Court File and Parties

COURT FILE NO.: CV-18-00608917-00CL DATE: 20210217 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GRANT THORNTON LIMITED, in its capacity as Court-appointed Receiver of Paramount Equity Financial Corporation and Silverfern GP Inc., Applicant AND: 1902408 ONTARIO LTD., Respondent

BEFORE: Cavanagh J.

COUNSEL: Philip J. Gertler and Allan Fogul, for the 1902408 Ontario Ltd. E. Patrick Shea, for the Sluyter Isaac Investments Inc.

HEARD: January 6 and January 12, 2021

Endorsement

[1] On January 7, 2019, Grant Thornton Limited was appointed by order of this Court (“Appointment Order”) as Receiver (the “Receiver”) over property in Brockville (the “Brockville Property”). 1902408 Ontario Ltd. (“190”) is the registered owner of the Brockville Property. The motion before me involves a dispute between Sluyter Isaac Investments Inc., a secured creditor of 190, and 190. The Receiver does not take a position on this motion.

[2] On September 16, 2019, the Court, among other things, approved the sale of the Brockville Property and authorize the Receiver to make distributions to parties holding a first and second mortgage registered against title to the Brockville Property. In its First Report, the Receiver advised the Court that Sluyter Isaac Investments Inc. (“Sluyter”) asserts a claim against the net proceeds of sale. 190 disputes the claim by Sluyter. The Receiver brought a motion for advice and directions with respect to the resolution of certain claims to the net proceeds from the sale of the Brockville Property, including the claim made by Sluyter.

[3] On the Receiver’s motion, Sluyter claims that it a secured creditor of 190 and owed $600,000 plus interest and costs. Sluyter claims that as security for payment of this amount, it holds a charge and security interest over fixtures which are attached to and form part of the real property, and, therefore, it is entitled to be paid these amounts from the net proceeds of sale of the Brockville Property. Sluyter requests an order directing the Receiver to pay to Sluyter from the net proceeds of sale of the Brockville Property the sum of $600,000 plus interest and costs.

[4] 190 opposes the relief sought by Sluyter on several grounds, including that Sluyter’s claim for enforcement of its charge and security interest in fixtures is statute barred.

[5] For the following reasons, I have decided that Sluyter’s claim to enforce its charge and security interest in goods which became fixtures attached to the Brockville Property is subject to the two year limitation period in the Limitations Act, 2002 S.O. 2002, c. 24 and that this claim is statute barred.

Factual Background

[6] Sluyter sold the personal property located on the Brockville Property to 190 for $600,000 pursuant to a Bill of Sale dated August 29, 2014 (the “Bill of Sale”). The Bill of Sale identified certain fixtures that were attached to the real property: a cathedral-style pipe organ, church pews and a boiler that were attached to and formed part of the Brockville Property but included all of the personal property located on the Brockville Property.

[7] The obligation owing by 190 to Sluyter in connection with the purchase of the purchased assets is secured by a General Security Agreement dated August 29, 2014 (the “GSA”). The GSA provides Sluyter with a mortgage and charge over and a security interest in (a) all of 190’s “equipment” located on the Brockville Property including the identified fixtures and any other fixtures owned or later acquired by 190 (the “Fixtures”), and (b) any other personal property owned or later acquired by 190. In addition to the Bill of Sale and the GSA, 190 signed a promissory note dated August 29, 2014 for $600,000 (the “Promissory Note”) in favour of the parent company of Sluyter, Negotiart Inc.

[8] The purpose of the sale of the Brockville Property and Fixtures to 190 was for Dennis Bank, the principal of 190, to establish a charitable Christian ministry on the Brockville Property. Sluyter and 190 executed a letter agreement dated August 29, 2014 (the “Letter Agreement”) that addresses the process by which 190 would convert or transition its operations to a registered charity and provides for a potential reduction in the purchase price for the purchased assets based on 190’s efforts in that regard. The Letter Agreement required 190 to take “reasonable best efforts” to (a) incorporate a non-share capital corporation; and (b) apply to the CRA to have such corporation registered as a charity. The Letter Agreement also provides that (a) if 190 is able to obtain charitable registration by August 29, 2016, Sluyter would accept a charitable receipt to satisfy the $600,000 owing; and (b) if 190, after using “reasonable best efforts”, was unable to obtain a charitable registration by August 29, 2016, then 190 could fully satisfy its obligations under the Promissory Note and Bill of Sale by paying Sluyter $50,000.

