IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Bridgewater Financial v. 347451 BC Ltd. et al., |
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2003 BCSC 716 |
Date: 20030508
Docket: S34307
Registry: Nanaimo
Between:
Bridgewater Financial Services Ltd.
Petitioner
And
347451 B.C. Ltd. and
Anthony Douglas Saunders, Deceased
Russ Nelson Roofing Ltd.
Valerie Elizabeth Saunders
Co-operative Trust Company of
Venstar Financial Inc.
Respondents
Before: Master A.N. Patterson
Reasons for Judgment
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Counsel for Respondent Venstar Financial Inc., Applicant:
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D.L. Armstrong |
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Counsel for Respondent Co-operative Trust Company of
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C. Allen |
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No appearance for the Petitioner or other named Respondents
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Date and Place of Hearing: |
April 10, 2003 |
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Nanaimo, B.C. |
[1] This is an application by the respondent, Venstar Financial Inc. now CareVest Capital Inc. (hereinafter referred to as Venstar), for directions concerning the priorities of various charge holders and for payment of funds held in trust pursuant to those directions.
[2] In this foreclosure proceeding Master Horn on January 24, 2003, approved a sale of the subject property to S.T.C. Investments Ltd. at a price of $300,000. The vesting order provides that after payment of any tax arrears, commission and the like that the net proceeds of sale be paid into trust to be held pending further order. The order also provides that the parties may apply for directions to determine the payment of funds.
[3] The parties concede that the petitioner, Bridgewater Financial Services Ltd. is entitled to be paid in priority to the remaining charge holders. I am told that there is approximately $60,000 remaining after the petitioner is paid out to which Venstar asserts a priority over the other respondents.
[4] The state of title certificate for the subject property shows that the petitioner holds a first mortgage and assignment of rents registered August 31, 1988, under Numbers EB79436 and EB79437. The respondent, Valerie Elizabeth Saunders (hereinafter Saunders) holds a second mortgage and assignment of rents registered February 11, 1994, under Numbers EH17095 and EH17096. The respondent, Co-operative Trust Company of Canada (hereinafter the Co-operative), holds a third mortgage registered July 27, 1999, under Number EN66565 and the respondent, Venstar, holds a fourth mortgage and assignment of rents registered June 19, 2001, under Numbers ES48057 and ES48058.
[5] If there were no other documents registered in the Land Title Office, priority would be determined according to the date and time of registration in accordance with s.28 of the Land Title Act which reads as follows:
28. If 2 or more charges appear entered on the register affecting the same land, the charges have, as between themselves, but subject to a contrary intention appearing from the instruments creating the charges, priority according to the date and time the respective applications for registration of the charges were received by the registrar, and not according to the respective dates of execution of the instruments.
[6] However, on June 20, 2001, a priority agreement was registered granting priority to the mortgage and assignment of rents held by Venstar over the mortgage and assignment of rents held by Saunders. That priority agreement clearly grants the charges held by Venstar (described therein as the senior charge holder) priority over those held by Saunders (described therein as the subordinate charge holder) in the following terms:
3. The Subordinate Chargeholder hereby grants to the Senior Charge holder priority over the interests which the Subordinate Chargeholder has in the Lands and personal property, assets and undertaking of the Owner secured under the Senior Chargeholder’s Security by virtue of the Subordinate Chargeholder’s Security, limited to the principal amount of $405,000.00 secured under the Senior Chargeholder’s Security and interest thereon and all costs and expenses incurred by the Senior Chargeholder as described in the Senior Chargeholder’s Security (collectively the “Limited Amount”) and does hereby postpone all its right, title and interest in and to the Lands and personal property, assets and undertaking of the Owner with and to the intent that the interest of the Subordinate Chargeholder therein and thereto, up to and including the Limited Amount, shall be subject to the rights of the Senior Chargeholder therein and thereto under the Senior Chargeholder’s Security as though the Senior Chargeholder’s Security had been granted and delivered, registered or otherwise processed, all funds advanced, readvanced or secured thereunder and any floating charge contained in the Senior Chargeholder’s Security had been crystallized, in point of time prior to the execution, delivery and registration of the Subordinate Chargeholder’s Security and the advance and re-advance of funds thereunder. [Emphasis added]
[7] No mention is made in the agreement of the intervening third mortgage in favour of Co-operative, nor was any notice given by either Venstar or Saunders to Co-operative. The first time Co-operative became aware of the priority agreement was when the petitioner commenced its foreclosure proceeding. At no time was Co-operative asked to consent to the Venstar mortgage taking priority to the Co-operative mortgage and it never granted any such consent.
[8] It is clear that the agreement between Saunders & Venstar is not an assignment of mortgage but a postponement agreement.
