Third Eye Capital Corporation v. Dianor Resources Inc.
Court: Court of Appeal for Ontario
Judges: Pepall, Lauwers and Huscroft JJ.A.
Case Summary
Mining law — Royalties — Respondent's mineral claims subject to gross overriding royalty ("GORs") — Respondent and grantor of mineral claims clearly intending that GORs would create interest in land and run with land — GORs registered on title — Motion judge erring in finding that GORs did not constitute interest in land and that claims did not continue to be subject to GORs after they were transferred to appellant.
Dianor was an insolvent company in respect of which the court had appointed a receiver under s. 243 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA") and s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43 ("CJA"). Dianor's main asset was a group of mining claims which it obtained under a Crown land agreement and a patented land agreement made with 381 Inc. The claims were subject to a "gross overriding royalty" ("GORs") in favour of 381 Inc. Both agreements stated that the parties intended the GORs to create an interest in and to run with the land. Notices of the GORs were registered on title. The GORs were subsequently transferred to 235. The supervising judge made an order approving a bid process for the sale of Dianor's mining claims. Third Eye was the successful bidder. At the request of the receiver, the motion judge approved the sale of the mining claims to Third Eye and granted a vesting order that purported to extinguish the GORs. 235 asked that the property vested in Third Eye be subject to the GORs. The motion judge held that the GORs did not run with the land or grant 235 an interest in the lands over which Dianor held the mineral rights. He held that ss. 11(2), 100 and 101 of the CJA gave him the jurisdiction to grant a vesting order in the assets to be sold to Third Eye on such terms as were just, including the authority to dispense with the royalty rights. 235 appealed, seeking to set aside the motion judge's order and to obtain an order that the GORs constituted an interest in land, along with consequential relief. 235 did not seek a stay of the vesting order pending appeal, and the vesting order was registered on title.
Held: The GORs constituted an interest in land.
A royalty interest can be an interest in land if (1) the language used in describing the interest is sufficiently precise to show that the parties intended the royalty to be a grant of an interest in land, rather than a contractual right to a portion of the resources recovered from the land; and (2) the interest out of which the royalty is carved is itself an interest in land. Dianor's interests in the claims were working interests or profits à prendre, which the common law unquestionably recognizes as interests in land. The GORs were carved out of Dianor's interests. The Crown land agreement and the patented land agreement expressly stated that the parties intended the GORs to create an interest in and to run with the land. The motion judge erred in finding that the GORs did not constitute interests in land that ran with the land. He made three legal errors in his analysis. The first error was that he did not examine the parties' intentions from the royalty agreements as a whole, along with the surrounding circumstances. The second error was in holding that in order to qualify as an interest in land, the royalty agreements had to give 235 the right to enter the property and explore and extract minerals. The third error was in holding that the interest out of which the royalty was carved was not an interest in land because it was expressed in the agreements as only a right to share in revenues produced from minerals extracted from the lands.
If the motion judge had jurisdiction to vest out the GORs, then 235 was not entitled to a remedy. But if he lacked that jurisdiction, then remedies might be available to 235, including rectification of the register under ss. 159 and 160 of the Land Titles Act, R.S.O. 1990, c. L.5. Because the issues of jurisdiction and remedy were not adequately argued by the parties, additional submissions on those issues were required. In particular, further submissions were requested on whether and under what circumstances a Superior Court judge, acting under s. 100 of the CJA and s. 243 of the BIA, has jurisdiction to extinguish a third party's interest in land using a vesting order.
APPEAL from the order of Newbould J., [2016] O.J. No. 5200, 2016 ONSC 6086 (S.C.J.)
Counsel:
Daniel J. Matson and Roderick W. Johansen, for appellant 2350614 Ontario Inc.
Shara N. Roy, for respondent Third Eye Capital Corporation.
Dylan Chochla, for receiver of Dianor Resources Inc., Richter Advisory Group Inc.
Delna Contractor, for monitor of Essar Steel Algoma Inc., Ernst & Young Inc.
The judgment of the court was delivered by
A. The Context of the Appeal
1Dianor Resources Inc. was insolvent. At the request of the respondent, Third Eye Capital Corporation ("Third Eye"), as a lender, the court appointed a receiver under s. 243 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA"), and s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43 ("CJA"), over the assets, undertakings and property of the debtor, Dianor.
2Dianor's main asset was a group of mining claims. The claims with which this appeal is concerned were subject to, among other things, a "gross overriding royalty" ("GOR") in favour of a company from which the appellant, 2350614 Ontario Inc. ("235Co"), had acquired the royalty rights. Notices of the agreements granting the GORs were registered on title to the surface rights and the mining rights.
3The supervising judge made an order approving a bid process for the sale of Dianor's mining claims. It generated two bids, both containing a condition that the GORs be terminated or significantly reduced. Third Eye was the successful bidder.
4At the request of the receiver, the motion judge approved the sale of the mining claims to Third Eye and granted a vesting order that purported to extinguish the GORs. 235Co did not oppose the sale but asked that the property vested in Third Eye be subject to the GORs.
5The motion judge rejected the appellant's argument that the claims would continue to be subject to the GORs after their transfer to Third Eye. He held, at para. 30, "that the GORs do not run with the land or grant the holder of the GORs an interest in the lands over which Dianor holds the mineral rights". The motion judge also held, at para. 38, that ss. 11(2), 100 and 101 of the CJA gave him "the jurisdiction to grant a vesting order of the assets to be sold to Third Eye on such terms as are just", including the authority to dispense with the royalty rights. He found the expert's valuation of the royalty rights to be fair and added, at para. 39:
In my view, it is appropriate and just that a vesting order in the usual terms be granted to Third Eye on the condition that $250,000 be paid to 235Co. or whatever entity Mr. Leadbetter directs the payment to be made. That is higher than the mid-point of the range of values determined by Dr. Roscoe.
6The receiver paid this amount to 235Co. The funds are being held in trust pending the outcome of this appeal.
7235Co also brought a cross-motion claiming payment for a debt owing under the Repair and Storage Liens Act, R.S.O. 1990, c. R.25. The motion judge dismissed the cross-motion.
8In this appeal, 235Co seeks to set aside the order of the motion judge and to obtain an order that 235Co's GORs constitute interests in land, along with consequential relief. Third Eye moved for an order quashing 235Co's notice of appeal on the basis that the appeal is moot because 235Co did not seek a stay of the vesting order, which operated to extinguish the GORs when it was registered on title. Furthermore, the variation 235Co seeks to the vesting order is unavailable as the subject transaction was predicated on the elimination of the GORs.
9For the reasons that follow, it would be premature to quash the appeal. I would hold that 235Co's GORs constitute an interest in land, but I would require additional submissions on whether the motion judge had jurisdiction to vest out 235Co's GORs in the sale to Third Eye, and if not, whether 235Co is entitled to a remedy. I would dismiss 235Co's appeal with respect to the lien claim.
B. Overview of these Reasons
10The preliminary issue raised by Third Eye is whether registration of the vesting order on title had the legal effect of rendering the appeal moot.
