COURT FILE NO.: CV-20-00650557-00CL

DATE: 20210723

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CENTURION MORTGAGE CAPITAL CORPORATION, Plaintiff/Moving Party

AND:

BRIGHTSTAR NEWCASTLE CORPORATION, BRIGHTSTAR SENIORS LIVING CORPORATION, THE ESTATE OF ALAN CHAPPLE, JOHN BLACKBURN, JAMES BUCKLER, and LAWYSON GAY, Defendants

BEFORE: Justice Cavanagh

COUNSEL: Michael R. Kestenberg, Thomas M. Slahta, and Dominique Michaud, Counsel for the Plaintiff /Moving Party

R. Bevan Brooksbank and Leah Mangano, Counsel for The Guarantee Company of North America, Responding Party

HEARD: March 22, 2021

ENDORSEMENT

Introduction

[1] The plaintiff and moving party, Centurion Mortgage Capital Corporation (“Centurion”) brings this motion for determination of a mortgage priority dispute with The Guarantee Company of North America (“GCNA”). Each of Centurion and GCNA registered a mortgage against title to a property owned by Brightstar Newcastle Corporation (“Brightstar”) for the purpose of financing Brightstar’s development of a condominium project.

[2] For the following reasons, I conclude that the Centurion mortgage has priority over the GCNA mortgage, except with respect to purchasers’ deposits which are also subject to GCNA’s prior security interest under the Personal Property Security Act.

Factual Background

[3] I set out below some of the background facts to this priority dispute which are taken from documents in evidence.

Centurion and Brightstar Financing Agreement

[4] Centurion issued a Mortgage Financing Commitment dated March 3, 2016 to Brightstar (the “Centurion Commitment”) for the purpose of financing Brightstar’s construction of a 78-unit condominium development (the “Project”) on lands and premises known municipally as 21 Brookside Drive, Newcastle, Ontario (the “Property”). Brightstar accepted Centurion’s Financing Commitment on or about March 3, 2016.

[5] Centurion was represented in respect of the financing provided to Brightstar by a lawyer at Garfinkle Biderman LLP, Jeremy Mandell (“Mandell”).

[6] At the time of execution of the Centurion Commitment, Brightstar had not yet closed on primary construction financing, although it had secured a primary construction financing commitment from Meridian Credit Union Limited (“Meridian”).

[7] Bruce Milburn (“Milburn”), a lawyer at Schneider Ruggiero LLP (“SR Law”), was acting for Brightstar in respect of the Centurion second mortgage financing. Milburn also acted as counsel for GCNA in respect of a 2016 Tarion and Excess Condominium Deposit Insurance (“ECDI”) Credit Facility.

[8] Mandell forwarded a copy of the Centurion Commitment to Milburn. Sometime after doing so, Milburn told Mandell that GCNA would be providing ECDI financing to Brightstar to enable it to use purchasers’ deposits for approved costs or to make payment to the construction lender, and that GCNA’s financing was to be secured by, among other things, a mortgage against the Property.

[9] The Centurion Commitment provides that Centurion would have a second-ranking mortgage in the principal amount of $4,565,000 on the Property which Centurion agreed to subordinate to the primary construction financing. Centurion would also receive a general security agreement granting it a security interest in all personal property, assets and undertaking of Brightstar subject only to a prior ranking security interest in favour of the primary construction lender and a prior ranking security interest in favour of the ECDI Provider (GCNA) in respect of all unit purchasers’ deposits in respect of the Project.

[10] Prior to execution of the Centurion Commitment, Brightstar, Guarantee Company of North America (“GCNA”) and Schneider Ruggiero LLP (“SR Law”) executed a Deposit Trust Agreement effective March 31, 2014 (the “Deposit Trust Agreement”). The Deposit Trust Agreement provided, in part, that Deposit Monies received in respect of the Condominium Unit Project would be held in a designated trust account maintained by SR Law. Brightstar granted GCNA a security interest in all “Deposits” received together with all interest earned or accrued thereon. The term “Deposits” was defined to have the meaning ascribed to this term in Part I(1) of Regulation 892 to the Ontario New Home Warranties Plan Act.

[11] GCNA registered a financing statement on April 9, 2014 in accordance with the PPSA to perfect its security interest in the Deposits.

