MCL Development Corporation v Harbour First Mortgage Fund GP Inc., 2012 ABQB 555

Court of Queen ’ s Bench of Alberta Citation: MCL Development Corporation v Harbour First Mortgage Fund GP Inc., 2012 ABQB 555 Date: 20120911 Docket: 1201 10436 Registry: Calgary Between: MCL Development Corporation Applicant - and - Harbour First Mortgage Fund GP Inc., 1438725 Alberta Ltd., Doug Swartout, Ron Colvin, Sharon Colvin, Blue-Con Excavating Ltd., William George Green and Sun Media Corporation Respondents _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Robert A.

Graesser _______________________________________________________ Introduction [ 1 ] The registered owner of a bare land condominium unit seeks to have a certificate of lis pendens registered against the title discharged so that the registered owner can complete a sale to an arm ’ s length third party.

[ 2 ] This application turns on the interplay between the provisions of the Land Titles Act , R.S.A. 2000, c L-4, relating to the discharge of certificates of lis pendens under s.152 and those relating to the discharge of other instruments under s. 190. [ 3 ] The application also requires consideration of s. 191(3) relating to whether a discharge order should be allowed to be registered notwithstanding that the appeal period from the order has not expired.

Background [ 4 ] The condominium unit in question, Unit 95, Condominium Plan 05131169, is part of a subdivision in Cochrane, Alberta (or more properly described as a bare land condominium development). Title is registered in the name of the Applicant, MCL Development Corp.

Title to the unit is encumbered by a number of instruments, the relevant ones being Mortgage 101 272 337 in favour of 1438725 Alberta Ltd. in the original principal amount of $6,000,000.00, Mortgage 111 063 617 in favour of Harbour First Mortgage Fund GP Inc. in the original principal amount of $1,445,400.00, Postponement 111 076 700 of the 1438725 mortgage in favour of the Harbour First mortgage, Writ 111 210 188 in favour of Blue-Con Excavating Ltd. in the amount of $34,044.00 and Certificate of Lis Pendens 111 333 472 in favour of William George Green, one of the Respondents in this application. [ 5 ] It is obvious from a review of the certificate of title that the first financial charge against the unit is the Harbour First mortgage, followed by the 1438725 mortgage.

Blue-Con's writ and Mr. Green's certificate of lis pendens are further down the chain. [ 6 ] Mr. Green's certificate of lis pendens was filed on December 21, 2011, in conjunction with an amended statement of claim filed on December 15, 2011 which added 1438725 as a defendant to an existing action by Mr. Green against MCL, Certified Financial Savings and Mortgage Corp. and others. [ 7 ] Mr. Green's amended statement of claim alleges that he loaned MCL and Certified $100,000.00 in August, 2005 pursuant to the terms of a Trust and Security Agreement, under which Certified was appointed trustee for Mr.

Green and the other lenders. Mr. Green loaned Certified and another corporation $150,00.00 in April, 2006. Certified was again trustee for the lenders. [ 8 ] MCL agreed to sell the unit to a builder, Cornerstone by Dallaire Homes Ltd. for $275,000.00. It is not argued that Cornerstone is not at arm ’ s length to MCL or Harbour First, or that the sale price does not represent market value for the unit. [ 9 ] The net sale proceeds, after payment of the tax adjustment, payment of outstanding condominium corporation arrears and legal fees, are estimated to be approximately $267,000.00.

MCL proposes to pay the net sale proceeds to Harbour First in reduction of its mortgage. [ 10 ] The Harbour First mortgage, the 1438725 mortgage and the Green certificate of lis pendens are registered against four other condominium units which formed part of the same development, the plans for which began in 2003. Harbour First will discharge its mortgage against the unit if it receives the net sale proceeds. The second mortgagee, 1438725, will discharge its mortgage against the unit so long as the proceeds go to Harbour First.