11The central issue in this case is whether the GORs constitute interests in land within the meaning of the law outlined by the Supreme Court in Bank of Montreal v. Dynex Petroleum Ltd., [2002] 1 S.C.R. 146, 2002 SCC 7. I conclude that the GORs are interests in land, contrary to the holding of the motion judge.
12This gives rise to the related issue: if the claims are subject to the GORs, did the motion judge have jurisdiction to vest out the GORs?
13If the motion judge had jurisdiction to vest out the GORs, then 235Co is not entitled to a remedy. But if he lacked this jurisdiction, then 235Co might be entitled to a remedy, including a possible remedy under the Land Titles Act, R.S.O. 1990, c. L.5 ("LTA"). Because neither the issue of jurisdiction nor of remedy was adequately argued by the parties in their factums or in oral argument, I would require additional submissions on the issues specified below, especially since they are of considerable importance to the insolvency practice.
14Finally, I conclude that 235Co, as the purported owner of the surface rights, is not entitled to a storer's lien in respect of Dianor's surface works. I would dismiss the appeal on the lien claim for the reasons given by the motion judge and will not address it further.
15I address, first, Third Eye's motion to quash the appeal and then address the remaining issues in sequence.
C. The First Issue: Is the Appeal Moot?
16The appellant did not seek a stay of the vesting order pending appeal before the vesting order was registered on title, although it could have done so on a timely basis. Generally, a vesting order cannot be attacked on appeal unless a stay order has been obtained: Lloyd W. Houlden, Geoffrey B. Morawetz and Janis P. Sarra, Bankruptcy and Insolvency Law of Canada, 4th ed. (Toronto: Carswell, 2009), at Part XI, L21.
17Third Eye submits that the appeal is moot because the vesting order was "spent" when it was registered, relying in part on Regal Constellation Hotel Ltd. (Re) (2004), 2004 CanLII 206 (ON CA), 71 O.R. (3d) 355, [2004] O.J. No. 2744 (C.A.). In that case, a hotel was placed into receivership. The receiver found a purchaser. The court approved the sale and granted a vesting order in favour of the purchaser. A few days later, the sole shareholder of the company that operated the hotel discovered information about the identity of the group behind the purchaser. This was relevant because the group had previously entered into agreements to purchase the hotel for more money, but the transactions had failed to close. The sole shareholder sought to set aside the vesting order on the basis that the receiver had failed to disclose the identity of the group behind the purchaser.
18This court quashed the appeal in Regal Constellation as moot. The conditions attached to the vesting order had been met and the vesting order (and the bank's mortgage) had been registered on title. Justice Blair stated, at para. 39:
Once a vesting order that has not been stayed is registered on title . . . , it is effective as a registered instrument and its characteristics as an order are, in my view, overtaken by its characteristics as a registered conveyance on title. In a way somewhat analogous to the merger of an agreement of purchase and sale into the deed on the closing of a real estate transaction, the character of a vesting order as an "order" is merged into the instrument of conveyance it becomes on registration. It cannot be attacked except by means that apply to any other instrument transferring absolute title and registered under the land titles system. Those means no longer include an attempt to impeach the vesting order by way of appeal from the order granting it because, as an order, its effect is spent. Any such appeal would accordingly be moot.
19Where no stay is obtained and the order has been registered, "innocent third parties are entitled to rely upon that change [in title]", as Blair J.A. noted, at para. 45 of Regal Constellation. Accordingly, the respondent argues that this appeal is moot.
20It cannot be said that the appeal is moot in the particular circumstances of this case. The order is spent, but the remedy for rectification under the LTA, left open by Blair J.A. in Regal Constellation, may be available to the appellant, provided that several conditions are met: (1) the motion judge had no jurisdiction to vest out the GORs; (2) no innocent third party has relied on the title to its detriment; and (3) the appellant is otherwise entitled to the remedy.
21Additional submissions are required. In particular, because I conclude the GORs are interests in land, does the fact that Third Eye had notice of 235Co's claim affect the application of Regal Constellation? Third Eye was aware that 235Co was considering an appeal on the day of (but prior to) the closing of the transaction.
22Blair J.A.'s observation in Regal Constellation, at para. 49, was: "These matters ought not to be determined on the basis that 'the race is to the swiftest'." Was it appropriate for the court-appointed receiver to close the transaction before the expiry of the appeal period, having been advised that an appeal could be launched, and how does this affect the availability of a remedy?
23As Blair J.A. recognized, vesting orders have a dual character as both a court order and a conveyance. Once an order is registered on title, it is effective as a registered instrument and has lost its character as an order. However, in my view, this does not mean that 235Co is necessarily without a remedy, if the GORs constitute interests in land. As Blair J.A. noted in Regal Constellation, the vesting order "cannot be attacked except by means that apply to any other instrument transferring absolute title and registered under the land titles system": at para. 39. If the GORs are interests in land, then the appellant's remedy is to be found under the LTA. In these circumstances, it would be premature to quash the appeal. It is to the issue of the nature of the interest that I now turn.
D. The Second Issue: Are the GORs Interests in Land?
24As noted, I conclude that the GORs are interests in land, contrary to the holding of the motion judge. In this section of the reasons, I first set out the facts relevant to the issue, then discuss the governing legal principles, the motion judge's reasons, and finally, the proper application of the governing principles.
(1) The facts relevant to the GORs
25The facts relevant to this issue are set out in the motion judge's decision, at paras. 4, 5 and 17-22, which I paraphrase. Dianor's assets consisted mainly of certain mining claims in Ontario and Quebec, both patented and unpatented. The asset sale to Third Eye covered only the Ontario assets.
26Dianor obtained the mining rights under a Crown land agreement and a patented land agreement made with 3814793 Ontario Inc., a company controlled by Mr. Leadbetter and his wife Paulette A. Mousseau-Leadbetter. The terms of the Crown land agreement and the patented land agreement, both dated August 25, 2008, govern. The relevant terms in each are virtually identical:
Once the Optionee [Dianor] becomes the owner of a one hundred percent (100%) undivided interest in the Mining Claims, the Optionors [now 235Co] shall retain a twenty percent (20%) Gross Overriding Royalty ("GOR") for diamonds and a one and a half percent (1.5%) gross overriding royalty (GOR) for all other metals and minerals as calculated in accordance with Schedule "A". The Optionee shall have the right of first refusal to purchase the Optionors' GOR.
27The Crown land agreement and the patented land agreement state that the parties intend the GORs to create an interest in and to run with the land:
4.1. It is the intent of the parties hereto that the GOR shall constitute a covenant and an interest in land running with the Property and the Mining Claims and all successions thereof or leases or other tenures which may replace them, whether created privately or through governmental action, and including, without limitation, any leasehold interest.
28Notices of the GORs were registered on title to the patented lands under s. 71 of the LTA and on the unpatented mining claims under the Mining Act, R.S.O. 1990, c. M.14. The parties did not treat the fact that 235Co came to hold the GORs as a live issue.
29I turn now to the governing legal principles.
