P. Mcnicholas M.d. inc. FIRST PLAINTIFF AND: JUDITH A. MCNICHOLAS SECOND PLAINTIFF AND: MICHAEL A. McNICHOLAS THIRD PLAINTIFF and: william eric field first defendant and: robert leslie field second defendant Corrected Decision : The text of the original judgment was corrected on March 16, 2011 v. a description of the correction is appended., 2011 NLTD 35

IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR TRIAL DIVISION ( GENERAL ) Citation : P. McNicholas M.D. Inc. v. Field , 2011 NLTD(G) 35 Date : 201 10303 Docket : 201001G5150 BETWEEN: P. Mcnicholas M.d. inc. FIRST PLAINTIFF AND: JUDITH A. MCNICHOLAS SECOND PLAINTIFF AND: MICHAEL A.

McNICHOLAS THIRD PLAINTIFF and: william eric field first defendant and: robert leslie field second defendant Corrected Decision : The text of the original judgment was corrected on March 16, 2011 and a description of the correction is appended. ___________________________________________________________________ Before: The Honourable Mr. Justice Carl R. Thompson ___________________________________________________________________ Place of Hearing: St. John’s, Newfoundland and Labrador Date(

s) of Hearing: November 30, December 1, 2, 3, 7, 8, 2010

MORTGAGES – POWER OF SALE – MORTGAGEE’S DUTY TO ACT FAIRLY IN OBTAINING VALUE ON SALE –CONVEYANCING ACT – NOTICE – APPRAISAL - VALUATION

Summary: A Power of Sale obtaining only sufficient funds to pay the first mortgage and not any of three subsequent mortgages was not completedin breach of a duty to act in good faith generally and was not done in breach of proper notice to those subsequent encumbrances or in theabsence of a proper appraisal reasonably disclosing a reliable opinion as to the fair market value of the property. Appearances: Geoffrey L. Spencer Counsel for the Plaintiffs J. Vernon French, Q.C. Andrea L. Murphy Counsel for the Defendants Authorities Cited: CASES CONSIDERED: Frost Ltd. v.

Ralph, (NL SC), 1980 CarswellNfld 122, 40 Nfld. & P.E.I.R. 207; RoyNatv. Lester (NL SC), 1994 CarswellNfld 341, 129 Nfld. & P.E.I.R. 271; Royal Trust Corp. of Canada v. R & MConstruction Co. (NL CA), 1996 CarswellNfld 279, 141 Nfld. & P.E.I.R. 323 (NLCA). STATUTES CONSIDERED: Conveyancing Act, R.S.N.L. 1990, c. C-34, ss. 6, 8, 40. REASONS FOR JUDGMENT Thompson, J.: INTRODUCTION [1] The Field brothers (the “Fields”) owned the Field Farm on the west side of Torbay Road, St. John’s, NL, north of Major’sPath and opposite one of the entrances to the Stavanger Drive Box Store Shopping area. Mr.

Michael Duffy, a solicitor having apersonal interest in Carrera Capital (Canada) Limited (“Carrera”), negotiated with Mr. Toby McDonald, Q.C., acting for the Fields forthe purchase of the Field Farm by Carrera for similar box store development. Mr. Duffy also obtained the interest of Mr. MichaelMcNicholas, a solicitor and friend, for investment in the project. David Moores, solicitor and also a friend of Mr. McNicholas, acted forCarrera on the purchase from the Fields. The Fields took cash and a mortgage back. The cash was made available through theMcNicholas’ financing. The investment by Mr.

McNicholas and his brother and sisters (the “McNicholas’”) was to be short-term orbridge financing and was secured by subsequent mortgages from Carrera to them. [2] The Fields conveyed to Carrera on May 15, 2006, for the sum of $3,500,002. Carrera gave a mortgage back to the Fields onthe same date for $2,500,000. Each of the Plaintiffs took separate subsequent mortgages in support of promissory notes from Carrera;the First Plaintiff advanced the sum of $200,000; the Second Plaintiff, the sum of $350,000; and the Third Plaintiff, the sum of$560,000.

Funds from these three advances were used by Carrera to pay the initial cash portion of the purchase price. Effectively, theonly cash advanced was from the Plaintiffs. [3] Carrera defaulted and the Fields have contracted to sell the property to 55732 Newfoundland and Labrador Inc., adevelopment company owned by Mr. Kevin King, for $2,800,000 after the Fields themselves purchased the property under the Power ofSale for the sum of $2,625,000, being 75% of the appraised value of $3,500,000 obtained from Altus Group. The Plaintiffs, the

McNicholas’, as subsequent mortgagees, effectively lost their investments. They claim that the Fields breached their duty to them to actin good faith generally in selling the property and, as well, specifically failed to comply with the Power of Sale provisions of theConveyancing Act, R.S.N.L. 1990, c. C-34, in failing to give them proper notice of that sale as required by s. 6, and in failing to obtain aproper appraisal which reasonably disclosed to the Fields a reliable opinion of the fair market value of the property as required by s. 8. [4] I will deal with each of the three claims in the order I have just stated them. A. good faith on sale generally (

i) Background [5] The development of retail box stores on the property required a change of zoning by the City of St. John’s from CommercialIndustrial to Commercial Regional. On the evidence, it appears that, because of the competing development of property of Harvey at theadjacent location, the City did not rezone but engaged a traffic study. [6] Michael Duffy, for Carrera, had been negotiating with Canadian Tire as the prospective anchor retailer for the development. Canadian Tire required the rezoning as a condition to any commitment.

