Canada: Lenders Are Not Law Enforcement Officers – The British Columbia Supreme Court Determines The Scope Of Reasonable Care Under Section 20(4)(B) Of CDSA

British Columbia's (in)famous reputation for its marijuana industry continues to generate interesting legal precedent. The recent case of R v Nguyen1 illustrates potential pitfalls for mortgage lenders who fail to take steps to ensure properties subject to their mortgage interest are not used in connection with unlawful activity.


The Controlled Drug and Substances Act2 contains forfeiture provisions that can have significant implications for mortgage lenders. Section 16 of the CDSA gives a court the authority to order forfeiture of offence-related property to the Federal Crown in circumstances where the property has been used in the commission of a designated substance offence. Offence-related property includes real property used to illegally grow marijuana or any other controlled substance.

A lender holding a mortgage over property that a court has ordered forfeited to the Federal Crown is at risk of losing its interest in the property unless, within 30 days of the forfeiture order, the lender applies for relief under section 20 of the CDSA. Section 20 of the CDSA provides a mechanism whereby persons who claim an interest in forfeited property may apply for a declaration that their interest is unaffected by the forfeiture order. To be entitled to relief under section 20, applicants must show that: (a) they are innocent of any complicity in the offence or of collusion with the convicted offender; and (b) that they have "exercised all reasonable care to be satisfied that the property was not likely to have been used in connection with the commission of an unlawful act".3

The Facts

The facts in Nguyen were not in dispute. In December 2002, the offender, Mr. Kien Tam Nguyen, entered into a contract to purchase a home in Surrey (the "Property"). To finance this purchase, Mr. Nguyen had applied for a mortgage loan from Maple Trust Company (the "Lender"). The Lender, like many other residential mortgage lenders at that time, offered a "non-income qualified" ("NIQ") loan program designed for applicants (often self-employed) who could not verify their income through the usual means.

The Lender had five requirements for approval of an NIQ loan:

  • a minimum 25% down-payment from the borrower's own funds;
  • a good credit history;
  • a statutory declaration that the borrower would live in the property;
  • a full appraisal, including an inspection of the interior of the premises; and
  • a readily marketable property.

Mr. Nguyen met all of these requirements. The Lender approved the mortgage and advanced funds in late February 2003. Nine months later, the police executed a search warrant and uncovered a marijuana grow operation in the basement of the Property. Mr. Nguyen and his wife were convicted of production and possession of marijuana for the purposes of trafficking in 2005, and the Crown obtained an order for forfeiture of the Property under section 16 of the CDSA in early 2006 (the "Forfeiture Order"). Mr. Nguyen appealed the Forfeiture Order to the British Columbia Court of Appeal, which dismissed the appeal, and to the Supreme Court of Canada, which in turn dismissed the appeal on May 29, 2009. The Lender then applied for a declaration that its interest in the Property was not affected by the Forfeiture Order.

The Issues

There were two issues that the Court was required to consider on the application. The first was the correct interpretation of section 20(4)(b) of the CDSA: did the standard of reasonable care require the lender to satisfy itself that the property had not been used in connection with an offence under the CDSA, or that the property had not been and will not be used in connection with a CDSA offence?

The second issue for the Court's consideration was, regardless of the interpretation of section 20(4)(b), whether the Lender met the requisite standard of care in the circumstances such that it was entitled to relief from forfeiture.

The Decision

In the result, the Court held that section 20(4)(b) of the CDSA requires lenders to satisfy themselves that the property has not been and will not be used for the commission of an illegal act. In other words, a lender must consider the use of the property before the lender obtains an interest in the property and the likelihood that the property will be used in connection with an illegal activity going forward. On the facts of the case, the Court found that the Lender had taken reasonable steps to satisfy its obligation under section 20(4)(b), based on the standard of a reasonable mortgage lender in 2002.

