1168760 Ontario Inc. v. 6706037 Canada Inc., 2019 ONSC 4702

CITATION: 1168760 Ontario Inc. v. 6706037 Canada Inc., 2019 ONSC 4702

DIVISIONAL COURT FILES NO.: DC-172329, DC-172330, DC-172332

DATE: 20190910

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Aston, Swinton and Sachs JJ.

BETWEEN:

COURT FILE: DC 17-2329

1168760 Ontario Inc., O/A R&R Realty, Peter Clark, and J.G. Rivard Limited

Plaintiffs (Respondents)

– and –

6706037 Canada Inc. and Denis Bertrand

Defendants (Respondent/Appellant)

– and –

Director of Titles, pursuant to s. 57(13) and s. 57(14) of the Land Titles Act

Statutory Party

(Respondent)

AND BETWEEN:

COURT FILE: DC 17-2330

Jeremy Rubenstein and Ashlee Barber, for the Plaintiffs (Respondents)

David Debenham, for the Appellant Denis Bertrand

Sam Rappos, for the Appellant 6706037 Canada Inc.

Judie Im and Jeffrey Claydon, for the Appellant Director of Titles

1168760 Ontario Inc., O/A R&R Realty, Peter Clark, and J.G. Rivard Limited

Plaintiffs (Respondents)

– and –

6706037 Canada Inc. and Denis Bertrand

Defendants (Appellant/Respondent)

– and –

Director of Titles,

pursuant to s. 57(13) and s. 57(14) of the Land Titles Act

Statutory Party (Respondent)

AND BETWEEN:

COURT FILE: DC 17-2332

1168760 Ontario Inc., O/A R&R Realty, Peter Clark, and J.G. Rivard Limited

Plaintiffs (Respondents)

– and –

6706037 Canada Inc. and Denis Bertrand

Defendants (Respondents)

– and –

Director of Titles, pursuant to s. 57(13) and s. 57(14) of the Land Titles Act

Statutory Party (Appellant)

HEARD at Ottawa: June 11, 2019

By the Court

Issues on Appeal

[1] The plaintiffs (“116”) successfully sued for the recovery of title to a 55 acre parcel of vacant land sold by Denis Bertrand (“Bertrand”) to 6706037 Canada Inc. (“670”). The land had been held in trust by Bertrand for the benefit of himself and the individual plaintiffs. The trial judge, R. Smith J., found that the conveyance to 670 was fraudulent and the title register was rectified by declaring the transfer to 670 void. The Director of Titles was added as a statutory party mid-trial in accordance with s. 57(13)(b) of the Land Titles Act, R.S.O. 1990 c. L.5 (the “LTA”) because of the allegation that a “fraudulent instrument” had been registered with respect to the property in issue. The Director, 670 and Bertrand all appeal. The appeals were heard together.

[2] For the reasons set out below, the appeals of the Director and 670 are allowed. The order for rectification of the title register vesting the beneficial ownership of the property back to Bertrand and the individual plaintiffs is set aside. The ownership of the property by 670 is confirmed. The case is remitted to the Superior Court of Justice for a determination of the plaintiffs’ claims for damages against the defendant Bertrand.

[3] The central issue on these appeals is whether the trial judge erred in determining that the transfer from Bertrand to 670 was by means of a “fraudulent instrument” within the meaning of the LTA.

[4] Related issues are the determination by the trial judge that: (1) Bertrand was a “fraudulent person” within the meaning of the LTA; (2) Bertrand as transferor was a “fictitious person”; (3) Bertrand “forged” the transfer; and (4) 670 was not a bona fide purchaser for value without notice.

[5] In a separate decision on costs, the trial judge awarded the plaintiffs a total of $203,319, including HST and disbursements. These costs were ordered payable by the defendants on a joint and several basis. No costs order was made in relation to the Director. The costs award is also the subject of these appeals.

Background Facts

[6] Denis Bertrand held title, “in trust”, to the land at issue. He was both a trustee and a beneficiary. As a beneficiary of the trust he had a 27.03 percent stake in the property, with R & R Realty having 31.76 percent, Peter Clark, 36.48 percent and J. G. Rivard Ltd., 4.73 percent. These other beneficiaries are collectively identified as 116. In 2005, Bertrand sold the property to 670 without the consent of 116, or even any notice to any of the plaintiffs, for the sum of $100,000. At the time of sale, Bertrand had two executions registered against him totalling $366,989 in favour of two different financial institutions. In order to complete the sale, Bertrand signed an affidavit that was relied upon by 670 and the Director of Land Titles stating that he was not one and the same person as the “Denis Bertrand” subject to those executions.

