COURT FILE NO.: CV-17-1165-00 DATE: 2017 05 24
ONTARIO SUPERIOR COURT OF JUSTICE
IN RE: BERDEKLIS v. MINISTER OF NATIONAL REVENUE
B E T W E E N:
STILIANOS BERDEKLIS, MAX MAINIERO and GINO GROSSI Applicants
Marc Whiteley, for the Applicants
- and -
DAVID TERRY ASSOCIATES INC., a.k.a. DAVID TERRY ASSOCIATES INC, HER MAJESTY THE QUEEN IN RIGHT OF CANADA AS REPRESENTED BY THE MINISTER OF NATIONAL REVENUE and CANADIAN IMPERIAL BANK OF COMMERCE Respondents
Michael W. Bader, for the Respondent Her Majesty the Queen in Right of Canada No one appearing for the other Respondents
Heard: May 18, 2017 at Brampton
Reasons for Decision on Application
Wein, J.
1This procedurally complex issue has arisen because of an error that occurred when a property was converted to Land Titles from the Registry System. The owner of the land (DTA) was erroneously described by the Registrar as David Terry Associates Inc – Inc without a period - and not as David Terry Associates Inc., with a period, which is the owner’s actual legal name. The error remains.
The Facts
2During the conversion, in 2007, title to the land making up the property, a beautiful lakefront site, was captured in three different parcels with different PINs, that is property identification numbers. One PIN relates to the land where the house is situated on top of a bluff, the second relates to the portion of the bluff immediately below where the house is situated, and the third relates to a small strip of land at the bottom of the bluff providing direct access to the beach on the shores of Lake Erie. In 2010, a fourth PIN was created for land related to the part of an old road allowance directly in front of the house that was being closed at that time. In this last instance DTA’s correct legal name was properly reflected on the parcel register.
3Thereafter, in 2011 DTA refinanced its first mortgage with TD, and that mortgage was registered on all four PINs which made up the property. Nothing was done to correct the true legal name of DTA on three of the four PINs.
4In 2014, a second mortgage was placed by the applicants on the property, described only by the street address. When the second mortgage was registered, the search undertaken using the full legal name, with a period, yielded only one PIN, the fourth PIN relating to the old road allowance. The other three parcels and PINs were not revealed because they were registered without the period. As a result, the lawyer registered the mortgage only against the PIN relating to the name with the period, which is the parcel relating to the old road allowance. Neither lawyer for the owners or the Applicants appreciated that the property was actually comprised of four parcels, and so the matter proceeded as if the registration was against the entire lands and payments were made accordingly.
5The mortgage was renewed in 2015 but by July 2016 DTA defaulted on its first mortgage and TD issued a notice of sale.
6By September 2016, tax arrears were owing and the Minister of National Revenue (NR) registered a statutory tax lien on only one PIN, the one relating to DTA’s proper name, referring to the road allowance. However, very shortly thereafter, presumably having discovered that there were four associated PIN parcels, NR registered its statutory tax lien on the other three PINs related to the property and later registered another statutory tax lien against all four of the PINs.
7During this same time period, the applicants, who hold the second mortgage, also served a notice of sale under the mortgage and agreed with TD to take possession of the property and take the lead on the power of sale proceedings.
8Shortly thereafter, in December 2016, the applicants’ lawyer discovered the situation with respect to the four PINs that cover the property, when they were preparing to list the property for sale. By this time, a Writ of Execution had also been filed against the property by CIBC.
9As a result, there are claims against the property well in excess of its value and agreed sale price.
10An Agreement of Purchase and Sale has been signed in relation to the property and the closing is set for July 2017. The issue is whether the applicants have status to enforce their second mortgage against the full property, all four parcels.
11As it stands, only TD as the first mortgagee will recover the full claim. The applicants will recover a significant portion of their claim if they stand second. The respondent, NR, will collect nothing at this time unless the applicants’ priority position is reduced as a result of the error in registration.
Position of the Parties
12The applicants seek to fix the mistake by the land titles office, so that they can close on the power of sale and recover their loan on the second mortgage. TD security is already on all four parcels so TD takes no position. However, NR takes the position that:
the applicants do not have an equitable charge on the property (except perhaps on the closed road allowance) and, even if they did,
that equitable charge or rectified mortgage deed would be subordinate in interest to the statutory tax liens that have been filed by NR.
13Only the first of these two disputes is before the court on this application. The applicants ask for a declaration that they have an equitable charge on the property and/or an order of rectification of the applicants’ mortgage registered on title by correcting the name on the other three parts.