[12] By May 2016, Centurion and Mandell were aware that in addition to the Centurion second mortgage financing, Brightstar had entered into the Deposit Trust Agreement further to which GCNA had registered a security interest under the PPSA in respect of the Deposits, and that Brightstar would be entering into two other financing transactions, one in favour of Meridian (the primary construction lender) and another in favour of GCNA.

Email communications between Mandell and Milburn in April and May 2016

[13] On April 13, 2016, Mandell delivered a requisition letter to Milburn which included, among other things, the requirement that Centurion be provided with a priority agreement from Brightstar’s ECDI provider, GCNA, confirming an obligation on GCNA to release unit purchaser deposits to finance construction, regardless of a default under the ECDI facility.

[14] On May 9, 2016 Milburn provided Mandell with GCNA’s form of priority agreement with respect to GCNA’s anticipated mortgage security along with GCNA’s form of subordination agreement as it related to the GCNA PPSA Security and the Centurion PPSA Security.

[15] GCNA’s form of mortgage priority agreement forwarded to Mandell by Milburn on May 9, 2019 provided that GCNA’s mortgage would be postponed and subordinate to the mortgage of the other lender (described in this form of agreement as the “Construction Lender”), except in respect of the deposit monies received from time to time from purchasers of dwelling units in the Project and accrued interest charges (defined as “Deposit Monies”).

[16] Similarly, the draft subordination agreement with respect to the PPSA registered security also provided that the Centurion PPSA Security would rank in priority to the GCNA PPSA Security, except with respect to the Deposits.

Completion of Centurion second mortgage financing transaction

[17] GCNA and Centurion executed a PPSA Subordination Agreement dated May 13, 2016 by which GCNA subordinated GCNA’s security interest to Centurion’s security interest, save and except for the Deposits (the “PPSA Subordination Agreement”).

[18] The Centurion second mortgage financing transaction was completed on May 17, 2016. Centurion registered a charge/mortgage securing repayment of the principal sum of $4,565,000 plus interest against the Property on or about May 17, 2016 (the “Centurion Mortgage”).

Email communications between Milburn and Mandell in June and July 2016 in connection with completion of GCNA’s ECDI credit facility mortgage financing

[19] On June 2, 2016, Milburn sent to Mandell an email attaching a form of mortgage priority agreement and a form of Acknowledgement and Direction for the postponement of the Centurion Mortgage. In his email, Milburn stated that GCNA had previously signed Centurion’s form of priority agreement, although this statement was incorrect. The form of mortgage priority agreement was substantively the same as the one provided by Milburn to Mandell on May 9, 2016. Milburn asked Mandell to have these documents signed and returned at his earliest opportunity.

[20] On June 8, 2016, Mandell sent Milburn both a signed mortgage priority agreement and a signed Acknowledgement and Direction for the postponement of the Centurion Mortgage (the “Postponement Acknowledgement”). The form of mortgage priority agreement provides that Centurion’s mortgage security has priority over GCNA’s mortgage security except in respect of Deposit Monies in respect of which the GCNA security shall have priority for so long as, and to the extent that, such Deposit Monies shall remain in trust pursuant to the provisions of the Deposit Trust Agreement.

[21] On July 12, 2016, Milburn sent an email to Mandell in connection with the closing of the GCNA financing transaction in which he states that he has the mortgage priority agreement signed by Centurion, but the Postponement Acknowledgement remains outstanding. Milburn asked Mandell to provide this document as soon as possible. Mandell evidence is that he sent Milburn another signed Postponement Acknowledgement on July 12, 2016 although the email transmitting this document is not attached to Mandell’s affidavit and GCNA does not have a copy of this email. Nothing turns on this because GCNA received the signed Postponement Acknowledgment.

GCNA financing commitment with Brightstar

[22] GCNA issued two credit instruments to Brightstar with respect to the Project. On or around March 27, 2014 GCNA entered into a commitment letter with Brightstar to provide a bond in favour of Tarion Warranty Corporation for the Project and ECDI policies for the Project.

[23] Under this commitment letter, GCNA required Brightstar to provide a collateral mortgage registered against the lands on which the Project was to be constructed subordinate only to the mortgage registered by Brightstar’s lender at the time.

[24] GCNA agreed to defer registration of the GCNA mortgage against the Project lands until Brightstar was ready to commence construction of the Project, at which time Brightstar was expected to request the release of Deposits from trust to assist in financing the Project’s construction.

[25] On or around March 29, 2016, GCNA and Brightstar executed a further amended and restated commitment letter. The modifications did not amend GCNA’s requirement for a Deposit Trust Agreement and a second-ranking mortgage as security for the Project.