[9] Ultimately, Mr. Bank did not incorporate a company without share capital or submit an application to CRA seeking to register 190 as a charity.

[10] Sluyter’s security created by the GSA attached on or about August 29, 2014 and it perfected its security by registering a financing statement against 190 under the Personal Property Security Act (the “PPSA”) on or about September 2, 2014. On or about September 2, 2017, Sluyter’s PPSA registration against 190 expired. However, Sluyter’s security was re-perfected by registration on or about November 26, 2018.

[11] Pursuant to the Appointment Order, the Receiver was appointed as receiver of, and took possession of, the Fixtures.

[12] On September 16, 2019, the Court made and Approval and Vesting Order (“AVO”) authorizing the Receiver to sell the Brockville Property, including the Fixtures, to a purchaser for $13 million and vesting the Brockville Property and Fixtures in the purchaser. The proceeds realized by the Receiver from the sale of the Brockville Property and the Fixtures were sufficient to pay all of 190’s creditors with security against the Brockville Property and Fixtures.

[13] The Receiver was required to hold proceeds pending the determination of, among other things, Sluyter’s claim to proceeds.

Analysis

[14] 190 disputes Sluyter’s claim to proceeds from the sale of the Brockville Property on the grounds that (a) the applicable limitation periods have expired and the claims of Sluyter (and Negotiart) are statute barred; (b) there is no debt owing to Sluyter because it effectively assigned the debt to Negotiart and the GSA was not assigned to Negotiart, such that any obligation owing by 190 to Negotiart is unsecured; and (c) alternatively, 190 owes Sluyter (and Negotiart) only $50,000 based on the Letter Agreement.

[15] The Limitations Act, 2002, provides in s. 4 that “[u]nless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered”. Sluyter acknowledges that the Limitations Act, 2002 applies to its claim under the Bill of Sale and its right to enforce the GSA over collateral other than fixtures, and that these claims are statute barred. Sluyter maintains, however, that its rights with respect to the Fixtures and the proceeds of sale of the Brockville Property involve a direct interest in land and are subject to a ten year limitation period as provided by the Real Property Limitations Act, R.S.O. 1990, c. L.15 (“RPLA”). This limitation period, if it applies, has not expired.

[16] I first address the limitation period issue.

[17] Sluyter relies on the fact that the Fixtures identified in the Bill of Sale are all fixtures which, at common law, were legally part of the Brockville Property to which they were attached when it was sold to the purchaser. Sluyter submits that its claim to enforce its charge and security interest in the Fixtures through its claim to proceeds of sale of the Brockville Property involves a direct interest in real property.

[18] The applicable limitation period for a claim for recovery out of land of a sum of money secured by a charge upon the land is the ten year period under s. 23(1) of the RPLA which provides:

No action shall be brought to recover out of any land or rent any sum of money secured by any mortgage or lien, or otherwise charged upon or payable out of the land or rent, or to recover any legacy, whether it is or is not charged upon land, but within ten years next after a present right to receive it accrued to some person capable of giving a discharge for, or release of it, unless in the meantime some part of the principal money or some interest thereon as been paid, or some acknowledgement in writing of the right thereto signed by the person by whom it is payable, or the person’s agent, has been given to the person entitled thereto or that person’s agent, and in such case no action shall be brought but within ten years after the payment or acknowledgement, or the last of the payments or acknowledgements if more than one, was made or given.