As a result, the time for the rezoning and the engagement ofCanadian Tire passed the time for the repayment of the proceeds secured under the Carrera mortgage back to the Fields. Carrera wentinto default in February 2008. Carrera and the Fields effected an extension of the promissory note secured by the mortgage. A substitutenote, adding $100,000 to its face value, was executed, dated May 15, 2007 for the sum of $2,600,000. The $100,000 represented half ofthe unpaid interest on the first note dated May 15, 2006. Mr.

Michael McNicholas personally funded the other half, being $101,140,which Carrera paid to the Fields concurrent with the issue of this substitute note. However, default of it also took place. Ultimately, onApril 17, 2009, Mr. McDonald, for the Fields, issued a formal demand for payment as contemplated by the Conveyancing Act. [7] Prior to this Notice of Default, considerable effort to market the development took place. When he found out, to his shock,that Mr. Duffy had not obtained the municipal zoning change, Mr.

Michael McNicholas became active in both marketing thedevelopment and attempting to obtain the confidence of Mr. McDonald, solicitor for the Fields, which in Mr. McNicholas’ view, he sawdiminishing due to Mr. Duffy’s slowly advancing involvement. In fact, by October of 2009, Mr. Duffy had lost credibility with Mr.McNicholas. (ii) Caselaw [8] In Frost Ltd. v. Ralph, (NL SC), 1980 CarswellNfld 122, 40 Nfld. & P.E.I.R. 207, Goodridge, J., (as hethen was) stated at paragraphs 58-62: 58 Salmon L.J. also quoted the following passage from McHugh v.

Union Bank of Canada (1913) (UK JCPC), A.C.299: It is well settled law that it is the duty of a mortgagee when releasing the mortgaged property by sale to behave in conducting suchrealisation as a reasonable man would behave in the realisation of his own property, so that the mortgagor may receive credit for the fairvalue of the property sold. 59 The common theme of all these cases is that the mortgagee must act in good faith. The question is when is a mortgagee not acting ingood faith. It is there that the spectrum broadens.

The following headings taken from the cases cited above in the order in which theyare cited might indicate when there is an absence of good faith: ….. (

a) if the sale is plainly on the wrong side of the line; (

b) if the mortgagee deals with the property wilfully and recklessly; (

c) if the mortgagee fails to take reasonable precautions to obtain a proper price; (

d) if the mortgagee “throw(

s) away” the property and fails to act in a prudent and business-like manner with a view to obtaining as largea price as may fairly and reasonably with due diligence and attention be under the circumstances obtainable; (

e) if there is an absence of due care and attention;

(

f) if the conduct of the mortgagee is incapable of justification as one which in the circumstances an honest mortgagee might consider tobe required for the protection of his own interest; (

g) where there is loss occasioned by blunder; (

h) where the sale is not conducted with a view to ensuring that he mortgagor may receive fair value for the property sold; 60 (This is, of course, only a restatement of the good faith theory.) 61 Oddly enough it appears to me that the law on the matter is summed up best not in the most recent of these cases, the Cuckmere case,but in the oldest of these cases, the Matthie case. 62 If I may attempt to express my own synopsis of these cases, I would say that a mortgagee is not a trustee except for the surplus afterdischarging the mortgage and the expenses of sale and, in the conduct of the sale, is bound to act in good faith.

A mortgagor is notacting in good faith when the price realized is plainly and significantly short of the true value of the property sold, when the mortgageeacts wilfully and recklessly in the conduct of the sale with the result that the interests of the mortgagor are sacrificed, when he fails totake reasonable precautions to obtain a proper price, or fails to act in a prudent and business-like manner with a view to obtaining as largea price as may fairly and reasonably with due diligence and attention be under the circumstances obtainable. [9] In RoyNat v.

Lester, supra, (NL SC), 1994 CarswellNfld 341, 129 Nfld. & P.E.I.R. 271, Orsborn, J., (ashe then was) stated at paragraph 110: At common law a mortgagee was required to act in good faith in selling a property. What this means was summed up by Goodridge, J.,in Frost Ltd. V. Ralph et al. (1980), (NL SC), 40 Nfld. & P.E.I.R. 207, 115 A.P.R. 207 (Nfld.T.D.), affd. 40 Nfld. &P.E.I.R. 204, 115 A.P.R. 204 (Nfld.

C.A.), at p. 218, as follows: A mortgagor is not acting in good faith when the price realized is plainly and significantly short of the true value of the property sold,when the mortgagee acts wilfully and recklessly in the conduct of the sale with the result that the interests of the mortgagors aresacrificed, when he fails to take responsible precautions to obtain a proper price, or fails to act in a prudent and businesslike manner witha view to obtaining as large a price as may fairly and reasonably with due diligence and attention be under the circumstances obtainable.

This decision was approved by our Court of Appeal. See 40 Nfld. & P.E.I.R. 204, 115 A.P.R. 204 (Nfld. C.A.) (iii) Considerations and Conclusions [10] Substantial evidence was tendered as to market value of the property in 2009. Different methods of appraisal resulted insignificant value differences.

