Winnipeg Condominium Corporation 479 v Frohlinger, 2022 MBCA 29

Citation: Winnipeg Condominium Corporation 479 v Frohlinger, 2022 MBCA 29 Date: 20220404 Docket: AI21-30-09682 IN THE COURT OF APPEAL OF MANITOBA Coram: Mr. Justice Marc M. Monnin Madam Justice Janice L. leMaistre Madam Justice Karen I. Simonsen BETWEEN: Winnipeg condominium ) corporation 479 ) ) J. D. H. King (Applicant) Respondent ) for the Appellant ) - and - ) T. A. McMahon ) for the Respondent520 Portage avenue ltd. and ) HART MALLIN ) Appeal heard and ) Decision pronounced: (Respondents) ) March 23, 2022- and - ) ) Written reasons:THOMAS G.

FROHLINGER ) April 4, 2022 ) (Intervener) Appellant ) On appeal from Winnipeg Condominium Corp 479 v 520 Portage Avenue Ltd et al, 2021 MBQB 163 simonsen JA (for the Court): [1] Thomas Frohlinger (Frohlinger) appeals a decision of an application judge (the judge) discharging a mortgage (the2003 mortgage) held by him against the title to the parking unit (the parking unit) of Winnipeg Condominium Corporation 479 (theCondominium Corporation). [2] Following the hearing, we dismissed the appeal with reasons to follow.

These are those reasons. [3] The judge’s decision was made after this Court, on an earlier appeal in this proceeding, referred the matter back tohim for a determination as to whether it was “just and equitable” that the 2003 mortgage be removed from the title to the parking unit(2020 MBCA 66 at para 85 (the 2020 decision)). [4] The 2020 decision dealt with a dispute between the Condominium Corporation and the developer of the condominiumproject (the project), 520 Portage Avenue Ltd. (the developer), as well as its principal, Hart Mallin (Mallin), with Frohlinger asintervener.

This Court upheld a decision of the judge (see 2018 MBQB 197) ordering that the title to the parking unit be transferred fromthe developer to the Condominium Corporation because it was objectively reasonable to conclude that there was a common intentionbetween the purchasers of the condominium units and the developer that the parking unit would be a common element of theCondominium Corporation (see the 2020 decision at paras 65, 75).

Both the judge and this Court considered the representations made inthe Condominium Declaration (the Declaration) and the Condominium Plan (the Plan) filed by the developer in the Winnipeg LandTitles Office on August 16, 2004 to create the Condominium Corporation—and applied the legal principles set out in Frontenac v JoeMacciocchi & Sons (1975), (ON CA), 67 DLR (3d) 199 (Ont CA); and York Condominium Corp No 167 v NewreyHoldings Ltd (1981), (ON CA), 122 DLR (3d) 280 (Ont CA) (Newrey). [5] Those principles, grounded in a fiduciary duty owed by a developer to purchasers of condominium units, were

succinctly summarized in Middlesex Condominium Corp No 87 v 600 Talbot Street London Ltd (1998), (ON CA),156 DLR (4th) 587 (Ont CA) (at para 39): To summarize, Frontenac and Newrey Holdings stand for the proposition that with respect to the common elements, the declarant isbound not to prefer its interests over those of the group of unit owners. Where the reasonable

interpretation of the evidence is that,notwithstanding the registered title, the declarant intended a reasonable purchaser to believe or to justifiably assume that thesuperintendent’s suite was a common element or an asset of the corporation, the declarant will be required to convey the unit to thecorporation. If this constituted a departure from established contract and real property law, it was a departure required by the exigenciesof condominium ownership. [6] In the 2020 decision, this Court also addressed the three mortgages held by Frohlinger against the title to the parkingunit.

It was determined that, because the developer had no interest in the parking unit once the Plan and the Declaration had been filed,it was not entitled to mortgage the parking unit. Therefore, the two mortgages provided by the developer that were registered against thetitle to the parking unit in December 2004 and September 2006 were ordered discharged.