The writ holder, Blue-Con, has apparently agreed to discharge its writ from title without receipt of payment. Blue-Con has been persuaded that its position on title will preclude them from receiving anything from the sale of the unit. [ 11 ] The Land Titles Act deals specifically with cancellation or discharge of certificates of lis pendens in s. 152: Cancellation of certificate of lis pendens:

152 The Registrar shall cancel the registration of a certificate of lis pendens on receiving (

a) a certificate from the clerk of the court stating that the proceedings for which the certificate of lis pendens was granted are (

i) discontinued, or (ii) dismissed and the time for commencing an appeal has expired and no appeal has been commenced, or if commenced, has been finally disposed of or discontinued, (

b) a withdrawal of the certificate of lis pendens signed by the person on whose behalf the certificate was registered, or (

c) where a certificate of lis pendens relates to a caveat that was signed by an attorney or an agent, a withdrawal of the certificate of lis pendens signed by (

i) the attorney or the agent, as the case may be, or (ii) the person on whose behalf the certificate was registered. [ 12 ] Mr. Green argues that the

section makes it clear that a certificate of lis pendens can only be discharged if the underlying action is over, or with the consent of the claimant. He relies on Maull v. Maull , 2002 ABQB 387 , Ritter v. Hoag , 2004 ABQB 129 , AM Inspection Ltd. v. Chizen , 2007 ABQB 387 and P.D.Y. Management Services Ltd. v.

MacMullin , 2010 ABQB 173 as authority for his assertion that since the underlying action has neither been dismissed nor discontinued, and he has not agreed to the discharge of the certificate of lis pendens, there is no other way the certificate of lis pendens can be discharged. [ 13 ] MCL relies on s. 190 of the Land Titles Act and the general jurisdiction of the court over instruments: Power of judge to cancel, correct, etc., duplicate certificate: 190(1) In any proceeding respecting land or in respect of any transaction or contract relating to it, or in respect of any instrument, caveat, memorandum or entry affecting land, the judge by decree or order may direct the Registrar to cancel, correct, substitute or issue any certificate of title or make any memorandum or entry on it and otherwise to do every act necessary to give effect to the decree or order. [ 14 ] MCL also relies on s. 191(3) in seeking an order that the discharge be effective immediately, before the appeal period from the order sought has expired.

That

section states: Registration of judgment, order or certificate: 191(1) Subject to subsection (3), the Registrar shall not register a judgment, order or certificate made in any proceedings of a court that operates to cancel a certificate of title, terminate an interest in land or discharge an instrument or a caveat unless the judgment, order or certificate (

a) is consented to by all the parties to the proceedings or their solicitors, (

b) was granted ex parte and states that it does not have to be served on any person,

(

c) is accompanied with a written undertaking from those persons having a right to appeal from the judgment, order or certificate, or their solicitors, that no appeal from the judgment, order or certificate will be commenced, (

d) is accompanied with a certificate of the clerk of the court that issued the judgment, order or certificate to the effect (

i) that no defence or demand of notice of proceedings has been filed in the proceedings on behalf of any defendant, or (ii) that the time for appeal from the judgment, order or certificate has expired and that no notice of appeal has been filed, or (

e) is accompanied with a certificate of a solicitor to the effect (

i) that an appeal to the Court of Appeal has been finally disposed of or discontinued, that the time for an appeal to the Supreme Court of Canada has expired and that no notice of appeal has been filed, or (ii) that the judgment, order or certificate has been appealed to the Supreme Court of Canada and that the appeal has been finally disposed of or discontinued.

(2) If a judgment, order or certificate referred to in subsection (1) has been appealed to the Court of Appeal or to the Supreme Court of Canada, a copy of the final judgment shall accompany the solicitor's certificate referred to in clause (

e) of that subsection.

(3) This

section does not apply to (

a) an order removing a builders' lien or removing a certificate of lis pendens with respect to a builders' lien, or (

b) a judgment, order or certificate that expressly states that it shall be registered notwithstanding the requirements of subsection (1). [ 15 ] MCL argues that Zukiwiski v. Yakmac Investments Ltd. , 1999 ABCA 226 , supports its position that the court may order the discharge of the certificate of lis pendens and direct under s.191(3)(

b) that the order be registered notwithstanding that the appeal period from the order has not yet expired. Analysis [ 16 ] It is clear from the Amended Statement of Claim filed on December 15, 2011, which is the basis of Mr. Green's certificate of lis pendens, that no relief is sought against Harbour First. Mr. Green seeks various relief, including a declaration that he has an interest in mortgages 051 095 963, 031 381 715 and 051 422 353, a declaration that he is entitled to a charge against the lands and to discharge the mortgage granted to 1438725 Alberta.

There is no reference to Harbour First's mortgage. [ 17 ] Mr. Green also filed an Amended Amended Statement of Claim on August 24, 2012 (after this application was brought) adding a large number of plaintiffs (also investors with MCL and Certified). A number of defendants have been added but not Harbour First. The relief has been changed to seek a declaration that the plaintiffs have an interest in mortgage 071 037 523 instead of 051 095 963. There is again no reference to Harbour First's mortgage.