[7] The plaintiffs alleged that Bertrand was a fraudulent person because he forged or falsified the transfer, that 670 was not a bona fide purchaser for value without notice and that as a consequence, 670 held the property on a constructive trust for the plaintiffs to the extent of their beneficial interests in the trust. In the alternative, the plaintiffs claimed compensatory and punitive damages.

[8] After first finding that Bertrand’s affidavit and representation to the solicitor acting on the sale was false, the trial judge held that Bertrand was a fraudulent person within the meaning of the LTA. Consequently, the transfer of the property was a fraudulent instrument and therefore void. He ordered that title to the property vest in accordance with the beneficial interests in the trust, including a return to Bertrand of his 27.03 percent beneficial interest. This result obviated the need to address the question of damages.

[9] In determining whether Bertrand was a “fraudulent” or “fictitious” person under the LTA, the trial judge held that Bertrand’s actions in signing a false statement and affidavit with the intent to deceive 670 (and incidentally the Director of Titles) made him a “fraudulent” person because he forged the instrument and signed the transfer as a “fictitious person”. The trial judge also held that under the doctrine of “deferred indefeasibility,” 670 is not protected because it is an intermediate owner, not a deferred owner. In short, because 670 obtained the property from the party responsible for the fraud, it is vulnerable to a claim from the true owner because it had an opportunity to avoid the fraud by reasonable inquiry. The trial judge found that 670 had knowledge of sufficient circumstances to put a reasonable person on inquiry and therefore was not a bona fide purchaser for value without notice.

[10] 670 paid Bertrand the $100,000 purchase price for the property. Bertrand has never paid any part of those sale proceeds to the plaintiffs.

Jurisdiction

[11] An appeal lies to the Divisional Court pursuant to s. 27 of the LTA from an order of a judge of the Superior Court of Justice made pursuant to the Act.

The Standard of Review

[12] In accordance with Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, the standard of review for questions of law on this appeal is correctness. Findings of fact will not be overturned absent a palpable and overriding error. Questions of mixed fact and law lie on a spectrum. If there is an extricable legal question, the standard is correctness. Otherwise, the palpable and overriding standard applies (at paras. 8, 10 and 37).

Analysis

The land titles regime in Ontario

[13] The LTA establishes the land titles regime in Ontario. Its essential purpose is to “provide the public with security of title and facility of transfer” by setting up a register and guaranteeing that the person shown as the registered owner is the legal owner, subject only to registered encumbrances and enumerated statutory exceptions (Lawrence v. Wright, 2007 ONCA 74 at para. 30).

[14] There are three principles found in the land titles regime that together embody the doctrine of indefeasibility of title:

• The mirror principle, whereby the register is the perfect mirror of the state of title;

• The curtain principle, which holds that the purchaser need not investigate past dealing with the land, or search behind the title as depicted in the register; and

• The insurance principle, whereby the state guarantees the accuracy of the register and compensates any person who suffers loss as the result of an inaccuracy (Lawrence, at para. 30 citing Durrani v. Augier (2000), 2000 22410 (ON SC), 50 O.R.(3d) 353 (S.C.)).

[15] Subsection 78(4) of the LTA guarantees that an instrument is effective once registered. It states,

When registered, an instrument shall be deemed to be embodied in the register and to be effective according to its nature and intent, and to create, transfer, charge or discharge, as the case requires, the land or estate or interest therein mentioned in the register.

[16] Subsections 78(4.1) and (4.2) were added to the LTA in 2006. They create a statutory exception to the guarantee of title where “fraudulent instruments”, as defined in the Act, are registered. These subsections state:

(4.1) Subsection (4) does not apply to a fraudulent instrument that is registered on or after October 19, 2006.

(4.2) Nothing in subsection (4.1) invalidates the effect of a registered instrument that is not a fraudulent instrument described in that subsection, including instruments registered subsequent to such a fraudulent instrument.

[17] “Fraudulent instrument” is defined in s. 1. For purposes of the present appeals, subclause (a) is relevant.