(2) The governing principles
30The ruling precedent is the decision of the Supreme Court of Canada in Dynex, which changed the common law to permit a GOR to achieve status as an interest in land. I begin with a review of the common law before Dynex and the challenges it posed to mining in Canada, then consider how the court responded to the commercial realities of the mining industry in Dynex.
(a) The common law before Dynex
31At common law, rights in relation to land are divided into corporeal and incorporeal hereditaments: Bruce H. Ziff, Principles of Property Law, 6th ed. (Toronto: Carswell, 2014), at p. 76. A corporeal hereditament is an interest in land that is capable of being held in possession, such as a fee simple. An incorporeal hereditament is an interest in land that is non-possessory such as easements, profits à prendre, and rent charges. Under each type of incorporeal hereditament, the holder has an interest in land.
32Mining rights derived from the owner of the mineral estate are generally treated by the common law as profits à prendre, depending on the words of grant. A profit à prendre is "a real property interest entitling the holder to acquire some natural resource on land belonging to another": Ziff, at p. 321. More specifically, it is "a right to take something from the land of another. And it must be literally 'from' the land. The right must be to take . . . part of the land itself, e.g., minerals": Andrew Burrows, ed., English Private Law, 3rd ed. (Oxford: Oxford University Press, 2013), at s. 4.96.
33To constitute a profit à prendre, a party must be granted the right to enter the lands of another and to exploit a natural resource: Ziff, at p. 399. See, also, Alicia K. Quesnel, "Modernizing the Property Laws that Bind Us: Challenging Traditional Property Law Concepts Unsuited to the Realities of the Oil and Gas Industry" (2003), 41 Alta. L. Rev. 159, at pp. 172-73.
34The Supreme Court stated in Dynex, at para. 21: "A royalty which is an interest in land may be created from an incorporeal hereditament such as a working interest or a profit à prendre . . . . " A working interest is a profit à prendre and is a right given by the fee owner (often the Crown) to a miner to enter the owner's land and extract minerals or resources from the property. The Court of Appeal of Alberta has stated [IFP Technologies (Canada) Inc. v. EnCana Midstream and Marketing, [2017] A.J. No. 666, 2017 ABCA 157, 53 Alta. L.R. (6th) 96, at para. 98, leave to appeal to S.C.C. filed [2017] S.C.C.A. No. 303]:
[T]he law is clear that a "working interest" in relation to mineral substances in situ is a particular kind of property right or interest in land. When the owner of minerals in situ (the Crown in this case) leases the right to extract these minerals . . . , the right to extract is known as a "working interest" . . . . This particular kind of interest in land is also commonly called a "profit à prendre", which allows a party to enter land and take a resource for profit.
35At common law prior to Dynex, if a party did not have the right to enter and to extract a resource from the land, then it did not have a profit à prendre and did not have an interest in land -- regardless of the parties' intentions. Moreover, as the Supreme Court noted in Dynex, at para. 8: "At common law, an interest in land could issue from a corporeal hereditament but not from an incorporeal hereditament." On this logic, the right to a payment or to profits was not itself a profit à prendre, and a royalty right contractually carved out of a working interest could not confer an interest in land. Further, as Quesnel observed, once "the subject-matter of the grant [e.g., minerals]" is extracted from the ground and in possession, it becomes personal property. "The right . . . does not 'run' with the subject-matter of the grant after it has been [extracted] and reduced to possession": at p. 173.
36To sum up the common law, the right to take resources from another person's land is a profit à prendre and is recognized as an interest in land. However, the right to a payment or to profits alone is not a profit à prendre and was not historically recognized as an interest in land.
37Because an interest in land could not be granted out of an incorporeal hereditament, the common law posed commercial challenges to holders of working interests who needed to secure financing sources to allow for the exploitation of mining rights: Quesnel, at pp. 173-75.
(b) The practice in mining before Dynex
38Working interests are common in the mining, oil and gas industries of Canada and play an important role in the Canadian economy. Resource extraction is a risky business; ventures in resource extraction "require huge amounts of capital but only a small fraction are successful", as the Court of Appeal of Alberta observed in Bank of Montreal v. Dynex Petroleum Ltd., [1999] A.J. No. 1463, 1999 ABCA 363, [2000] 2 W.W.R. 693, at para. 35.
39Royalty agreements are one method used in the industry to provide incentives to key participants such as geological surveyors or drilling companies, or to those selling the claims, as in this case. In granting a GOR, the working interest holder grants royalty rights to a third party. These royalty rights are generally granted out of the lessee's working interest. The royalty amount is not tied to the profitability of the mine. Third parties who obtain royalty rights do not own the working interest or profit à prendre and have no independent ownership interest in the land.
40As the Court of Appeal of Alberta noted in Dynex, it became industry practice to draft contracts with the intention of granting royalty holders an interest in land because it was commercially and practically expedient to do so. Key participants often prefer an interest in land rather than a contractual right against the lessee because this allows "investments in a particular piece of property, not in a particular operator or company. . . . The investment return on a royalty results from the success of the property regardless of who owns or is working the property", as the Court of Appeal of Alberta explained in Dynex (at para. 36).
41Interests in land provide incentives to key participants, mitigate financial risks and provide better financing terms. As the Alberta Court of Appeal observed in Dynex, interests in land provide key participants with exposure to a potentially significant upside if the venture is successful. Granting such an interest as a form of compensation reduces the amount of initial capital necessary to fund a new venture. This allows the working interest holder to reduce its own exposure to loss and thereby spreads risk among key participants. Providing lenders with real property interests protects them in the event of an insolvency and leads to better financing terms for borrowers. The court, endorsing an industry commentator's view, explained, at para. 43:
[T]he law should provide a framework within which unnecessary risks for those who invest or participate in oil and gas operations are removed. The oil and gas industry has created new devices to meet the high risks of the enterprise. Included among the new devices are non-operating interests which are used to make the sharing of the benefits of mineral ownership definite and certain, minimize taxes, make clear delegation of operating rights and make proper allocation of the risks and rewards of an operation without invoking many objectionable features associated with creating a conventional business association. Non-operating interests include royalty interests, overriding royalty interests, production payments, net profit interests and carried interests.
42Consequently, for practical and commercial reasons, even before Dynex, parties often drafted royalty agreements with the intention of granting the royalty holder an interest in land rather than a contractual right against the lessee. See Nigel Bankes, "Private Royalty Issues: A Canadian Viewpoint", Private Oil & Gas Royalties, Rocky Mountain Mineral Law Foundation, February 2003, at p. 21.
43In Dynex, the Supreme Court quite deliberately changed the common law in response to these commercial realities.
(c) Dynex and changes to the common law
44In a nutshell, as I will explain more fully below, the Supreme Court in Dynex changed the common law of Canada for express policy reasons in order to permit a royalty interest, including a GOR, to become an interest in land, consistent with the industry practice. In this section of the reasons, I set out the facts in Dynex, and then review the reasons of the Court of Appeal of Alberta and the Supreme Court.
(i) The facts in Dynex
45Dynex Petroleum had granted an overriding royalty on the net profit interests from its oil and gas properties to Enchant Resources Ltd. and an individual. The royalty interests were recorded on the title to the oil and gas properties by means of caveat. The Bank of Montreal was a secured creditor and wanted to sell the oil and gas properties free of the royalty interests of Enchant Resources and the individual. The motion judge ruled that the bank could sell the properties free of the royalty interests.