[19] Sluyter cites Home Trust Company v. The Corporation of the City of Kitchener, 2013 ONSC 2190 in support of its submission that its claim is to an interest in real property. This case involved a dispute between a land mortgagee and a secured creditor who claimed a security interest under the Personal Property Security Act, R.S.O. 1990, c. P.10 (“PPSA”) in an air conditioner which was a fixture. The air conditioner was taken by unknown persons before the mortgagee sold the property under power of sale and the secured creditor refused to discharge notice of its security without receiving payment for the value of the missing air conditioner. The mortgagee brought an application to discharge the notice of the secured creditor’s security interest. In his decision, the application judge referenced the secured creditor’s argument that it is entitled to proceeds of sale under s. 27 of the Mortgages Act as a subsequent encumbrancer and wrote, at para. 28, that “[t]he priorities referred to in fourthly of section 27 above are those established under the PPSA”. The application judge held that this issue was not one of competing priorities because the air conditioner had been removed when the land was sold, and that fairness and reasonable commercial expectations of the parties dictate that the secured creditor bear the loss in the circumstances. This case did not concern the limitation period for a claim to enforce a security interest in fixtures and the statement on which Sluyter relies is not a statement that such a claim is one involving an interest in land. The Home Trust decision does not assist me to determine the limitation period that applies to Sluyter’s claim.

[20] At common law, fixtures are choses in possession which are so affixed to the land as to become a part of it. Such choses in possession then lose the character of personal property. See Anne Warner La Forest, Anger & Honsberger Law of Real Property, Third Edition (Canada Law Book, September 2015) at p. 1-8. At common law, a person could not take a charge or mortgage on fixtures which were part of the real property.

[21] Sluyter did not have a mortgage over the Brockville Property. Sluyter’s interest in the Fixtures arose only under the GSA. In the GSA, 190 gave a fixed and specific mortgage and charge, and a security interest in, among other things, the Fixtures. The GSA provides that it is entered into pursuant to and is governed by the PPSA. The PPSA is, therefore, the starting point for the analysis.

[22] Section 2(a) of the PPSA provides that it applies to every transaction without regard to its form and without regard to the person who has title to the collateral that in substance creates a security interest. The term “security interest” means an interest in personal property that secures payment or performance of an obligation. The term “collateral” means “personal property that is subject to a security interest”: PPSA, s. 1(1).

[23] Section 4(1)(e) of the PPSA provides:

4(1) Except as otherwise provided under this Act, this Act does not apply,

(e) to the creation or assignment of an interest in real property, including a mortgage, charge or lease of real property, other than,

(i) an interest in a fixture, or

(ii) an assignment of a right to payment under a mortgage, charge or lease where the assignment does not convey or transfer the assignor’s interest in the real property;

[24] Section 34 of the PPSA addresses fixtures. Section 34(1) of the PPSA provides a statutory scheme for determining priority between the claim of a person who has a security interest in goods attached to real property that became a fixture and the claim of a person who has an interest in the real property. Section 34(1) provides that a security interest in “goods” that attached after the goods became a fixture has priority as to the fixture over the claim of any person who subsequently acquired an interest in the real property, but not over any person who had a registered interest in the real property at the time the security interest in the goods attached and who has not consented in writing to the security interest or disclaimed an interest in the fixture. The term “goods” is defined in the PPSA to mean “tangible personal property other than [specified types of personal property], and includes fixtures ...”.

[25] Section 34(3) of the PPSA provides that if a secured party has an interest in a fixture that has priority over the claim of a person having an interest in the real property, the secured party may, on default, remove the fixture from the real property if, unless otherwise agreed, the secured party reimburses any encumbrances or owner of the real property who is not the debtor for the cost of repairing any physical injury but excluding diminution in the value of the real property caused by the absence of the fixture or by the necessity for replacement.

[26] In Gari Holdings Ltd. v. Langham Credit Union Ltd., 2005 SKCA 97, 2005 CarswellSask 551 the Saskatchewan Court of Appeal, in addressing the section of the Saskatchewan Personal Property Security Act which is comparable to s. 34 of the PPSA, held, at para. 20, that the provision “is designed to displace the common law principle that goods affixed to land become part of the land”, a rule that the Court held “generally gives priority to a real property owner over a financier of goods”.

[27] Sluyter argues that the PPSA applies to land because, pursuant to the exclusion in s. 4(1)(e), it applies to fixtures. I disagree. The PPSA recognizes that goods attached to real property may retain their discrete character as personal property. The PPSA allows a secured party to take a security interest in tangible personal property, “goods” which became fixtures, something that was not allowed at common law. The security interest that the PPSA permits a secured party to take in goods which are fixtures is an interest in personal property. It is not an interest in real property.

