MCAP Service Corporation v., 2011 ABQB 36

Court of Queen ’ s Bench of Alberta Citation: MCAP Service Corporation v. 973632 Alberta Ltd., 2011 ABQB 36 Date: 20110121 Docket: 0501 11594 Registry: Calgary Between: MCAP Service Corporation Plaintiff - and - 973632 Alberta Ltd. Defendant _______________________________________________________ Reasons for Judgment of K.R. Laycock, Master in Chambers _______________________________________________________ Nature of Application [ 1 ] The plaintiff commenced this foreclosure action on August 8, 2005 to enforce its first mortgage security.

On February 28, 2006 a sale order was granted which effected a transfer of the mortgage property to a third party purchaser. The sale proceeds were used to pay off the plaintiffs mortgage and a surplus of funds totalling $59,719.65 was paid into court. The sale order provided that these funds were to be dealt with upon further application by any interested party. [ 2 ] On August 12, 2009 a notice of motion was filed on behalf of the second mortgagee B2B Trust (on behalf of Hans Gaastra) for an order paying the balance of the money out to the applicant.

[ 3 ] The defendant, who was the former owner of the property, objects to the payment of money out to the second mortgagee because of the effect of the Limitations Act R.S.A. c. L-12 s. 3 (1). [ 4 ] The applicant responds by alleging the limitation period is suspended by virtue of section 4 (1). [ 5 ] The portion of the Limitations Act relied upon by the parties is: 3(1) Subject to

section 11, if a claimant does not seek a remedial order within (

a) two years after the date on which the claimant first knew, or in the circumstances ought to have known, (

I) that the injury for which the claimant seeks a remedial order had occurred, (ii) that the injury was attributable to conduct of the defendant, and (iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding, or (b) 10 years after the claim arose, whichever period expires first, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of the claim. 4(1) The operation of the limitation period provided by section 3(1)(

b) is suspended during any period of time that the defendant fraudulently conceals the fact that the injury for which a remedial order is sought has occurred.(emphasis added) Background [ 6 ] Hans Gaastra (the applicant) had funds in a self-directed R.R.S.P. which he wished to have invested in a mortgage portfolio. In or about 2001 he contacted Klaus Link (Link) about the prospect of investing these funds. Gaastra alleges that Link contacted Glenn Watts (Watts) who was a mortgage broker’s agent for Mortgage House Corporation.

Watts alleges that he was an agent for Guardian Mortgage and Property Corporation (Guardian) who was seeking second mortgage financing for Guardian. In any event, as a result of discussions and negotiations a series of loans were made and secured by mortgages on properties in Alberta owned by Guardian. [ 7 ] The second mortgage provided for a loan of $48,582.89 which was secured against property owned by Guardian. In order to facilitate the loan, the mortgage was taken in the name of B2B Trust with respect to the applicants pension plan number 1PP0215.

The mortgage was for a one-year term with interest at 16% with a semiannual payment due on December 15, 2002 in the amount of $3,886.63. The mortgage matured on June 15, 2003 without a payment being made.

[ 8 ] The defendant became owner of the property on November 22, 2004 as a result of a different foreclosure proceeding. The defendant had filed a caveat against the property on May 26, 2004 claiming that it held security on land to secure a $8,000.00 debt. Watts alleges that the debt was the unpaid mortgage brokers fees owed by Guardian to the mortgage broker who arranged the initial mortgage loan from Gaastra to Guardian. The mortgage broker, Mortgage House Corporation, assigned the debt to the defendant.

The defendant commenced its foreclosure action in August 2004, which resulted in the court granting a final order of foreclosure in November 2004. [ 9 ] Gaastra swears that, in October 2004, he approached Link with instructions to take whatever steps were necessary to recover his money. On October 6, 2004 the applicant executed a power of attorney, drafted by Link, granting authority to Watts to do “anything I would be entitled to do regarding the above mortgage and R.R.S.P. account”.

Watts was authorized “to execute, sign and deliver all instrument documents and do all acts, matters and things that may be necessary for carrying out the powers given with respect to the mortgage and R.R.S.P. account”. Watts denies receiving the document. [ 10 ] In addition on October 6, 2004 the Gaastra executed a Notice of Legal Action which directed B2B Trust to authorize Jim Riech, a lawyer in this city of Calgary, to act on behalf of the trust company to collect the arrears of mortgage by power of sale or foreclosure proceedings.

