Notary liable for failing to advise on the sellers’ residency status

The recent case of Mao v. Liu, 2017 BCSC 226, has attracted much media attention in B.C.  Several newspapers have published articles with titles such as “House Buyer Beware: Landmark court ruling will shake real estate industry”1.  Despite the media attention, the Mao decision does not impose a higher standard of care on B.C. notaries, nor does it affirm any new rights for the buyers of B.C. real estate.

In this case, the plaintiffs Jing Li and Jun Mao hired a notary, Tony Liu, to assist them with the purchase of a Vancouver home for $5.56 million.  Liu was contractually required to ascertain whether the sellers were Canadian residents as defined by the Income Tax Act.  In brief, section 116 of the Income Tax Act requires a seller who is not a Canadian resident to pay capital gains tax on the sale of Canadian property.  If the seller does not pay the capital gains tax, Canada Revenue Agency (“CRA”) can recover it from the buyer.  The buyer can escape this liability if he or she obtains a declaration from the seller or if the buyer can show that, after making a reasonable inquiry, he or she had no reason to believe that the seller was a non-resident.

In Mao, the property was listed for sale by CE International Resource Holdings LLC (“CEIR”), a creditor of the registered owners, under a court order granting CEIR conduct of sale.  Liu, the notary, contacted CEIR’s lawyers and attempted to obtain a declaration regarding the sellers’ status.  CEIR’s lawyers responded that they were not in a position to provide a declaration as their client was neither a vendor nor an owner of the property.

In spite of this, Liu proceeded with the conveyance, and did not advise the buyers of the risks of purchasing the property without confirming the sellers’ status.  One of the registered owners turned out to be a non-resident of Canada, and CRA assessed Li and Mao, the buyers, for the capital gains tax in the amount of $695,000.  Li and Mao sued Liu and brought a summary trial application on the issue of liability.

The Court found that Liu breached his duties to Li and Mao, and was liable for the resulting damages.  At his examination for discovery, Liu effectively admitted that he had an obligation to notify Li and Mao of the risk of completing the purchase given the uncertainty concerning the sellers’ residency, and that he did not warn Li or Mao of the potential tax liability to the CRA.  Notably, in its analysis the Court did not discuss the specific duties owed by notaries to their clients, or impose a higher standard of care on B.C. notaries.

1 Todd, Douglas, “House buyer beware: Landmark B.C. court ruling will shake real-estate industry”, Vancouver Sun (March 24, 2017), http://vancouversun.com/news/local-news/house-buyer-beware-landmark-b-c-court-ruling-will-shake-real-estate-industry