(ii) The ruling of the Court of Appeal of Alberta in Dynex
46The Court of Appeal of Alberta decided that the royalty interest could be an interest in land despite the common law rule that an incorporeal hereditament could not give rise to an interest in land. The court adopted the dissenting reasons of Laskin J. (as he then was) in Saskatchewan Minerals v. Keyes, 1971 CanLII 183 (SCC), [1972] S.C.R. 703, [1971] S.C.J. No. 136, at p. 725 S.C.R., who held that a royalty interest could be an interest in land if the parties so intended. The parties' intent could be inferred from a number of factors, which the court addressed at paras. 84 and 85.
47I make two observations. First, the Court of Appeal of Alberta took a practical view, approving the approach taken in two lower court decisions: Canco Oil and Gas Ltd. v. Saskatchewan, 1991 CanLII 7788 (SK KB), [1991] S.J. No. 22, 89 Sask. R. 37 (Q.B.); and Scurry-Rainbow Oil Ltd. v. Galloway Estate, 1993 CanLII 7025 (AB KB), [1993] A.J. No. 227, [1993] 4 W.W.R. 454 (Q.B.), affd [1994] A.J. No. 669, 1994 ABCA 313, [1995] 1 W.W.R. 316; leave to appeal to S.C.C. refused [1994] S.C.C.A. No. 475. The court [in Dynex] noted, at para. 73:
The approach of both Matheson J. in Canco and Hunt J. in Scurry-Rainbow was to examine the parties' intentions from the agreement as a whole, along with the surrounding circumstances, as opposed to searching for some magic words. Matheson J. stated at p. 47:
... The fact that Farmers Mutual did not utilize all of the wording, or type of wording considered by some persons as perhaps essential, can surely not detract from an otherwise clearly manifested intention to create an interest in the lands.
And according to Hunt J. in Scurry-Rainbow, supra, at p. 474:
There is in my view an unreality about placing too heavy an emphasis upon fine distinctions as the selection of words such as "in" rather than "on". Notwithstanding the significance that the courts have sometimes attached to these word choices, I doubt that parties who signed leases ... should be taken to have intended to create an interest in land as opposed to a contractual right, as a result of such minuscule differences in language. ... Rather, it is more appropriate to consider the substance of the transaction (namely, what were the parties actually trying to achieve?) and to regard the words they have used from that perspective.
(Emphasis added)
48Second, the Court of Appeal rooted its reasons in the practices and the exigencies of the oil and gas industry, as outlined above. At para. 29, the court specifically endorsed the view of Hunt J. (as she then was), in Scurry-Rainbow, that "too rigid a reliance on common law principles that have developed in vastly different circumstances can lead to results that are out of touch with the realities of the industry and that deviate from the sorts of solutions needed by the affected parties".
(iii) The Supreme Court's ruling in Dynex
49The Supreme Court recognized it was required to resolve a controversy that pitted an "ancient common law rule against a common practice in the oil and gas industry", in the words of Major J., at para. 4.
50Justice Major summarized the court's decision, at para. 21:
In this appeal, to clarify the status of overriding royalties, the prohibition of the creation of an interest in land from an incorporeal hereditament is inapplicable. A royalty which is an interest in land may be created from an incorporeal hereditament such as a working interest or a profit à prendre, if that is the intention of the parties.
51He adopted the view, at para. 22, that Canadian common law should recognize that a "royalty interest" or an "overriding royalty interest" can be an interest in land if
the language used in describing the interest is sufficiently precise to show that the parties intended the royalty to be a grant of an interest in land, rather than a contractual right to a portion of the oil and gas substances recovered from the land; and
the interest, out of which the royalty is carved, is itself an interest in land.
52The Supreme Court knew that its ruling changed the common law and cited, at para. 20, the principles for doing so, expressed in Friedmann Equity Developments Inc. v. Final Note Ltd., [2000] 1 S.C.R. 842, [2000] S.C.J. No. 37, 2000 SCC 34, at para. 42: to keep the common law in step with the evolution of society, to clarify a legal principle, or to resolve an inconsistency.
53Consistent with these principles, Major J. stated, at para. 18: "Given the custom in the oil and gas industry and the support found in case law, it is proper and reasonable that the law should acknowledge that an overriding royalty interest can, subject to the intention of the parties, be an interest in land." He noted that the appellant "could not offer any convincing policy reasons for maintaining the common law prohibition on the creation of an interest in land from an incorporeal hereditament other than fidelity to common law principles".
54Several points in the decision are of continuing importance. Justice Major noted, at para. 6: "For substantially the same reasons as the Court of Appeal, I conclude that overriding royalty interests can be interests in land." He added, at para. 19, that he much preferred that court's "compelling insight into the evolution of the law". In my view, this language gives continuing relevance to the approach and the ruling of the Court of Appeal of Alberta, especially its statement, at para. 73, that a court must "examine the parties' intentions from the agreement as a whole, along with the surrounding circumstances, as opposed to searching for some magic words".
55I also note that Major J. approved the holding of Laskin J. in dissent in Saskatchewan Minerals. He noted, at para. 11, that "[t]he effect of Laskin J.'s reasons was to render inapplicable, at least insofar as overriding royalties, the common law rule against creating interests in land out of incorporeal interests." He described Laskin J.'s holding, at para. 12: "[T]he intentions of the parties judged by the language creating the royalty would determine whether the parties intended to create an interest in land or to create contractual rights only." This was the Supreme Court's ultimate holding in Dynex.
(3) The motion judge's reasons
56The motion judge stated, at para. 30: "I conclude and find that the GORs do not run with the land or grant the holder of the GORs an interest in the lands over which Dianor holds the mineral rights." He determined that neither the expression of the parties' intent to do so, expressed in s. 4.1 of the Crown land agreement and the patented land agreement that the GORs would run with the land, nor the registration of the GORs, was sufficient to convey any interest in land. The motion judge stated, at para. 26:
In my view, the situation with 235Co. is exactly described by Roberts J. [in St. Andrew Goldfields Ltd. v. Newmont Canada Ltd., 2009 CanLII 40549 (ON SC), [2009] O.J. No. 3266, aff'd 2011 ONCA 377, 282 O.A.C. 106.] 235Co. has no right to enter the property to explore and extract diamonds or other minerals. That right belongs to Dianor. The only right 235Co. . . . obtained under the agreements was to share in revenues produced from diamonds or other minerals extracted from the lands. It is clear from the agreements that the royalties were to be a percentage of the value of the diamonds or other metals and minerals. The interest, out of which the royalty is carved, is not [an] interest in land.
57The motion judge also referred, at para. 24, to the decision of the Court of Appeal of Quebec in Anglo Pacific Group PLC c. Ernst & Young Inc., [2013] Q.J. No. 9084, 2013 QCCA 1323, [2013] R.J.Q. 1264.