“fraudulent instrument” means an instrument,

(a) under which a fraudulent person purports to receive or transfer an estate or interest in land,

(b) that is given under the purported authority of a power of attorney that is forged,

(c) that is a transfer of a charge where the charge is given by a fraudulent person, or

(d) that perpetrates a fraud as prescribed with respect to the estate or interest in land affected by the instrument.

[18] “Fraudulent person” is defined as well in s. 1:

“fraudulent person” means a person who executes or purports to execute an instrument if,

(a) the person forged the instrument,

(b) the person is a fictitious person, or

(c) the person holds oneself out in the instrument to be, but knows that the person is not, the registered owner of the estate or interest in land affected by the instrument.

[19] Subsection 57(13)(b) of the LTA confers discretion on the Director and the courts to rectify the register if a fraudulent instrument has been registered. However, a court cannot order rectification under this provision unless notice has been given to the Director pursuant to s. 57(14). That provision also requires that the Director be added as a statutory party to any proceeding in which a remedy under s. 57(13)(b) is sought. The Director may participate in the proceeding with full party status, as he did in the present case.

The electronic registration of instruments in Ontario

[20] Ontario operates under an electronic land registration system. As the Director explains in his factum, parties are not required to file affidavits in support of a transfer or charge. Instead, their lawyers must include “law statements” when a legal judgment or determination is necessary (Land Registration Reform Act, R.S.O. 1990, c. L.4, ss. 2, 3, and 29 and O. Reg. 16/99, ss. 1, 3(1)). Before a lawyer makes such a statement, he or she must be satisfied that they have the evidence necessary to make the statement.

[21] Writs of execution are binding on the transfer of property owned by an execution debtor pursuant to s. 13 of the Execution Act, R.S.O. 1990, c. E.24. However, they are not binding if the land registrar decides, pursuant to s. 136(7) of the LTA, that the name of the execution debtor and the name of the registered owner on the register are not the same person and registers the transfer of the land free of the writ.

[22] The Director and the Director of Land Registration have set out when and on what basis land registry offices may clear writs in Bulletin 98803 (December 14, 1998), which states:

An affidavit by the registered owner stating that he/she is not the same person as a judgement debtor named in a writ of execution is acceptable to show title free and clear of the writ provided the amount of the judgment debt is less than $50,000 …

… [R]egardless of the value of the writ, the solicitor for the registered owner may make an unequivocal statement that their client is not one and the same as the person in the writ. There is no requirement to give any details of the writ in this case.

[23] In addition, the Law Society of Ontario has provided lawyers with practice guidelines concerning the electronic registration of title documents. They make clear that, consistent with the underlying principles of the land titles system, the purchaser’s solicitor is not required to make further inquiries beyond the law statements to determine the accuracy of the statement:

Lawyers need not look to nor request nor require evidence behind registered compliance with law statements, but rather should rely upon provisions of the Land Titles Act as to the sufficiency of title once certified. The entire TERS and Land Titles system is premised on the sufficiency of the register to establish title to real property.

(Practice Guidelines for Electronic Registration of Title Documents, as approved by Convocation, June 28, 2002, at p. 14)

Was the transfer a fraudulent instrument?

The trial judge’s holding

[24] The trial judge concluded that the transfer was a fraudulent instrument within the LTA because he found that Bertrand was a “fraudulent person.” He concluded that the 2006 amendments to the LTA were intended to codify the common law doctrine of deferred indefeasibility as set out by the Court of Appeal in Lawrence. In his view, the amendments were to protect landowners from any fraud in the real estate context.

[25] The trial judge concluded that Bertrand made a misrepresentation and concealed a material fact when he signed the false affidavit stating that he was not one and the same person as the Denis Bertrand who was subject to two writs of execution. This constituted a fraud (at para. 63). The trial judge then concluded that under the doctrine of deferred indefeasibility, 670 was not protected because it was an intermediate owner and not a deferred owner (at paras. 63 and 69).

[26] The trial judge found that Bertrand was a “fictitious person”, because he “purported to transfer the property under a pretence of being someone other than the Denis Bertrand that was subject to executions.” The Denis Bertrand who was not subject to executions was a fictitious person (at para. 71).

[27] He also concluded that the instrument was forged by Bertrand, because the affidavit was a false document.

The reach of the 2006 amendments

[28] The trial judge took the view that the 2006 amendments should be interpreted broadly to protect against fraud in real estate transactions. However, when ss. 1 and 76(4.1) and (4.2) of the LTA are read as a whole, it is evident that the Legislature sought to protect landowners against the specific problem of title fraud committed through the use of fraudulent instruments.

