Court File and Parties

COURT FILE NO.: 781/16 DATE: 2017-05-29 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: THE TORONTO-DOMINION BANK, Applicant and ALIZ REHMTULLA, AZRA REHMTULLA, B2B TRUST, 5170 DIXIE ROAD LTD., ONTARIO MINISTRY OF LABOUR-EMPLOYMENT STANDARDS, HALTON HEALTH CARE SERVICES, CITI CARDS CANADA INC., and BUSINESS DEVELOPMENT BANK OF CANADA, Respondents

BEFORE: Gibson J.

COUNSEL: Jeffrey Kukla, Counsel for the Applicant Toronto-Dominion Bank Sean Zeitz, Counsel for the Respondent Business Development Bank of Canada

HEARD: February 7, 2017

Endorsement

Overview

[1] In 2007, the Respondents Alniz Rehmtulla (“Alniz”) and his wife Azra Rehmtulla (“Azra”) obtained a first mortgage from the Applicant, the Toronto-Dominion Bank (“TD”), in respect of a property municipally known as 2923 Westoak Trails Blvd. in Oakville, Ontario (“the Property”). The Charge was not registered with Azra as Chargor. The Rehmtullas defaulted under the terms of the mortgage, and have not responded to this Application. It appears that they have relocated to Tanzania.

[2] A number of other parties were involved in subsequent transactions with the Rehmtullas before they left, including Alnasir Jadavji, GMAC Residential Funding, and the Business Development Bank of Canada (“BDC”).

[3] TD makes application for rectification of its registered mortgage as against the real property of the Respondents Alniz and Azra Rehmtulla. It claims that through honest inadvertence the mortgage was registered solely against Alniz, notwithstanding its intention for the charge to have been registered against both Azra and Alniz.

[4] BDC is named as a Respondent to TD’s application because BDC is an execution creditor of both Alniz and Azra Rehmtulla pursuant to a Writ of Execution filed on May 14, 2012, for an amount in excess of $300,000. BDC says that its rights as an innocent third-party creditor will be affected depending upon the disposition of TD’s Application.

[5] TD requests an Order pursuant to ss. 159 and 160 of the Land Titles Act, rectifying the Charge/Mortgage of Land registered on December 10, 2007 as Instrument No. HR627655 by adding Azra Rehmtulla as a Chargor, and directing the Land Registrar for Halton to add Azra Rehmtulla as a Chargor in this Charge/Mortgage.

[6] In the alternative, TD requests a declaration that it is entitled to an equitable mortgage for the amounts advanced to pay out prior mortgages in favour of TD and GMAC, or, in the further alternative, a declaration that TD is entitled to an equitable mortgage in the amount that the Court fixes as the sum owing pursuant to the equitable mortgage together with subsequent interest.

[7] BDC submits in response that having regard to the provisions of the Land Titles Act and the principles governing the equitable remedy of rectification, such remedy is not available to TD; in the alternative, it also submits that the relief sought by TD is statute barred by the provisions of the Limitations Act, as the Applicant TD knew or ought to have known of the alleged error since November 2013 when it issued its Notice of Sale Under Mortgage, and it did not issue its Application seeking redress until March 10, 2016, two years and four months later.

[8] By an Order of Gray J. dated August 28, 2016, TD was granted leave to sell the Property pending the outcome of this Application, and any proceeds of sale (after payment of costs of the sale) were ordered to be held in trust. The remaining issue for determination is therefore entitlement to the proceeds of sale after payment of the costs of the sale.

Facts

[9] In November 2007, the Respondent Alniz Rehmtulla applied for and obtained a first mortgage in Respect of the Property from TD. The application made to TD was submitted through Alniz’s mortgage broker, Ayaz Bajanji. TD did not have direct communication with Alniz during the application process given that he was represented by Mr. Bajanji.

[10] The mortgage application was made solely by Alniz and not by his wife Azra. All the documents that followed in the process, including the registration of the subject mortgage, reflected solely Alniz as the charger/borrower.

[11] Alniz provided TD with a sworn Statutory Declaration declaring that he was the absolute owner of the Property.

[12] TD’s Commitment for Fixed Rate Mortgage dated November 20, 2007, signed by both Alniz and Azra, reflected the commitment being in favour of Alniz in his capacity as sole borrower. It does not mention Azra.

[13] TD granted the mortgage in favour of Alniz and proceeded to have it registered on title to the Property on December 10, 2007. The sole charger indicated is Alniz.

[14] The Solicitor’s Final Report on Title executed by Mr. Rahul Kesarwani, the solicitor who acted for both parties on the transaction, reflects Alniz as the sole mortgagor. Mr. Kesarwani has now provided an affidavit indicating that this was done through inadvertence on his part. He deposes that the December 2007 Mortgage ought to have been registered in the names of both Alniz and Azra Rehmtulla on the basis that the Property was owned jointly by them.

[15] The history of borrowing of the Rehmtullas both before and after the Charge at issue suggests that their practice was to borrow jointly.

[16] Further, the Authorization Re: Pre-Authorized Debit is signed by both of the Rehmtullas as account holders of the relevant payment account for the Charge.

[17] TD says that it would not have approved the December 2007 Charge in the sole name of Alniz, nor would it have advanced funds pursuant to it, unless it secured all interests in the Property. The Solicitor’s Final Report on Title and Certificate of Insurance did not alert TD to the fact that the Property was owned by both Rehmtullas, and that the December 2007 Charge was registered against only one of the co-owners of the Property.

[18] Azra executed an Acknowledgement and Direction consenting to the registration of the December 2007 mortgage in her capacity as Alniz’s spouse.