[28] Sluyter points out that a mortgagee is able to enforce a charge over real property, including fixtures, subject to a ten year limitation period, and, Sluyter argues, it does not make sense that a secured creditor with a security interest in goods which are fixtures under the PPSA is subject to a shorter limitation period to enforce its security against the same fixtures. Sluyter submits that it would cause confusion if the limitation period applicable to claims against or in respect of real property was different from the limitation period applicable to claims by secured creditors under the PPSA against fixtures that formed part of that real property. In support of this submission, Sluyter relies on The Equitable Trust Company v. Marsig, 2012 ONCA 235.

[29] In Marsig, the appellant signed a guarantee that was included within a registered mortgage document. The mortgage went into default and the mortgagee exercised its power of sale. There was a deficiency and the mortgagee sued the appellant on the guarantee. The appellant submitted that the action on his guarantee was statute barred under the Limitations Act, 2002. He argued that the guarantee was a demand obligation which is subject to the two-year limitation period prescribed by the Limitations Act, 2002. Perell J., sitting as an ad hoc member of the Court of Appeal, held that a guarantee given in conjunction with a mortgage transaction affects real property law rights and he observed that guarantors, if they have made payments toward the mortgage debt, need to be served in mortgage enforcement proceedings because they have an equity of redemption and an interest in the mortgaged property. Perell J. held that the Limitations Act, 2002 does not apply because s. 43 of the RPLA applies to a claim on a guarantee in a mortgage instrument. Perell J. expressed the view, at para. 31, that “it would cause much more confusion and uncertainty in the law if the limitation period for enforcing the mortgage debt was different from the limitation period for enforcing guarantees of that debt”.

[30] In Marsig, Perell J. referred at para. 24 to Martin v. Youngson (1924), 55 O.L.R. 658 in which the Court of Appeal held that an action on a covenant to pay the mortgage debt in a mortgage was subject to the ten year limitation period for an action on “a covenant contained in a mortgage” and that a guarantee in a mortgage is also a covenant contained in a mortgage and is subject to the same limitation period. Perell J., relying on Martin, held that a guarantee given in conjunction with a mortgage transaction affects real property rights. He held a claim on such a guarantee is subject to the limitation period in the RPLA.

[31] I do not agree that the decision in Marsig provides guidance on the question of which statutory limitation period applies to Sluyter’s claim. In Marsig, the nature of the claim on the guarantee in the mortgage was the same as the nature of the claim for payment of the mortgage debt. Both were covenants contained in a mortgage instrument and both were subject to the same limitation period. In the case before me, the nature of the property interest which Sluyter seeks to enforce is different than the property interest of a land mortgagee. A mortgagee’s action on a charge in a mortgage is to enforce and realize on an interest in land, whereas a secured party’s action on a security interest in goods which are fixtures under the PPSA is to enforce and realize on an interest in personal property. I do not agree that it would cause confusion and uncertainty in the law for these claims to be subject to different statutory limitation periods.

[32] I conclude that Sluyter’s claim to enforce its charge and security interest in the Fixtures is not to recover money secured by a mortgage or lien on land, or otherwise charged upon or payable out of land. Sluyter’s claim is not subject to the ten year limitation period provided for by the RPLA. Sluyter’s claim is to enforce and realize on a security interest in personal property under the PPSA. This claim is subject to the two year limitation period in the Limitations Act, 2002. Sluyter had not commenced proceedings to enforce its rights under the GSA by August 29, 2018, the second anniversary of the date when payment of the secured indebtedness was due. Sluyter’s claim is statute barred.

[33] As a result of my decision on the limitation period issue, it is not necessary for me to decide whether Sluyter’s claim to proceeds from the sale of the Brockville Property should fail, or be limited to $50,000, on the other grounds advanced by 290.

Disposition

[34] For these reasons, I make an order declaring that (i) Sluyter’s claim to an interest in the proceeds of sale of the Brockville Property is subject to the limitation period in the Limitations Act, 2002, and (ii) this claim is statute barred. I ask parties to provide me with an approved form of order to give effect to my decision.

[35] If the parties are unable to resolve costs, 190 may make written submissions within 14 days. Sluyter may make responding submissions within 14 days thereafter. 190 may make brief rely submissions, if so advised, within 5 days thereafter.

Cavanagh J. Date: February 17, 2021