather than proceeding pursuant to Part 3 of the Real Estate Act, R.S.A. 2000, c. R-5 (the “Act”)

Administrative law – Decisions of administrative tribunals – Real Estate Council – Registrar of Mortgage Brokers – Powers under legislation – Rules and by-laws – Validity of legislation – Permits and licences – Notice requirements – Public interest – Judicial review – Compliance with legislation – Natural justice – Procedural requirements and fairness

Broers v. Real Estate Council of Alberta, [2010] A.J. No. 865, 2010 ABQB 497, Alberta Court of Queen’s Bench, July 23, 2010, K.M. Horner J.

Broers was a registered mortgage broker at the Calgary office of Pioneer West Acceptance Corporation. Broers became licensed and registered in 2001 and both the licence and registration were issued by the RECA. In 2004, Broers became a director and acting president of a firm called Mortgage I Corporation (“MIC”). MIC was a financial services corporation dealing with non-traditional residential and commercial mortgage lending. MIC was never registered with the Alberta Securities Commission to trade in securities and did not file either a preliminary prospectus or a prospectus. Broers was never registered with the Commission to trade in securities. Despite these facts, MIC solicited sales of securities totalling just over $700,000. In a notice of hearing dated February 6, 2008, the Commission alleged that Broers engaged in illegal trading and distribution of MIC securities and certified false Reports of Exempt Distributions which were filed with the Commission. In a decision dated January 16, 2009, the Commission found the Broers illegally traded and distributed MIC securities and acted contrary to the public interest in certifying as true the Reports of Exempt Distributions. A ten-year prohibition on trading in securities was ordered. Under the Act, an industry member was to immediately notify RECA if they had been disciplined by any professional, occupational, or regulatory body. Broers did not provide such notification following the Commission’s decision.

On June 4, 2009, the Executive Director of RECA notified Broers by letter that the Commission decision had been brought to his attention. The Executive Director advised Broers that he would be conducting an Information Review pursuant to Rule 38 in order to determine if it was in the public interest that Broers keep his mortgage brokers licence. Following the Information Review, the Executive Director determined the conduct in question warranted a cancellation of Broers mortgage licence. Upon making the decision to cancel the licence pursuant to Rule 38, a conduct investigation under Part 3 of the Act was abandoned.

Broers appealed the Executive Director’s decision to the Appeal Panel alleging that RECA lacked the authority to create Rule 38. Broers further alleged that matters of conduct must proceed pursuant to Part 3 of the Act and that the Executive Director breached the administrative law requirements of natural justice and procedural fairness. The Appeal Panel upheld the decision of the Executive Director.  Broer applied to the Court for judicial review of the decision.

The Court determined that the primary issue was whether Rule 38 was valid in that it could be applied to conduct matters. The Court found that the law was clear that a regulatory body’s disciplinary process must be authorized by its governing legislation. In this case, the Act expressly provided for investigation and discipline pursuant to Part 3. The issue then became whether Part 3 was intended to act as a comprehensive and exclusive process for matters relating to conduct or whether a parallel process was permitted under Rule 38. After reviewing the legislation, the Court concluded that the comprehensive nature of Part 3, coupled with the protection afforded to industry members, indicated that the legislature could not have intended that the RECA was empowered to create a rule which effectively bypassed the detailed procedure outlined under Part 3. The Court concluded that the legislature could not have intended that RECA enact a rule which allowed the Executive Director to cancel or suspend a licence on his own accord on questions of conduct. Any such rule would be at odds with the process mandated under Part 3. The Court held that Rule 38 could not apply to instances dealing with issues of conduct that would exclusively fall under Part 3. Given this conclusion, the Court held that Rule 38 was beyond the power of RECA to make and was therefore invalid. As a result, the Executive Director had acted without jurisdiction in cancelling Broer’s licence. The matter was remitted back to the Executive Director to consider whether or not to proceed with conduct proceedings pursuant to section 39(1) of Part 3 of the Act.

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