In discharging those two mortgages, this Courtnoted the surrounding circumstances that Frohlinger was not at arm’s length from the developer “since he was both its legal counsel andan investor in the [project]” and, “[a]s counsel, he was aware of the Declaration and the Plan, having provided a detailed report to the[d]eveloper about their terms” (at para 83). [7] With respect to the 2003 mortgage, the situation was somewhat different, as it had been registered prior to the filing ofthe Plan and the Declaration, which formed the basis for the order that the title to the parking unit be transferred to the CondominiumCorporation.

The 2003 mortgage was initially registered in December 2003 by one Brian Finnegan (Finnegan) and was transferred toFrohlinger in 2007. In the 2020 decision, this Court recognized that Frohlinger “stepped into the shoes” (at para 84) of Finnegan, butconcluded that it did not have a sufficient evidentiary foundation with respect to the circumstances surrounding the 2003 mortgage or itstransfer to Frohlinger to determine whether it too should be discharged.

This Court noted that it had no evidence as to “the relationshipbetween the original mortgagee and the [d]eveloper, the terms of the mortgage or the assignment, when the mortgage advances weremade, the purpose for which the funds were used, or the amount that remain[ed] due under the mortgage” (ibid). [8] After the matter was referred back to the judge, he reviewed the record that was before this Court for the 2020decision, as well as the further evidence that had been filed, and made a number of findings of fact: • Finnegan and three others had formed an association for the development of the project.

Finnegan was the financier of theproject, Mallin was the developer, one Lon Trickett was a designer and contractor, and Frohlinger was the fourth individual. • Frohlinger was a director of the developer until August 1, 2003, and was involved in the project from its inception as counsel. • In addition to Finnegan taking the 2003 mortgage as security, he obtained personal guarantees from each of the three othermembers of the group, as collateral security. • In late 2005, Finnegan lost confidence in the project and tried to call in the guarantees on the 2003 mortgage.

The partiessubsequently settled their differences and, as part of that settlement, the 2003 mortgage was assigned by Finnegan to Frohlinger (andeventually transferred on August 8, 2007).

Clause 9 of the formal settlement agreement signed on March 22, 2007 stated: [Frohlinger] acknowledges that he has been involved in the [p]roject and that he is fully familiar with the [p]roject and the security heldby [Finnegan] on the [p]roject, and that in entering into this Agreement, [Frohlinger] is relying solely on his own knowledge andinvestigations and not on any representations or warranties made by [Finnegan] as to any aspects of the [p]roject, including withoutlimitation, the financial position of the [p]roject and the security held by [Finnegan] on the [p]roject, the balances owing to [Finnegan]under the security on the [p]roject or the validity, enforceability or priority of the said security. [9] The judge also concluded that the principles in Frontenac/Newrey applied.

He determined that those principles meantthat not only could the developer not mortgage the parking unit once the Plan and the Declaration had been filed, a person at non-arm’slength to the developer who had assumed a mortgage (Frohlinger) taken by a lender who was also non-arm’s length to the developer(Finnegan) could not take steps to enforce their mortgage—so that the 2003 mortgage should, therefore, be removed. [10] In making his decision, the judge considered Condominium Plan No 86-S-36901 (Owners) v Remai Construction(1981) Inc (1991), (SK CA), 84 DLR (4th) 6 (Sask CA) (Remai).

While noting that Remai was not on all fours withthis case and that the mortgages under consideration in Remai were not registered prior to the condominium plan, the judge found thedecision to be instructive regarding the distinction in the treatment of a mortgage against a condominium property given to an arm’s-length financial institution in contrast to a mortgage given to a company related to the developer of the condominium.

In Remai, themortgage provided to a company related to the developer was ordered removed, whereas the mortgage provided to the financialinstitution was not. [11] In the present case, the judge concluded that “the fact that the [2003] mortgage predate[d] the [Plan was] not materiallyrelevant because of the non-arm’s length nature of the relationship between the original mortgagee Mr. Finnegan and the developer” (atpara 12).