14The NR does not dispute the existence of the second mortgage or the potential propriety of the rectification relief, but instead argues that the applicant has other adequate remedies at law that should be exercised first. NR argues that the applicants should sue the lawyer who did not originally find the error when registering the mortgage, and/or make a claim against the Land Titles Assurance Fund.
15In response, the applicants argue that those remedies will not accomplish the result of allowing them to close on the power of sale, risking a greater loss if the property has to be resold and incurring further expenses through delay in the sale.
16NR acknowledges in argument that the proposed route of claiming against the Land Titles Assurance Fund will give NR a windfall, in effect, by allowing them to recover earlier.
Equitable Relief
17The applicants rely on the principles underlying the law of equitable mortgage, as expressed by the Ontario Court of Appeal in R. v. Elias, [2005] 77 OR (3rd) 461. The court noted (at para. 65) that the objective of equitable mortgages is to enforce a common intention of the mortgagor and mortgagee to secure property for either past debt or future advances, where the common intention is unenforceable under the strict demands of the common law.
18An equitable mortgage may arise where the conveyance is defective in form. In this case, there is no issue with respect to the common intention to secure the entire property for the second mortgage loan. It was the faulty registration against only one of the four PINs which gave rise to the legal enforceability issue. That fault was founded on the initial fault of the registrar in erring, simply by leaving out a comma after the word “Inc”. It is true that had the error been found by the applicants earlier, before NR and CIBC registered their claims, the problem could have been corrected. Still the fault lies with the registrar.
Rectification
19Conjunctive with the declaration of an equitable mortgage, the law of rectification entitles the applicants to correct the errors in the recording of the Instrument in order to give effect to the true intention.
20Recently, the Supreme Court of Canada explained the doctrine underlying the rectification remedy, in AG Canada v. Fairmont Hotels Inc., 2016 SCC 56, [2016] 2 SCR 629:
If by mistake a legal instrument does not accord with the true agreement it was intended to record – because a term has been omitted, an unwanted term included, or a term incorrectly expresses the parties’ agreement – a court may exercise its equitable jurisdiction to rectify the instrument so as to make it accord with the parties’ true agreement. Alternative put, rectification allows a court to achieve correspondence between the parties’ agreement and the substance of a legal instrument intended to record that agreement, when there is discrepancy between the two. Its purpose is to give effect to the parties’ true intentions, rather than to an erroneous transcription of those true intentions. [italics added; citation omitted]
Beyond these general guides, the nature of the mistake must be accounted for. Two types of error may support a grant of rectification. The first arises when both parties subscribe to an instrument under a common mistake that it accurately records the terms of their antecedent agreement. In such a case, an order for rectification is predicated upon the applicant showing that the parties had reached a prior agreement whose terms are definite and ascertainable; that the agreement was still effective when the instrument was executed; that the instrument fails to record accurately that prior agreement; and that, if rectified as proposed, the instrument would carry out the agreement. [citations omitted]
at paras. 12, 14
21The applicants rely on two cases in which such rectification of a mortgage was ordered: Consortium Capital Projects Inc. v. Blind River Veneer Ltd., [1988] O.J. No. 103, aff. , 72 O.R. (2d) 703 (C.A) and Toronto-Dominion Bank v. Hagey, 2016 ONCA 170, [2016] O.J. No. 1000. In particular in Hagey, the Court of Appeal confirmed that a power of sale proceeding could continue based on a rectified mortgage.
Analysis
22There is no doubt about the common intention in both substance and in detail in this case, that the mortgage was intended to apply to all parts of the property.
23In arguing that notwithstanding the availability of equitable relief, the court should decline to exercise its discretion in this case, NR in effect suggests that they should receive a windfall of a higher priority on three of the parcels because of the error of the Land Titles Registrar. By forcing the applicants to rely on the Fund as compensation for the error, it is argued that the applicants would not lose and NR would keep its accidental priority and thereby benefit. It is also pointed out that the solicitor could have discovered the legal error if the full legal description of the property had been researched. It may be noted that NR also apparently made this error, of registering the first lien against only the single parcel, but subsequently corrected it by registering against the other three PINs.
24Should then the court decline to exercise its discretion to grant equitable relief simply because a Land Titles Assurance Fund is available?
25The Fund creates a statutory remedy for errors made in land titles registration:
41 The essential purpose of land titles legislation is to provide the public with security of title and facility of transfer: Di Castri Registration of Title to Land vol. 2 looseleaf (Toronto: Carswell, 1987) it 17-32. 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.