[ 18 ] The only mortgage registered against title to the unit which Mr. Green and the other plaintiffs claim an interest in is the mortgage to 1438725. That mortgage has been postponed to the Harbour First mortgage. [ 19 ] Even if Mr. Green and the other plaintiffs in the action are successful in their action, any interest they may have in the unit will be subject to tax arrears, condominium corporation assessments and the Harbour First mortgage. [ 20 ] Mr. Green's claim extends to the other units within the same plan as the subject unit, as well as to other lands.

This application is only in relation to the specific unit, and not any of the other units or properties that are now subject to Mr. Green's certificate of lis pendens. [ 21 ] His claim as presently pled puts him and the other plaintiffs behind Harbour First. I can see no prejudice to Mr. Green and the other plaintiffs if the certificate of lis pendens is discharged from this unit.

He still has his claim, and his certificate of lis pendens is still going to be registered against a number of other properties. [ 22 ] Indeed, by having the net sale proceeds of this sale applied to the encumbrance that is ahead of all his claims, he benefits as the amount of the prior encumbrance is lessened. As noted above, there is no suggestion that the unit is being sold for less than market value, or that Harbour First is not arm's length to MCL or Certified.

The situation might be different if appropriate value was not being realized on the sale, or if the transaction were not at arm's length to the defendants in the lawsuit. [ 23 ] Mr.

Green does not dispute this analysis, but relies on the cases above and takes the position that I do not have the jurisdiction under the Land Titles Act and those cases to order that the certificate of lis pendens be discharged in these circumstances. [ 24 ] MCL, through affidavits of Jeffery Colvin in support of its application to discharge the lis pendens, states that if the sale is thwarted because it is unable to clear title, that will cause the builder purchaser and likely other builders to lose interest in the unit and the other bare land units in the development.

That will cause it and anyone claiming through it harm and loss. [ 25 ] It advances other technical arguments in support of its position that I do not need to deal with because of my conclusion on the court's power to discharge a certificate of lis pendens. Analysis [ 26 ]

Section 190 gives the court wide powers to order the discharge of "instruments." "Instrument" is defined in s. 1 (

k) of the Land Titles Act : (k) "instrument" means (

i) a grant, certificate of title, conveyance, assurance, deed, map, plan, will, probate or exemplification of will, letters of administration, or an exemplification of letters of administration, mortgage or encumbrance, (ii) a judgment or order of a court, (iii) an application under

section 75, or (iv) any other document in writing relating to or affecting the transfer of or dealing with land or evidencing title to land;

"Encumbrance" is defined in s. 1(

e) of the Act: (e) "encumbrance" means any charge on land created or effected for any purpose whatever, inclusive of mortgage, mechanics' orbuilders' liens, when authorized by statute, and executions against land, unless expressly distinguished... [27] There is no doubt that a certificate of lis pendens is an instrument and an encumbrance. S. 190 has application to certificatesof lis pendens. [28]

Section 152 deals with discharges of certificates of lis pendens by the Registrar. In my view, that

section does not preclude acourt from ordering the discharge of a lis pendens in appropriate circumstances under s. 190. [29] The situation here is different from that in the cases cited by Mr. Green. In Maull v. Maull, the wife had filed a lis pendensagainst four quarters of land in a matrimonial property claim. The husband alleged that the wife had signed a settlement agreementwaiving any claim to the land. The husband sought to discharge the lis pendens. Burrows J. held that the lis pendens had been properlyregistered, and applied s. 152 of the Land Titles Act in the absence of the wife's consent or a successful

summary dismissal application. [30] In Ritter v. Hoag, the claimant Newport had filed a lis pendens against property, claiming that the lands were held in trust forit. Burrows J. applied Maull and held at paras. 5 and 6: The $200,000 was to be paid upon separation. It was not to be taxable in Mrs. Maull's hands. Mrs. Maull was to have security as follows: 5 The said $200,000.00 shall be secured by a fund of $200,000.00. The fund will be derived from the proceeds of the sale of landsowned by the Maull family, such sale to be held on March 29, 2001.

The parties agree and hereby direct that the sum of $200,000.00from the said sale be paid into a solicitor's interest bearing trust account to be disbursed only according to the provisions of thisAgreement or upon the mutual discretion of the parties hereto. 6 Mr. Maull swears that the sale of land, which was to be held on March 29, 2001, was expected to generate more than enough netsale proceeds to establish this fund. However the expectation was disappointed. There was a sale contract entered, but the purchasercould not perform and the sale was not completed.