Gaastra alleges delivering the power of attorney and Notice of Legal Action to Link. Watts acknowledges receiving the Notice of Legal Action from Link, then not knowing why he received the document, he forwarded it on by fax to B2B Trust. [ 11 ] The evidence discloses that Link was a director of the defendant from 2002 until 2007 or 2008. Watts has been a director of the company at all material times. Watts swears that Link was aware of the defendant foreclosing on the 3 rd mortgage.

Argument [ 12 ] The defendant argues that the limitation period for Gaastra commenced December 15, 2002 or, at the latest, on the maturity the mortgage being June 15, 2003. Since no proceedings were ever commenced to enforce the mortgage, the applicant cannot claim the funds. [ 13 ] Gaastra argues that as a result of fraud by the defendant, its officers or directors, the limitation period was suspended. There is no allegation of fraud made against Guardian who owned the property until November 22, 2004.

Any claim against Guardian should have been commenced by December 15, 2004 or, at the latest, by June15, 2005. [ 14 ] Gaastra argues that the failure of Link and/or Watts to take any steps to protect him and commence foreclosure proceedings amounts to a fraud within the meaning of the Limitations Act . He argues the limitation period is suspended during the time of concealment, and the suspension continued up until the time that he discovered that Watts was a shareholder or director of the defendant.

That information did not come to his attention until 2008. [ 15 ] The defendant responds that any extension of the limitation period based upon alleged fraud by Link or Watts, in failing to take foreclosure proceedings, would have terminated when the applicant obtained knowledge of the conclusion of this foreclosure proceeding when money was paid into court.

They argue that even if a new period started running when the money was paid into court in March 2006, the applicant is too late to claim in the funds in court because no proceeding or application had been made by Gaastra prior to March 2008. [ 16 ] If the limitation period was suspended as a result of fraud, when did the limitation begin to run?

Gaastra argues that it commenced upon his discovery of the fraud which to him amounted to learning that Watts was a shareholder or director of the defendant. [ 17 ] Watts gave evidence in the cross examination on affidavit to the effect that he did not know that Gaastra had given instructions to commence foreclosure proceedings. Watts argues that at all times he was agent for the borrower and never an agent for Gaastra. However it is arguable that the defendant Corporation, through its director Link, knew that Gaastra was relying on Link and Watts to act on his behalf to enforce his mortgage security.

Link failed to disclose his interest in the defendant Corporation and failed to disclose to Gaastra that steps were not being taken to enforce his mortgage security.

[18] It is interesting to note that in October 2008 Watts advised Gaastra about the surplus money in court. As a subsequentmortgagee B2 B Trust was served with all of the foreclosure orders. The courthouse file contains affidavits of service showing that theorder nisi was served upon them by courier sent October 13, 2005, and the application documents to accept the offer was servedFebruary 17, 2006.

While there is no affidavit of service on the file confirming that the final sale order was served upon B2B Trust,Gaastra acknowledges receiving via B2B Trust, a copy of the sale order dated February 28, 2006 shortly after it was made. [19] Gaastra fails to disclose why neither he or B2B Trust applied for a payout of the surplus funds prior to August 2009.

On May11, 2009 Saskatchewan counsel for Gaastra sent correspondence to the clerk of the court in Calgary and inquired whether the surplusfunds still remained in trust. [20] Watts further testifies in his examination that when the surplus funds were paid into court, he didn’t think there would be anymoney left for the defendant because of the prior mortgagee’s claim to the fund. The Law: [21] The defendant as registered owner will be entitled to receive the surplus funds now in court unless Gaastra can prove anentitlement to the funds.

The basic question is whether or not Gaastra was prohibited by virtue of the Limitations Act from advancing aclaim to the funds when he filed his notice of motion August 12, 2009. [22] Guardian defaulted under the terms of the second mortgage by failing to make interest payments on December 15, 2002. TheGaastra failed to instruct B2B Trust to commence foreclosure proceedings within two years. When he did not receive the interestpayment on December 15, 2002 his limitation period began to run. On December 16, 2002 he knew, or in circumstances ought to haveknown, that: (

a) an injury had occurred, (

b) the injury was attributable to Guardian, and © the injury, assuming liability on the part ofGuardian, warranted bringing a proceeding. Knowledge of these material facts is sufficient: DeShazo v. Nations Energy Co. 2005 CarswellAlta 957, 2005 ABCA 241, [2005] A.W.L.D. 2777, [2005] A.W.L.D. 2767, 367 A.R. 267, 346 W.A.C. 267, 256 D.L.R. (4th) 502, 48 Alta. L.R. (4th) 25. The Limitations Act applies to mortgage actions: Daniels v. Mitchell 2005 CarswellAlta 1332, [2005] A.J. No. 992, 2005 ABCA 271, 35 R.P.R. (4th) 7, which257 D.L.R. (4th) 663, 15 C.P.C. 96th) 266, 371 A.R. 298, 354 W.A.c. 298, 51 Alta.