42 The philosophy of a land titles system embodies three principles; namely, the mirror principle, where the register is a perfect mirror of the state of title, the curtain principle, which holds that a purchaser need not investigate the history of past dealings with the land, or search behind the title as depicted on the register, and the insurance principle, where the state guarantees accuracy of the register and compensates any person who suffers loss as the result of an inaccuracy. These principles form the doctrine of indefeasibility of title and is the essence of the land titles system: Marcia Neave "Indefeasibility of Title in the Canadian Context" (1976), 26 U.T.L.J. 173 at 174.
Indefeasibility of title has been defined as:
[A] convenient description of the immunity from attack by adverse claim to the land or interest in respect of which he is registered, which a registered proprietor enjoys. This conception is central in the system of registration. It does not involve the registered proprietor being protected against any claim whatsoever .... there are provisions by which the entry on which he relies may be cancelled or corrected, or he may be exposed to claims in personam. These are matters not to be overlooked when a total description of his rights is required. But as registered proprietor, and while he remains such, no adverse claim (except as specifically admitted) may be brought against him. Frazer v. Walker, [1967] A.C. 569 (P.C.) at 580-81.
79 The innocence principle of a title registration system is recognized in Ontario by the establishment and maintenance of the Land Titles Assurance Fund (the "Fund") as a means of compensating persons prejudiced by the operation of the Act. Generally, the way the Fund is designed to work is as follows. First, the person wrongfully deprived of an interest in land by reason of an entry on the register is entitled to recover what is just from the party responsible for the wrong. Where the individual wrongfully deprived of land is unable to recover just compensation for the loss by other means the person is entitled to have the compensation paid out of the Fund. Such a claim must be made to the Director of Titles and the liability of the Fund for compensation and the amount of compensation shall be determined by the Director subject to a right of appeal.
Durrani v. Augier, [2000] O.J. No. 2960 (C.A.)
at paras. 41, 42, 79
26Under s. 57 of the Land Titles Act, RSO 1990, c L.5, a Land Titles Assurance Fund was created to provide compensation for errors committed by the Land Titles office. Section 57(4)(a)(iii) states:
(4) A person is entitled to compensation from the Assurance Fund if,
(a) the person is wrongfully deprived of land or of some estate or interest in land by reason of,
(iii) any misdescription, omission or other error in a certificate of ownership or charge or in an entry on the register;
27It is clear that an error in an entry on the register is covered.
28As well, a person is entitled to compensation from the Fund if:
(c) the person is unable under subsection (1) or otherwise to recover just compensation for the person’s loss; (emphasis added)
29Subsection 57(1), as it applies to this case, holds that a person wrongfully deprived … of interest [in land] … by reason of any … omission or other error in a … charge, or in an entry on the register, is entitled to recover what is just, by way of compensation or damages, from the person on whose application the erroneous registration was made. This would not entitle the plaintiff to recover, since the erroneous registration was made on their own application.
30The phrase “or otherwise” can reasonably be said to refer to a civil court process.
31It is agreed that there is no case law supporting a requirement that the application be to the Fund before equitable relief can be granted. In fact, although neither party was able to refer to any authority on point, section 57(4)(c) indicates that resort to the Fund should only be made if an applicant is unable to recover “otherwise”.
32While the purpose of the Fund is, as pointed out in XLO Investments Ltd. v. Ontario (Registrar of Land Titles), 2000 CarswellOnt 2190, to provide a remedy for erroneous registration, there is no authority in support of the position of the Minister of National Revenue. In fact, in XLO itself, equitable relief was applied for first, suggesting that the resort to the Fund was not a statutory remedy of first resort but could be used to supplement other relief.
33As well, in the case of Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] S.C.J. No. 20, relied on by the Minister of National Revenue, it was a unilateral mistake by the applicant that was in issue, unlike the situation in this case where it was the provincial authority that created the error.
34As well, even if the Fund could provide a partial remedy, it will not be able to assist in selling the property, so the court must consider whether it is appropriate to grant the equitable relief in the context of the pending sale.
35In my view, there are no statutory nor legal nor logical barriers to the granting of equitable relief in this case. Accordingly, the relief requested, including declaration and rectification of the mortgage on the title, will be granted to the applicants in the terms of paragraphs one to seven of the draft order submitted, as signed by me.
Costs
36The parties expect to be able to agree on the issue of costs. In the event that they are unable to agree, I will receive written submissions to a maximum of five pages per side, from the applicants within 21 days of release of this judgment, and from the respondent, Minister of National Revenue, within 21 days thereafter.
Wein, J.
Released: May 24, 2017