[29] The trial judge’s approach is inconsistent with that taken by the Divisional Court in CIBC Mortgages Inc. v. Computershare Trust Co. of Canada, 2016 ONSC 7094. There, the Court concluded that the LTA establishes a scheme of deferred indefeasibility only with respect to “fraudulent instruments” as defined in s. 1 of the LTA (at para. 46). In that case, homeowners had fraudulently discharged a mortgage from Computershare that was registered on their property, and then remortgaged the property with CIBC and another mortgage company. The Court held that the homeowners were not fraudulent persons under the LTA, even though they had committed fraud by discharging the Computershare mortgage. In securing the two other mortgages, they had not, knowingly and falsely, held themselves out as the registered owners of the estate or interest in land affected by the mortgages, since they had the legal authority to obtain a mortgage on the land (at para. 52). The concealment of the Computershare mortgage was fraudulent, but that fraud could not be found in the instrument (at para. 61).

[30] The trial judge erred in distinguishing Computershare from the present case. He did so on the basis that the fraud in Computershare was not contained in the relevant instrument, and he believed the doctrine of deferred indefeasibility had been applied in Computershare. In contrast, in the present case, he concluded that the fraud was contained in the instrument because of the statement that “[t]he party is not one and the same as the party named in this writ.” He also concluded that the doctrine of deferred indefeasibility was not available to 670.

[31] The trial judge failed to properly understand the holding in Computershare. Whether the fraud was on the face of the CIBC mortgage or whether CIBC was an intermediate or deferred owner under the doctrine of deferred indefeasibility was not determinative of whether that mortgage was a fraudulent instrument. That case held that the 2006 amendments codified the doctrine of deferred indefeasibility, but the amendments apply only if there has been a fraudulent instrument as defined in the LTA.

[32] In accordance with the holding in that case, the 2006 amendments do not address fraud in real estate transactions in general. Rather, the provisions prevent certain kinds of fraudulent activity with respect to title, addressing the situation where someone purports to transfer an interest or estate in land that they do not legally possess – for example, by taking on a false identity or by forging a document, including a power of attorney.

Bertrand was not a fictitious person

[33] The trial judge erred in law when he found that Bertrand was a fictitious person because of the content of the affidavit respecting the two writs of execution. In support of his conclusion that Bertrand was a fictitious person, the trial judge relied on Fok Cheong Shing Investments Co. Ltd. v. The Bank of Nova Scotia, 1982 57 (SCC), [1982] 2 S.C.R. 488. In that case, the Supreme Court of Canada dealt with s. 20(5) of the Bills of Exchange Act, R.S.C. 1985, c. B-4, which provides financial institutions with a defence to the tort of conversion where the payee of a bill is a “fictitious person.” The provision states that “[w]here the payee is a fictitious or non-existing person, the bill may be treated as payable to bearer.” The Court held that when the name of the payee has been inserted with no intention that the cheque be cashed, the payee is a fictitious person, even if that person exists, and the bank can rely on the defence, treating the bill as made payable to bearer. (See, as well, Teva Canada Ltd. v. TD Canada Trust, 2017 SCC 51, [2017] 2 S.C.R. 317 for a more recent discussion of this provision).

[34] Relying on this jurisprudence, the trial judge held that while Bertrand was an existing person, he was a “fictitious person” when he made the conveyance, because he falsely stated that he was not the Denis Bertrand subject to executions in his affidavit.

[35] In our view, the trial judge erred in applying the concept of a fictitious person from the Bills of Exchange Act. That is a different legislative regime, serving a different purpose from the LTA and codifying a common law defense. The trial judge’s task was to focus on the meaning of a fictitious person in the LTA in light of the wording and the purpose of that legislation and the 2006 amendments.

[36] When applying the modern approach to statutory interpretation (as set out in Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42 at para. 26), the first task is to determine the plain meaning of the provision of the statute. The Oxford English Dictionary (online edition, 2019) defines “fictitious” as “not real or true; imaginary or fabricated”. Thus, applying the ordinary meaning of a “fictitious person,” the term would mean a person who does not exist. It would apply, for example, where someone has created a false identity in order to transfer the title or interest in the land that he or she purports to convey. It would not encompass an existing person like Bertrand, who was the true registered owner of the property that he conveyed.

