Optimax Developments Ltd. v. Northport Industrial Park Inc., 2012 ABQB 548

Court of Queen ’ s Bench of Alberta Citation: Optimax Developments Ltd. v. Northport Industrial Park Inc., 2012 ABQB 548 Date: 20120904 Docket: 1003 16801 Registry: Edmonton Between: Optimax Developments Ltd. Plaintiff - and - Northport Industrial Park Inc. And Harold Jahn Defendants Corrected judgment: A corrigendum was issued on September 11, 2012; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Memorandum of Decision of W. S. Schlosser, Master in Chambers _______________________________________________________

[ 1 ] In this application, Optimax Developments Ltd. challenges the indefeasibility principle of our Land Titles system. [ 2 ] Kells Sheehan had a mortgage on title ahead of Optimax ’ s mortgage. Mr. Sheehan postponed his mortgage to Optimax with a Forbearance Agreement. The Agreement was not registered. Mr. Sheehan then sold his mortgage (at a discount) to 1060267 Alberta Ltd. 160 now asserts the registered priority of the Sheehan mortgage. It was not a party to the Forbearance Agreement. [ 3 ] The starting point is

section 203 of the Land Titles Act which is as follows: 203(1) In this section, (a) “ interest ” includes any estate or interest in land; (b) “ owner ” means (

i) the owner of an interest in whose name a certificate of title has been granted, (ii) the owner of any other registered interest in whose name the interest is registered, or (iii) the caveator or transferee of a caveat in whose name the caveat is registered

(2) A person contracting or dealing with or taking or proposing to take a transfer, mortgage, encumbrance, lease or other interest from an owner is not except in the case of fraud by that person, (

a) bound or concerned, for the purpose of obtaining priority over a trust or other interest that is not registered by instrument or caveat, to inquire into or ascertain the circumstances in or the consideration for which the owner or any previous owner of the interest acquired the interest or to see to the application of the purchase money or any part of the money, or (

b) affected by any notice , direct, implied to constructive, of any trust or other interest in the land that is not registered by instrument or caveat, any rule of law or equity to the contrary notwithstanding. (emphasis added) [ 4 ] 160 argues that Optimax has to demonstrate that 160 was guilty of fraud in order to displace the registered priority. [ 5 ] In Darnley v. Tennant, 2006 ABQB 575 , Mr. Justice Slatter said: 30 The Land Titles Act does not define ‘ fraud ’ . The outer boundaries of the concept are established: (

a) Fraud includes deceit and dishonesty and other forms of common law fraud;

(

b) Fraud does not include mere knowledge of an unregistered interest, even when combined with the knowledge that registrationwill defeat that interest: s. 203(3); Holt Renfrew & Co. v. Henry Singer Ltd. (1982), 1982 ABCA 135 , 37 Ar.R. 90, 20 Alta.L.R. (2d) 97 (C.A.). Within these broad boundaries, the courts have not attempted to define fraud. It has been said that fraud requires ‘something more’ thanmere notice, amounting to injustice, dishonesty, or inequality: Holt Renfrew, supra: Boulter-Waugh & Co. v.

Phillips, (SCC), [1919] 1 W.W.R. 1046, 58 S.C.R. 385, 46 D.L.R. 41. [6] Optimax says that the onus has shifted to 160 to prove bona fides.

It argues that 160 brought the Sheehan $650,000.00mortgage for $325,000.00 and that, combined with a Lis Pendens filed on title, is enough to shift the onus. [7] 160 argues that there is nothing untoward about buying a mortgage for fifty cents on the dollar when the purchase price ofthe mortgage exceeds Optimax’s appraised fair market value of the land in the foreclosure. [8] There are no badges of fraud, is no evidence of fraud and no ‘something more’ on the evidence. [9] Optimax argues that the Lis Pendens filed against title put the title under a cloud, which gives rise to a duty on the part of160 to investigate. [10] Optimax argues that an interest taken pendente lite gives rise to deferred indefeasibility.