(4) The principles applied
58In this section of the reasons, I apply the Dynex test and then consider the errors made by the motion judge in his reasoning. It is important to note that the legal documents on which the appellant relies were prepared after Dynex.
(a) The Dynex test
59I repeat for convenience the test prescribed in Dynex, at para. 22, for determining whether a royalty right is an interest in land:
the language used in describing the interest is sufficiently precise to show that the parties intended the royalty to be a grant of an interest in land, rather than a contractual right to a portion of the oil and gas substances recovered from the land; and
the interest, out of which the royalty is carved, is itself an interest in land.
60Dianor's interests in the claims were working interests or profits à prendre, which the common law unquestionably recognizes as interests in land. The GORs were carved out of Dianor's interests. The second element in the Dynex test is plainly met in this case.
61In my view, the first element is also met. The Crown land agreement and the patented land agreement expressly state that the parties intend the GOR to create an interest in and to run with the land. To repeat for convenience, s. 4.1 of each of the agreements states:
4.1. It is the intent of the parties hereto that the GOR shall constitute a covenant and an interest in land running with the Property and the Mining Claims and all successions thereof or leases or other tenures which may replace them, whether created privately or through governmental action, and including, without limitation, any leasehold interest.
62Apart from the plain language of the agreements, in considering the surrounding context, the original GOR-holder took steps to register its royalty rights: notices of the GORs were registered on title to the patented lands under s. 71 of the LTA and on the unpatented mining claims under the Mining Act.
63I agree with the Court of Appeal of Alberta in Dynex, at para. 73, that the court must "examine the parties' intentions from the agreement as a whole, along with the surrounding circumstances". Doing so in this instance makes plain their mutual intention to constitute the GORs as interests in land. It is express in the agreements (based on the general principles of contractual interpretation), and the royalty rights-holder took care to register the interests on title.
64I observe that the same result was reached with less supporting evidence in Blue Note Mining Inc. v. Fern Trust (Trustee of), [2008] N.B.J. No. 360, 2008 NBQB 310, 337 N.B.R. (2d) 116, affd [2009] N.B.J. No. 75, 2009 NBCA 17, 342 N.B.R. (2d) 151. One issue was whether a net profit interest constituted a continuing interest in land that bound the purchaser. The motion judge determined that the agreement creating the interest did not contain the typical words "found in a conveyance of an interest in land": at para. 34. The only relevant words were "grant" and "in the mine". However, the motion judge held (and the Court of Appeal affirmed) that this was sufficient to grant an interest in land.
65The contractual terms are not necessarily determinative of whether an interest in land was intended; the language does not require magic words to demonstrate the parties' intention. However, these words were present in the agreements. In my view, the appellant's GORs constitute interests in land that run with the land and are capable of binding the claims in the hands of a purchaser.
(b) The motion judge's errors
66The motion judge made three legal errors in his analysis. The first error was that he did not examine the parties' intentions from the royalty agreements as a whole, along with the surrounding circumstances; this was the burden of the previous section of these reasons.
67The motion judge's second error was in holding that in order to qualify as an interest in land, the royalty agreements had to give the appellant the right "to enter the property to explore and extract diamonds or other minerals": at para. 26. The third error is in holding that "[t]he interest, out of which the royalty is carved, is not [an] interest in land" because it is expressed in the agreements as only a right "to share in revenues produced from diamonds or other minerals extracted from the lands". The latter two errors come from a misapprehension of the Dynex test. I will address them in turn.
(i) Dynex does not require a royalty rights-holder to have the right to enter the property to explore and extract resources in order to qualify as an interest in land
68In my view, a serious misapprehension has arisen in the application of Dynex in some cases, including some of those relied on by the motion judge.
69In Dynex, Major J. used some precise language from the trial decision of Virtue J. in Vandergrift v. Coseka Resources Ltd., 1989 CanLII 3163 (AB KB), [1989] A.J. No. 255, 67 Alta. L.R. (2d) 17 (Q.B.), at p. 26 Alta. L.R., to specify the test as to when a royalty interest can be an interest in land. However, the Supreme Court did not adopt the reasoning in Vandergrift. There is good reason for this, because Vandergrift is inconsistent with Dynex in a critical way.
70In Vandergrift, the court did not conclude that the royalty right ran with the land but instead concluded that it was a purely contractual right, taking precisely the approach to the analysis that both the Court of Appeal of Alberta and the Supreme Court expressly disavowed in Dynex. Justice Virtue stated, at p. 28 Alta. L.R.:
One of the incidents of an interest in land one would expect to find in a royalty agreement intended to create an interest in land would be the right to the royalty holder to enter upon the lands to explore for and extract the minerals. A mere entitlement to an overriding royalty, without more, does not, in my view, carry with it the right to explore for oil and gas.
71The purpose of the Supreme Court and the Court of Appeal of Alberta in Dynex was to step away from the requirement that a royalty right had to have the incidents of a working interest or a profit à prendre in order to constitute an interest in land, so that royalty rights could play their useful role in financing the industry and spreading risk.
72Moreover, royalty rights-holders have no interest in working the land, nor do holders of the working interest or the profit à prendre want their operations to be subject to the working rights of a royalty rights-holder. This is precisely why the Alberta Court noted, at para. 43, that the royalty right was to be "non-operating", adding: "Non-operating interests include royalty interests, overriding royalty interests, production payments, net profit interests and carried interests."
73I agree with Professor Bankes, who observed, at p. 23 of his article: "I do not think that the Court should be taken to have endorsed either the particular approach taken by Justice Virtue or the actual result that he arrived at in that case." This built on his earlier comment criticizing Vandergrift, at p. 18, on the basis that it "seems to want to turn the royalty owner's passive interest into a working interest".
74I turn now to the motion judge's second error respecting the application of Dynex.
(ii) The language in which the calculation of the royalty right is expressed does not affect its characterization as an interest in land
75As noted, the motion judge held, at para. 26, that "[t]he interest, out of which the royalty is carved, is not [an] interest in land" because it is expressed in the agreements as only a right "to share in revenues produced from diamonds or other minerals extracted from the lands". This takes the mistaken approach of the court in Vandergrift, which was rejected in Dynex.
76In my view, the motion judge's approach does not give due weight to the Supreme Court's approval, in Dynex, of the reasoning in the dissent of Laskin J. in Saskatchewan Minerals. Justice Laskin was a long-time property law professor before his judicial career. It is worth attending to his reasoning in Saskatchewan Minerals, where he made these observations, at pp. 724-25 S.C.R.:
In principle, a mining lessee whose holding is an interest in land in respect of which he has a royalty obligation should be able to grant or submit to an overriding royalty in respect of that interest to take effect as itself an interest in the lessee's holding.
This is not to say that every reservation or grant of a royalty creates an interest in land. The words in which it is couched may show that only a contractual right to money or other benefit is prescribed. However, if the analogy is to rent, then the fact that the royalty is fixed and calculable as a money payment based on production or as a share of production, or of production and sale, cannot alone be enough to establish it as merely a contractual interest.
(Emphasis added)
77In my view, the fact that the GORs are calculated on production does not defeat the clear intention of the parties that the GORs constitute interests in land.