[9] The land, the subject matter of this proceeding, is commercial property situated in the Village of Cumberland British Columbia. A review of the mortgages indicates that the mortgage in favour of Saunders was over the subject land and another parcel of land and for a total amount secured of $1,254,825. This mortgage apparently arose from a joint proposal made by Anthony Saunders and the respondent Saunders pursuant to the Bankruptcy and Insolvency Act dated October 11, 1991, and which in turn had some relation to the separation of Mr. and Mrs. Saunders.
[10] The mortgage in favour of Co-operative was in the amount of $22,000 registered only against this parcel of land and, I understand, it relates to a privately held registered retirement savings plan portfolio.
[11] The mortgage in favour of Venstar secures $2,100,000 and is registered against numerous parcels of land, including the subject land, owned by Mr. Saunders and a number of related companies.
[12] In the Form E Schedule to the Venstar mortgage there is set out with respect to the subject property the following as prior permitted charges.
As to Lot A, Plan 30426:
- Exceptions and Reservations M76300
- Undersurface Rights 234756G
- Rights-of-Way F23456 and F37122
- Mortgage and Assignment of Rents EB79436 and EB79437 (Bridgewater Financial Services Ltd.)
- Mortgages EH38667 and EN19723 (Bridgewater Financial Services Ltd.)
[13] The latter two charges noted are modification agreements with respect to the petitioner’s mortgage dated five years apart which possibly extend the term of the mortgage. They are not relevant to this decision.
[14] It is interesting to note that among the prior permitted charges there is no mention of either of the mortgage in favour of Saunders or the mortgage in favour of Co-operative. It is possible, if a priority agreement was anticipated, that would explain the omission of the Saunders mortgage but there is no such explanation concerning the omission of the Co-operative mortgage.
[15] The respondent, Saunders, did not appear on this application and apparently takes no position with respect to the matter of priorities, no doubt satisfied that as between Saunders and Venstar, Venstar takes priority over Saunders. This position is reinforced by s.207 of the Land Title Act which provides for a form of postponement and the effect of such a postponement agreement.
[16] The argument advanced by Venstar is that the priority agreement places the interests of Venstar ahead of that of Saunders and as a consequence, any money that might flow to Saunders goes to Venstar notwithstanding that the Co-operative mortgage is registered prior to the Venstar mortgage.
[17] The argument of the respondent, Co-operative, is that its mortgage is in priority to the mortgage of Venstar pursuant to s.28 of the Land Title Act and that the agreement between Saunders and Venstar does not affect any priorities between Co-operative and Venstar except to the extent provided in s.207(1) of the Land Title Act which is as follows:
Form of postponement
207(1) A registered owner of a charge, in this section referred to as the “prior charge,” may postpone that person’s rights under it by executing an instrument in the prescribed form or in another form that may be acceptable to the registrar and, when in the prescribed form and registered, the instrument operates to postpone that person’s rights to those of the registered owner of the subsequent charge designated in the instrument in the same manner and to the same extent as if the prior charge had been registered immediately after the registration of the subsequent charge.
[Emphasis added]
[18] It is clear from reading s.207(1) that the owner of a prior charge, in this case Saunders, may postpone her rights to those of the holder of a subsequent charge, in this case Venstar, as if the prior charge was registered immediately after the subsequent charge. The Act does not provide for the holder of a subsequent charge to stand in the shoes of a prior charge holder and thereby vault ahead of an intervening charge.
[19] It is also clear that while the agreement between Venstar and Saunders has been referred to as a priority agreement it is in fact a postponement agreement as envisaged in s.207.
[20] Counsel for Venstar argued that to allow Co-operative access to the funds in priority to Venstar in effect unjustly enriches Co-operative, because it has access to funds which normally would have flowed to Saunders in priority to it. Reference was made to Fraser Valley Credit Union v. Siba 2001 BCSC 744, a decision of L. Smith, J. In that case, Smith, J. held at paragraph 51:
51. Most cases involving unjust enrichment address some benefit that a party receives, either in the form of money, property, or improvements to property. However, there is no reason in principle why the doctrine should not apply where the benefit in question is an enhanced priority position.
