Toronto Dominion Bank v Letendre, 2012 ABQB 323

Court of Queen ’ s Bench of Alberta Citation: Toronto Dominion Bank v Letendre, 2012 ABQB 323 Date: 20120517 Docket: 0903 02174 Registry: Edmonton Between: The Toronto Dominion Bank Plaintiff - and - Roy Letendre, Wendy Hawryliw Letendre, Rene Thibault and Roxanne L. Thibault Defendants - and - Community Futures Lesser Slave Lake Region Appellant - and - Alberta Indian Investment Corporation Respondent _______________________________________________________ Memorandum of Decision

of the Honourable Mr. Justice Don J. Manderscheid _______________________________________________________ Appeal from the Decision by W.S.

Schlosser, Master in Chambers Filed on the 7 th day of June, 2011 ( 2011 ABQB 369 , Docket: 0903 02174) Introduction [ 1 ] This is an appeal by Community Futures Slave Lake Region (“CFLS”) of the decision of Master Schlosser now reported at 2011 ABQB 369 , where the Master held that CFLS did not have an “enforceable claim” at the time of the sale of a property (the “mortgaged lands” or “subject property”), owned by the Defendant mortgagor, Roy Letendre (“Defendant Letendre” or “Letendres”), through foreclosure action commenced by the Plaintiff mortgagee, the Toronto Dominion Bank (“Plaintiff TD Bank”); and that as such, CFLS was barred under the provisions of the Limitations Act , RSA 2000, c L-12 (“ Limitations Act ”) from making a claim to the pool of surplus money, presently held by the Alberta Court of Queen's Bench.

Background facts [ 2 ] The Plaintiff TD Bank provided a loan to the Defendant Letendre and secured it by a mortgage (the “First Mortgage”) registered against the title for the mortgaged lands. The First Mortgage is followed in order of registration by a Caveat with respect to the commission/fees of a real estate agent. The next registration on the subject title is the interest of CFLS based on the loan provided to the Defendant Letendre and secured by a mortgage (the “Second Mortgage”).

The Respondent, Alberta Indian Investment Corporation (“AIIC”) subsequently registered a writ of enforcement against the subject title. Other writ holders appeared on title after AIIC’s registration. [ 3 ] The First Mortgage had a face value of $124,135.00. The Caveat of the real estate agent was for payment of commission in the sum of $5,007.36. The Second Mortgage had a face value of $75,000.00; and the writ of enforcement in favour of AIIC was for $116,244.17.

The Crown (in right of Canada) asserts that the Defendant Letendre is indebted to the Canada Revenue Agency (“CRA”) for $4,904.68 under the Income Tax Act , RSC 1985, c 1 (5th Supp) (“ ITA ”), plus interest on that amount under the ITA and for $14,106.10 under the Excise Tax Act , RSC 1985, c E-15 (“ ETA ”), plus interest under the ETA , alongside the Crown’s deemed trust claims against the mortgaged land/property proceeds. [ 4 ] The Defendant Letendre defaulted on his payments in respect of the loan provided by CFLS and the Second Mortgage on November 1, 2007. [ 5 ] On November 18, 2002, the Defendant Letendre entered into an agreement with AIIC to borrow the sum of $107,951.00 to be repaid with interest at a rate of 10.5%.

The Defendant Letendre defaulted on his payments and AIIC obtained a Default Judgment against the Defendant Letendre on August 30, 2007. AIIC registered its writ against the title to the mortgaged lands on September 24, 2007.

The CRA writs were registered on October 4, 2007 (according to the “Historical Land Title Certificate” of the mortgaged lands which was cancelled on August 24, 2010). [ 6 ] On February 12, 2009 the Plaintiff TD Bank commenced a foreclosure action on the mortgaged lands (the “Foreclosure Action”); on May 28, 2009 it obtained an Order Nisi/Order for Sale with a three month redemption period and a listing price of

$255,000.00; in February 2010, got an extension of the listing; in June 2010, obtained an Order reducing the listing price to $210,000.00; in August 2010, obtained an Order Confirming Sale for the sum of $200,000.00; and on November 5, 2010, the Plaintiff TD Bank was paid a total of $132,927.38 covering the amounts owing and related costs under the First Mortgage. The balance sum of $74,197.30 was paid into Court.

This created the pool of surplus money (the “Fund”) that the Appellant CFLS and the Respondent AIIC are competing for. [ 7 ] The Appellant CFLS, as a subsequent encumbrancer, was given notice of the proceedings in the Foreclosure Action and was present in some of the applications listed in the preceding paragraph.

Nevertheless, CFLS never commenced any proceedings against the Defendant Letendre to enforce the Second Mortgage since the last payment made by the mortgagor, the Defendant Letendre on November 1, 2007. [ 8 ] On May 26, 2011, CFLS brought an application before Master Schlosser claiming an interest in the Fund and seeking an Order for payout, thus: (a) $57,410.83 to CFLS, plus interest from February 20, 2011; (

b) costs to CFLS on a solicitor/client basis; (c) $13,768.46 to the real estate agent, plus interest from January 24, 2011; (

d) costs to the realtor; and (

e) the remainder to all other writ holders registered against title to the mortgaged lands on a pro rata basis. [ 9 ] Apparently, the Defendant Letendre was served with CFLS’s application for payout but did not respond (Appellant’s Brief, para 8).