Completion of GCNA financing transaction

[26] On July 13, 2016 GCNA registered the GCNA mortgage from Brightstar securing the principal amount of $4,100,000 and the Postponement Acknowledgement.

Emails between Mandell and Milburn in September 2016

[27] On September 8, 2016, Mandell sent an email to Milburn advising that he did not have a signed copy of the GCNA mortgage priority agreement (and a sworn copy of a statutory declaration) and asked Milburn to send him these documents.

[28] Milburn replied to this email on September 8, 2016 and forwarded the sworn statutory declaration. With respect to the mortgage priority agreement, Milburn stated “I don’t think we ended up using GCNA’s form of priority agreement but I can get it signed and return a copy to you. We relied on the attached subordination agreement which could have been called a priority agreement”. There was no subordination agreement attached to Milburn’s email.

[29] Milburn did not send a signed mortgage priority agreement to Mandell. Mandell did not follow up.

Internal email correspondence between GCNA and Milburn in July 2016

[30] On July 14, 2016, Alistair Cartwright, an employee of GCNA, sent an email to Milburn noting that he had received a copy of a priority agreement signed by Centurion but that it did not reflect GCNA’s agreement with Brightstar because it provided that the GCNA security is subordinate to that of Centurion. Mr. Cartwright asked Milburn whether it would be possible to revise the Centurion agreement to provide that the Centurion security is subordinate to that of GCNA.

[31] In his email sent in response the same day, Milburn, in reference to the mortgage priority agreement he sent to GCNA for execution, asked Mr. Cartwright to “please disregard that document” because it was prepared when Centurion first went on title as the sole construction lender and that Centurion had been replaced by Meridian. Milburn stated that GCNA has a prior ranking mortgage to that of Centurion.

[32] Milburn did not inform Mandell that he had given this advice to GCNA.

Communications in August and September 2019

[33] In August 2019, David Spencer, another lawyer at SR Law, advised that Brightstar was ready to close and transfer title to numerous units. Spencer sent an email dated August 21, 2019 setting out GCNA’s position with respect to disbursement of closing funds and indicated that GCNA requires $780,000 to secure its bond.

[34] By email dated September 4, 2019, Mandell advised that Centurion does not agree with the proposed payout priorities.

[35] On September 10, 2019, Mandell sent an email to Milburn, after having reviewed GCNA’s commitment with Brightstar and what he said was the “Priority Agreement” between Centurion and GCNA, and advised that the priority agreement “seems to clearly subordinate Centurion to the deposit monies only”. Milburn responded on September 10, 2019 and, in his response, advised that “[s]o long as the deposits remain in trust GCNA maintains priority over such funds ahead of Centurion”. Mandell responded and asked whether the GCNA deposits are remaining in the deposit trust account.

[36] On September 11, 2019, Milburn sent an email to Mandell and he wrote:

Further to our phone conversation of a few minutes ago that included Centurion personnel, I confirm that the August 10, 2019 discharge statement (I believe that is the date of the statement your client mentioned) is no longer valid. At the time it was based on the best information was available to us. Under the terms of the GCNA commitment letter all of the deposits would have been released into the project and GCNA would have secured the $780,000 from the last sales closings. Since then there has been a change and GCNA will not release any more of the deposits into the project. Therefor (sic) the $780,000 flow of funds back to GCNA will not take place. I understand Centurion saw this flow of funds as improper as they would have priority to those funds and they are correct in that thinking. I now understand Jeremy that it was on this premise that you are asking your questions but that was not apparent to me at the time. I apologize for any confusion on this matter.

Notification of GCNA’s position with respect to priority

[37] The distribution of proceeds of sale was not agreed upon and the matter was referred to litigation counsel. Mandell was advised through litigation counsel that GCNA’s position was that it holds a mortgage in priority to Centurion’s mortgage in respect of all amounts owed by Brightstar to GCNA.

The Escrow Agreement

[38] To address the dispute regarding the relative priority of the Centurion Mortgage and the GCNA Mortgage, Centurion and GCNA entered into an Omnibus Agreement dated November 1, 2019 (the “Escrow Agreement”) wherein certain proceeds from the sale of units were held in trust by SR Law as the escrow agent pending resolution of the priority dispute.

[39] Centurion and GCNA proceeded to allow Brightstar to sell the units of the Project in order to repay the first mortgagee, Meridian. This was done in accordance with the Escrow Agreement.