[19] The December 2007 mortgage went into default. TD issued a Notice of Sale Under Mortage dated November 12, 2013, providing Alniz in his capacity as mortgagor notice that unless the amount owing at that date of $348,93.97 was paid on or before January 3, 2014, TD would proceed to sell the property.

Issues

[20] The following are the issues to be determined: (i) Should the Applicant TD be granted an Order for rectification of the December 2007 Mortgage pursuant to sections 159 and 160 of the Land Titles Act?; (ii) In the alternative, should TD be granted equitable relief on terms which would essentially have the same effect as having been granted an Order for rectification and, if so, should any equitable relief be granted in priority to BDC in its capacity as a third party execution creditor; and, (iii) Is the relief sought by TD statute barred pursuant to the provisions of the Ontario Limitations Act?

[21] TD submits that it would be just to rectify the register in this case, as it was through mere inadvertence that the Rehmtullas were not both registered as chargors in respect to the Charge. It relies upon the provisions of sections 159 and 160 of the Land Titles Act in this regard. Section 159 provides that subject to any estates or rights acquired by registration under the 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.

[22] Section 160 provides that subject to any estates or rights acquired by registration under the Act, if a person is aggrieved by an entry made, or by any 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 rectification of the register.

[23] The equitable doctrine of subrogation has been examined by the Court of Appeal for Ontario in a trilogy of cases: Mutual Trust Co. v. Creditview Estate Homes Ltd. (1997) , 149 D.L.R. (4 th ) 385 (C.A.); Midland Mortgage Corp. v. 784401 Ontario Ltd. (1997) , 34 O.R. (3d) 594 (C.A.); and, Armatage Motors Ltd. v. Royal Trust Corp. of Canada (1997) , 149 D.L.R. (4 th ) 398 (C.A.).

[24] Subrogation is an equitable remedy available to a court to be applied on the basis of fairness in light of all the circumstances.

[25] TD asserts that in the circumstances of this case, to deny TD subrogation for the amounts advanced under the Charge to payout prior encumbrances, and paid to the benefit of the Rehmtullas, would amount to unjust enrichment of the Respondents.

[26] The Supreme Court of Canada has examined the law of rectification in Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd. 2002 SCC 19, at paras 35-42. It described the following four preconditions for rectification as a “high hurdle”: (i) There must be the existence and content of a prior oral agreement between the parties that is inconsistent with a written agreement; (ii) The party seeking rectification must show that the written document does not correspond with the prior oral agreement, and permitting the other party to take advantage of the mistake in a written document that would be fraud or equivalent to fraud; (iii) The party must show the precise form in which the written document can be made to express the prior intention of the parties; and (iv) The party must establish all of the requirements on a standard of convincing proof.

[27] TD asserts in response that the test set out in Sylvan Lake relates to the common law test for rectifying a contract, and is not binding on the Court in the context of an application under the Land Titles Act. I concur with this submission.

[28] As TD points out, BDC has tendered no evidence on this application to indicate that it relied upon the December 2007 Charge. If rectification is granted, TD submits that the Respondents will be in no worse a position than what they had anticipated when they obtained their interest in the Property (i.e. BDC took its interest at all times believing themselves to be subordinate to a properly registered charge in favour of TD). TD submits that BDC’s opposition to this Application is simply an attempt by BDC to take advantage of TD’s inadvertence.

[29] I accept TD’s submission that the appropriate limitation period regarding this Application would be the 10-year limitation period set out in the Real Property Limitations Act, and that its Application is not statute-barred.

[30] Given the wide statutory discretion afforded to a judge by s.159 of the Land Titles Act (as discussed at para 18 of Wesley v. Iles 2013 ONCA 8) to rectify title in a manner that is considered just, I am satisfied that on the facts of this case TD ought to be granted rectification.

[31] The evidence clearly establishes that, in return for the advance of funds, TD and the Rehmtullas agreed that the December 2007 Charge would secure all interests in the Property. The Rehmtulla’s lawyer took copies of the identification of the Rehmtullas, obtained title insurance with them listed as the owners of the property, and completed an execution search of the Rehmtullas. As TD notes, none of this would have been necessary unless both of the Rehmtullas were intended to be a party to the transaction.

[32] To deny rectification would have the effect of allowing BDC to take advantage of the inadvertent mistake when there is no evidence that it obtained an interest in the property relying on the fact that the December 2007 charge was registered as against only one of the two co-owners.

[33] I agree with the submission of TD that the evidence establishes that the Rehmtullas and TD intended that the Charge secure all interests in the property; that the intention to secure the interests of the Rehmtullas in the Property continued to the date of registration of the Charge as the Rehmtulla’s lawyer treated them as co-chargors in respect of the Charge; and that the registration of the Charge in the name of Alniz only was a mutual mistake which ought to be corrected.

[34] In light of this, I am prepared to grant the relief sought by TD.

Order

[35] The Court Orders that: (i) pursuant to sections 159 and 160 of the Land Titles Act, the Charge/Mortgage of Land registered on December 10, 2007 as Instrument No. HR627655 in the Halton Land Registry Office be rectified by adding Azra Rehmtulla as a Chargor; and (ii) the Land Registrar for the Land Titles Division of Halton (No. 20) is directed to add Azra Rehmtulla as a Chargor in the Charge/Mortgage of Land registered on December 10, 2007 as Instrument No. HR627655.

[36] If the Parties are unable to agree on costs, they may make brief submissions to me in writing (maximum three pages double-spaced plus bill of costs). TD shall have 14 days from the release of these reasons to submit its costs submissions and serve them on BDC; BDC may then have 14 days to respond; and TD then a further seven days to submit any reply.

Gibson J.

Date: May 29, 2017