However, the Respondent AIIC opposed the application for payout to CFLS on the basis that the Appellant CFLS is statute barred and had not established an enforceable claim. [ 10 ] In the Master’s decision reported in Toronto Dominion Bank v Letendre , 2011 ABQB 369 (the “Master’s Decision”) he found, inter alia , that: [11] The policy underlying the [ Limitations Act ], which is to provide a Defendant with repose by conferring an immunity at the Defendant ’s option, may have no direct application to a contest between competing creditors.

In many instances the Defendant may have no active involvement in the proceedings . [12] However, in my view, a proper determination of the entitlement of an interested party to funds in court requires a consideration of the relevant limitations even if the limitation is raised by one of the competing parties rather than the Defendant debtor . It is a relevant consideration for determining whether or not a competing creditor has “an enforceable claim.” [13] To hold otherwise would, in effect, permit the courts to enforce what would otherwise be an unenforceable claim.

Therefore, unless it can be shown that there is a compelling reason that the Defendant would not have raised the limitations defence, the Court is bound to consider it . ( Emphasis Added ) [ 11 ] The Master then held that failure to make a mortgage payment “warrants bringing a proceeding” which commences the limitation period under the Limitations Act . He concluded that CFLS failed to protect its position as a second mortgagee and consequently “did not have an ‘enforceable claim’ in the sense that its claim was not otherwise recoverable legal process at the date of the sale Order”: para 24.

Accordingly, the Master dismissed the application of CFLS. [ 12 ] The sum of $14, 295.53 was paid out of Court to the real estate agent pursuant to the Caveat, which was prior to the interests of both CFLS and AIIC (Respondent’s Brief, para 21). [ 13 ] It is the Master’s Decision that is under appeal presently. The CRA (i.e. the Crown) filed a written submission in the appeal. Issues

[14] This appeal raises the following issues: (

i) Did the Master err in holding that the Respondent AIIC, who is not a defendant but a subsequent encumbrancer, can invoke theprotection afforded in the Limitations Act? (ii) Did the Master err in interpreting and applying the phrase “warrants bringing a proceeding” to the undisputed facts of this case? (iii) Did the Master err in holding that the Appellant CFLS did not have an “enforceable claim” at the date of the sale Order?

Standards of review [15] The Appellant CFLS submits that the standard of review of a Master’s decision under the New Rules of Court is that of anappellate standard of review, as set out in Housen v Nikolaisen, 2002 SCC 33, [2002] 2 SCR 235, following the change in process frombeing a hearing de novo under the Old Rules to a hearing “on the record of proceedings before the Master” under the New Rules: Turnerv DN Developments Ltd, 2011 ABQB 554 at paras 11 -12. [16] The Respondent AIIC agrees with the Appellant’s position above and specified that the applicable standard of review whenalleging:

a) an error of law is correctness;

b) an error of fact is palpable and overriding error; and

c) an error of mixed fact and lawinvolving the adjudicator’s

interpretation of the evidence as a whole is palpable and overriding error: Housen v Nikolaisen; HeritageStation Inc v Professional Stucco Inc, 2011 ABQB 18 at para 14. [17] I agree with both parties submissions on the general application of the Housen appellate standard of review to decisions ofMasters in Chambers under the new Rules of Court. [18] Further, the Appellant CFLS submits that the first issue of whether the Respondent AIIC can invoke the protection of theLimitations Act is a question of law subject to the correctness standard.

The Respondent AIIC neither makes a direct submission on thisissue nor disputes that position. Similarly, the Crown/CRA makes no explicit submission on this issue. I agree with the Appellant CFLSthat the appropriate standard of review for the first issue is correctness. [19] Regarding the second issue of the

interpretation and application of the phrase “warrants bringing a proceeding” to theundisputed facts of this case, the Appellant CFLS submits that the appeal is not about the Master’s findings of fact but his application ofthe legal standard as set out in the Limitations Act. In other words, this is an appeal of an extricable principle of law which attracts areview on the standard of correctness: Turner at para 12; citing, Janvier v 834474 Alberta Ltd, 2010 ABQB 800 at para 18.

TheRespondent AIIC argues that this issue is a question of mixed law and fact which is subject to the reasonableness standard; and that thereis no extricable principle in this issue. The CRA makes no submission on the issue.

In my view, what is at the core of the second issue isthe construction of the phrase “warrants bringing a proceeding” in the statute and this is a question of law that engages the correctnessstandard: Laasch v Turenne, 2012 ABCA 32 at paras 9-10; Thomson v Canada (Deputy Minister of Agriculture), (SCC), [1992] 1 SCR 385, 133 NR 345 at para 77, quoting from Padfield v Minister of Agriculture, Fisheries and Food, [1968] AC997 (HL). [20] I have identified the third issue separately in order to facilitate clarity of analysis.

The question of whether the AppellantCFLS had or did not have an “enforceable claim” at the date of the sale Order is intertwined with the first and second issues and seems tome to be one that logically flows from them. The Respondent AIIC submits that this is a question of mixed law and fact which involves aconsideration of the evidence as a whole reviewable for palpable and overriding error.