[40] By email dated November 2, 2020, Milburn confirmed that $1,279,297.28 was held in the escrow account pending resolution of the priority dispute.

Analysis

[41] The issues on this motion are:

a. Whether the Centurion Mortgage has priority over the GCNA Mortgage because (i) GCNA is bound by the terms of a priority agreement made in May 2016 by its counsel on its behalf; or (ii) GCNA is estopped, in the circumstances, from asserting priority of its mortgage over the Centurion Mortgage?

b. Whether Centurion requires an order for rectification of the Postponement Acknowledgement?

c. Whether Centurion’s claim to priority is statute barred.

Was a priority agreement made in May 2016 on behalf of GCNA and Centurion?

[42] Centurion submits that the evidence shows that an agreement was made in May 2016 between Mandell, counsel for Centurion, and Milburn, counsel for GCNA, on behalf of their respective clients, that the GCNA Security (comprised of the GCNA PPSA Security and the GCNA Mortgage) would have priority in respect of Deposits, and the Centurion Security (comprised of the Centurion PPSA Security and the Centurion Mortgage) would have priority in respect of all other property and assets of Brightstar.

[43] Milburn and Mandell, as lawyers for GCNA and Centurion, respectively, had authority to make agreements with respect to matters falling within the apparent scope of their authority which included the authority to make an agreement with respect to the relative priority of the security to be given by Brightstar to each of GCNA and Centurion. This is based on the following principle stated in Scherer v. Paletta, 1996 CanLII 286 (ONCA), at para. 4:

A client, having retained a solicitor in a particular matter, holds that solicitor out as his agent to conduct the matter in which the solicitor is retained. In general, the solicitor is the client’s authorized agent in all matters that may reasonably be expected to arise for decision in the particular proceedings for which he has been retained. Where a principal gives an agent general authority to conduct any business on his behalf, he is bound as regards third persons by every act done by the agent which is incidental to the ordinary course of such business which falls within the apparent scope of the agent’s authority.

[44] In his December 17, 2020 affidavit, Mandell provided the following evidence:

a. After the Centurion Commitment was made on March 3, 2016, Mandell learned that Milburn at SR Law was acting for Brightstar in respect of the Centurion second mortgage financing. SR Law also acted as counsel for GCNA in respect of a Tarion Bond and EDCI Credit facility. Mandell provided Milburn with a copy of the Centurion Commitment. The Centurion Commitment shows that Brightstar agreed that Centurion’s loan would be secured by a second charge/mortgage against the Property and that primary construction financing would be entitled to a first charge/mortgage against the Property.

b. By May 2016, Mandell knew that Brightstar had entered into the Deposit Trust Agreement further to which GCNA had registered a security interest under the PPSA in respect of the Deposits.

c. On April 13, 2016, Mandell delivered a requisition letter to Milburn which required that Brightstar provide Centurion with a priority agreement with Brightstar’s EDCI provider confirming an obligation on ECDI provider, which he knew to be GCNA, to release unit purchaser deposits to finance construction regardless of a default under the ECDI facility.

d. On May 9, 2016, Milburn, acting as counsel for GCNA, provided to Mandell GCNA’s form of priority agreement with respect to mortgage security along with GCNA’s form of subordination agreement as it related to GCNA’s and Centurion’s PPSA security. In his email, Milburn asked whether Mandell had another form of priority agreement he preferred and advised that the attached form of priority agreement was one with which GCNA was comfortable and “which will be used once GCNA security is registered on title”. The form of priority agreement attached to Milburn’s email provided that Centurion’s mortgage security against the Property would rank ahead of GCNA’s mortgage security, except with respect to the “Deposit Monies”.

e. Centurion was willing to accept the relative priorities set out in the draft mortgage priority agreement and the PPSA subordination agreement.

f. GCNA and Centurion executed a PPSA Subordination Agreement dated May 13, 2016 by which GCNA subordinated GCNA’s security interest to Centurion’s security interest, save and except for the Deposits.

g. The Centurion second mortgage financing transaction closed on or about May 17, 2016 and the Centurion Mortgage was registered against the Property. As GCNA’s financing transaction had not been completed and no GCNA mortgage had been registered, it was not necessary for Centurion to insist on delivery of an executed mortgage priority agreement as a condition of completing the mortgage transaction with Brightstar. Centurion advanced funds to Brightstar.