[37] Moreover, interpreting “fictitious person” to mean a person who does not exist is consistent with the purpose of the 2006 amendments, which sought to deal with title fraud committed using fraudulent instruments. When one looks to the cases decided before the amendments, it is evident that a major legislative concern was fraud accomplished by someone who assumed a false identity in order to sell or mortgage property (see for example Lawrence and Rabi v. Rosu (2006), 2006 36623 (ON SC), 83 O.R. (3d) 37 (Ont. S. C.).

[38] The respondents argue that Bertrand did not have authority, as a bare trustee, to transfer the property without the consent of the beneficiaries. However, the LTA does not recognize trusts (with certain exceptions that are not relevant here). Pursuant to s. 62(1) of the LTA, a notice of an express, implied or constructive trust shall not be entered on the register. Thus, an individual who holds land as a “trustee” may deal with the land as if that description had not been inserted. In other words, that individual is the legal registered owner of the land.

[39] In summary, Bertrand was the registered owner of the fee simple of the property conveyed to 670. He was a real person, not a fictitious person, and he had the authority to convey the interest in the property. In accordance with CIBC, the transfer should not have been held to be a fraudulent instrument. While Bertrand was found to have committed fraud in the affidavit respecting the executions, he nevertheless had the legal authority to convey the fee simple to 670.

Bertrand did not forge the transfer

[40] In the alternative, the trial judge erred in finding that Bertrand forged the instrument because he provided the false affidavit.

[41] As the trial judge observed, “forge” is defined as in the Canadian Oxford Dictionary as “to write a document or signature in order to pass it off as written by another,” while “forgery” is defined as “the act or an instance of forging, counterfeiting, or falsifying a document”. Case law dealing with the treatment of forged real estate instruments under land titles legislation supports a definition of forgery as an act whereby an impostor signs the name of a person with lawful title in order to cause an instrument to be registered on title (see, for example, Lawrence; Durrani v. Augier; CIBC Mortgages Inc. v. Chan (2005), 2005 43402 (ON CA), 261 D.L.R. (4th) 679 (Ont. C.A.); and CIBC Mortgages Inc. v. Saskatchewan (Registrar of Land Titles), 2005 SKQB 470 ).

[42] “Forgery” is an issue of authenticity, not truth. Bertrand did not forge another’s signature or falsely alter the terms of a document. He was the registered owner of the land, and he validly executed the transfer. Even though he provided an affidavit that contained a false statement, he did not commit forgery in the commonly understood meaning of that term.

Conclusion

[43] For these reasons, we find that the trial judge erred in setting aside the registration of the transfer to 670 on the basis that the transfer was a fraudulent instrument.

[44] We note as well that the trial judge erred in ordering rectification of the register pursuant to ss. 159 and 160 of the LTA. The plaintiffs had sought an order of rectification pursuant to s. 57(13)(b) of the Act. That is the provision that permits the Court to rectify the register in respect of a fraudulent instrument. Importantly, that provision also requires notice to the Director and confers the power of the Director to be a party to the proceedings.

Was 670 a bona fide purchaser for value without notice?

[45] A third party who acquires an interest in a property where the title is disputed is protected when they are a bona fide purchaser for value without notice (MacIsaac v. Salo, 2013 ONCA 98 (leave to appeal refused, [2013] S.C.C.A. No. 174) at para. 54). The trial judge did not accept that this principle applied to 670 for the following reasons:

(a) The issue of whether 670 had notice of the fraud was not critical to the outcome in this case, because 670 was an “intermediate” owner and not a “deferred” owner.

(b) Subsection 62(2) of the LTA, which states that describing the owner of a piece of land as a trustee shall not be deemed to be notice of a trust and imposes no duty on any person to inquire into the terms of the trust, offered no protection to 670 because 670 did not acquire notice of the trust through the land titles system.

(c) 670 was liable for “knowing receipt of trust property” because it had knowledge of circumstances that should have put it on inquiry as an honest and reasonable person.

The concept of intermediate ownership has no application

[46] As explained previously in these reasons, the concepts of “intermediate” and “deferred” owners are ones that arise under the theory of deferred indefeasibility. Under that theory the “intermediate” owner is the owner who obtained title from the fraudster and the “deferred” owner is the owner who takes title from the intermediate owner. Only a deferred owner can rely upon the doctrine of bona fide purchaser for value without notice to assert good title. An intermediate owner cannot, since, unlike the deferred owner, they had the opportunity to investigate the transaction and avoid the fraud.