In my view, the arguments and analyses especiallyoffered in respect of the second issue applies to this third issue in the sense that the question involves the application of law to theundisputed fact that the Appellant CFLS did not commence an action in the circumstance; with the issue of enforceability of theAppellant’s claim being an extricable question of law that attracts appellate review on the standard of correctness: St-Jean v Mercier,2002 SCC 15, 282 NR 310 at para 49.

Law [ 21 ] The issues in this appeal revolve around

section 3 of the Limitations Act which provides: 3(1) Subject to

section 11, if a claimant does not seek a remedial order within (a) 2 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. [ 22 ] I will now deal with the issues in turn.

Issue 1: Did the Master err in holding that the Respondent AIIC, who is not a defendant but a subsequent encumbrancer, can invoke the protection afforded in the Limitations Act ? Submissions of Appellant CFLS [ 23 ] The Appellant CFLS argues that the Master erred in deciding that a non-defendant may raise a limitation issue to defeat a competing creditor’s claim.

The Appellant notes the later statement by the Master that “[a] number of decided cases appear to have proceeded on [the basis that a subsequent encumbrancer can raise a limitation defence] even though the point may not have been directly raised or argued”, (Master’s Decision at para 13), is not helpful for analysis; or alternatively, is incorrect given binding precedent. [ 24 ] The Appellant submits that the Courts have been clear that limitations legislation and provisions are restrictive of the rights of action of citizens and must be strictly interpreted such that “any ambiguity found upon the application of the proper principles of statutory

interpretation should be resolved in favour of the person whose right of action is being truncated”: Tardif (Estate of) v Wong ,

2002 ABCA 121 at para 26, 303 AR 103, citing, Berardinelli v Ontario Housing Corp, (SCC), [1979] 1 SCR 275 at280.

CFLS argues that in construing limitations provisions, the Supreme Court of Canada and the Alberta Court of Appeal set out theanalytical process to be followed as: first, to apply the principles of statutory construction; second, to resolve any ambiguity in favour ofthe [claimant]; third, consider whether there is any reason not to construe strictly in favour of the [claimant]; and fourth, unless any validreason is raised, the [claimant] should be granted the longer limitation period: Tardif at para 30. [25] As to whether the Master failed to apply the prescribed analytical process and test in his

interpretation of the Limitations Act,s. 3, according to CFLS, a claimant’s rights can only be extinguished if the defendant has successfully pleaded the statutory limitationwith the necessary facts proven. It argues that the limitation is not triggered immediately once the alleged limitation deadline is passedand that the defendant’s explicit pleading is a condition precedent. The Appellant further states that the Limitations Act clearly providesthat it is a “defendant” that may raise the limitation defence; and by its definition a “defendant” means “a person against whom aremedial order is sought” (s. 1(c)).

And a “remedial order” in the same statute means “a judgment or an order made by a court in a civilproceeding requiring a defendant to comply with a duty or to pay damages for the violation of a right ...” (s. 1(i)). [26] CFLS submits that there is no right-duty relationship between it and the Respondent AIIC as legally required before AIICcould be considered a defendant in this circumstance: Daniels v Mitchell, 2005 ABCA 271 at para 44, 371 AR 298.

That the applicationto have monies paid out of Court to CFLS is independent of AIIC and its claim. [27] Further, the Appellant CFLS notes that unlike many jurisdictions in Canada, the law and practice in the province of Alberta isthat subsequent encumbrancers are prohibited from being named as defendants in a foreclosure action.

In support of this position, CFLSrefers to the old Rule 688 (in place at the relevant time) and new Rule 3.77 which provides that “[a] plaintiff in a foreclosure action mustnot make any subsequent encumbrancer a party to the claim unless possession is claimed from the subsequent encumbrancer.” [28] CFLS submits that in this action and appeal, the only true “defendants” under the Limitations Act are the named Defendants,the Letendres, who did not raise (or have not raised) any limitation defence to its application. [29] In respect of the second step of the analytical process set out in Tardif the Appellant argues that there is no ambiguity in thestatute that needs to be resolved and allowing AIIC to raise a limitation defence in this circumstance would stretch the plain wording ofthe statute which, presumably reflects the clear intention of the legislature: Ruth Sullivan, Sullivan and Driedger on the Construction ofStatutes, 4th ed. (Markham, Ont: Butterworths Canada Ltd, 2002) at 155. [30] At the third and fourth steps of Tardif’s analytical process, the Appellant states that the main consideration is whether thereare policy reasons not to construe the limitations provision in its favour as a claimant.

CFLS states that the Supreme Court observed inNova v Bond, (SCC), [1999] 1 SCR 808 that most limitations statutes possess four characteristics in the sense that theyare intended to: (1) define a time at which potential defendants may be free of ancient obligations, (2) prevent the bringing of claimswhere the evidence may have been lost to the passage of time, (3) provide an incentive for plaintiffs to bring suits in a timely fashion,and (4) account for the plaintiff’s own circumstances, as assessed through a subjective/objective lens, when assessing whether a claimshould be barred by the passage of time (at para 67).