L.R. (4th) 212, [2006] 6 W.W.R. 449. Failure to make mortgage payments warrants bringing a proceeding which commences thelimitation period: R.P. Choma Financial & Associates Inc. V. McDougall 2008 CarswellAlta 790, 2008 ABQB 359, [2008] A.W.L.D. 3014, [2008] A.W.L.D. 2931, 94 Alta. L.R. (4th) 191, 451 A.R. 278. [23] Where there is an acceleration clause exercisable at the option of the mortgagee upon default, the time period to start thelimitation is from the default even if the acceleration clause is not exercised: Manufacturers Life v.

Hodges (AB CA),[1947] 1 D.L.R. 195. [24] If Gaastra did not have actual knowledge of the property owner during the 2 year limitation period, then by reasonablediligence he ought to have known and commenced proceedings by December 15, 2004: Borchers v. Kulak 2009 CarswellAlta 1160, 2009 ABQB 457, [2009] A.W.L.D. 3635, [2009] A.W.L.D. 3638, [2009] A.W.L.D. 3706, 12 Alta. L.R. (5th) 61, 68 C.C.L.T. (3d) 250,479 A.R. 136.

B2B Trust on behalf of Gaastra could have commenced a proceeding prior to December 15, 2004 seeking in personam orin rem remedies against Guardian. [25] When title to the property was transferred by foreclosure order to the defendant on November 22, 2004, the defendant, byvirtue of the Land Titles Act R.S.A. 2000 Ch. L-4 s.58, became liable on the covenants to pay contained in the mortgage and would havebeen joined as a co-defendant. As the facts illustrate no such preceding was commenced.

Providing instructions to Link to commenceproceedings in October 2004 did not result in enforcement proceedings being commenced. Gaastra may have claims against other partiesfor the failure of his instructions to be carried out. [26] Gaastra’s right to enforce his mortgage loan agreement expired December 15, 2004 or at the very latest on June 15, 2005, thelatter date being two years after the date on which the mortgage matured. At all material times Gaastra knew that Guardian, as the

original mortgagor, would be a defendant in any proposed action. A search of land titles after November 22, 2004 would have revealedthat this defendant could also be sued. Therefore, if he commenced the action after November 22, 2004, following a search at land titles,he would have known that 973632 Alberta Ltd. was a necessary party in his foreclosure action. For reasons that follow, Gastric cannotrely upon the Limitations Act s.4(1) to extend the limitation period. [27] Gaastra argues that the defendant concealed from him the fact that it became registered owner of the property. Gaastra arguesthat this amounts to fraudulent concealment which under

section 4 of the Limitations Act extends the time for commencement ofproceedings. Fraudulent concealment need not amount to deceit or common-law fraud: Atlanta Industrial Sales Ltd. v. Emerald Management & Realty Ltd. 2006 CarswellAlta 679, 2006 ABQB 255, 19 B.L.R. (4th) 256, [2006] 10 W.W.R. 515, 62 Alta. L.R. (4th) 232, 399 A.R. 1. See also King v. Victor Parsons & Co. [1973] 1 All E.R. 206; Wilson v. McDonnell Canada Ltd. (1985), (ON SC), 52 O.R. (2d) 74; H. (V.A.) v. Lynch 2000 ABCA 97; Photinopoulos v. Photinopoulos (1988), 1988 ABCA 352, 92 A.R. 122; Joncas v.

Pennock (1961), (AB CA), 32 D.L.R. (2d) 756. [28] In the Emerald Management case, the plaintiff sued to recover fees collected and retained by the defendants in the course oftheir duties as the plaintiff’s property managers. The court found that the defendants had fraudulently concealed the injury within themeaning of the Act by simply not providing full disclosure to the plaintiffs as was their duty.