[45] Richard Longland, the Vice President of Commercial and Developer Surety at GCNA provided evidence on behalf of GCNA. He states in his affidavit that GCNA’s commitment with Brightstar provided that GCNA was to have second-ranking mortgage security subordinate only to the mortgage of the primary construction lender, Meridian. Mr. Longland’s evidence is that GCNA would only enter into the form of mortgage priority agreement sent by Milburn to Mandell on May 9, 2016 and on June 2, 2016 with the primary, first-ranking construction lender and not with a lender whose mortgage was to be subordinate to GCNA’s mortgage. Mr. Longland’s evidence is that if GCNA had known that Centurion would take the position that the Postponement Acknowledgement did not postpone the Centurion Mortgage in its entirety, GCNA would not have extended the GCNA credit facility and would have taken steps to ensure that it received the security agreed to in the GCNA Commitment.

[46] In his February 4, 2021 affidavit, Mandell responded to Mr. Longland’s affidavit. Mandell provided the following additional evidence with respect to his communications with Milburn in May 2016:

a. As he had stated in his first affidavit, neither Milburn nor anyone else at GCNA asked him to obtain Centurion’s agreement to postpone the Centurion Mortgage to the entirety of the GCNA Mortgage.

b. Some time prior to May 9, 2016, Milburn and Mandell discussed a limited postponement of the Centurion Mortgage. In those discussions, Milburn asked that Centurion agreed to postpone its mortgage to a GCNA mortgage to a limited extent - only to the extent of purchasers’ deposits.

c. Mandell received the GCNA Commitment on the same day, May 9, 2016, that Milburn provided him with GCNA’s form of mortgage priority agreement which would limit GCNA’s mortgage priority to the “Deposit Monies”. He received the GCNA Commitment in conjunction with Milburn’s request that Centurion postpone its mortgage to a GCNA mortgage only with respect to purchasers’ deposits.

d. Milburn and Mandell discussed and agreed that the mortgage priorities and the PPSA priorities would be the same - Centurion’s PPSA security and the Centurion Mortgage would take priority to GCNA’s PPSA security and mortgage security, except with respect to purchasers’ deposits.

[47] GCNA submits that the evidence does not support a finding that Milburn entered into an agreement with Mandell on behalf of their respective clients, GCNA and Centurion, by which GCNA and Centurion agreed that the Centurion mortgage and PPSA security would have priority over the GCNA mortgage and PPSA security, except with respect to purchasers’ deposits. GCNA submits that the evidence upon which Centurion relies for such an agreement consists of an unexecuted priority agreement and vague references to verbal discussions, none of which were reduced to writing. GCNA contends that the draft priority agreement sent by Milburn to Mandell on May 9, 2016 that provided that GCNA would postpone its mortgage security except with respect to the Deposits did not make logical sense in the circumstances because GCNA did not yet have a mortgage registered, so there was no need for an agreement to postpone.

[48] I disagree that because GCNA did not have a mortgage registered on May 9, 2016 when Milburn sent the draft priority agreement, an agreement by which GCNA would agree to subordinate its mortgage security to Centurion’s mortgage security, except for Deposits, did not make sense. On May 9, 2016, GCNA had already registered its PPSA security, and Centurion, which was also taking PPSA security from Brightstar under the Centurion Commitment, needed to obtain GCNA’s agreement to subordinate its PPSA security to Centurion’s PPSA security, except for Deposits, in order for Centurion to receive the security provided for in the Centurion Commitment. Mandell and Milburn both knew that Centurion and GCNA would each be taking mortgage security from Brightstar, also Milburn’s client, and it makes sense that they would discuss the relative priorities for the mortgage security to be given by Brightstar to Centurion and to GCNA. This is particularly so because the Centurion Commitment and the GCNA Commitment which, on May 9, 2016, were in the possession of both Milburn and Mandell, each provided for second ranking mortgage security for Centurion and for GCNA.

[49] In his May 9, 2016 email to Mandell, Milburn expressly states that the mortgage priority agreement in the form provided “will be used once the GCNA security is registered on title” and that the PPSA Subordination Agreement will be provided by GCNA “at this time”. Milburn makes it clear in this email that the PPSA Subordination Agreement will be given by GCNA at the time of completion of the Centurion financing, because GCNA already had perfected its security interest under the PPSA, whereas the mortgage priority agreement whereby Centurion would have priority over the GCNA mortgage security except the Deposits would only be needed once the GCNA mortgage security is registered on title. This makes sense in the context of the discussions as explained by Mandell in his affidavits.