The cases referred to by the motion judge
78I now turn to consider the cases on which the motion judge relied.
St. Andrew Goldfields
79The first is St. Andrew Goldfields [St. Andrew Goldfields Ltd. v. Newmont Canada Ltd., [2011] O.J. No. 2147, 2011 ONCA 377, affg 2009 CanLII 40549 (ON SC), [2009] O.J. No. 3266, 179 A.C.W.S. (3d) 826 (S.C.J.)]. Barrick Gold Corp. sold a mine to Newmont Canada Ltd. Part of the consideration was a net smelter return royalty agreement in Barrick's favour. Newmont was also required to obtain Barrick's consent to transfer any interest in the mine, failing which it would continue to be responsible for the royalty. Newmont later sold the mine to St. Andrew Goldfields Ltd. without first seeking Barrick's consent.
80The situation was explained by Rouleau J.A. (C.A.), at para. 4:
As found by the trial judge, Newmont Canada had misread the provisions in the Barrick royalty agreement, erroneously believing that the royalty was an insignificant flat rate of 0.013% NSR. In fact, it was a sliding scale royalty obligation that increased substantially as the price of gold increased. Believing that the low 0.013% NSR was an error on Barrick's part, Newmont Canada did not question Barrick on the provision nor did it seek to modify or change the clause.
81The agreement between Newmont and St. Andrew Goldfields reflected the flat royalty rate but did not contain the multiplier.
82Because Newmont did not get Barrick's approval for the transfer to St. Andrew Goldfields, it continued to remain liable to Barrick under the original agreement. It appeared that Newmont had made a unilateral error in its interpretation of the royalty provision in its agreement with Barrick and omitted the escalator in its agreement with St. Andrew Goldfields. The issue was whether St. Andrew Goldfields was nonetheless required to pay the higher royalty rate because the royalty interest ran with the land.
83The trial judge's ruling was set out at para. 11:
. . . I hold that the Barrick royalty agreement is clear and unambiguous, that Newmont alone is responsible under the Barrick royalty agreement for payment of the royalties on net smelter returns for gold, silver and other minerals to [Barrick's assignee of the royalty rights] Royal Gold, and that St. Andrew is required to indemnify Newmont up to the flat rate of .013% of the net smelter returns for gold, silver and other minerals.
84Newmont argued that St. Andrew Goldfields was obliged to pay the higher royalty rate because the royalty agreement constituted an interest in land. The trial judge followed the Vandergrift approach. She observed, at para. 104, that under the Barrick royalty agreement: "[T]he royalty holder retains no interest in or control over the kind of operations or activities that the owner of the property may carry out . . . ".
85Further, although there was a provision that notice of the agreement could be registered, she held, at para. 105, that this was "not sufficient by itself to demonstrate that the parties intended to create an interest in land". Although the royalty agreement permitted Barrick to register the agreement on title, it had not done so.
86However, the case did not turn on whether the royalty agreement created an interest in land that bound St. Andrew Goldfields, nor was that holding appealed. The appeal turned on the legal interpretation of the transactional documents and the effect of Newmont's failure to secure Barrick's consent to the sale of the mine. In this court, Rouleau J.A. noted, at para. 31:
Faced with two contractual interpretations, the trial judge carefully considered the facts and the agreements and concluded that, correctly interpreted, the agreements provided that St. Andrew agreed to an indemnity of a royalty obligation stated to be 0.013% NSR [the lower royalty rate]. This is consistent with the many references in both the Newmont Canada-Holloway and Newmont Canada-Holloway-St. Andrew agreements to the amount of the Barrick royalty obligation being 0.013% NSR.
87In the result, St. Andrew Goldfields was obliged to indemnify Newmont for the lower net smelter return, while Newmont was obliged to pay the net smelter return at the higher rate to Royal Gold, Barrick's assignee of the royalty rights. In my view, the decision in St. Andrew Goldfields has no application to this appeal.
Anglo Pacific
88Nor does the Court of Appeal of Quebec's decision in Anglo Pacific assist the respondent. In Anglo Pacific, the court looked at the royalty agreement to determine whether it assigned the attributes of ownership to the royalty holder. The agreement did not assign the attributes of ownership but only the right of the royalty holder to receive payment. The court held that, because the royalty agreement did not give the royalty holder the right to enter, enjoy or dispose of the property, the holder did not have a real right in land: at paras. 63, 77-81.
89Although the facts in Anglo Pacific are similar to this case, the court did not apply the common law framework from Dynex but relied exclusively on the civil law of Quebec. A description of the civil law concepts applied by the court shows they have no application in common law jurisdictions.
90The Quebec Court held that to have a "real right" in land pursuant to the Civil Code of Quebec, one must have ownership: at paras. 53, 60. Ownership includes corporeal or incorporeal property: at para. 53. Thus, the owner of a mining claim is the owner of a "real right" in land: at paras. 70-71. However, in order to have ownership, one must have the attributes of ownership: at para. 53. The attributes of ownership under civil law include the right of use (usus), of enjoyment (fructus), of free disposition (abusus), and "the ability to make one's own that which the property generates and that which is attached to it" (accessio -- for example, buildings on the land or deposits in the land): at paras. 43, 53-54.
91The owner of land can "dismember" his or her ownership by dividing the attributes of ownership with one or more third parties, who then acquire an interest in land: at paras. 54-55. For example, the holder may have the right to temporarily use and enjoy the property that belongs to another (usufruct). This transmits to the holder of the dismemberment the right of use (usus) and enjoyment (fructus) for a certain time, and the true owner retains the right to dispose of the land (abusus) and the accessio: at para. 55.
92The party to whom a dismemberment is granted will have a real right in land if he or she has the right to share in one of the above-noted attributes of ownership. Without such a right, the party has no "direct right on property": at para. 60. For example, the state "dismembers" its ownership rights in favour of a party when it assigns a mining claim to that party: at para. 70. The holder of a mining claim is the holder of a dismemberment and has a real right in land.
93Although there are similarities between the civil law concepts and the profit à prendre under the common law, there are differences. Most importantly, the Court of Appeal of Quebec did not apply the common law framework from Dynex but relied exclusively on the civil law. Dynex is the governing law in Ontario; the decision of the Court of Appeal of Quebec in Anglo Pacific has no bearing on this case.
Conclusion on the issue of whether the GORs constitute interests in land
94I began my analysis by noting that the central issue in this case is whether the GORs constitute interests in land within the meaning of the law outlined by the Supreme Court in Dynex. For the reasons set out above, I conclude that the GORs are interests in land, contrary to the holding of the motion judge. In my view, the deferential approach called for by the Supreme Court in Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53 has no application to this case in view of the motion judge's legal errors.
95While the motion judge did purport to adjudicate the appellant's GOR claims, his erroneous determination that it was not an interest in land raises potential issues respecting the vesting order.
E. The Third Issue: Did the Motion Judge have Jurisdiction to Issue a Vesting Order that Extinguished the GORs?
96In this section of the reasons, I consider, first, the motion judge's reasons in order to set the context and then describe the positions of the parties regarding his jurisdiction to vest out the GORs. I next turn to the governing principles and then to their application.