The Appellant submits that on the basis of these paradigms, the Respondent AIIChas failed to demonstrate any policy reason which entitles it as a subsequent creditor to benefit from the surplus Fund ahead of a priorsecured creditor. [31] CFLS disagrees with the Master’s attempt at a policy decision that the Court should be able to permit the raising of thelimitations defence by a subsequent encumbrancer if it means preventing the Court from “enforc[ing] what would otherwise be anunenforceable claim.” The Appellant argues that the Master should not look elsewhere other than for a true defendant, as defined underthe statute, to raise a limitation defence because “[l]imitation periods are bars which a defendant to a particular claim can raise if itwishes to, but which the defendant is not obliged to raise if it does not wish”: Graeme Mew, The Law of Limitations, 2nd ed (Markham,Ont: LexisNexis Canada Inc, 2004) at 91 [Mew, Law of Limitations].

CFLS further submits that the Master incorrectly held that “unlessit can be shown that there is a compelling reason that the Defendant would not have raised the limitations defence, the Court is bound toconsider it.” The Appellant contends that the effect of this decision is that the Master has erroneously placed the onus on the claimant toprove that the Defendant Letendre is purposively not pleading the limitations period, and that such a reverse onus was neithercontemplated nor created by the Limitations Act. Submissions of Respondents - AIIC and CRA

[ 32 ] The Respondent AIIC submits in respect of the first issue that CFLS’s position that it is only the Defendant Letendre that can plead the Limitations Act as a defence is a strict

interpretation and that the Appellant’s failure to take any step to prove its claim created a situation where there is no defendant.

AIIC argues that the Master was correct in holding that the limitation defence may be raised by one of the competing parties rather than the Defendant Letendre in order to determine whether or not a competing creditor has an enforceable claim. [ 33 ] AIIC also submits that the Appellant CFLS cannot show that a remedial order was sought within the limitation period under the Limitations Act because it did not commence proceedings against the Defendant Letendre at the date the property was sold or at all. [ 34 ] The Crown aligns itself with the argument of the Respondent AIIC that CFLS has not commenced a remedial action within which the Defendant Letendre would have the opportunity to raise a limitation defence.

It contends that the Rules of Court contemplate adding a party to an action in circumstances like this one.

Analysis [ 35 ] The general law applicable in this jurisdiction is that all persons who have any interest in the equity of redemption and who have a right to redeem must be made defendants in the foreclosure action, with the exception of prior and subsequent encumbrancers : Francis CR Price & Marguerite J Trussler, Mortgage Actions in Alberta (Calgary, AB: Carswell Legal Publications, 1950) at 42 (Price & Trussler, Mortgage Actions in Alberta ) (Emphasis Added). [ 36 ] In Alberta, subsequent encumbrancers are not generally made defendants to foreclosure actions unless they are actually in possession of the property or if there are special circumstances: Price & Trussler, Mortgage Actions in Alberta at 45; citing, TD Bank v D I W A Hldg Ltd (16 August 1983), Edmonton 8303-13910 (ABQB), an unreported decision of Master Funduk where he allowed a subsequent encumbrancer to be added as a defendant under special circumstances to challenge the validity of the plaintiff’s equitable mortgage.

See also, Western Capital Trust v Odessa Development Group Ltd (1984), 52 AR 313 (Alta Master) where Master Funduk said that a lienholder, who is a subsequent encumbrancer, might be added as a defendant at the order nisi stage in a foreclosure action where the status/validity of the plaintiff’s mortgage is in dispute. [ 37 ] In this jurisdiction prior encumbrancers should not be named as parties in a subsequent mortgagee’s action since any foreclosure order or sale will be made subject to those prior encumbrancers; and based on the principle that a mortgagee may only “foreclose down ”, not “ up ”: Price & Trussler, Mortgage Actions in Alberta at 45; citing, United Dominions Investments Ltd v Norvex Holdings Ltd , [1983] AJ No 654 at para 7 ; (19 May 1983), Edmonton 8203-25360 (ABQB), per Master Funduk. [ 38 ] Rule 688 of the old Alberta Rules of Court stated that: [a] plaintiff in a foreclosure action shall not make any subsequent encumbrancer a party to an action unless possession is claimed from the subsequent encumbrancer.

The new rule 3.77 re-enacts this principle and provides that: (

a) plaintiff in a foreclosure action must not make any subsequent encumbrancer a party to the claim unless possession is claimed from the subsequent encumbrancer (Emphasis Added). [ 39 ] It seems to me that unless the court has identified a situation where the subsequent encumbrancer is in actual possession of the property which is the subject of a foreclosure action or there are other similar special circumstance(s), it is not necessary (if not prohibited) for a subsequent encumbrancer to be made a defendant in the foreclosure action: Odessa at para 25 citing, Northguard Mortgage Corporation v Paget , (Edmonton QB 8003-24079) and Caisse Francalta Credit Union Ltd v Danial , (Edmonton QB 8304-04644) where in both cases a subsequent mortgagee applied to be added to a foreclosure action for the purpose of raising an issue about priorities and in both cases the court refused to add the second mortgagee as a defendant and held that the question of priorities should be raised, if necessary, at the conclusion of the action; see also, Wasyl Holdings Ltd v Allarie (1981), 31 AR 275 at 300-303,

[1981] AJ No 779 (Alta. Master) where Master Funduk discussed who are necessary parties in a foreclosure action, cited in Price &Trussler, Mortgage Actions in Alberta at 42. [40] The facts of the present case demonstrate that the Respondent AIIC, a subsequent encumbrancer to both the Plaintiff TD Bankand the Appellant CFLS, was not in actual possession of the property that was the subject of the Foreclosure Action commenced by thePlaintiff TD Bank against the Defendant Letendre.