[47] The 2006 amendments codified the theory of deferred indefeasibility and specified that the only exemption to security of title is when a “fraudulent instrument” has been registered. Thus, if the instrument under which 670 took title was not a “fraudulent instrument” under the LTA, 670 is entitled to assert its security of title on the basis that it was a bona fide purchaser for value without notice.

[48] Giving our finding that the trial judge erred in law when he found that the instrument under which 670 took title was a “fraudulent instrument”, it follows that the trial judge also erred in law when he relied upon the theory of deferred indefeasibility to deny 670 the right to assert its security of title based on the fact that it was a bona fide purchaser for value without notice.

Subsection 62(2) of the LTA protects 670

[49] Section 62 of the LTA states:

62(1) A notice of an express, implied or constructive trust shall not be entered on the register or received for registration.

Description of owner as trustee

(2) Describing the owner of freehold or leasehold land or of a charge as a trustee, whether the beneficiary or object of the trust is or is not mentioned, shall be deemed not to be a notice of a trust within the meaning of this section, nor shall such a description impose upon any person dealing with the owner the duty of making any inquiry as to the power of the owner in respect of the land or charge or the money secured by the charge, or otherwise, but, subject to the registration of any caution or inhibition, the owner may deal with the land or charge as if such description had not been inserted.

[50] In 909403 Ontario Ltd. v. DiMichele, 2014 ONCA 261, the Ontario Court of Appeal dealt with subsection 62(2) of the LTA. In that case Mrs. DiMichele died leaving behind three sons, Roberto, Michele and Antonio. Under her will Antonio was named as estate trustee and the will specified that, after all estate debts were paid, her estate was to be divided among her three sons. Antonio registered a Transmission by Personal Representative to take title to the family home that his mother had owned and lived in at the time of her death. The title to the home was registered within the land titles system. By that point all the debts of the estate had been paid and the estate was ready to be distributed. Neither Roberto nor Michele ever registered any claim to the property on title.

[51] Antonio was then sued personally. He mortgaged the family home in favour of the parties who were suing him (the “Creditors”). When the Creditors obtained judgment against Antonio they brought an application seeking to have the property sold. Roberto, the brother who had lived in the property both before and after his mother’s death, opposed the Creditors’ application and asserted sole entitlement to the property.

[52] One of the bases upon which Roberto opposed the Creditors’ application to sell the property was his assertion that the Creditors, by virtue of the property register (which they had before they entered into the mortgage), had notice of the fact that Antonio was holding the property in the capacity of a Trustee with a Will. Thus, they had actual notice of the will and should not have simply accepted the mortgage as security for the property; they should have first inquired into whether Antonio could lawfully mortgage the property.

[53] The Court of Appeal rejected this argument and found that s. 62(2) provided a complete answer to it. By virtue of s. 62(2) the description of Antonio as a Trustee With a Will was not notice of the trust and did not impose any duty on the Creditors to inquire into Antonio’s power to charge the property. The Court of Appeal found that the Creditors were bona fide purchasers for value without notice and that the mortgage was valid as against the whole property. Any recourse that Roberto and Michele had was against Antonio, not against the Creditors.

[54] In Randvest Inc. v. 741298 Ontario Ltd. (1996), 1996 8207 (ON SC), 30 O.R. (3d) 473, the Ontario Court (General Division) dealt with a vendor and purchaser’s application concerning a requisition by the purchaser seeking to be satisfied that the vendor had the authority under a trust to convey good title to the property, which was registered in the land titles system. In that case the purchaser had become aware of the existence of the trust by virtue of a title search that revealed a land transfer tax affidavit and statutory declaration attached to a prior deed transferring the property that disclosed the existence of a trust and disclosed the terms of the trust.

[55] The application judge in Randvest found that subsection 62(2) of the LTA was a complete answer to the purchaser’s requisition and that the affidavit and statutory declaration did not constitute notice of the trust, nor did it impose upon the purchaser a duty to inquire into the vendor’s authority to transfer the property in question.

