Turner v. DN Developments Ltd., 2011 ABQB 554

Court of Queen ’ s Bench of Alberta Citation: Turner v. DN Developments Ltd., 2011 ABQB 554 Date: 20110913 Docket: 0703 13664 Registry: Edmonton Between: Raymond Turner and Lori Turner Applicants - and - DN Developments Ltd. and Darren ’ s Homes Respondents _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice B.A. Browne _______________________________________________________ Appeal from the Order by R.P. Wacowich, Master in Chambers Dated the 22 nd day of February, 2011 [ 1 ] DN Developments Ltd. and Darren’s Homes (the Developers) appeal Master R.P.

Wacowich’s February 22, 2011 decision discharging their caveat and lis pendens filed against lands owned by Raymond and Lori Turner (the Turners).

[ 2 ] The Turners purchased a residential lot and hired the Respondents to build a home on it. A Construction Agreement was negotiated between the parties and signed November 10, 2005. The purchase price in the agreement was $1,231,659.32. During the course of construction the parties negotiated a number of change orders. The Turners did some of the work provided for in the Construction Agreement themselves and they added some work to be done by the developers. [ 3 ] There is ongoing litigation between the parties regarding the work done by the developers and whether any money remains owing.

The Turners have paid $1,286,00 to the developers.

The Developers say that a further $245,417.97 is still owing. [ 4 ] The Developers filed a caveat on or about July 27, 2007 claiming “an equitable encumbrance under and by virtue of a construction agreement dated November 10, 2005 made between Darren’s Homes a division of DN Developments Ltd. and Raymond Turner and Lori Turner”. [ 5 ] The Developers also filed a builder’s lien on or about July 26, 2007 to protect the sum of $245,417.97 for work done and materials supplied under the Construction Agreement. [ 6 ] The issue is whether the caveat is properly filed, and requires the

interpretation of clause 6 of the Construction Agreement. Clause 6 is reproduced below: TITLE AND MORTGAGE The title to the Land is registered in the name of the Purchaser. The Builder and Purchaser agree that if part of the monies for the total amount payable for the Total Price of the Home is coming from the proceeds of a new first Mortgage by the Purchaser, then the Purchaser agrees to the following conditions: (

a) The Builder must be supplied with an approved copy of the mortgage commitment prior to commencement of construction of the Home; (

b) The Builder must be advised by it’s solicitor that the Purchaser has executed any and all required documents and has delivered any and all information required by the Mortgage in ample time to permit the mortgage money to be advanced in accordance with any progress draws required pursuant to this Agreement and in full on or before the date of possession; (

c) The Purchaser must have executed and delivered to the Builder an irrevocable direction in writing addressed to the Mortgagee that the mortgage proceeds be paid to the Builder; (

d) The Purchaser must have executed such other documents as may be required in the circumstances to ensure that the mortgage proceeds are, in fact, paid to the Builder. If any of the above conditions are not met, then the Purchaser shall pay to the Builder on the date of possession, all of the Total Price with no allowance for the mortgage proceeds, and the Purchaser shall obtain such interim financing as may be required to give effect to this Agreement.

If the Builder agrees to permit the Purchaser to take possession of the Home, as a tenant at will only, while any of the Total Price remains unpaid, such amount outstanding shall bear interest at the rate listed in Clause 5 until paid. If any advance of money under a new first Mortgage shall not be considered due and payable to the Builder under the completion and inspection of the construction stages under Clauses 5 (c), (d), (e), or (

f) above. All remaining money to be advanced under the new first Mortgage shall not be due and payable until full or substantial completion and inspection of the Home by the Purchaser subject to Clause 16 and any holdback requirements of the Mortgagee. The Purchaser agrees that the Builder shall be entitled to register a caveat against the Land as security for payment of the Total Price of the Home which shall constitute an equitable mortgage, charge and encumbrance against the Land. The Builder agrees to postpone this caveat in favor of a new first Mortgage by the Purchaser subject to the Purchaser meeting all of the conditions referred to above. (Emphasis added) [ 7 ] The Master concluded:

