Mortgage terms can cover legal fees before a lawsuit begins

A mortgage lender’s legal fees are not automatically excluded because no lawsuit has yet begun. On 16 October, the Court of Appeal held that the terms of Keith and Colleen Rose’s mortgage permitted reasonable legal expenses incurred before litigation, reversing the trial court’s narrower interpretation.

The Roses had alleged negligence and breach of fiduciary duty in the administration of their mortgage and related account. Their appeal failed. The court distinguished the bank’s duty to exercise reasonable care and skill from a fiduciary relationship, which the ordinary lending relationship did not establish on these facts.

The bank’s successful cross-appeal turned on clauses covering protection of its security and consideration or attempted enforcement of its rights. Those words could encompass legal advice, investigation and meetings responding to disputed defaults and threatened litigation. Commencement of proceedings was not a condition of contractual entitlement.

The court expressly left the reasonableness of the amount charged undecided: the ruling does not approve every fee a lender may demand. The bank obtained the costs of both appeals and the proceedings below. The small costs award previously made to the Roses lost its foundation once the legal-fees ruling was reversed.

The contractual interpretation concerns this mortgage. The court decided entitlement in principle, not the reasonableness of the fees claimed. Later appellate treatment or payment enforcement was not checked.