Gaastra argues that once the defendantbecame the registered owner of the property it had a duty to disclose its ownership because it had an obligation by virtue of the impliedcovenant provided for in the Land Titles Act

section 58 to make payment on the mortgage. In a debtor creditor relationship I doubt thatthere is any special relationship that requires such a disclosure, but how does the defendant’s failure to disclose its ownership affectGaastra’s right of action? [29] In Mortgage Actions in Alberta by Price and Trussler, the authors deal with who must be named as a defendant in aforeclosure action and state at page 43: The registered owner of the mortgaged land must obviously be a party to any action which purports to affect his interest in or use of theland.

This is so whether he was the registered owner at the time he granted the mortgage, whether he executed a written assumptionagreement of the mortgage at the time he became the registered owner, or whether he became the registered owner by way of aninstrument of transferring land, so that he is subject to the covenants implied by s. 62 (now 58) of the Land Titles Act. [30] In any proceeding commenced by Gaastra prior to November 22, 2004, the only defendant would have been Guardian.

If theproceeding were commenced between November 22, 2004 and December 16, 2004 the defendants would have been Guardian, as theoriginal mortgagor, and 973632 Alberta Ltd., as the owner of the property. Any lawyer instructed to commence a foreclosure actionwould obtain a land titles search to ensure that the proper parties are named as defendants.

The failure of the defendant, as new owner, tonotify B2B Trust or Gaastra of its interest in the land does not amount to fraudulent concealment. [31] A further problem faced by Gaastra on this application is the failure to recognize that in s. 4(1), it is the 10 year ultimatelimitation period, in section 3 (1)(b), that is affected by fraudulent concealment. The ultimate limitation period and the extension of theultimate limitation period does not come into play because Gaastra had sufficient knowledge of the facts required by s. 3(1)(

a) byDecember 16, 2002 or at the latest by June 16, 2003. [32] Furthermore, time is “suspended during any period of time that the defendant fraudulently conceals the fact that the injury forwhich a remedial order is sought has occurred”. There is no evidence of the concealment of the injury in this case and therefore Gaastracannot rely upon section 4 (1). [33] The payment of the surplus does not give rise to a new cause of action.

However if a new cause of action or claim arose withthe payment into court, Gaastra would have needed to have commenced his application for payment out of court within 2 years of thepayment into court or within 2 years of him knowing about the fund. The payment into court was May 26, 2006 and he knew of the saleorder with its provision for the payment of surplus funds in the first quarter of 2006. Filing this motion on August 12, 2009 was simplytoo late. [34] In order to succeed on this application, Gaastra must show an entitlement to the funds.

It is not sufficient merely to show thathe had a charge upon the lands; it is necessary for him to show that he had an enforceable claim when his charge was removed from theland. The sale order effectively extinguished Gaastra’s right to enforce his debts against the land. His claim is then limited to the amountof surplus money paid into court. The entitlement of the interested parties to the fund is determined by the rights of the parties at the dateof the sale order. There is no real time limit fixed for applying to determine the entitlement to the surplus funds.

[ 35 ] Since Gaastra has been unable to prove that he has an enforceable claim to the fund, the money shall be paid out of court to the defendant, the registered owner of the property when the sale order was granted. The clerk shall distribute the fund in accordance with the Civil Enforcement Act . This will require the clerk to complete searches at the Personal Property Registry for the existence of any related writs and with the Office of the Superintendent of Bankruptcy to determine if the defendant is in bankruptcy.

Upon the clerk being satisfied that there are no related writs or bankruptcy proceedings, the fund shall be paid to the defendant or its counsel. Attachment Application [ 36 ] In order to preserve the fund, Gaastra applies to have the funds held in court pending the resolution of his action commenced against the defendant and others for fraud, tracing, accounting and other equitable remedies. [ 37 ] The effect of this request is to seek an attachment order pursuant to the provisions of the Civil Enforcement Act R.S.A. 2000

chapter C-15 s.17 without complying with any of the requirements of the act. If such an application is to be launched it must be in his other action with proper evidence and an undertaking mandated by the s. 17(4). [ 38 ] Costs may be spoken to. Heard on the 13 th day of December, 2010. Dated at the City of Calgary, Alberta this 21 st day of January, 2011. K.R. Laycock M.C.C.Q.B.A. Appearances: Kari L. Sejr Bishop & McKenzie LLP for the Applicant

Hans Gaastra Peter R. S. Levesque Brownlee LLP for the Defendant