The Plaintiffs have the burden of proving that, on the balance of probabilities, the Fields will not be actingin good faith by their sale to themselves for the sum of $2,625,000. [11] The appraisals obtained in 2005 for Carrera and in 2009 for the Fields, from Altus Group, in the sum of $3,500,000, wereconcluded on the Direct Comparison Approach taking the whole land and valuing it in bulk as one future development. Mr. NeilTedstone, on the other hand, completed an appraisal for the McNicholas’, dated November 8, 2010, in preparation for this litigation inthe sum of $5,200,000. Mr.

Tedstone chose to divide the property in the Direct Comparison Approach. He concluded a lot developmentvalue for 11.75 acres of the property fronting 890 feet on Torbay Road as having significantly greater value and the remainder he valuedas bulk land. Thus he compared developable, readily marketable lots, ready for construction as to 11.75 acres and the balance as bulkland. The 2005 and 2009 Altus Group appraisals treated the whole of the land as bulk land only. [12] Mr. Jerome Kirkland took issue with Mr.

Tedstone’s approach, stating that he would appraise the property, as was done in the2005 and 2009 Altus Group appraisals, as there was no specific development plan costed out against which the values could be set-off. Mr. Tedstone’s position, in reply to this critique, was that he had general knowledge of development costs and, based on his generalexperience, he reduced values from $325,000 and $380,000 to $275,000 per lot, based upon this general knowledge.

He noted as wellthat he felt this division of the land was appropriate as the frontage increased in value as in 2006 the Torbay Road North Developmentarea was confirmed by the City, in April 2007 it was confirmed that the water and sewer trunk upgrade from the Outer Ring Road to

Stavanger Drive was to occur, in December 2007 the City adopted a strategic collective road layout and in May 2008 the rezoning from Commercial Industrial to Commercial Regional occurred. [ 13 ] In using the comparables of box store developments for these frontages, Mr. Tedstone confirmed that he did not have and did not require the development costing of these comparables. [ 14 ] On the evidence before me, I incline towards Mr. Kirkland’s view that engaging the development valuation and abandoning the bulk valuation in

part is troublesome where there is no development plan and no professional engineering development cost analysis. First, the use of two valuation bases in the one approach is unusual. Second, one of those divided bases for valuation, the development valuation, which has resulted in a significant increase in the appraised value, is absent a development cost analysis appropriate to as accurate a valuation as should be expected of that valuation. In the results in this case, Mr. Tedstone used unspecific general knowledge to conclude a variation in value that directly impacts on the true market price for the lots under his review. [ 15 ] Consequently, as noted by me, given: (

a) The evidence that reasonably questions the allocation of developable land separately for part of the property; (

b) The absence of any development plan; (

c) The absence of evidence of development costs specific to this property; (

d) The general allowance by Mr. Tedstone for development costs without specific support or explanation; (

e) The absence of information as to development costs for the comparables used by Mr. Tedstone, by which a reasonably effective comparison could result; I cannot confidently accept this opinion. [ 16 ] Additionally, the four features of change from 2005 to 2009 which Mr. Tedstone addressed, and which I have previously noted as the reasons for his engaging this divided approach are very general views of events, the timelines of which may or may not impact on value.

That is, the final outcomes have unspecified historical development chronologies, making their attribution to the property available over earlier periods than the times of formal conclusions of the City specified by Mr. Tedstone. Further, these four features, while arguably having impact on value, would not, of themselves, justify the deviation from the usual valuation method employed in the Direct Comparison Approach. [ 17 ] There are other indicators of value on the evidence. [ 18 ] Mr.

Toby McDonald, for the Fields, had been aware over some three to four years, while the taxes on the property were accumulating unpaid as a charge preceding his clients’ first mortgage, of attempts to market the property without having to go the Power of Sale route. Mr. Michael McNicholas himself became active in this. Mr. McDonald gave extensive accommodations to the McNicholas’ and Carrera to permit the sale of the property. Key to the advancement of this project was the active marketing of Canadian Tire at the time of and subsequent to the sale to Carrera and investments by the McNicholas’.

As well, RONA Building Supplies (“RONA”) was marketed as a potential anchor retailer. The property was marketed at the International Shipping Centres Convention in Montreal. Initially, negotiations with Cluney Properties Corporation of Toronto, in August of 2007, confirmed an interest in purchasing only the first mortgage of some $2,500,000. Yves Maurais, Carrera’s broker in Montreal, was actively marketing to Canadian Tire and RONA. In October 2009 however, Mr. McNicholas advises Mr. McDonald that a well-known Canadian developer, Sylvan Adams, was only prepared to advance $1,500,000 for the first mortgage. Mr.

McDonald, at this stage, was continuing to grant the indulgence to the subsequent mortgages to effect a resolution. [ 19 ] On the whole of the evidence of values and the history of attempts to market the property, I cannot conclude that the opinion of value of Mr. Tedstone with the concerns with it that I have noted, establishes, on the balance of probabilities, that the Fields have unfairly marketed the property. [ 20 ] Mr.

McDonald himself made contacts with known developers in an effort to obtain as broad an exposure of the property to the market as he thought reasonable. [ 21 ] He contacted some 16 developers, recognized by other witnesses as comprising the most likely know parties with the expertise and capital to effectively engage this development. They were provided prepared information on the property with a view to attracting their interest. Only one expression of interest followed. [ 22 ] While some criticism is made of these approaches by Mr.

McDonald as flagging negatively the property, the debt is due and the security enforceable.