[50] The statements in Mandell’s affidavits are not vague references to oral discussions with Milburn. To the contrary, Mandell clearly and unequivocally states that he discussed with Milburn the relative priorities of the Centurion and GCNA mortgage and PPSA security and they agreed that the Centurion security would have priority, except with respect to purchasers’ deposits. Milburn’s May 9, 201 email supports such an agreement. The draft mortgage priority agreement sent by Milburn to Mandell on May 9, 2016 and the PPSA Subordination Agreement dated May 13, 2016 are consistent with such an agreement.

[51] Milburn did not give evidence on this motion by affidavit or as a witness on a pending motion. If Mandell was being untruthful or was mistaken in his evidence concerning his discussions with Milburn about the relative priorities of the security to be given by Brightstar to their respective clients, Milburn was in a position to say so. Centurion submits that I should draw an adverse inference from the failure of Milburn to give evidence on this motion.

[52] GCNA submits that an adverse inference as a result of the failure of GCNA to tender evidence from Milburn is not warranted. GCNA submits that Mandell’s evidence about his conversations with Milburn are vague and not recorded in emails, notes, or calendar invitations showing when the alleged conversations took place. GCNA also submits that little weight should be given to Mandell’s evidence about his discussions with Milburn.

[53] It was open to GCNA to tender evidence from Milburn to contradict the evidence given by Mandell. GCNA did not do so. Milburn would have knowledge of the relevant facts and would be assumed to be willing to assist GCNA. No explanation was offered for the decision not to tender evidence from Milburn. In these circumstances, I draw an inference that had Milburn given evidence, his evidence would have been unfavourable to GCNA. See Sidney N. Lederman, Alan W. Bryant & Michelle K. Fuerst, Sopinka, Lederman & Bryant: The Law of Evidence in Canada, Fourth Edition, (LexisNexis Canada Inc., 2014), at §§6.450-6.451.

[54] The Centurion mortgage financing transaction with Brightstar was completed on May 17, 2016 and Centurion’s mortgage was registered on that day. There is no evidence from Milburn or anyone else representing GCNA that Centurion was asked and agreed to postpone its mortgage security to the entirety of GCNA’s mortgage security to be registered later. Mandell’s evidence is that no such request was made on behalf of GCNA. In the absence of any such agreement, Centurion would have had no obligation to postpone or subordinate its mortgage security to the entirety of GCNA’s mortgage security, particularly given that the Centurion Commitment with Brightstar provided for Centurion to have second ranking mortgage security behind the primary construction lender.

[55] Mandell’s evidence of his discussions with Milburn that resulted in their agreement that the Centurion mortgage and PPSA security would have priority over the GCNA mortgage and PPSA security, except for Deposits, is uncontradicted. Mandell was cross-examined on this evidence and he did not resile from it. Milburn’s May 9, 2016 email states that the form of mortgage priority agreement he sent “will be used once the GCNA security is registered on title”. This email, and the forms of agreements attached to it, confirm Mandell’s evidence that he and Milburn agreed that Centurion’s mortgage and PPSA security would have priority over GCNA’s mortgage and PPSA security, except for deposits.

[56] I accept Mandell’s evidence and find that in May 2016, he and Milburn agreed, on behalf of their respective clients, Centurion and GCNA, that the Centurion PPSA and mortgage security would have priority over the GCNA PPSA and mortgage security, except for Deposits.

[57] Mandell’s evidence that he arranged for Centurion to execute and return to GCNA the mortgage priority agreement and the Postponement Acknowledgement, which Milburn had requested be signed and returned to him, shows that these two documents were, as Mandell put it, a “package deal”. Centurion had not previously agreed to postpone its registered mortgage to the entirety of GCNA’s mortgage, and, absent such an agreement, there would be no commercial reason for it to do so. Milburn did not suggest in email correspondence to Mandell that GCNA did not intend to be bound by the mortgage priority agreement. His email to Mandell asking Centurion to sign and return this agreement with the Postponement Acknowledgement is evidence that GCNA intended to sign the mortgage priority agreement. I find that these documents, together, were delivered by Centurion to GCNA to give effect to the prior agreement made between Mandell and Milburn.