The clause in question, that is the

section 6, title and mortgage, is somewhat ambiguous in that it first talks about the requirement of thefirst mortgage, and then it has a separate paragraph with regard to the right to register a caveat against the land as security for payment ofthe total price of the home. I do not accept that the total price for the home is the simple amount of 1.231 million. One has to look at theentire contract, and the total price has to be what the total price is. It is the amount owing under that contract, which would includeamounts coming from change orders.

Having said that, that still raises a question of whether there is a right to caveat, given that it isalleged on behalf of the respondent that there are sums due and owing as a result of these change orders. The contract in question is a general standard form, and the builder chose to use that form. It strikes me that if a builder wished to have aright to caveat in any case where there was a shortfall of the entire amount owing, including change orders, that the contract should havesaid so specifically.

There are many contracts that come before the Court where there is money owing, a shortfall, shall we say, and ineach and every case, that does not give a right to a caveat. In my view, the right to caveat has to come from a contract, and the contract, inmy view, is not sufficiently clear to provide for that. Standard of Review [8] Under Rule 6.14 (3) of the New Rules (Alberta Rules Of Court, Alta.

Reg. 124/2010), an appeal from a Master’s decision isnow an appeal on the record: 6.14(3) An appeal from a master’s judgment or order is an appeal on the record of proceedings before the master and, if the judgepermits, may also be based on new evidence that is significant enough that it could have affected the Master’s decision. [9] Under R. 15.1 of the New Rules dealing with transition, the New Rules apply to an existing proceeding commenced, but notconcluded under the Former Rules, and under R. 15.12 if the New Rules impose a new test, provide new criteria, or provide an additionalground for an application in an existing proceeding, the New Rules apply: 15.1 In this Part, (a) “existing proceeding” means a court proceeding commenced but not concluded under the former rules; ... 15.2

(1) Except as otherwise provided in an enactment, by this Part or by an order under rule 15.6, these rules apply to everyexisting proceeding. ... 15.12 Where these rules impose a new test, provide new criteria or provide an additional ground for making an application in anexisting proceeding, these rules apply in respect of the application if the application was made but has not been heard prior to the cominginto force of these rules. [10] Both the Former Rules and the New Rules are silent on the standard of review applicable to Master’s decisions.

Case lawdecided under the former Rules of Court established that the standard of review applicable to a Master’s decision is one of correctness:United Utility Workers' Assn. of Canada v. Transalta Corp., 2004 ABCA 200, 354 A.R. 58 at para. 20, leave to appeal denied [2004]S.C.C.A. No. 386, cited in Desoto Resources Ltd. v. Encana Corp., 2010 ABQB 448, 31 Alta. L.R. (5th) 282 at para. 27. [11] The process for hearing appeals from the Master has changed from being a hearing de novo under the Former Rules to ahearing “on the record of proceedings before the Master” under the New Rules.

Recent decisions of this Court have concluded that thischange mandates an appellate standard of review, as set out in Housen v. Nikolaisen, 2002 SCC 33 , [2002] 2 S.C.R. 235: SeeJanvier v. 834474 Alberta Ltd., 2010 ABQB 800 (at para. 13); Royal Bank of Canada v. Place, 2010 ABQB 733 (at para. 28); Lee v.Lepage, 2010 ABQB 829 (at para. 24); Heritage Station Inc. v. Professional Stucco Inc., 2011 ABQB 18 (at para. 14); and Ma v.Quinn, 2011 ABQB 103 (at para. 15). I agree.

[ 12 ] In Janvier , Macklin J. summarized the applicable standards (at para. 18): In

summary, the standard of review on a decision from the Master on a question of law is correctness. The standard of review for facts accepted by the Master or factual inferences drawn by the Master from the evidence is reasonableness. The finding must amount to a palpable and overriding error. The imputed error must be plainly identified and must be shown to have affected the result.