The security fund contemplated by the Minutes of Settlement was not created. [31] In P.D.Y. Management Services v. MacMullin, the defendant sought discharge of the plaintiff's lis pendens as part of asummary judgment application, as well as on the basis that the claim disclosed no interest in the land. [32] At para. 27, Thomas J. stated: When all is said and done, the principles expressed by Burrows, J. in Ritter v. Hoag, 2004 ABQB 129 , [2004] A.J. No. 166 andMaull v. Maull (2002), 2002 ABQB 387 , 315 A.R. 397 at para. 11 apply.

As long as a Court process is outstanding, a lispendens based on that process must remain registered against title to a property unless voluntarily removed by a claimant. As Burrows, J.stated at para. 11 of Maull "... the fate of the lis pendens is inextricably tied to the fate of the action of which it gives notice". TheApplicants on this motion in the Rusnak Action have not succeeded in either their

summary dismissal or strike out applications and thatAction is still alive. [33] It is this quote that Mr. Green relies on to resist discharge of the lis pendens here.

[ 34 ] A similar approach was taken by Chrumka J. in AM Inspection Ltd. v. Chizen . He stated at paras. 39-41: 39 The Defendants ground their motion to discharge the Certificate of Lis Pendens by way of an application for

summary judgment in accordance with Rule 159. However, the Defendants state further that the court has broad powers under section 141(1) of the Land Titles Act to discharge a Certificate of Lis Pendens where the court views it is just to do so. In support of that submission, the Defendants cite Main v. Jeerh [2006] A.J.

No. 482 , 2006 ABCA 138 to support their proposition that the court can discharge the Certificate of Lis Pendens on equitable grounds, pursuant to section 141(1) of the Land Titles Act , and that therefore it can do so, in this case. 40 In my view, section 141(1) of the Land Titles Act is inapplicable to the case at bar. The within application does not involve a show cause hearing to discharge a caveat as was the case in Main v. Jeerh .

The Certificate of Lis Pendens in this case, was not filed in relation to a caveat. 41 In the circumstances of this case, the court does not have a discretion to discharge the Certificate of Lis Pendens on equitable grounds. The proper procedure is to apply for

summary dismissal and to vacate the Certificate of Lis Pendens by Rule 159 of the Alberta Rules of Court. [ 35 ] Main v. Jeerh , 2006 ABCA 138 , is cited in AM Inspection as giving the court an equitable jurisdiction to discharge a lis pendens in appropriate circumstances. In that case, the Court of Appeal ordered the discharge of a lis pendens by applying s. 141 of the Land Titles Act by way of analogy to a certificate of lis pendens. That

section states: 141(1) In the case of a caveat filed, except a caveat filed by the Registrar as hereinafter provided, the applicant or owner may at any time apply to the court, subject to the Alberta Rules of Court, calling on the caveator to show cause why the caveat should not be discharged, and on the hearing of the application the court may make any order in the premises and as to costs that the court considers just. [ 36 ] It is unclear why s. 190 has not been considered in any of the cases cited here.

It is perhaps because all of the cases involved an attempt to remove the certificate of lis pendens from all of the lands it encumbered, with the effect that the claimant would be left without security. All of the underlying actions were not dismissed, either because there was no application to dismiss, or because the test for dismissal had not been met. [ 37 ] Here, the application relates to only one of many parcels of land subject to Mr. Green's lis pendens. The discharge of the lis pendens against title to the unit will not prejudice Mr. Green or the other plaintiffs.

Their position on title, if they are successful in their claims, will be behind Harbour First. Harbour First is in first position. If it were foreclosing on its mortgage, there is, in my view, no doubt that the certificate of lis pendens would be discharged on an approved sale. Mr.

Green's claim would not stand in the way of Harbour First realizing on its security. [ 38 ] That is not a circumstance expressly contemplated in s. 152 of the Land Titles Act , but the courts routinely discharge encumbrances and instruments, including certificates of lis pendens, in foreclosure proceedings. [ 39 ] In my view, s. 190 of the Land Titles Act operates to give the court express jurisdiction (in addition to any equitable jurisdiction it may have) to discharge a certificate of lis pendens in appropriate circumstances, notwithstanding that the conditions under s. 152 of the Land Titles Act have not been met. [ 40 ] To the extent that the cases cited by Mr.