[58] GCNA does not raise the Statute of Frauds as a basis to oppose this motion. I am satisfied that there were acts by Centurion which fulfill the purpose of the agreement made between Mandell and Milburn and qualify as part performance. In these circumstances, the Statute of Frauds does not apply to prevent enforcement of this agreement. See Erie Sand and Gravel Limited v. Seres Farms Limited (2009), 2009 ONCA 709, 97 O.R. (3d) 241 (C.A.), at paras. 48-49.

[59] The agreement made by Milburn and Mandell on behalf of their respective clients required the parties to execute and deliver both the mortgage priority agreement and the Postponement Acknowledgement. It was not open to GCNA to register and rely upon the Postponement Acknowledgement without accepting the agreed qualification provided for by the mortgage priority agreement that Milburn had requested, and that Centurion had executed and delivered at the same time as it delivered the Postponement Acknowledgment.

Is GCNA precluded by application of the doctrines of proprietary estoppel or promissory estoppel from relying on the registered mortgage postponement to assert that the Centurion Mortgage was postponed and subordinated to the entirety of the GCNA Mortgage?

[60] Centurion relies, in the alternative, on the doctrines of proprietary estoppel and promissory estoppel in support of its submission that GCNA is precluded from relying on the registered Postponement Acknowledgement without accepting the limitations that it agreed to as set out in the form of mortgage priority agreement that Milburn asked Centurion to sign and return.

[61] In Cowper-Smith v. Morgan, [2017] 2 S.C.R. 61, McLachlin C.J., writing for the majority, described proprietary estoppel as a principle of equity that applies when (1) a representation or assurance is made to the claimant, on the basis of which the claimant expects that he will enjoy some right or benefit over property; (2) the claimant relies on that expectation by doing or refraining from doing something, and his reliance is reasonable in all the circumstances; and (3) the claimant suffers a detriment as a result of his reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on her word: Cowper-Smith, at para. 15.

[62] In Cowper-Smith, McLachlin C.J. held, at para. 16, that proprietary estoppel protects the equity, which in turn protects the claimant’s reasonable reliance. Like other estoppels, proprietary estoppel avoids the unfairness or injustice that would result to one party if the other were permitted to break her word and insist on her strict legal rights. McLachlin C.J. quoted with approval the following passage from the decision of Lord Denning M.R. in Amalgamated Investment & Property Co. (in Liquidation) v. Texas Commerce International Bank Ltd., [1982] 1 Q.B. 84 (C.A.), at p. 122:

When the parties to a transaction proceed on the basis of an underlying assumption - either of fact or of law - whether due to misrepresentation or mistake makes no difference - on which they have conducted the dealings between them - neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands.

[63] GCNA submits that the doctrine of proprietary estoppel is inapplicable because the estoppel must arise from inducements by the owner of the land. In support of this submission, GCNA relies on the decision of the Court of Appeal in Oakville (Town) v. Sullivan, 2021 ONCA 1, at para. 32, where the Court of Appeal, in describing the elements that must be established for proprietary estoppel, states that the estoppel must arise from inducements by the owner of land. The Court of Appeal did not address the decision in Cowper-Smith in its decision. In Sullivan, the inducements upon which the respondents relied were made by the owner of the land so the issue of whether the person making the inducement must be the owner of the land did not arise in that case.

[64] In Cowper-Smith, the person making the inducement lacked an ownership interest in the property at the time of the assurance or when the claimant relied on the assurance. McLachlin C.J. held, at para. 15, that “an inchoate equity arises the time of detrimental reliance on a representation or assurance” and “[w]hen the party responsible for the representation or assurance possesses an interest in the property sufficient to fulfill the claimant’s expectation, proprietary estoppel may give effect to the equity by making the representation or assurance binding”. The Court held, at para. 22, that “proprietary estoppel may prevent the inequity of an unrequited detriment where a claimant has reasonably relied on an expectation that he will enjoy a right or benefit over property, even when the party responsible for that expectation does not own an interest in the property at the time of the claimant’s reliance”. On the authority of Cowper-Smith, I conclude that for proprietary estoppel to be established, it is not essential that the person making the assurance be the owner of the property at the time of the claimant’s reliance.

[65] GCNA submits that, in any event, the assurance upon which Centurion relies was not sufficiently clear and unambiguous for Centurion to have relied on it and that it was not intended to have been taken seriously.