Thus, based on the principles of law in Alberta as stated in the preceding paragraphs,I am of the view that the Plaintiff TD Bank in the Foreclosure Action is not required in law to make AIIC a party (i.e. a defendant) to theclaim(

s) in that action. [41] That said, it is settled fact that the Respondent AIIC is not a defendant in the circumstances of this case.

The issue then beforethis Court for determination on appeal is whether the Master’s decision is correct to say that a limitation defence may be raised by one ofthe competing creditor parties rather than the defendant debtor pursuant to the Limitations Act. [42] The Alberta Court of Appeal has held that an order of foreclosure is a “remedial order” under the Limitations Act and that theapplicable limitation period is two years: Daniels v Mitchell, at para 2; Blair v Desharnais, 2005 ABCA 272 at para 11, 371 AR 196.

Inother words, the Limitations Act applies to foreclosure actions in Alberta such that, for the purpose of the present case, if the Plaintiff TDBank as a mortgagee had not commenced its Foreclosure Action seeking a remedial order against the Defendant Letendre asmortgagor/debtor within the two year limitation period, the Defendant Letendre would be entitled to plead the limitation defence. [43] I agree that it is trite law that limitations statutes and provisions are restrictive in nature and attract strict

interpretation: OrdonEstate v Grail, (SCC), [1998] 3 SCR 437 at para 136; Berardinelli v Ontario Housing Corp, (SCC),[1979] 1 SCR 275 at 280; Tardif at para 21, 2002 ABCA 121 , 303 AR 103. [44]

Section 1 (

c) of the Limitations Act defines the term “defendant” as “a person against whom a remedial order is sought.”Further, the statute provides that “… if a claimant does not seek a remedial order within [limitation periods] whichever period expiresfirst, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of the claim” (s 3(1)) (EmphasisAdded). [45] The Respondent AIIC is not a named defendant in the Foreclosure Action commenced by the Plaintiff TD Bank against theDefendant Letendre; and neither did AIIC apply to be a defendant in that action on the basis of some specified or identified specialcircumstance(s).

Further, while it is true that the Appellant CFLS did not commence any action against the Defendant Letendre, it is alsoan uncontested fact that CFLS did not seek any “remedial order” against the Respondent AIIC, being a competing creditor andsubsequent encumbrancer on the title of the subject property. The uncomplicated legal effect of this situation is that AIIC is not “a personagainst whom a remedial order is sought” as defined under the Limitations Act, s 1(c).

In the result, the Respondent AIIC is not a“defendant” as strictly contemplated by the provision of that statute and as such, is not entitled to plead the Limitations Act as a defence:Limitations Act, (s 3(1)). [46] For the purpose of clarity, in my view the application before the Master that was brought on May 26, 2011 by CFLS claimingan interest in the Fund and for payment out of the Fund can not be considered as a “remedial order” for the purpose of the LimitationsAct. Under that statute, the definition of a remedial order “excludes (

i) a declaration of rights and duties, legal relations or personal status,(ii) the enforcement of a remedial order, (iii) judicial review of the decision, act or omission of a person, board, commission, tribunal orother body in the exercise of a power conferred by statute or regulation, or (iv) a writ of habeas corpus”: Limitations Act, s 1(i). Theorder for payout from the Fund can only be made after the “remedial order” sought against the Defendant Letendre has been grantedunder the principal Foreclosure Action commenced by the Plaintiff TD Bank.

From that perspective, the application by CFSL for payoutfrom the Fund is ancillary to the Foreclosure Action and any order emanating from the Foreclosure Action: British Columbia (Assessorof Area #10 - Burnaby/New Westminster) v SCI Canada Ltd, 2000 BCCA 217 at paras 7-8. Thus, the order for payout from the Fund isakin to an order for the “enforcement of a remedial order” and as such, is excluded from the scope of the statutory definition of a“remedial order” under the Limitations Act.

The legal effect of this is that the objection by AIIC (as a respondent) to CFLS's applicationfor payout does not make AIIC a defendant in the circumstance. [47] I conclude that the Master erred in holding that the Respondent AIIC (a non-defendant, subsequent encumbrancer) can invokethe protection afforded in the Limitations Act. In my view, it is only a defendant who is a person against whom a remedial order is soughtthat can plead the Limitations Act as a defence, and the Respondent AIIC is not such a defendant.

Issue 2: Did the Master err in interpreting and applying the phrase "warrants bringing a proceeding" to the undisputedfacts of this case? [48] Although my conclusion on the first issue is sufficient to dispose of this appeal, I consider it helpful to analyse the remainderof the issues in the context of the ultimate disposition of the matter.