(1) The motion judge's decision
97The context for this issue is set by the conclusions I reached on the earlier issue of mootness. Because the GORs are interests in land, the appeal is not necessarily moot, particularly if the Superior Court did not have jurisdiction to issue the vesting order in these circumstances. The determination of this issue in 235Co's favour could entitle it to a remedy.
98The motion judge held, at para. 37, that,
In this case, the BIA and the Courts of Justice Act give the Court that jurisdiction to order the property to be sold and on what terms. Under the receivership in this case, Third Eye is entitled to be the purchaser of the assets pursuant to the bid process authorized by the Court.
99He added, at para. 38: "I conclude that I do have the jurisdiction to grant a vesting order of the assets to be sold to Third Eye on such terms as are just." Pursuant to the order, the receiver allocated $400,000 in cash as compensation for the extinguishment of Ontario royalties in favour of the appellant and Essar Steel Algoma Inc. The appellant was paid $250,000 for its GORs, and the court-appointed monitor of Essar was paid $150,000 for its royalty. The motion judge made the payment to 235Co a term of the order, explaining, at para. 39:
In my view, it is appropriate and just that a vesting order in the usual terms be granted to Third Eye on the condition that $250,000 be paid to 235Co. or whatever entity Mr. Leadbetter directs the payment to be made. That is higher than the mid-point of the range of values determined by Dr. Roscoe.
100The motion judge expressed his opinion, at para. 40, that the court would have been authorized to make the vesting order disposing of the royalty rights of 235Co "whether the royalty rights were or were not an interest in land".
(2) The positions of the parties
101The appellant argued that if the royalty rights run with the land, then the motion judge had no authority under s. 243 of the BIA or s. 100 of the CJA to vest the mining claims in Third Eye pursuant to the sale process without leaving the royalty rights in place.
102The respondent supported the motion judge's view that he had authority to make the vesting order, free of the royalty rights.
(3) The issue
103The issue is whether the motion judge, in the circumstances of this case -- acting under s. 100 of the CJA and s. 243 of the BIA, its inherent jurisdiction, or the wording of the vesting order -- had jurisdiction to approve a sale that vested out 235Co's proprietary interest.
(a) The context
104The motion judge noted that the sale of the mining claims was carried out in accordance with a court-approved bid process under ss. 100 and 101 of the CJA and s. 243 of the BIA, working together. It is important to reiterate that the motion judge was not acting under s. 65.13(7) of the BIA; s. 36(6) of the CCAA; ss. 66(1.1) and 84.1 of the BIA; or s. 11.3 of the CCAA. Neither the provisions of the CCAA nor the proposal provisions of the BIA apply to this case.
105Sections 100 and 101 of the CJA provide:
- A court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed of, encumbered or conveyed.
101(1) In the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted or a receiver or receiver and manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so.
(2) An order under subsection (1) may include such terms as are considered just.
106Section 243(1) of the BIA provides:
243(1) Subject to subsection (1.1), on application by a secured creditor, a court may appoint a receiver to do any or all of the following if it considers it to be just or convenient to do so:
(a) take possession of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt;
(b) exercise any control that the court considers advisable over that property and over the insolvent person's or bankrupt's business; or
(c) take any other action that the court considers advisable.
107These provisions do not expressly authorize a court to take real property out of the hands of a third party.
(b) Does the Superior Court's inherent jurisdiction give jurisdiction to grant a vesting order in these circumstances?
108The Superior Court of Justice has all of the jurisdiction, power and authority historically exercised by courts of common law and equity in England and Ontario, as provided in s. 11(2) of the CJA. This power includes making vesting orders: CJA, at s. 100. However, this court has interpreted these provisions as conferring no greater authority on the Superior Court than was previously recognized at equity.
109The leading text -- Houlden, Bankruptcy and Insolvency Law of Canada, at Part XI, L21 -- notes:
A vesting order should only be granted if the facts are not in dispute and there is no other available or reasonably convenient remedy; or in exceptional circumstances where compliance with the regular and recognized procedure for sale of real estate would result in an injustice. In a receivership, the sale of the real estate should first be approved by the court. The application for approval should be served upon the registered owner and all interested parties. If the sale is approved, the receiver may subsequently apply for a vesting order, but a vesting order should not be made until the rights of all interested parties have either been relinquished or been extinguished by due process.
(Citations omitted)
110The leading judicial authority in Ontario is Trick v. Trick (2006), 2006 CanLII 22926 (ON CA), 81 O.R. (3d) 241, [2006] O.J. No. 2737 (C.A.), leave to appeal to S.C.C. refused [2006] S.C.C.A. No. 388. In that case, Lang J.A. stated, at para. 19, that s. 100 of the CJA
provides a court with jurisdiction to vest property in a person but only if the court also possesses the "authority to order [that the property] be disposed of, encumbered or conveyed". Thus, s. 100 only provides a mechanism to give the applicant the ownership or possession of property to which he or she is otherwise entitled; it does not provide a free standing right to property simply because the court considers that result equitable.
(Footnote omitted; emphasis added)
111At equity and common law, a party must have a valid and independent entitlement to possession or ownership in order for a court to issue a vesting order that extinguishes a third party's real property interest. Several cases have held that the inherent jurisdiction of the Superior Courts does not confer the power to take real property from third parties simply because the court considers it equitable to other stakeholders. Rather, it gives courts authority to bring about a transfer of title to a party who is otherwise or independently entitled to it. See, also, 2022177 Ontario Inc. v. Toronto Hanna Properties Ltd., 2005 CanLII 39320 (ON CA), [2005] O.J. No. 4527, 203 O.A.C. 220 (C.A.), at para 49. See, also, Clarkson Co. v. Credit Foncier Franco Canadien, 1985 CanLII 2651 (SK CA), [1985] S.J. No. 502, 57 C.B.R. (N.S.) 283 (C.A.), at p. 284 C.B.R.
112Although this court has referred obliquely to this issue in several cases, we have never faced it squarely.
(c) The policy context
113The policy context is well set out by Wilton-Siegel J. in 1565397 Ontario Inc. (Re), 2009 CanLII 32257 (ON SC), [2009] O.J. No. 2596, 54 C.B.R. (5th) 262 (S.C.J.). In that case, a numbered company delivered an undertaking at closing to later transfer part of the real property to two parties. The company became insolvent, and a receiver was appointed. Although the undertakings were not registered on title until after the appointment of the receiver, the relevant parties had actual notice of them. The receiver attempted to sell the property free of the undertakings. The court refused to permit the sale. Justice Wilton-Siegel stated, at para. 60:
I know of no law that permits a court to authorize a receiver to terminate a proprietary interest in land in such manner. The effect of any such extinguishment . . . amounts to expropriation of the respondents' assets in favour of subordinate or unsecured creditors[.]