[56] In Bank of Nova Scotia v. Russell, 2016 ONSC 1829, the Divisional Court dealt with an appeal from an interlocutory order adjourning the bank’s summary judgment motion. In that case Mr. Russell had applied for a line of credit with the bank. His line of credit was secured by a mortgage that was registered against a condominium in Mr. Russell’s name. Mr. Russell told the bank that he was a trustee of the condominium and that, under the terms of the trust, the proceeds from the line of credit had to be used for the benefit of the beneficial owner of the condominium, his sister. His sister was also a customer of the bank. Mr. Russell provided the bank with the trust agreement between him and his sister. The bank lent Mr. Russell money pursuant to the line of credit and Mr. Russell defaulted on the loan. The bank then sought to obtain vacant possession of the condominium pursuant to its rights under the mortgage. Mr. Russell’s sister, who was in possession of the condominium, opposed the bank’s application, arguing that bank should have known that Mr. Russell was using the proceeds of the line of credit for his own benefit and not for hers.

[57] During the course of the appeal the Divisional Court addressed the bank’s submission that Randvest was a complete answer to the sister’s argument since the LTA had essentially eliminated the doctrine of actual notice when it came to the existence of a trust. The Divisional Court rejected this submission and distinguished Randvest on the basis that in Randvest the notice of the specific terms of the trust was conveyed to the bank through documents that were registered in the land titles system. In the case before it, the notice of the specific terms of the trust was given to the bank through documents that were not registered in the land titles system.

[58] In the case at bar, the trial judge found that 670 did not acquire notice of the fact that the property in question was held in trust through documents that were registered in the land titles system. He did so because the offer, which was prepared by 670, was prepared before any search of title was conducted. Thus, according to the trial judge, “Joncas had notice of the trust either from the vendor or through viewing a tax bill or from some other source, but it was not through the Land Titles system” (para. 85). Therefore, the trial judge relied on Russell to find that subsection 62(2) of the LTA did not apply.

[59] The trial judge erred in law when he came to this conclusion. There is a very important distinction between Russell and the case at bar. In Russell the party who was relying on subsection 62(2) of the LTA had actual notice from some other source, both that the property was held in trust and of the precise terms of the trust. In the case at bar there is no evidence, nor was it pleaded, that Joncas or 670 had actual notice of any of the terms of the trust, including the type of trust, the identity of the beneficiaries, or the powers of the trustees to sell the property. All they knew was the information that appeared in the land titles system, namely that the property was held by the vendor in trust.

[60] At this point it is important to remember the essential purpose of the land titles system – “to provide the public with security of title and facility of transfer…The notion of title registration establishes title by setting up a register and guaranteeing that a person named as the owner has perfect title, subject only to registered encumbrances and enumerated statutory exceptions.” (Lawrence v. Wright, at para. 30 quoting from Duranti v. Augier at para. 41).

[61] To facilitate this purpose, namely, certainty of title, the Legislature, through subsection 62(2) of the LTA, has enacted a specific statutory provision regarding trusts. Under that provision, a purchaser who purchases a property that is registered as being held in trust has no duty to inquire as to power of the owner to deal with the property. Subject only to the registration of a caution or inhibition (which the beneficiaries did not do in this case), the registered owner may deal with the property as if the description “in trust” did not exist.

[62] It would undermine the clear intention of the Legislature if we were to find that the certainty principle does not apply if a purchaser acquires knowledge of the mere fact that the owner holds the property in trust prior to the search of title. For example, a purchaser could submit an offer to a vendor and the vendor could sign the offer back indicating that they own the property “in trust”. According to the trial judge’s reasoning, if the purchaser accepts the offer, he or she will be unable to rely upon s. 62(2) of the Act, since the information about the trust did not come from a title search. There is no principled reason why this should be the case. Further, it could encourage litigation focused entirely on establishing how the purchaser first learned that the property was held “in trust”—something that seems entirely tangential to the goals of the land titles system.

The cause of action of knowing receipt does not apply

[63] Having found that 670 was not protected by subsection 62(2) of the LTA, the trial judge then went on to apply the principles underlying the cause of action of knowing receipt to find that 670 was not a bona fide purchaser for value without notice because it failed in its duty to make the inquiries about the vendor’s ability to dispose of the property that it ought to have made.

[64] Given our finding that the trial judge erred in finding that s. 62(2) did not apply, it is not necessary for us to deal with the judge’s finding on the issue of “knowing receipt”. Under s. 62(2), 670 had no duty to make these inquiries.

[65] For these reasons, we find that the trial judge erred when he found that 670 was not a bona fide purchaser for value without notice.