Green can be taken to hold that the court has no jurisdiction to order the discharge of a certificate of lis pendens, other than in the context of agreement or a successful

summary dismissal application under Rule 3.68 or

Part 7 of the Rules of Court, I respectfully disagree with them. That position takes s. 152 too far, and ignores s. 190 and the equitable jurisdiction of the court (as recognized by the Court of Appeal in Main v. Jeerh ). Result

[ 41 ] Undoubtedly there are few situations where the court will exercise its equitable jurisdiction or apply s. 190 to discharge a certificate of lis pendens over the opposition of the claimant and while the underlying action is still pending. But this is one of those cases. [ 42 ] I accordingly direct that Certificate of Lis Pendens 111 335 472 be discharged from title to the unit, on the following conditions. [ 43 ] The mechanics of the discharge need to be carefully managed.

I am only ordering the discharge of the certificate of lis pendens as it relates to the specific unit, and then only on condition that it be registered at the Land Titles Office in conjunction with a transfer of land to the proposed purchaser and that the net sale proceeds (after deduction of outstanding property taxes, condominium assessments and reasonable legal fees in conjunction with the conveyance) be paid to Harbour First to obtain a discharge of its mortgage against the unit and for application against the mortgage debt owed to it. [ 44 ] The order resulting from this decision should be submitted to the Land Titles Office with closing documentation to be registered conditionally upon the registration of the transfer to the purchaser.

If for whatever reason the transaction does not close, or the transfer is rejected by Land Titles Office, the order is not to be registered independently. [ 45 ] I note that the draft form of order provided to me by Mr. Kent, counsel for MCL, at the hearing of this application, appears to be appropriate, subject to revising para. 4 to make costs in the cause of action number 1101 05711. That draft orders the discharge of Blue-Con's writ from title to the unit. It was represented to me that Blue-Con was not opposing MCL's application, having been served with it. No one appeared at the hearing for Blue-Con.

Application of s. 191(3) [ 46 ] MCL seeks the additional order under s. 191(3) permitting registration of the order discharging the certificate of lis pendens notwithstanding that the appeal period has not expired. [ 47 ] This was ordered in Zukiwiski v. Yakmac Investments Ltd. , where Cote J.A. stated at para. 14 that "it is very dangerous to tie up someone's land just to give someone a tactical advantage." [ 48 ] I find that is the circumstance here. Mr. Green and the other plaintiffs in the action have no claim against Harbour First.

They have not claimed that any interest in the unit to which they may be entitled ranks ahead of Harbour First's mortgage. They have not argued that the unit is worth more than it has been sold for. The proceeds of sale, which would never go to them anyway, will go to Harbour First, which reduces Harbour First's claim against other lands in which Mr. Green claims an interest. [ 49 ] There is no prejudice to Mr.

Green and the other plaintiffs by ordering the immediate removal (on the terms and conditions above) of his certificate of lis pendens against the unit, other than the potential loss of a tactical advantage in holding up a sale. [ 50 ] I therefore consider this an appropriate case to invoke s. 191(3) and so order. It thus goes without saying that I would not grant a stay of this order pending appeal. [ 51 ] It will undoubtedly take a few days for the formal order following this decision to be taken out, and some time for the closing to take place. Mr.

Green and the other plaintiffs will have an opportunity to seek a stay of the order from the Court of Appeal, should they wish to appeal this decision and if they can persuade the Court of Appeal that a stay is appropriate.

Postscript [ 52 ] After preparing most of this decision, I was notified that counsel for Mr. Green wished to make further submissions. I gave him until September 6 to do so. On September 6 I was advised that Mr. Green had instructed counsel to file a discharge of the lis pendens against the unit. Costs remain in issue. Counsel disagree over whether a decision should issue. [ 53 ] In my view, the decision is necessary to resolve the cost issues with which I remain seized. Costs [ 54 ] Barring circumstances of which I am not aware, I do not see that a costs order should be made at this time.

Costs should be in the cause of Mr. Green's lawsuit. It was not unreasonable for him to resist the discharge application at this time, and having regard to the authorities presented by him. Ultimately, costs should follow the results of the action. If there are circumstances I should be made aware of concerning costs, I would ask the parties to so advise within 15 days of this decision. Heard at Calgary, Alberta on the 31 st of August, 2012. Dated at the City of Edmonton, Alberta on the 7 th day of September, 2012. Robert A. Graesser J.C.Q.B.A. Appearances: Thomas S. Kent for the Applicant Norman D.

Anderson for the Respondents