[ 23 ] Notably, Mr. McDonald granted significant periods of indulgence in an effort to have the mortgagees succeed in transferring the property without security enforcement being engaged. [ 24 ] Mr. Michael McNicholas confirmed that neither Mt. Michael Duffy nor Carrera, nor he, nor his brother, nor his sister had further capital to inject into the development. In fact, Mr. McNicholas testified that he and Mr. Duffy had a falling out on the question of how they would personally inject any further money to pay for interest on the Field debt. Mr. McNicholas confirmed that Mr.

Duffy refused to contribute further, claiming he had paid soft costs in the earlier preparatory work. Mr. McNicholas had to pay that interest. [ 25 ] The evidence is not disputed that Canadian Tire’s interest required that the rezoning take place and that this was delayed.

The evidence is not disputed that the competition, Harvey and RONA, eventually started development on its adjacent site, and the decision of RONA to choose the adjacent site meant that the prospects for the development of the Field property were diminished. [ 26 ] It is apparent and not in dispute that, but for a large anchor retailer taking out Carrera, Carrera would not develop this property. [ 27 ] Mr. Kevin King confirmed that he was the largest financial developer in the City of St. John’s and the only commercial developer.

He had done the Cabot development, being the site including Costco at Stavanger Drive, the Kelsey Drive development, and the Mt. Pearl development, being the major box store developments in the area. [ 28 ] He noted that the retail box store owners have their own development departments and expertise. He testified that these stores operate together in entering new development areas.

He explained that for future expansion, these retailers will follow the pattern of retail traffic from the Costco and Kent areas of Stavanger Drive to the next closest site, being the Harvey property which sold to RONA, and after that they would eventually move to the next area, being the Field property owned by Carrera. [ 29 ] He confirmed that his firm’s professional cost analysis to develop the Carrera site is $5,000,000 exclusive of property acquisition cost. He noted that Mr.

Tedstone assumed a return to the developer of some three times the per lot average return than these box store retailers would allow a developer to receive in profit. [ 30 ] He testified that Mr. Tedstone did not have the cost analysis information that was required to do the appraisal in the manner he did. [ 31 ] Mr. King testified that, had the City not agreed in 2009-2010 to pay for the Torbay Road upgrade and water and sewer upgrades estimated at six million, these sites, including the Harvey site, would never be developed.

He testified this was the case as there were four property owners plus the Airport Authority in this Torbay Road North development area and the first of these developers would have had to assume and pay that full cost. Because of this cost and the fact that the overall property was not commonly owned by one developer, the development in this area would not have occurred.

He testified that he persuaded the City that the projected revenue from taxation upon development was sufficiently financially beneficial to the City in the long run to justify the City incurring the costs rather than have no development and no tax revenue from the area. [ 32 ] Mr. King further testified that because of the City’s investment, the City insisted that each owner could not subdivide without having in place security for the full cost of all development infrastructure required by the City.

He noted that, because of this he has had the Harvey property road infrastructure completed as the up-front costs had to be incurred anyway insofar as the City effectively required cash security for it until it was done. As the developer, he had to advance that money from his capital. Notably and significantly, Mr. King confirmed that banks will not finance this type of development at this stage. [ 33 ] Mr. King further testified that the market for national retailers in Canada and the United States in 2009 was dismal.

He noted that while the general financial institutions did not suffer the same impact in Newfoundland, these prospective retailers are national retailers and they were basing the totality of their decisions on a national experience, not a local one. He noted that he himself, for the Cabot site (Stavanger), actually had to rezone and sell off part of the land in order to secure needed cash flow in 2009 due to the absence of further market development of land in the area at that time. [ 34 ] Mr.

King testified that the developer of the Harvey and RONA competitive site now underway will not receive any money up front. Harvey will get only $70,000 per acre for this land when sold. They will receive no interest and will only have a share of profits. As of today, they are five years into the development and have not seen one cent. He estimated they will not see any return until 2012. When they do, it will be at a rate of $70,000 per sold acre as noted. [ 35 ] As earlier noted, Mr.

King confirmed that the retailers in these centers look at the direction of traffic flow access from the existing developed areas to the new areas under consideration. They do not look at direct access but the existing vehicle movement to and from the existing retailers. He noted that at present, 75% of all such traffic would be having access from the Trans Canada Highway to Aberdeen Avenue. It is that source that they view as of interest for marketing for movement into the nearest adjacent properties. The Harvey RONA site is more adjacent in that context. [ 36 ] Mr.

King testified that the Field property will have to be rezoned to Commercial Industrial as there are no more retail vendors left to take the space. He will market it to industrial to tie in with potential industrial development of the adjacent Airport Authority property. [ 37 ] While he has made an offer to purchase the Field property, which has been accepted, I accept Mr. King’s evidence as accurate and reflective of the actual reality of market circumstances for the Field property as its sale was being effected under the Power of Sale. [ 38 ] There was another Altus appraisal completed May 1, 2007.

It was done for Mr. Michael Duffy in the process of his marketing the property for Carrera. It confirmed values of $8,100,000 and $6,300,000. However, this appraisal is self-stated as having made extraordinary assumptions, including City approvals, completion of off-site infrastructure, development cost estimates as being accurate, another developer building the Harvey site infrastructure as required by the City for the Carrera development so that Carrera did not have to incur that cost and, in part, completion of actual sales as part of a development not yet in place.

