Fraser Valley Edelweiss Credit Union Petitioner v. Perrin Keith Van Weston, also known as Perrin Keith Van Weston, Canadian Decontamination & Restoration Specialists Ltd., United, 2003 BCSC 511

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Fraser Valley Edelweiss Credit Union v. Van Weston et al, 2003 BCSC 511 Date: 20030403 Docket: S0012334 Registry: Chilliwack Between: Fraser Valley Edelweiss Credit Union Petitioner And Perrin Keith Van Weston, also known as Perrin Keith Van Weston, Canadian Decontamination & Restoration Specialists Ltd., United Underground Services Inc., Nikel Bros. House Moving Ltd. Respondents Before: The Honourable Mr. Justice Joyce Reasons for Judgment Counsel for the Petitioner Wayne Neufeld Counsel for Canadian Decontamination & Restoration Specialists Ltd. Adnan N.

Habib Date and Place of Trial/Hearing: February 10, 2003 Chilliwack, B.C. [ 1 ] This application concerns the priority as between a mortgagee and a lien claimant pursuant to subsections 32(1) and (2) of the Builders Lien Act , S.B.C. 1997, c. 45 as amended. The precise issue in this case is whether the phrase “an advance by a mortgagee that results in an increase in the direct or contingent liability of a mortgagor” in section 32(2) includes the initial advance under the mortgage. [ 2 ] I am satisfied it does. [ 3 ] The facts are briefly as follows.

The respondent Van Weston granted a mortgage over certain lands in favour of the petitioner to secure a loan that Van Weston intended to use to purchase the lands, move a residence onto the lands, add a basement and renovate the residence.

The mortgage was accepted for registration in the Land Title Office on August 31, 2001 at 2:25 p.m. [ 4 ] The respondent, Canadian Decontamination & Restoration Specialists Ltd., filed a claim of builders lien for improvements made to the property against the title to the lands, which lien was accepted for registration by the Land Title Office on August 31, 2001 at 2:56 p.m., i.e. subsequent to the registration of the mortgage. [ 5 ] After filing the mortgage at the Land Title Office, the petitioner obtained a post index search, which revealed the registration of the claim of builders lien.

At 4:06 p.m. on August 31, 2001, knowing of the registration of the lien, the petitioner made the first advance under the mortgage in the amount of $67,935. [ 6 ] The lands were ultimately sold in foreclosure proceedings and the sale proceeds are being held in trust pending determination of the priority issue. [ 7 ] Subsections 32(1) and (2) of the Builders Lien Act read as follows: 32.

(1) Subject to subsection (2), the amount secured in good faith by a registered mortgage as either a direct or contingent liability of the mortgagor has priority over the amount secured by a claim of lien.

(2) Despite subsection (1) an advance by a mortgagee that results in an increase in the direct or contingent liability of a

mortgagor, or both, under a registered mortgage occurring after the time a claim of lien is filed ranks in priority after the amount secured by that claim of lien. [ 8 ] There can be no doubt that by reason of subsection (2) the lien has priority over the amount of the advance made after the lien was filed if that advance resulted in an increase in the direct liability of the mortgagor.

There is no issue in this case that the mortgage was taken in good faith. [ 9 ] The petitioner submits, however, that the initial advance of funds under the mortgage did not result in an “increase” in the liability of the mortgagor. Its argument is that for there to be an increase in liability, there must first be some liability. The petitioner says the advance must add to an amount that is already owing to the mortgagee. In this case, the advance in question was the first advance under the mortgage.

The petitioner says the advance did not increase the liability; it created liability. [ 10 ] The petitioner submits the plain meaning of the word “increase” supports its position. The petitioner refers to the definition of “increase” in the Canadian Oxford Dictionary: “to make or become greater in size, amount, etc. or more numerous”. The petitioner submits an increase implies there is something that gets bigger. [ 11 ] I am not persuaded the ordinary meaning of the word “increase” supports the petitioner’s argument.

In my opinion, going from no financial liability to a liability of $67,935 is an increase in liability. [ 12 ] The petitioner submits further that the language of the subsections is substantially different from that used in the former statute and the legislature must have intended to change the priority scheme. Subsections 6(1) and (2) of the former statute ( Builders Lien Act , RSBC 1996 c.41 ) read as follows:

(1) A registered mortgage has priority over a lien to the extent of the mortgage money secured in good faith or advanced in good faith before the filing of the claim of lien, but in proceedings for the enforcement of a claim of lien the court may order the sale of mortgaged land at an upset price of not less than the amount secured under all registered mortgages having priority over the claim, costs and the costs of sale, and the mortgages must be satisfied out of the proceeds of the sale according to their respective priorities and in priority to the lien to the extent mentioned and subject to subsection (2).

(2) Advances or payments made under a mortgage after a claim of lien has been filed rank after the lien, but any mortgagee who has applied mortgage money in payment of a claim of lien that has been filed is subrogated to the rights and priority of the lien claimant who has been paid as mentioned to the extent of the money applied. [ 13 ] The expression “mortgage money secured” encompassed the situation where moneys were originally owing “for goods sold and delivered, or for work done, or for loans made, or for any number of other things” which were subsequently secured by the granting of a mortgage ( Casson v.