Submissions of Appellant CFLS [49] CFLS argues that regardless of who is the correct party to plead the Limitations Act, the circumstances did not warrant itbringing a proceeding until the subject surplus funds were paid into court pursuant to the Foreclosure Action commenced by the PlaintiffTD Bank in which an Order Nisi was granted in May 2009. The Appellant CFLS contends that this has been the practice in Alberta,which has operated under the Torrens System for nearly 100 years.

CFLS noted that in Canadian Pacific R Co v Canadian WheatGrowing Co (1919), (AB CA), 47 DLR 102, [1919] AJ No 105 at para 4, (Alta SC, App Div), the Court stated that: Our practice in mortgage actions differs materially from the practice in other jurisdictions where subsequent encumbrancers, if not madeparties originally, are required to be served with a notice of the judgment or order and thereupon to come in and prove their claims andhave their priorities settled.

With us, the intention is to postpone all such questions until it can be seen whether there is likely to be a fundby which any of them can benefit. [50] The Appellant CFLS submits that with the facts of the present case where the Plaintiff TD Bank filed its Statement of Claimin February 2009 and obtained its Order Nisi in May 2009, CFLS as a subsequent encumbrancer had no reason to commence its ownaction against the subject property based on the existing law and practice in Alberta which discourages such a move as duplicative andexpensive in terms of legal costs.

The Appellant submits that the Court of Appeal decision in Canadian Pacific, the Alberta Rules ofCourt and the general practice of the entire bar in Alberta for the last 100 years is that all subsequent encumbrancers wait until the poolof funds is determined; pragmatically, after the property has been sold and the funds paid into Court. [51] CFLS suggests that a failure to recognize and uphold the protection afforded to subsequent encumbrancers under the currentdispensation will result in numerous lawsuits being filed by prospective litigants who will choose to do so in anticipation of potentiallimitations issues.

What's more, each of these filed suits would result in increased legal costs for the mortgagor/debtor. The Appellantsubmits that in the context of Alberta laws and practice, no subsequent encumbrancer would be warranted to bring a proceeding prior tothe crystallization of funds at the point of sale of the mortgaged property. Submissions of Respondents - AIIC and CRA [52] AIIC submits that the Master found that CFLS knew or ought to have known of the “injury” which was attributable to theconduct of the mortgagor/debtor in November 2007.

That the law is clear to the effect that failure to make a mortgage payment warrantsbringing a proceeding which triggers the limitations provision: R P Choma Financial and Associates Inc v McDougall, 2008 ABQB359 (Alta. Master). [53] The Respondent AIIC argues that the key issue is not whether a party should bring a cause of action or whether a party willbe able to successfully recover.

It submits that the main issue is whether there is an injury attributable to the conduct of the defendant ofsufficient seriousness that would bring a claim; and that the possibility of recovery is not a relevant consideration. [54] The Crown/CRA aligns with AIIC's submissions and reiterates that the timeline in the present case establishes that CFLS wasaware (or should have been aware) that the Defendant Letendre‘s failure, as the mortgagor/debtor, to pay after November 2007 gave rise

to a cause of action. CRA submits that even if it is only the Defendant Letendre that can plead the limitation defence under the Limitations Act , s 10 of that statute permits the Court to alternatively consider the equitable doctrines of acquiescence or laches in granting a defendant immunity: Ambrozic v Burcevski , 2008 ABCA 194 at paras 42-45 .

Analysis [ 55 ] As stated earlier, our Court of Appeal has made it clear that an order of foreclosure is a “remedial order” under the Limitations Act and that the applicable limitation period is two years: Daniels v Mitchell at para 2 ; and that failure to make a mortgage payment warrants bringing a proceeding which triggers the limitations provision: McDougall paras 1, 40 & 48 .

In this instance, it is significant in the context of the law and practice in this jurisdiction to observe that the Plaintiff TD Bank, a prior encumbrancer to both CFLS and AIIC, commenced its Foreclosure Action seeking a remedial order against the Defendant Letendre as mortgagor/debtor within the two-year limitation period. [ 56 ] I agree that were CFLS to commence an independent foreclosure action it must comply with the applicable provisions of the Limitations Act .

I also have no doubt, based on its submissions, that the Appellant CFLS is aware of the legal requirement that the limitation periods in the Limitations Act are applicable to its claim and any “remedial order” it may seek against the Defendant Letendre as the mortgagor/debtor, subject to the explicit plea of a limitations defence. [ 57 ] However, I am of the view that in the context of the law and practice in this jurisdiction, once the Plaintiff TD Bank commenced a foreclosure action within the limitation period, CFLS as a subsequent encumbrancer may as well “ride the coattails” of the Plaintiff TD Bank.

That is to say, once the first mortgagee and being a prior encumbrancer, commenced its Foreclosure Action against the mortgagor/debtor within time, the “situation” no longer warrants that CFLS, a subsequent encumbrancer, bring a separate proceeding. The law and practice in Alberta support the course of action adopted by CFLS in waiting until the Plaintiff TD Bank, the first mortgagee, commenced the Foreclosure Action against the mortgaged lands/subject property: Alberta Rules of Court , rule 688 (old), rule 3.77 (new). It seems to me that from both a policy and

interpretation perspective, it would be counter-productive for the rule to prescribe on one hand, that a plaintiff in a foreclosure action must not make any subsequent encumbrancer a party to the claim (save certain special circumstance) and in another breath, for the subsequent encumbrancer to turn around and commence a separate foreclosure proceeding in respect of the same mortgaged lands/property as a plaintiff against the same defendant debtor/mortgagor in the first foreclosure action. [ 58 ] By way of commentary, I am of the opinion that the privilege of “riding the coattails” of the Plaintiff TD Bank which is conferred on CFLS by the law and practice in Alberta is equally available to the Respondent AIIC, if it wishes to seize the same privilege as a subsequent encumbrancer.