I am satisfied that this appraisal should not give rise in 2009 to a reasonable concern for the Fields as to the adequacy of the market value opinion of Altus Group in its

2009 appraisal for the Power of Sale. [ 39 ] It is noteworthy that: (

a) Bank commercial financing was not available in the marketplace for the stages of acquisition and development contemplated by the Carrera and McNicholas investment. (

b) The only cash made available for the Carrera purchase was from the McNicholas’. In their investment decision, the McNicholas’ let Carrera take a prior title position notwithstanding theirs was the only up-front cash. (

c) The cash did not satisfy the purchase price and so the project at the outset had to find a retail box store purchaser with funds to take out the first mortgage and, hopefully, the McNicholas’ subsequent mortgages. (

d) The evidence is clear that neither Carrera nor the McNicholas’ had funds to pay out the first mortgage in the event they could not find such a retail box store purchaser. (

e) This take out was time sensitive in view of the short term for repayment of the first mortgage. (

f) Any take out purchaser had: (

i) a competing property to look at; (ii) a requirement that a zoning change take place which was on hold; (iii) an apparent vulnerable vendor needing a quick take out. (

g) The City chose to delay the rezoning, which meant that Carrera’s take out time expired on the first mortgage. (

h) There was only one retail box store owner to come to the area and it chose the competing property. (

i) The market was dismal. (

j) The competing property financial structure of RONA, if it had come to Carrera, would not have satisfied Carrera’s take out of the first mortgage. (

k) Any future development of the Field property will require a rezoning back to the original zone and will be industrial. (

l) The Carrera project was high risk and it succumbed to the risk. [ 40 ] The Fields have not breached a duty to act in good faith generally in selling the property for $2,625,000. B. notice required by

section 6 of conveyancing act [ 41 ] The Plaintiffs argue that they did not receive notice of the formal demand on subsequent encumbrancers under s. 6 of the Conveyancing Act , thus rendering invalid the subsequent intended sale following from it.

(

i) The Law

Section 6 of the Conveyancing Act states: Power of sale 6. A mortgagee shall not exercise the power of sale conferred by this Act unless written notice is first given to the mortgagor andanother registered encumbrancer or guarantor. (

a) requiring payment of the mortgage money and there has been a default in payment for 30 days after the giving of the notice; (

b) requiring that interest under the mortgage that is in arrears and unpaid be paid and there has been a default in payment for 30 daysafter the giving of the notice; or (

c) requiring that a breach of a provision contained in the mortgage deed, or in this Act, and on the part of the mortgagor or of a personconcurring in making the mortgage, to be observed or performed, other than and besides a covenant for payment of the mortgage moneyor interest on the mortgage money be remedied and that breach remains unremedied for not less than 30 days after the giving of thenotice. [42] The Conveyancing Act, s. 40, deals with issues of service. It states: Notices 40.

(1) A notice required or authorized by this Act to be served shall be in writing.

(2) A notice required or authorized by this Act to be served on a lessee or mortgagor or other registered encumbrancer or guarantorshall be sufficient, although only addressed to the lessee or mortgagor or other registered encumbrancer or guarantor by that designation,without his or her name, or generally to the persons interested, without a name, and notwithstanding that a person to be affected by thenotice is absent, under disability, unborn or unascertained.

(3) A notice required or authorized by this Act to be served shall be sufficiently served if it is left at the last known place of residenceor business in this province of the person to be served, or, in case of a notice required or authorized to be served on a mortgagor, isattached or left for him or her on the land or a house or building comprised in the mortgage.

(4) A notice required or authorized by this Act to be served shall also be sufficiently served if it is sent by mail in a registered letteraddressed to the person to be served, by name, at the last known place of residence or business, and if that letter is not returned throughthe post office undelivered.

(5) Service shall be considered to be made at the time at which the registered letter would in the ordinary course be delivered. [43] In Royal Trust Corp. of Canada v. R & M Construction Co. (NL CA), 1996 CarswellNfld 279, 141Nfld. & P.E.I.R. 323 (NLCA), the Court of Appeal, at paragraph 29, stated: The English Court of Appeal briefly discussed Munro in Westway Homes Ltd. v. Moores (1991), 31 E.G. 57.

Dillon, L.J., while notdisagreeing with the proposition that solicitors do not have an implied authority to accept notices on behalf of their clients, stated that: One had to look from the general to the particular and … to consider what (the solicitors) were employed for and what matter it was inwhich they were employed. (ii) Considerations and Conclusions [44] The provisions for giving of notices contained in the subsequent three mortgages held by the Plaintiffs respectively are asfollows: (

a) P. McNicholas M.D. INC.

c/o Dr. Peter G. McNicholas, M.D. 178 – 6 Ponderosa Place Penticton, British Columbia Canada V2A 7Y3 AND TO: P. McNicholas M.D. INC. c/o Brian D. Bennett, LL.B. 640 Torbay Road St. John’s, NL Canada A1A 5G9 and shall be deemed to have been received by the party to whom it is addressed on the third day following the date of mailing. Either party may change its address for the purpose of this paragraph (

c) by giving notice to the other in accordance with this paragraph (c). (

b) Dr. Judith A. McNicholas, M.D. 5 Saddle Hill Lane Southborough, Massachusetts USA 01772-1461 AND TO: Dr. Judith A. McNicholas, M.D. c/o Brian D. Bennett, LL.B. 640 Torbay Road St. John’s, NL Canada A1A 5G9 and shall be deemed to have been received by the party to whom it is addressed on the third day following the date of mailing. Either party may change its address for the purpose of this paragraph (