They cite Swenson v. McIlmoyle,1930 Carswell Alta. 94 at para. 12. In that case, a tenant acquired his interest from a purchaser under an Agreement for Sale. Thepurchaser had a judgment against him. The judgment disentitled the lessor (and consequently the lessee) to possession. The court heldthat the tenant in possession could be ejected because he took pendente lite. But it was not just that the tenant took pendente lite, he tookafter judgment, with full notice of it.

Optimax says that this case affirms the principle of deferred indefeasibility in Alberta because thetenant took subject to an unregistered interest that it had actual or constructive notice of. [11] If it were 1992, rather than 2012, this argument might have had a chance. [12]

Section 195 of the Land Titles Act was the predecessor of what is now

Section 203. It was in place from 1906 to 1994. [13]

Section 195 was not referred to in the Swenson case, likely because old

section 195 defined ‘owner’ in a limited way, asbeing someone ‘.... in whose name a certificate of title has been granted.’ [14] In White Resource Management v. Durish (1991) (AB KB), 77 Alta. L.R. (2d) 131 (QB), (1992) 1992ABCA 304 , 5 Alta. L.R. (3d) 372 C.A., rev’d (SCC), [1995] 1 S.C.R. 633 (SCC), Kerans, J.A. writing for ourCourt of Appeal said: 13 Before proceeding, I will express the reason for my hesitation to agree with the learned trial judge that only those dealing withthe registered owner directly can invoke the rule in s. 195. 14 That rule is the heart of the Torrens system.

It provides that persons acquiring new interests in land can rely on the state of theprior existing certificate of title, and need not make any further inquiries about competing claims or title defects. More specifically, theyneed not take steps to protect themselves from the rigorous demands of the law of equity, and its rules about constructive notice. 15 To say that the rule applies only to direct dealings with registered owners might be to limit dramatically the scope of that system.The trial ruling exposes all those who deal with registered interests other than ownership to the vagaries of the law of equity.

It wouldmean, for example, that a caveator who takes from a caveator always takes subject to all the unregistered interest, or “equities,” of whichhe might have constructive knowledge. (emphasis added)

[ 15 ] These comments lead to the Alberta Law Reform Institute Report number 63 in February 1993 and the amendment of

section 195 to what is now

section 203, quoted earlier. The main change was to expand the definition of owner. ‘ Owner ’ now includes: ‘ the owner of any . . . registered interest ’ , 203(1)(b)(ii). [ 16 ] In Swenson ,

section 195 was probably not mentioned because it may not have applied to a leasehold interest, given the limited way owner had been defined before. [ 17 ] There is a line of authority in the area of Fraudulent Preferences that suggests that if sufficient ‘ badges of fraud ’ are proved, the onus shifts to the Respondent to provide a legitimate explanation (see, for example, Bank of Montreal v. Peninsula Broilers, 2009 O.J. 2129 (Ontario S.C.J.) paras. 82 and 93 and Gerrow v.

Dorais, 2010 ABQB 560 per Manderscheid J.) but even in that context the evidence falls well short of shifting the onus. [ 18 ] Of the other cases cited: Kung v. Zambrano , 1980 Carswell Ont. 377 (Ont. HCJ) has no application to these facts, and the others pre-date the Torrens system in this jurisdiction, (Jan 1, 1887, (NWT)) by roughly ten and 20 years, respectively. [ 19 ] In this case 160 took from a section 203(1)(b)(ii) owner. There is no fraud, so that is the end of the matter. Heard on the 18 th day of April, 2012. Dated at the City of Edmonton, Alberta this 4 th day of September, 2012. W. S.

Schlosser M.C.C.Q.B.A. Appearances: Richard Cotter. Q.C. Fraser Milner Casgrain LLP for the Plaintiff/Applicant Stephen Livingstone McLennan Ross for the Respondent, 160267 Alberta Ltd.

_______________________________________________________ Corrigendum of the Memorandum of Decision of W. S. Schlosser, Master in Chambers _______________________________________________________ The citation number at the top of page one of the Memorandum of Decision is amended from 543 to 548 .