The judge was also satisfied that no inequity would arise from a discharge of the 2003 mortgage; Frohlinger was also a non-arm’s length party, who was aware of the Plan and the Declaration and, having signed the settlement agreement in 2007, “was not aninnocent purchaser for value when he assumed Mr. Finnegan’s 2003 mortgage” (at para 13).

[ 12 ] Although a number of grounds of appeal are raised, Frohlinger essentially appeals on the bases that (1) the judge erred in his

interpretation and application of the 2020 decision, and (2) he erred in law and in the application of the law to the facts in ordering that the 2003 mortgage be discharged from the title to the parking unit. [ 13 ] The applicable standard of review with respect to errors of law is correctness.

For errors of mixed fact and law, or of fact alone, the standard of review is palpable and overriding error, unless an error of mixed fact and law involves an error relating to an extricable question of law, in which case the standard of correctness applies to that extricable legal question (see Housen v Nikolaisen , 2002 SCC 33 ). [ 14 ] As for the first issue raised on appeal, Frohlinger takes the position that the 2020 decision precluded the judge from concluding that the 2003 mortgage should be removed from the title to the parking unit.

This, he says, is due to the operation of either the principle of stare decisis or the principle of estoppel on the basis that an issue already decided was being relitigated. We are satisfied that there is nothing in the 2020 decision that precludes the application of the Frontenac/Newrey principles to the question of whether the 2003 mortgage should be removed from the title; this Court specifically declined to determine that issue due to a lack of evidentiary foundation. [ 15 ] We also reject Frohlinger’s suggestion that the judge did not follow the direction of this Court as set out in the 2020 decision.

He crafted a process that allowed him a complete evidentiary foundation to determine the facts and to apply the law to the facts that he found. The facts that this Court, in the 2020 decision, had identified as potentially relevant to the issue of whether the 2003 mortgage should be discharged were examples only — the judge was not required to consider any particular facts but, rather, the whole of the circumstances.

We have no hesitation in concluding that he did exactly what was asked of him. [ 16 ] Frohlinger also contends that the judge erred in finding that he and Finnegan were in a non-arm’s length relationship. However, in our view, the key is that they were both non-arm’s length to the developer. In any event, we see no error in the judge’s finding that Finnegan and Frohlinger were “in association” (at para 13) with one another.

Indeed, the evidence well supports the findings he made. [ 17 ] As for the second issue raised on appeal, the thrust of Frohlinger’s position is that the principles in Frontenac /Newrey do not apply to these facts and that there is no basis in law for the judge’s conclusion that the 2003 mortgage “no longer was enforceable” (at para 14) against the parking unit after the filing of the Plan and the Declaration. As part of this submission, Frohlinger argues that the judge erred by relying on Remai .

In our view, the judge made no error in his limited use of Remai — nor did he err in concluding that the 2003 mortgage, while initially validly registered, was subject to the application of the Frontenac/Newrey principles given Finnegan’s relationship with the developer; Frohlinger’s relationship with the developer, the project and Finnegan; Frohlinger’s knowledge of the Plan and the Declaration; and the language of the settlement agreement that he signed.

It follows that the judge did not err in concluding that the 2003 mortgage became unenforceable and should be discharged. [ 18 ] The judge’s conclusion reflects, and is consistent with, the fiduciary duty owed by a developer to protect the interests of all unit owners, present and prospective, and not to put its own interest in conflict with theirs.

Despite the 2003 mortgage being initially validly registered, it would be inconsistent with this fiduciary duty to allow that mortgage to remain on the title to the parking unit when the developer has been ordered to transfer the parking unit to the Condominium Corporation, and both Finnegan and Frohlinger were integrally involved in the development of the project. [ 19 ] As the judge made no reviewable error of fact or law, or in the application of the law to the facts, there is no basis for appellate intervention. [ 20 ] Therefore, the appeal was dismissed with costs. JA JA JA