114He added, at para. 67: "I do not think the Court has the authority to order a sale" of the third party's proprietary interests "on the basis proposed" by the receiver. Among the reasons he gave for refusing a vesting order, at para. 68, was that the third party's interest was not subject to the receivership:
Such interests in the Property reside in the respondents whose property is not subject to the receivership. . . . [The receiver] cannot have taken possession of, or otherwise have any interest in, the respondents' interests in the Property, regardless of the terms of the Receivership Order because the Order extends only to the assets of [the debtor]. As such, the [receiver] has no authority under the Receivership Order to sell the interests of the respondents. Nor does the Court have the authority to grant such an order in the absence of the appointment of a receiver over the respondents' property and assets.
115See, also, Blue Note Caribou Mines Inc. (Re), [2010] N.B.J. No. 252, 2010 NBQB 91, 356 N.B.R. (2d) 236, leave to appeal to N.B.C.A. refused 2010 CanLII 42941 (NB CA), [2010] N.B.J. No. 267 (C.A.).
(4) The context for further submissions
116There are several situations in which courts have considered vesting orders that vest out a third party's proprietary interest. I address several, and there may be others.
(a) The "narrow circumstances" exception
117Several cases have held that in some narrow circumstances, courts may issue a vesting order that extinguishes third party interests. Such circumstances appear to include situations where doing so would provide added certainty, and there is no evidence of competing proprietary interests: BTR Global Opportunity Trading Ltd. v. RBC Dexia Investor Services Trust, [2012] O.J. No. 1530, 2012 ONSC 1868 (S.C.J.), at paras. 5, 18, 20-21.
118What are the narrow circumstances in which a Superior Court judge may issue a vesting order under s. 100 of the CJA that vests out a third party's proprietary interest, when s. 65.13(7) of the BIA; s. 36(6) of the CCAA; ss. 66(1.1) and 84.1 of the BIA; or s. 11.3 of the CCAA do not apply?
(b) The equities
119Courts have also considered the "equities" in determining whether to issue a vesting order. Although the term, "equities", is an ambiguous word, the vesting order cases have tended to use it to describe their work in establishing priorities among interests. See, for example, Meridian Credit Union Ltd. v. 984 Bay Street Inc., [2005] O.J. No. 3707 (S.C.J.), revd [2006] O.J. No. 1726 (C.A.) and [2006] O.J. No. 3169, 150 A.C.W.S. (3d) 622 (S.C.J.). See, also, Romspen Investment Corp. v. Woods Property Development Inc., [2011] O.J. No. 1163, 2011 ONSC 3648, 75 C.B.R. (5th) 109 (S.C.J.), revd [2011] O.J. No. 5871, 2011 ONCA 817, 286 O.A.C. 189; and Firm Capital Mortgage Fund Inc. v. 2012241 Ontario Ltd., [2012] O.J. No. 4095, 2012 ONSC 4816, 99 C.B.R. (5th) 120 (S.C.J.).
(c) Have commercial practices expanded the court's jurisdiction?
120Finally, under the rubric of "equitable considerations", s. 100 of the CJA, and the Superior Court's inherent jurisdiction, has the permissible reach of the vesting order grown to permit a court to vest out virtually any interests in an asset? See, for example, David Bish and Lee Cassey, "Vesting Orders Part 1: The Origin and Development" (2015), 32(4) Nat. Insol. Rev. 41; and "Vesting Orders Part 2: The Scope of Vesting Orders" (2015), 32(5) Nat. Insol. Rev. 53.
(5) The question requiring additional argument
121To summarize the discussion, the question to be addressed in additional argument before this panel is: Whether and under what circumstances and limitations (including the ones enumerated above) a Superior Court judge has jurisdiction to extinguish a third party's interest in land using a vesting order, under s. 100 of the CJA and s. 243 of the BIA, where s. 65.13(7) of the BIA; s. 36(6) of the CCAA; ss. 66(1.1) and 84.1 of the BIA; or s. 11.3 of the CCAA do not apply?
122I turn now to the issue of remedy.
F. The Fourth Issue: Remedy
123Regrettably, the parties did not fully address what this court should do by way of remedy if it were to allow the appeal.
124The appellant effectively seeks rectification of the register to reflect the GORs. I note that in Sheard v. Peacock, [2012] O.J. No. 4304, 2012 ONSC 4237 (S.C.J.), the motion judge treated the application to set aside the vesting order as an application for rectification.
125As noted earlier, even though registration of the vesting order has effected a conveyance of the mining claims, the appellant is not necessarily without a remedy. As Blair J.A. observed in Regal Constellation, an aggrieved party like the appellant may seek a remedy under the regime established by the LTA.
126Because this court has found that 235Co has an interest in land, it could be entitled to rectification of the register under ss. 159 and 160 of the LTA, which provide:
Subject to any estates or rights acquired by registration under this Act, where a court of competent jurisdiction has decided that a person is entitled to an estate, right or interest in or to registered land or a charge and as a consequence of the decision the court is of [the] opinion that a rectification of the register is required, the court may make an order directing the register to be rectified in such manner as is considered just.
Subject to any estates or rights acquired by registration under this Act, if a person is aggrieved by an entry made, or by the omission of an entry from the register, or if default is made or unnecessary delay takes place in making an entry in the register, the person aggrieved by the entry, omission, default or delay may apply to the court for an order that the register be rectified, and the court may either refuse the application with or without costs to be paid by the applicant or may, if satisfied of the justice of the case, make an order for the rectification of the register.
127However, providing a remedy gives rise to several difficulties. First, there is no information before the court on whether an innocent third party acquired an interest from Third Eye after the vesting order was registered, which would debar a remedy.
128Second, in its notice of appeal, the appellant requested this court to vary the vesting order to remove the appellant's interest from the schedule of claims to be discharged from title of the property and to add its interests to the schedule of permitted encumbrances. The respondent submitted that this is not possible because its accepted offer to purchase was "predicated on the elimination of the GORs". The respondent argued that "[i]t was not open to the Motions Judge to impose additional terms on the Transaction that were not agreed to by the parties, and 235Co cannot ask for those terms to be imposed on appeal". I do not know whether the respondent would want to press this position in an argument about the appropriate remedy.
129In the circumstances, it would not be prudent to exercise authority under s. 134 of the CJA and ss. 159 and 160 of the LTA to rectify title without hearing argument from the parties on whether additional evidence is necessary, how it should be received and on any other remedial issues arising from this decision.
G. Disposition
130The next phase of the appeal, assuming the parties choose to pursue it, requires case management to coordinate written submissions on the issues raised in these reasons and to consider the necessity of oral submissions, and I would refer the parties to the registrar to make the necessary arrangements.
Order accordingly.
Footnotes
1 The motion judge was not acting under s. 65.13(7) of the BIA; s. 36(6) of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 ("CCAA"); ss. 66(1.1) and 84.1 of the BIA; or s. 11.3 of the CCAA.
2 Online: http://la.ucalgary.ca/files/law/rmli-royalty-paper-feb-2003-final.pdf.
3 The Court of Appeal of Alberta did not decide the factual issue but sent it to trial, an outcome affirmed by the Supreme Court. The trial judge held that the documents in Dynex did not grant any interest in the land: [2003] A.J. No. 349, 2003 ABQB 243, 1 C.B.R (5th) 188.