This position is based on the facts that AIIC's interest and charge on the mortgaged lands/property arose from the writ it registered against the subject title, while CFLS's charge arose by virtue of the registration of the Second Mortgage on the title of the mortgaged lands/property.

In other words, in the circumstances of this case (where a prior encumbrancer had commenced a foreclosure action) in this jurisdiction, AIIC as a subsequent encumbrancer does not need to commence a separate action for the enforcement of its interest or claim which derives from the writ it registered as a charge on the debtor/defendant's property and neither should CFLS as a subsequent encumbrancer be required to commence a separate action to enforce the Second Mortgage. [ 59 ] I conclude that in the context of the existing jurisprudence, the Alberta Rules of Court and the general practice of the Bar in Alberta, the circumstances of the present case are such that do not warrant that CFLS should bring a separate proceeding for the “injury” that resulted from the conduct of the Defendant Letendre as the mortgagor/debtor in failing to make the required mortgage payment in November of 2007. [ 60 ] In the result, I hold that on the basis of the law and practice relating to mortgage actions in this jurisdiction and cognizant of the operative Torrens System in Alberta, the Master erred in his

interpretation and application of the phrase “warrants bringing a proceeding” in the Limitations Act to the undisputed facts of this case. Issue 3: Did the Master err in holding that the Appellant did not have an “enforceable claim ” at the date of the sale Order?

Submissions of Appellant CFLS [61] The Appellant CFLS argues that the starting point is that it has an enforceable claim until that right is defeated by theLimitations Act and that the Master is incorrect in presupposing that the claimant's rights disappear at the passing of the limitationdate/deadline. CFLS submits that “a court will not of its own volition take the point that the plaintiff's claim is out of time” unless adefendant raises the limitation period as a bar to the action: Mew, Law of Limitations at 91.

The Appellant contends that its claim isenforceable at the date of sale unless the Limitations Act has been complied with and the explicit pleading requirement satisfied. [62] As noted earlier, CFLS objects to the Master's decision that “unless it can be shown that there is a compelling reason that thedefendant would not have raised the limitations defence, the Court is bound to consider it.” It argues that this error made by the Masterplaces a reverse onus on the claimant to prove that the Defendant Letendre has made a conscious decision not to plead the LimitationsAct. [63] The Appellant CFLS argues that in any event, it has brought its application in time on the basis that the limitation clockstarted ticking at the date of sale of the subject property/mortgaged lands in August, 2010.

Submissions of Respondents - AIIC and CRA [64] AIIC submits that the central issue here is whether each of the competing creditors in this case had an enforceable claim as"defined" in MCAP Service Corporation v 973623 Alberta Ltd, 2011 ABQB 36. It argues that CFLS has taken no steps to prove itsclaim and consequently, does not have an enforceable claim against the Fund. The Respondent AIIC contends that CFLS ought to havecommenced a proceeding at any time prior to November 2009 to establish their claim.

That AIIC took all necessary steps by obtaining ajudgment against the Defendant Letendre when he defaulted on his payments pursuant to a loan agreement and subsequently registered awrit of enforcement against the title to the property at the date of sale. [65] The Crown/CRA submits that whether a secured creditor is entitled to a sum of money depends upon whether that creditorhas an enforceable claim, but not necessarily an enforcement claim.

It contends that if, based on the evidence before the Court, a securedcreditor would succeed in an action seeking a remedial order against a “reasonable” defendant, then it is reasonable to conclude that thesecured creditor has an enforceable claim.

Analysis [66] The present position of the law is that the Court cannot give effect to a limitation period where the defendant never pleaded itnor tried to plead it: Udovitch Estate v Helm Estate, 2001 ABCA 187 at para 6, 92 Alta LR (3d) 226; Huet v Lynch, 2000 ABCA 97 atpara 15, 184 DLR (4th) 658; Strong v MMP, (ON CA), 50 OR (3d) 70 at paras 32-38, 2 CCEL (3d) 8 (Ont CA)(QL). [67] From this perspective, it seems clear to me that the gist of the Master's decision is that the Court is bound to consider alimitation defence “unless it can be shown that there is a compelling reason that the Defendant would not have raised”.

This being so, theMaster's decision does not reflect the views of our Court of Appeal and that of appellate Courts in other jurisdictions where the rules aresimilar. This is in the sense that it is neither mandatory nor obligatory for a Court to, suo moto, consider or take the point that theplaintiff's claim is out of time where the defendant has not pleaded a limitation defence. [68] The primary basis for the Appellant CFLS's claim/interest and its application for payment out of the Fund is the registration ofits Second Mortgage charge against the title to the mortgaged property.