c) by giving notice to the other in accordance with this paragraph (c). (

c) Michael A. McNicholas c/o Brian D. Bennett, LL.B. 640 Torbay Road St. John’s, NL A1A 5G9

and shall be deemed to have been received by the party to whom it is addressed on the third day following the date of mailing. Either party may change its address for the purpose of this paragraph (

c) by giving notice to the other in accordance with this paragraph (c). The first two contemplate duplicate effective service on the mortgagee and mortgagee’s named solicitor and the third on mortgagee’s named solicitor only. [ 45 ] The Demand for Payment under the Field mortgage was copied as follows to the McNicholas’: April 17, 2009 Carrera Capital (Canada) Limited Registered Head Office C/O 640 Torbay Road St. John’s, NL Canada A1C 5G9 Dear Sirs: Re: Property – 661-669 Torbay Road, St. John’s, NL Mortgage – Carrera Capital (Canada) Limited to W. Eric Field and R.

Leslie Field (the “Mortgage”) Date of Mortgage – May 15, 2006 Date of Registration – May 15, 2006 (Registration No. 125805) Promissory Note – May 15, 2006 (the “Note”) Our File No. 1338-002 The Mortgagees in the above-reference Mortgage, hereby give notice pursuant to the Conveyancing Act , RSNL 1990, c. – C-34 (the “Act”), requiring payment of the total principal and the total interest due under the above-noted Mortgage which is due and payable. We had previously provided you with a copy of the Mortgage and the Note by similar demand letter of February 13, 2008.

The terms of the Mortgage stipulated that the sum of $2,500,000.00 together with interest thereon at the rate of 8.00% per annum, (as set forth in the Mortgage and the Promissory Note annexed thereto as

Schedule “B”), was to be paid in full within 1 year of the date of the Mortgage. These terms of repayment were not met, though $100,000.00 was paid on account of interest, leaving a Balance due, as at May 15, 2007, of $2,600,000.00. The Note was substituted for the original note, the terms and conditions of which involved the payment of $100,000.00 on June 15, 2007 and the payment of the balance of $2,500,000.00 together with accrued interest on or before July 15, 2007.

While payments totalling $70,000.00 were received by the Mortgagees over the months of May, June and August, 2008 no proceeds have been paid since August 1, 2008. The Mortgage is in Default. The total balance due on the Mortgage, to the 17th day of April, A.D. 2009 is $3,019,408.70 (including an estimated $25,000.00 in accrued legal fees and disbursements). Simple interest is accruing at the rate of 9.00% per annum.

Schedule “A” annexed sets forth the method of computation of the balance due. In the event that payment in full of the Mortgage is not made within thirty (30) days of the date that this notice is served on you, I am instructed to proceed to advertise the property for sale by public auction, or public tender, in accordance with the terms and conditions of the Act . I would hope that this action will not be necessary and that you will make arrangements to satisfy the full amount due in relation to the Mortgage, including interest accruing, and related legal fees and disbursements, to the date such Mortgage is paid off in full.

I would confirm that I am today forwarding a similar notice to the 2nd, 3rd, and 4th Mortgagees as well, in accordance with the Act . Yours truly, __________________________ TOBIAS F. MCDONALD, Q.C. TFMcD/ Encl. c.c. 2nd, 3rd and 4th Mortgagees The following letter accompanied the above: April 17, 2009 P. McNicholas M.D. Inc. C/O Dr. Peter G. McNicholas, M.D. 178-6 Ponderosa Place Penticton, British Columbia Canada V2A 7Y3 Dr. Judith A. McNicholas, M.D. 5 Saddle Hill Lane Southborough, Massachusetts USA 01772-1461 AND TO: Michael A. McNicholas P. McNicholas M.D. Inc., and Dr. Judith A. McNicholas, M.D. C/O David c. Moores, LL.B. 10 Freshwater Road P.O. Box 26111 St. John’s, NL

A1E 0A5 Re: Property – 661-669 Torbay Road, St. John’s, NL First Mortgage – Carrera Capital (Canada) Limited to W. Eric Field and R. Leslie Field (the “First Mortgage”) Date of Mortgage – May 15, 2006 Date of Registration – May 15, 2006 (Registration No. 125805) Promissory Note – May 15, 2007 (the “Note”) Our File No. 1338-002 __________________________________________________________________ Our clients are the holder of the First Mortgage on the above reference property.

We have previously provided you with a photocopy of the First Mortgage and the Note and we enclose herewith a photocopy of the notice which has been served on the Mortgagor in accordance with the Conveyancing Act , RSNL 1990 c. – C-34 (the “Act). As is indicated in the notice, the First Mortgage is in arrears as the Mortgagor, Carrera Capital (Canada) Limited, has not honoured the terms of the Mortgage. As such, I have been instructed to proceed, in accordance with the Act , to have the Property sold by public auction or public tender in order to satisfy the amount due in respect to the First Mortgage.

We attach a copy of

Schedule “A” wherein the balance due in accordance with the terms and conditions of the First Mortgage is computed at $3,019,408.70. I trust you will find the above and enclosed to be in order. Yours truly, __________________________ TOBIAS F. MCDONALD, Q.C. TFMcD Encl. [ 46 ] Mr. McDonald confirmed, and Susan C. Hounsell attests, that these were forwarded to the second, third and fourth encumbrancers on April 17, 2009 and were personally served on their solicitors at 5 p.m. that same day. [ 47 ] The evidence discloses that on September 13, 2007 David Moores, solicitor, wrote Mr.