On a question of mixed fact and law, if the principle of law cannot be extricated from the question, then the standard of review is again one of reasonableness only to be interfered with if a palpable and overriding error can be shown. If the principle of law can be extricated from the question, then the standard of review on the principle of law is correctness. [ 13 ] The

interpretation of an insurance contract is a question of law: Pivotal Capital Advisory Group Ltd. v. NorAmera BioEnergy Corp ., 2010 ABCA 199 , 487 A.R. 313 (at para. 18 ); Jager v. Liberty Mutual Fire Insurance Co. , 2001 ABCA 163 , 281 A.R. 273 (at para. 14 ). When a court makes fact findings or inferences to determine the essential terms of a contract, however, those findings warrant deference absent palpable and overriding error: Double N Earthmovers Ltd. v. Edmonton (City) , 2005 ABCA 104 , 363 A.R. 201 (at para. 16 ), aff'd, 2007 SCC 3 , [2007] 1 S.C.R. 116. Here, there are no fact findings or inferences necessary and the question is purely a question of the correct

interpretation of the Construction Agreement. The standard of review is therefore correctness. Positions of the Parties [ 14 ] The Turners argue that the right to file a caveat under the Construction Agreement only arises if they obtained mortgage financing. Further, the Turners argue that the total purchase price set out in the Agreement, $1,286,000, has been paid in full and that the extras are not included in the purchase price. They argue further that the builder’s lien may well cover the extras of approximately $245,000, but the caveat is unnecessary and superfluous. [ 15 ] The Developers argue that the whole

section “TITLE AND MORTGAGE” must be examined to determine the meaning of the caveat portion of the paragraph. They argue further that there is no restriction in the paragraph requiring a mortgage before a caveat can be filed. They argue that the caveat is properly filed. Discussion [ 16 ] Clause 6 of the Construction Agreement deals with two topics – title and mortgage. The Turners suggests that it applies only when a mortgage is to be placed against the property. [ 17 ] Both parties agree that the Agreement provides protection for the builder to ensure that it receives the mortgage funds as construction proceeds, if there is a mortgage. Sub-paragraphs

a) to

d) describe the process for payment of mortgage proceeds to the builder. However, there was no mortgage here, and therefore the Turners were responsible to pay the builder as construction proceeded. [ 18 ] The authority to register a caveat is alleged to come from the emphasized sentence noted in the Agreement. [ 19 ]

Section 130 of the Land Titles Act provides the requirements for registration of a caveat. Relevant portions have been reproduced: 130 A person claiming to be interested in land for which a certificate of title has been issued ... (

a) pursuant to

... (iii) an unregistered instrument, ... may cause to be filed with the Registrar a caveat on the person’s behalf in the prescribed form against the registration of any person as transferee or owner of, or any instrument affecting, the estate or interest, unless the certificate of title is expressed to be subject to the claim of the caveator. [ 20 ] Basic contract

interpretation principles were discussed by our Court of Appeal in Keephills Aggregate Co. v. Riverview Properties Inc. , 2011 ABCA 101 (at paras. 12 and 13 ): However, courts should prefer

interpretations that are consistent with the reasonable expectations of the parties, including compelling notions of business efficacy in such a context, so long as such an

interpretation can be supported by the text... Courts should avoid

interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded... The law does not license a judicial exploration of the negotiations of the parties in pursuit of the agreement that the court assumes would best balance the parties' respective interests... But every word in a contract is presumed to make sense and to have a specific role to play in advancing the contractual purpose. To the extent that it is possible to do so, courts should avoid adopting

interpretations that render any portion of a contract meaningless or redundant. (Citations omitted) [ 21 ] The Turners argue that contract provisions cannot be considered in isolation, but must consider the contract as a whole ( McDonald Crawford v. Morrow , 2004 ABCA 150 ; ATCO Electric Ltd. v. Alberta (Energy and Utilities Board) , 2004 ABCA 215 ). I agree. [ 22 ] However, reading the contract as whole, it is apparent that clause 6 is intended to protect the builder’s interest in being paid under the agreement. It first provides that the Purchaser has the registered title to the Land.