Westmorland Investments Ltd. (1961) 1961 CanLII 308 (BC CA) , 27 D.L.R. (2d) 674 (B.C.C.A.). [ 14 ] “Mortgage money secured” also covered the situation of a mortgage granted to secure the mortgagor’s guarantee of a debt owing by a third party to the mortgagee ( Toronto-Dominion Bank v. Setter-Donaldson Mechanical Ltd. (1977) 1977 CanLII 1862 (BC CA) , 75 D.L.R. (3d) 744 (B.C.C.A.)). [ 15 ] Under the former legislation it was clear that any advances made under a registered mortgage after the lien was registered ranked in priority after the lien.

There is no room for any suggestion that under the former statute a distinction could be drawn between first advances made after the registration of the lien or subsequent advances made after that time. [ 16 ] When the new Builders Lien Act was enacted by SBC 1997, c.45, subsections 6(1) and (2) were replaced by subsections 32(1) and (2) , which then read:

(1) The balance owing on a registered mortgage has priority over a claim of lien to the extent of the mortgage money secured in good faith and advanced in good faith before the filing of that claim of lien, but in proceedings for the enforcement of a claim of lien the court may order the sale of mortgaged lands at an upset price of not less than the balance owing under all registered mortgages having priority over the claim, court ordered costs and the costs of the sale, and the mortgages must be satisfied out of the proceeds of the sale according to their respective priorities and in priority to the claim of lien to the extent of the balance owing and subject to subsection (2).

(2) Advances or payments made under a mortgage after a claim of lien has been filed rank after that claim of lien. [ 17 ] The new Act therefore continued the scheme whereby mortgage monies advanced after the registration of a claim of lien ranked in priority after the lien, without the possibility of any distinction between an initial advance and a subsequent advance.

What was different was that subsection (1) gave priority to “mortgage money secured in good faith and advanced in good faith before the filing of the claim of lien”, whereas the earlier statute gave priority to “mortgage money secured in good faith or advanced in good faith before the filing of the claim of lien”. [ 18 ] It is not clear to me whether the change from the use of the word “or” to the word “and” was intentional or not or what was its effect.

It is clear that under the previous legislation mortgage money that was secured by the mortgage but which had been advanced at an earlier time, e.g. by way of a loan, was entitled to priority. [ 19 ]

Section 32 was then amended by the Builders Lien Amendment Act, 1998 , S.B.C. 1998, c. 25 , resulting in the current subsections (1) and (2). Subsection (1) now speaks only of the amount “secured in good faith by a registered mortgage”. It no longer refers to an amount “advanced”. In my view, there are likely two reasons why the legislature deleted the reference to money advanced. The first is to make clear that priority was given with respect to money secured by the mortgage, though not advanced under the mortgage as had been the case under the law prior to the 1997 amendment.

The other reason is that it is not necessary to include the reference to money advanced. Money that is advanced under the registered mortgage will be secured by the mortgage, although the converse is not true.

[ 20 ] Section 32(1) does not expressly state that, subject to subsection (2), the amount secured by a mortgage registered prior to the registration of a claim of builders lien has priority. However, it must be read in conjunction with s.28 of the Land Title Act , which provides the general rule that charges have priority according to the date and time the applications for registration were received by the Registrar. [ 21 ] The petitioner further argues that unless its submission is correct the words “that result in an increase in the direct or contingent liability of a mortgagor, or both” are superfluous.

I do not agree. In my view, those words are used to make it clear that the advance by the mortgagee need not necessarily be to the mortgagor, so long as it increases the liability, direct or contingent, of the mortgagor under the mortgage. Take, for example, the case of a registered mortgage that secures a guarantee given by the mortgagor regarding the indebtedness of a third party to a maximum of $100,000. Assume the amount of the indebtedness of the third party is $50,000 when the claim of lien is filed.

If the mortgagee then advances another $25,000 to the third party, the advance is not made to the third party under the mortgage but the contingent liability of the mortgagee under the mortgage is increased by $25,000. The mortgagee will have priority over the lien only to the extent of $50,000. [ 22 ] Finally, the petitioner submits that a pragmatic

interpretation favours its position. The petitioner argues there is a certain time delay between the time an application is accepted for registration, which determines priority, and the time the application is entered into the Land Title computer system and is available to be searched by other parties. The petitioner says that a mortgagee cannot know, with certainty, whether there are any supervening charges by conducting a post-index search.

The petitioner suggests the Legislature intended to give the mortgage lender, in a construction environment, priority for the initial advance, which is usually used to purchase the land, even if there are supervening claims of builders lien. [ 23 ] I cannot accept this submission. In the first place, the priority would not be limited to lenders who lend money for the purchase of property. The petitioner’s position would apply to all first advances by mortgagees for whatever purpose.

More importantly, I can find nothing in the legislation to suggest the Legislature intended to change the law so fundamentally and to give preference to mortgage lenders in this manner. [ 24 ] In my opinion, the Legislature did not intend to nor did it alter the fundamental principle that advances made after the registration of a claim of builders lien rank in priority after the lien, whether the advance is a first advance or a subsequent advance. [ 25 ] I conclude that the lien claim in this case has priority over the money advanced by the petitioner. [ 26 ] The parties may arrange to speak to the matter of costs, if necessary. “B.M.

Joyce, J.” The Honourable Mr. Justice B.M. Joyce