Similarly, AIIC's claim/interest derives from the registration ofits writ against the title to the subject property. Obviously, AIIC's registered writ of enforcement was a product of a default judgment itobtained against the Defendant Letendre (under a Loan Agreement) and not a product of an action to prove an “enforceable claim” that

underlies an existing mortgage charge on title to the mortgaged lands. In my opinion, without the registration of the writ on title, AIICwould not have had any claim to the Fund realized from the sale of the subject property. [69] Significantly, the Respondent AIIC does not challenge the validity of the Appellant CFLS's Second Mortgage or itsregistration on title.

The inference from this is that it is reasonable to conclude that CFLS as a secured creditor potentially has a validclaim for a remedial order against the Defendant Letendre until the Defendant Letendre raises a limitation plea and/or provides evidenceto the Court to defeat CFLS's claim. [70] In the absence of a challenge to the validity of the Second Mortgage held by CFLS or the validity of its registration on title, itis unclear to me why it will be necessary or required that the Appellant CFLS show or prove that it has an enforceable claim independentof its charge that is registered on title to the subject property.

The argument of the Respondent AIIC (which is based on the decision ofMaster Laycock in MCAP) that CFSL has to show that it had an enforceable claim “when [its] charge was removed from the land”seems to be, in my view, at odds with the prevalent case law. [71] The conclusion in MCAP that a sale order effectively extinguished a right to enforce debts against the land does not totallyrepresent the position of the law.

Rather what happens at that point is that “the security represented by the mortgage premises [is] beingconverted into money at the foreclosure sale” and upon that conversion the priorities as they appeared on title are maintained; such thatin the words of the Supreme Court of Canada “it cannot be said that ... the priority theretofore enjoyed by a second mortgagee of recordis automatically diminished so as to accord precedence to a Crown judgment obtained and recorded at a later date”: Household RealtyCorporation Ltd v Attorney General (Canada), (SCC), [1980] 1 SCR 423, 105 DLR (3d) 266 at 268, cited in FloralHoldings at para 34. [72] Further, the extant law in respect of mortgage actions indicates that once the land is sold under foreclosure and a surplus leftafter paying the mortgagee(s), the surplus is held for the benefit of all subsequent encumbrancers and the priorities in relation to thesurplus fund must be the same as the priorities in relation to the land which the fund has replaced: Alberta Treasury Branches v FloralHoldings Ltd (1989), (AB KB), 94 AR 51 at paras 29, 34-41, 65 Alta LR (2d) 6.

In other words, the priorities againstthe surplus funds after the mortgages were discharged would be determined on the same basis as they would have been determined if thepriorities had continued in existence against the land: Roadburg v R, (BC CA), [1980] 6 WWR 385 at 396 (BCCA),cited in Floral Holdings. [73] It is my view that in the absence of the Defendant Letendre raising or pleading a limitation defence to the claim of theAppellant CFLS to the surplus Fund and a focussed consideration of that issue by a court in a trial, that claim (which arose from the loanprovided to the Defendant Letendre and secured by the Second Mortgage held by CFLS) remains enforceable.

The Courts have held thatone must plead a limitation defence and go to trial and cannot sue for a declaration that the limitation period does or does not apply:Weselak v Beausejour District Hospital No 29, (MB CA), [1987] 2 WWR 360 at para 5, 34 DLR (4th) 478 (ManCA). [74] There is no evidence on the record before me one way or the other on whether the Defendant Letendre would plead thelimitation defence or not if CFLS had commenced an action against them. As long as that issue or scenario remains in the realm ofspeculation or conjecture, the Appellant should have the benefit of the doubt.

CFLS is and should be entitled to its right to commence anaction in Court at any time it wishes, subject to a successful limitation plea by a named defendant under the Limitations Act. And sincethe application of limitation periods limits a person's right to commence an action, the provisions of that statute should not be interpretedliberally: John Barlot Architect Ltd v 973189 Alberta Ltd, 2008 ABQB 458 at para 140. [75] In the result, I find that the Master erred in holding that the Appellant CFLS did not have an “enforceable claim” as at the dateof the sale Order.

Disposition [76] In First City Trust Co v Stan Horvat Construction Ltd (1981), (AB KB), 32 AR 537 (Alta. Master) wherethe surplus fund remaining after payment of a plaintiff's claim was insufficient to satisfy all encumbrancers in full, Master Funduk

ordered that the surplus should be distributed to encumbrancers in order of registration. I agree with Master Funduk's approach in that case and I direct that the same approach be used for the distribution of the surplus Fund in this case. [ 77 ] The appeal by CFLS is allowed. [ 78 ] If the parties are unable to agree on costs, they may arrange to speak to that issue before me within 60 days of the release of this decision. Heard on the 28 th day of March, 2012. Dated at the City of Edmonton, Alberta this 16 th day of May, 2012. Don J. Manderscheid J.C.Q.B.A. Appearances: Paul D.

Greep Reynolds, Mirth, Richards & Farmer LLP for the Appellant, Community Futures Lesser Slave Lake Region Natasha Sutherland Duncan & Craig LLP for the Respondent, Alberta Indian Investment Corporation George F. Body for the Department of Justice Canada