Constructive Trust Claim

[66] At trial, 116 argued that it had a constructive trust claim against 670. The trial judge elected not to deal with this claim given his finding that the transaction was null and void.

[67] Constructive trust is an unjust enrichment claim. To successfully establish an unjust enrichment, a claimant must prove three things – that the person received a benefit; that the claimant suffered a loss that corresponded in some way to the benefit; and that there was no juristic reason for the benefit or the loss (Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269 at para. 32)

[68] A “juristic reason” is a reason or explanation based upon the law for the enrichment of one person to the detriment of another.

[69] In considering the issue of unjustment enrichment as against 670 it is important to note that 670 did pay $100,000.00 for the property. The trial judge found that this amount was less than the true value of the property and that 670 knew that it “was getting a very good deal on the property” (para. 94). To the extent that 670 might be found to have underpaid for the property this cannot constitute an unjust enrichment as there are two alternative explanations based on the law for 670’s enrichment. The first is the one adverted to by the trial judge – 670 negotiated a very good deal. Absent a finding that the purchaser knowingly participated in a fraudulent conveyance there is nothing illegal about negotiating a very good deal. The second is subsection 62(2) of the LTA. The plaintiffs’ constructive trust claim against 670 cannot succeed because it would undermine the fundamental purpose and principles of the LTA as set out above.

[70] It is clear that Bertrand was unjustly enriched by the transaction. The plaintiffs’ only remedy in unjust enrichment lies against him.

The Appeal by Denis Bertrand

[71] The judgment below restored to Denis Bertrand his beneficial ownership in the property, while allowing him to keep the entirety of the proceeds of sale. The pith and substance of his appeal is not the outcome of the trial, but the findings of fact that were made. His appeal simply challenges the conclusion of the trial judge that he committed a fraudulent act when he asserted under oath that he was not one and the same person as the Denis Bertrand against whom two executions were filed. He is upset that the trial judge found his evidence untruthful and that several findings of fact impugn his reputation.

[72] It was open to the trial judge to make the findings of fact that he did. There is no palpable and overriding error of fact, nor any error in law, in his conclusion that Bertrand wrongfully deprived the plaintiffs of their beneficial interest in the trust property when he conveyed it away without their knowledge or consent. They are entitled to damages. Because of the nature of the remedy granted at trial the trial judge did not attempt to quantify damages. The matter must be remitted to the trial court for that assessment.

Conclusion

[73] The appeals by 670 and the Director of Titles are allowed and

(1) The order for rectification of the title register vesting the beneficial ownership of the property back to Bertrand and the individual plaintiffs is set aside.

(2) The ownership of the property by 670 is confirmed.

(3) The plaintiffs’ claims as against 670 are dismissed.

(4) The order in favour of the plaintiffs for costs payable jointly and severally by the defendants 670 and Bertrand is set aside;

(5) The defendant 670 is entitled to its costs of the trial. The quantum and the determination of who should pay the costs (as between the plaintiffs and Bertrand) is to be determined by the trial judge.

(6) The case is remitted to the trial judge for a determination of the plaintiffs’ claims for damages and trial costs against the defendant, Denis Bertrand.

[74] With respect to the costs of the appeal, the appellant 670 is entitled to its costs in the amount of $15,000 payable by the plaintiffs jointly and severally. The Director is entitled to its costs of the appeal fixed at $10,000 payable by the plaintiffs jointly and severally.

[75] The defendant Bertrand is not entitled to costs of the appeal. As he was unsuccessful on his appeal, he shall pay costs of the appeal to the plaintiffs in the amount of $7,500.

Aston J.

Swinton J.

Sachs J.

Released: September 10, 2019

CITATION: 1168760 Ontario Inc. v. 6706037 Canada Inc., 2019 ONSC 4702

DIVISIONAL COURT FILE NO.: DC-172329, DC-172330, DC-172332

DATE: 201900910

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Aston, Swinton and Sachs JJ.

BETWEEN:

1168760 Ontario Inc., O/A R&R Realty, Peter Clark, and J.G. Rivard Limited

Plaintiffs (Respondents)

– and –

6706037 Canada Inc. and Denis Bertrand

Defendants (Appellants)

– and –

Director of Titles, pursuant to s. 57(13) and s. 57(14) of the Land Titles Act

Statutory Party (Appellant)

REASONS FOR JUDGMENT

The Court

Released: September 10, 2019