McDonald to advise that he no longer acted for Carrera, but did continue to act for each of the three McNicholas family members. There was an ongoing default under the Carrera mortgage in 2008. On February 22, 2008 Mr. Moores copied Mr. McDonald on his e-mail to Michael Duffy, suggesting multiple redundant notices in these mortgagees were not necessary. Prior to his issuing demand notices in the subsequent default, under which the Power of Sale took place, Mr. McDonald e-mailed Mr. Michael McNicholas on January 27, 2009. There Mr. McDonald noted it appeared that Mr.

McNicholas was not confirming he was agent for service. Mr. McNicholas replied the same day to Mr. McDonald, noting that he saw no need in incurring costs to reissue formal notices under the mortgages. In exchange of e-mail with Mr. McDonald January 27, 2009, Mr. McNicholas also noted that as to any independent legal advice his brother or sister may require, Mr. David Moores could provide it. [ 48 ] On his evidence, Mr. McNicholas confirmed he had not authorized Mr. David Moores to accept service. [ 49 ] On the evidence, it appears that Mr.

David Moores was clearly holding himself out as continuing to act for the second, third and fourth mortgagees. Default was in place. Mr. Michael McNicholas was confirming to Mr. McDonald the continued relationship of Mr. Moores as acting. Mr. McNicholas, at no time prior to the issue of the default notices, indicated any restriction on Mr. Moores’

general authority. Notably, it appears as well that each of these mortgagees resides outside the jurisdiction. [ 50 ] I am satisfied that Mr. McDonald has reasonably effected service on the second, third and fourth mortgagees on Mr. David Moores, given that solicitor’s clear holding out of authorization during periods of default and when Mr. Michael McNicholas, the only apparent actively engaged member of the three subsequent mortgagees had confirmed Mr.

Moores’ continued legal relationship with his brother and sister. [ 51 ] I would add that, in any event, the Fields are not bound by the notice provisions of these subsequent mortgages. Registration of the mortgage in the Registry of Deeds cannot bind third parties to contractual terms. Notably, the contractual term for notice as between the parties to the subsequent mortgages is subject to their private amendment.

In the result, the Fields, not being otherwise bound to a specified manner of service, the service in these three instances effectively complies with s. 40(3) of the Conveyancing Act as all three mortgagees are out of the Province and service was effected at a known place for service in the Province. Effectively, s. 40 contemplates that actual service on the parties may in fact not occur provided the attempts are made as prescribed. The provision serves to cure otherwise incomplete service. In this case, service has been reasonably completed well within the parameters contemplated by s. 40(3). C.

APPRAISAL AND valuation required by

section 8 of conveyancing act [ 52 ] The Plaintiffs argue that the Fields failed to obtain a proper appraisal which would reasonably disclose to the Fields a reliable opinion of the fair market value of the property as required by s. 8 of the Conveyancing Act . (

i) The Law [ 53 ] The Conveyancing Act , R.S.N.L. 1990, c. C-34, supra , at s. 8 states: Property shall be appraised 8.

(1) Before the date on which a sale of a mortgaged property is to take place the mortgagee shall obtain a written appraisal of the mortgaged property by a qualified appraiser.

(2) Where there is no qualified appraiser available in the area where the mortgaged property is located, the mortgagee shall obtain a statement of the fair market value of the property from a licensed real estate agent familiar with the property values in the area in which the property is located. In RoyNat v. Lester , Orsborn, J., as he then was, stated at paragraphs 94-99: 94 My overall reading of RoyNat is that non-compliance with the relevant statutory provisions will avoid liability on a deficiency claim whether or not such non-compliance causes an actual loss.

In interpreting the content of the statutory requirements, consideration must of course be given to the purposes of the Act . 95 I agree with L. Barry, J., that a s. 8 appraisal “is an appraisal which a reasonable mortgagee would find reliable”.

The question is – reliable for what purpose? 96 In my view, considering both RoyNat and the Act, the appraisal must be reliable as an independent opinion of the fair market value of the property. 97 I note that the alternative in subs. 8(2) – where no qualified appraiser is available – is a statement of the “fair market value of the property from a licensed real estate agent”.

This is a clear indication that s. 8 contemplates an opinion on fair market value, either by way of appraisal or by statement. 98 Further, as noted in RoyNat, the 75 percent threshold for court approval in s. 9 would be meaningless if the appraisal were not reasonably reliable as an indication of fair market value. In addition, subs. 9(2) permits the mortgagee to sell by private contract only where there are no offers by public tender or auction “or unless the offers are unreasonably low”.

Whether or not an offer is unreasonably low can only be determined by reference to some standard – the Act contemplates a fair market value standard, evidence of which will come from the s. 8 appraisal.

Finally, the Act contemplates ( s. 10 ) that the accounting eventually forwarded to the mortgagor and guarantor will include a copy of the appraisal; this permits those potentially liable for any deficiency to assess the sale in light of the appraiser’s opinion of fair market value. 99 The requirement of a statutory appraisal is designed to inject a mandatory element of independence and objectivity into the power of sale proceedings. It attempts some balancing of the competing interests – the interests of the mortgagee in being able to proceed

reasonably to sell despite protestations from the mortgagor or guarantor – and the interest of the mortgagor and guarantor in ensuring that a reasonable benchmark for the value of the property has been established prior to sale and that any significant deviation must be satisfactorily explained. (ii) Considerations and Conclusions [ 54 ] The Altus Group appraisal was obtained by the Fields, through Mr. Toby McDonald, for the purpose of s. 8 . On the evidence, other than the inferences that might have been drawn if I had accepted the appraisal and opinion of Mr.