Then it contains a number of conditional clauses. First, the clause says that “ if part of the monies... is coming from the proceeds of a new first Mortgage by the Purchaser”, the Purchaser agrees to the conditions in (a)-(d). It then provides that if these conditions are not met, the Purchaser must pay the Total Price upon possession and obtain interim financing.

It then provides if the builder agrees to permit the purchaser to take possession as a tenant- at-will, any outstanding amounts will bear interest at a defined rate. [ 23 ] The clause then provides a non-conditional agreement, that is, a provision that does not include “if ”. The highlighted passage permitting the builder to register a caveat does not expressly indicate that it is conditional on the Purchaser obtaining a mortgage.

Had that been the intention, that clause could have been drafted like the earlier clauses – “ if the purchaser obtains a mortgage, the Purchaser agrees that the Builder shall be entitled to register a caveat...” [ 24 ] The import of that sentence is that the Turners agreed that the builder would be entitled to register a caveat ... which shall constitute an equitable mortgage ... against the land.” This is consistent with the overall context of the clause as it protects the builder’s interest in being paid.

It would be illogical to conclude that the contract permitted a builder to file a caveat if there was a mortgage, but could not do so when there was no mortgage. This would not be “consistent with the reasonable expectations of the parties” and would be contrary to “compelling notions of business efficacy.” [ 25 ] In my view, there is no ambiguity or uncertainty in the meaning of that sentence. Granted, it is set in the context of the paragraph entitled “Title and Mortgage”, but that is not sufficient to create any ambiguity, given the clear language and context.

Therefore there is no need to consider the application of the doctrine of contra proferentem . [ 26 ] Therefore, applying the standard of correctness, I respectfully find that the learned Master was incorrect in discharging the caveat and lis pendens filed against the Turners’ property.

[ 27 ] I agree with the Master that the total price of the home is the purchase price plus the adjustment up or down for change orders signed off by both of the parties. That

interpretation is confirmed by the wording of the paragraph entitled “Price”: The price to be paid by the purchaser to the builder for the home to be constructed on the land shall be the sum of $1,231,659.32 and shall include only extras as written on

Schedule B attached to this agreement or by amending

Schedule B and initialling it. ... and further by the inclusion in the Agreement of the paragraph entitled “Extras, Deletions or Substitutions”: Any additions, removals, corrections, variations, substitutions or price changes to the home shall be done only by written change order signed by the builder and purchaser and attached to this Agreement (Schedule A) ... [ 28 ] The total purchase according to the Agreement was $1,231,659.32. The change orders signed by the developers and the purchasers, or one of them, clearly operate to increase or decrease the purchase price.

It does not make common sense that the purchasers sign a change order, the developers act on the change order, and the developers do not receive compensation for the work done pursuant to that change order. The

interpretation of the purchase price contained in the Agreement must therefore include any valid change orders. Therefore, although the specified price is $1,231,659.32 and that price has been paid, the amounts of change orders form part of the Agreement and there may be money owing by the Turners to the Developers. Conclusion [ 29 ] I grant the appeal. The caveat is validly filed as the Construction Agreement creates an interest in land and permits the registration of a caveat.

Further, the purchase price includes potentially valid change orders and any caveat or builder’s lien is therefore not limited to the specified purchase price contained in the Agreement of $1,231,659.32. Heard on the 9 th day of June, 2011. Dated at the City of Edmonton, Alberta this 13 th day of September, 2011. B.A. Browne J.C.Q.B.A. Appearances: Brent W. Mielke

for the Applicants James K. McFadyen for the Respondents