Ambiguity in the CDSA

In its decision, the Court noted that the wording of section 20(4)(b) of the CDSA is far from "a model of clarity." To resolve the ambiguity, the Court outlined three different factual scenarios that could occur in relation to applications under section 20 of the CDSA:

  1. the applicant gave possession of his property to a person, who then used the property in connection with the commission of an unlawful act;

  2. the applicant obtained possession of property from a person who had used the property in connection with the commission of an unlawful act; and

  3. the applicant is a person who loaned money to a person by way of a mortgage or with the security of a lien over a property owned by a person who used the property in connection with the commission of an unlawful act.

In all three scenarios, an applicant for relief from forfeiture must show they exercised "all reasonable care to be satisfied that the property was not likely to have been used in connection with the commission of an unlawful act".4 However, the Court determined the time frame for consideration is different for each. In the first situation, the person requesting relief must consider events after they give possession of the property to the would-be offender. In the second, the person requesting relief need only satisfy themselves of events in the past. In the last, the Court found that a lender must satisfy itself both that the property had not been used, nor is likely in the future to be used in connection with an unlawful act.

The Court grounded this reasoning in the apparent legislative intent of section 20(4)(b), which is to ensure that the applicant is not only innocent of complicity in the impugned activity, but also that the applicant "exercised reasonable care to ensure that it was not unwittingly used as an instrument to aid in the proliferation of such illegal uses of property."5 The Court found that this function of the CDSA would not be met if the lender was not required to take any steps to satisfy itself that the property will not likely be used in the future for an illegal purpose.

Reasonableness in the Circumstance

Despite finding that a lender's duty to exercise reasonable care extends to both past and future uses of the property, the Court held that on the facts of the case the Lender had done everything required by section 20(4)(b). In doing so, the Court held the standard of care was that of "a reasonable mortgage lender for the acquisition of residential property in 2002."6 In reaching this conclusion, the Court relied on expert testimony regarding industry practices, on the testimony of two former employees of the Lender, and the mortgage broker – all of whom testified that in 2002 they did not know grow-ops were a significant problem in British Columbia. Also weighing heavily in the Court's reasoning was the fact that the Lender had found nothing in Mr. Nguyen's application that triggered suspicion. Given that the lender had followed industry practices at the time, and grow-ops were not widely recognized in 2002 when the lender approved the mortgage, the Court reasoned that the Lender had taken sufficient steps to comply with section 20(4)(b). These steps included verifying that Mr. Nguyen was making a significant down-payment from his own funds, obtaining a statutory declaration from Mr. Nguyen stating that he would live in the Property, and obtaining a full appraisal, including an inspection of the Property. The court found that those steps "tend to minimize the risk that the Property was likely to be used for an unlawful purpose."7 Indeed, the court expressly disagreed that lenders are to "be held to the standard of an enforcement officer whose function it was to combat the potential for setting up a marihuana grow operation in a home in respect of which there is no reason to suspect that the borrower was likely to use his own home, which he swore he was going to live in, as a marihuana grow operation."8


The Nguyen decision turned on its specific facts, primarily that there was no evidence that residential marijuana production was widely recognized as a problem in the Lower Mainland in 2002. Despite the successful outcome for the Lender in this case, mortgage lenders may want to consider whether their current underwriting practices would pass muster today. The Nguyen decision interprets the CDSA as requiring mortgage lenders to consider not only whether a property has been used in the past in connection with an unlawful act, but also whether a property will likely be used in the future in connection with an unlawful act. That said, the Nguyen decision also strongly indicates that the standard of reasonableness the court will apply when interpreting section 20(4)(b) of the CDSA is one of commercial reasonableness. To determine this standard, a court is likely to rely in part on the commercial practices at the time the lender approved a mortgage. Therefore, lenders who follow industry best practices in making their lending decisions are more likely to be provided relief from forfeiture by the courts in these types of situations.

1 2014 BCSC 55 [Nguyen]. 
2 SC 1996, c 19 [CDSA]. 
3 Ibid, s 20(4)(a)(b).
4 Ibid.
5 Nguyen, supra note 1 at ¶ 70.
6 Ibid, ¶ 95. 
7 Ibid.
8 Ibid, ¶ 101.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2014 McMillan LLP

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.