Tedstone, there is no evidence by which the Altus appraisal has been shown to be deficient in the obtaining of an opinion of fair market value of the property. There is evidence of the surprise of Mr. Michael McNicholas that the market value had not increased in some four years. There is the evidence of Ms. Christine Clouston, a commercial banker, as to what she would do if there was no appraisal increase in four years. Her background is substantially residential lending. On Mr. King’s evidence, the banks would not be involved in any event in financial support of this type of project at this stage.

As noted, there is the opinion of Mr. Tedstone upon which I have commented. [ 55 ] I note as well in this exchange of January 27, 2009 that Mr. McDonald had noted the additional costs involved in the Power of Sale and that it seemed logical to him to have the same appraiser involved. Mr. McNicholas’ response was that with respect to the appraisal, he used Altus Helyer – Neil Hardy. [ 56 ] Notably, Mr. McNicholas, in an October 9, 2009 email to Mr. McDonald, notes the then credit crisis, the deep recession and the consequential pull-back in private investment. This is not inconsistent with Mr.

King’s evidence as to the dismal outlook for national retailers in 2009. [ 57 ] In the end, none of the significant efforts to move the property succeeded. In the end, as well, RONA decided to go with the adjacent Harvey property. [ 58 ] In my view, in the circumstances, as they existed in 2009, it was not unreasonable for Mr. McDonald to conclude for the Fields that the Altus appraisal was an adequate opinion of fair market value for the purposes of s. 8 of the Conveyancing Act . [ 59 ] The Plaintiffs question the appropriateness of the Altus Group completing the Power of Sale appraisal. [ 60 ] Mr.

McDonald testified that on or about June 4, 2009, he contacted several appraisers qualified to complete commercial appraisals. Some six are listed by him on his notes taken at the time. Only one was available to complete an appraisal within a reasonable time frame, named Altus Group. Mr. McDonald had given considerable indulgence during the default to this time. [ 61 ] The Plaintiff also argues that the 2009 Altus Group appraisal was completed in the face of a disclosed potential conflict of interest by Altus Group in that it had sued and obtained judgment against Carrera for the fee owing on the 2005 appraisal.

Mr. McNicholas confirmed that he was not aware of the Altus judgment against Carrera for $12,000 for their unpaid earlier appraisal when he recommended Altus to Mr. McDonald [ 62 ] On the evidence, I cannot conclude that the potential conflict serves to invalidate the appraisal. The potential conflict was disclosed to the Fields. There was no other qualified appraiser available within a reasonable time, on Mr. McDonald’s evidence, which I accept. The appraiser undertook that the amount due from Carrera would not impact on their appraisal.

I see no basis upon which I could reasonably conclude that the debt owed by Carrera would impact on the obligation of the appraiser to the Fields and Mr. McDonald to opine on fair market value. d. date of power of sale [ 63 ] The Plaintiffs question the effective date of sale by the Fields to themselves under the Power of Sale. Their reserve bid of $2,625,000 is dated July 6, 2009.

The Deed is dated August 4, 2009 and registered June 28, 2010. [ 64 ] While it may be of no consequence in view of my decision, the Plaintiffs have argued that the effective date of sale under the Power of Sale is the date of registration of the deed. Notably, the Tedstone appraisal values the property at the same amount both currently as of October 22, 2010 and retrospectively as of October 4, 2009. In the absence of evidence to the contrary, the transfer extinguishing the equity of redemption occurs by virtue of the indenture of conveyance.

On its face, it is stated to be transferred by the indenture being signed, sealed and delivered its stated date. Registration in the Registry of Deeds does not perfect the indenture; it serves as notice of its title. Consequently, the Power of Sale was completed July 6, 2009 and those requirements of the Conveyancing Act as preconditions to such, including the appraisal having to take place prior to that time as stipulated. The formal transfer, extinguishing the equity of redemption, pursuant to the exercise of that power was completed August 4, 2009.

I would note that the legal title was in the Fields prior to the transfer by virtue of the mortgage and continued in the Fields upon transfer, the mortgage then ending.

The full right of the Fields to effect the formal transfer was present upon completion of the Power of Sale, July 6, 2009, assuming all the prerequisites to the proper completion of the Power of Sale were in place. e. lis pendens [ 65 ] The parties agree that this matter is dispositive of any right or interest of Carrera and Carrera has taken no proceeding to confirm or enforce its claim as contemplated in its lis pendens , filed in the Registry of Deeds on June 30, 2010, number 400474.

The Fields had sought, inter alia , an order vacating the lis pendens in action number 2010 01G 4711 in this Court. f. order [ 66 ] The Defendants are therefore entitled to an Order: (

a) dismissing the Plaintiffs’ claim;

(

b) vacating the lis pendens ; (

c) that the Plaintiffs pay the Defendants’ costs, to be taxed on a party and party basis and to include the costs to register the vacating of the lis pendens in the Registry of Deeds. _____________________________ Carl R. Thompson Justice APPENDIX Corrections made on March 16, 2011: 1. The date in the citation was changed from 2010 NLTD(G) 35 to 2011 NLTD(G) 35.