[21] In reaching that decision, Smith, J. relied on Central Guaranty Trust Co. v. Dixdale Mortgage Investment Corp.(1994) 121 DLR (4th) 53 (Ont.CA) where Laskin, J.A. writing for the Ontario Court of Appeal stated:
In the present case on the sale of the property Dixdale acquired an enrichment or benefit equal to the amount of money required to satisfy its outstanding mortgage… That “enrichment” was conferred on Dixdale at Central Guaranty’s expense and therefore there has been a “corresponding deprivation.” I observe that this is not a case where the deprivation arose as a result of any wrongdoing by Dixdale; nor does the evidence support a finding that Dixdale knowingly took advantage of Central Guaranty’s mistake to acquire a benefit at the latter’s expense. Rather this is a case where Dixdale might be said to have received a windfall benefit as a result of Central Guaranty’s mistake. Whether Central Guaranty is entitled to recover this benefit depends on whether it can satisfy the third element of an unjust enrichment claim, that there is an absence of any juristic reason for the enrichment or, simply, that it would be unjust to allow Dixdale to retain the money in dispute.
[22] Smith, J. then continued at paragraph 53 as follows:
53. Laskin J.A. held that neither Dixdale’s lack of knowledge of Central’s error, Central’s carelessness in discharging its mortgage, nor the priority rules of the Registry Act, R.S.O. 1990, c.R.20 constituted a juristic reason for the enrichment. With respect to the provisions of the Registry Act, Laskin J.A. stated at p.61:
If the provisions of the Act alone are considered then Dixdale’s position is unanswerable. Registration of the discharge gives Dixdale priority under the statute. But, in my opinion, the statute alone is not dispositive of this appeal. In an appropriate case a court may give effect to the principle of unjust enrichment despite the terms of a statute.
In effect, because it was the legitimate expectation of both Dixdale and Central that Central remained the first mortgagee, the enrichment arising from a reversal of that expectation lacked a juristic basis.
[23] The facts in Fraser Valley Credit Union were that a new first mortgage was approved on property over which there was an existing first mortgage in favour of Security Home Mortgage Investment Corp. and a second mortgage in favour of Household Realty Corporation Limited. The Credit Union obtained a payout statement for the first mortgage and then sent a letter to Household seeking confirmation that it would execute a priority agreement granting the new Credit Union first mortgage priority over the existing second mortgage in favour of Household.
[24] The letter contained a request to acknowledge and agree to the priority, the letter was faxed back to the Credit Union some time later with the letters “H.R.C.” and a signature. In due course a priority agreement was sent to Household but never executed or returned. The existing first mortgage was paid out after registration of the new mortgage in favour of the Credit Union which, of course, was registered subsequent to that of Household.
[25] It was argued that the priority position of Household constituted a windfall and a consequent deprivation to the Credit Union. Smith, J. held that the promotion of Household to a position in priority to a first mortgage was a windfall benefit and then continued as follows:
58. The real issue is whether Household’s enrichment lacked a juristic reason and is an unjust enrichment.
59. In my view, neither Fraser Valley’s action in registering its mortgage without a proper priority agreement nor the priority rules of the Land Title Act provide the juristic reason for Household’s enrichment. The Dixdale, Metropolitan Trust, and FBDB v. Royal decisions show that as between the parties to it, an arrangement regarding priorities may prevail over statutory priority rules. Although those decisions are from other jurisdictions, where the land title systems differ in some respects, they are persuasive authority and are consistent with the principles which have been adopted in British Columbia. Honouring the promises made in such arrangements or refraining from taking advantage of the other side’s trust is an aspect of “good commercial conscience,” the standard by which the injustice of an enrichment is measured: Hallmark, supra, and Atlas Cabinets, supra.
60. I find that the petitioner succeeds on this ground. Household would be enriched at the expense of Fraser Valley if its priority position were permitted to remain. Having sent the letter it did, Household created an expectation that it would execute a priority agreement. In good commercial conscience, it would have honoured that letter. Its enrichment through promotion of its priority from second to first place is unjust.
[26] The facts in this case differ significantly from the facts in Fraser Valley Credit Union, the major difference being the fact that Co-operative was not a party to or even aware of the agreement between Saunders and Venstar. Venstar did not pay out the Saunders mortgage, buy out the interests of Saunders or take an assignment of the Saunders mortgage all that Saunders agreed to do was to postpone her interests to that of Venstar. Consequently, the fact that Co-operative remains in priority to Venstar cannot be seen as a windfall benefit as its mortgage remained in the same priority position in relation to the Venstar mortgage throughout.
[27] In my view, Co-operative is not unjustly enriched at the expense of Venstar. Unlike the Fraser Valley Credit Union case there is good juristic reason for the fact that the Co-operative mortgage remains in priority to the Venstar mortgage. As a consequence the priorities set out in the Land Title Act apply with the result that the Co-operative mortgage should be paid from the funds in trust in priority to the mortgage in favour of Venstar which would rank next and in turn rank ahead of the Saunders mortgage. Venstar would be entitled to any funds remaining.
[28] The respondent, Co-operative, is entitled to costs of this application to be paid by the respondent, Venstar, on Scale 3.
“Master A.N. Patterson”