[66] The assurance made by Milburn, based on the uncontradicted evidence of Mandell, is clear and unambiguous. The form of mortgage priority agreement sent by Milburn to Mandell with his May 9, 2016 email (that he wrote “will be used once the GCNA security is registered on title”) clearly conveys that Centurion’s mortgage security is to have priority over GCNA’s mortgage security except for Deposits. Centurion had registered its mortgage before GCNA’s mortgage financing was completed, and there would be no commercial reason for Centurion to postpone and subordinate its mortgage security in its entirety to GCNA’s mortgage security without a prior agreement. It is clear from the evidence that Mandell relied on the assurance given by Milburn that Centurion would only be subordinating its mortgage security to GCNA’s mortgage security with respect to Deposits and that Mandell relied on this assurance when he sent the mortgage priority agreement and Postponement Acknowledgement as executed by Centurion. I find that Centurion reasonably relied on the Milburn’s assurance. It would be manifestly unfair and unjust for GCNA to go back on the assurance given by Milburn on its behalf.

[67] If I had not concluded that an agreement was made by which GCNA agreed that the PPSA and mortgage security given by Brightstar to Centurion would have priority over GCNA’s PPSA and mortgage security, except for Deposits, I would hold that GCNA is precluded by the doctrine of proprietary estoppel from relying on the Postponement Acknowledgment without giving effect to the form of mortgage priority agreement that it asked Centurion to sign together with the Postponement Acknowledgment.

[68] I do not find it necessary to address the submissions with respect to promissory estoppel.

Does Centurion require an order under s. 159 of the Land Titles Act to rectify the register to give effect to rectification of the Acknowledgment and Direction?

[69] GCNA submits that Centurion needs to obtain an order for rectification of the Postponement Acknowledgement and that such an order is required for the court to rectify the property register for the Property under s. 159 of the Land Titles Act.

[70] Centurion does not seek rectification of the Postponement Acknowledgement. Centurion seeks an order to remedy GCNA’s breach of the agreement by executing only the Postponement Acknowledgment and registering it on title without accepting the restrictions to which it had agreed as set out in the form of mortgage priority agreement that it asked Centurion to sign. This order may be made without an order for rectification of the Postponement Acknowledgement.

Is the relief sought by Centurion on its motion statute-barred?

[71] GSNA submits that the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B (the “Limitations Act”) applies to the relief sought by Centurion on its motion.

[72] Under the Limitations Act, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. A claim is discovered on the earlier of (a) the day on which the person with the claim first knew (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to remedy it, and (b) the day in which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

[73] GCNA submits that nothing changed between September 8, 2016 and August 21, 2019, when the proposed distribution of funds was issued. As of September 8, 2016, Mr. Mandell knew that the GCNA mortgage had been placed on title, the Postponement Acknowledgement had been registered, and that GCNA had not signed the priority agreement. GCNA submits that these facts, known to Centurion, were contrary to the agreement upon which Centurion relies for the relief sought on this motion and, to the extent that the Postponement Acknowledgement departed from this agreement, Centurion’s claim had crystallized and was known.

[74] The Escrow Agreement was entered into on November 1, 2019 which had the effect of a standstill to preserve the status quo vis-à-vis the priority dispute. Centurion issued its Statement of Claim on October 30, 2020 and sought a receivership over Brightstar. Centurion brought this motion on December 17, 2020.

[75] GCNA submits that Centurion’s claim was discovered by September 8, 2016 and the limitation period expired two years later. GCNA submits that the relief sought by Centurion on this motion is statute barred and, on this basis alone, its motion should be dismissed.

[76] Mandell’s evidence is that he did not know that GCNA took that position that it had priority over the Centurion Mortgage until August or September 2019 when he had email communications with a lawyer at SR Law about the proposed payout from net proceeds of sale of condominium units and he was informed by litigation counsel retained by Centurion that GCNA’s counsel had taken the position that GCNA holds a second mortgage in priority to the Centurion Mortgage in respect of all amounts owed by Brightstar to GCNA, not just with respect to Deposits.

[77] Centurion submits that the claim for the relief sought on this motion was discovered no earlier than August 2019 and that this motion was brought by Notice of Motion dated December 17, 2020, well within the limitation period.

[78] Mandell’s evidence is that although Milburn did not provide a signed mortgage priority agreement as he had offered to do in his September 8, 2016 email, Mandell did not press him because it was clear to him that Milburn had acknowledged that Centurion’s security, including the Centurion Mortgage, had priority over GCNA’s security, including mortgage security, except for the Deposits.

[79] The Postponement Acknowledgement signed by Centurion and returned to GCNA on June 8, 2016 (together with the signed mortgage priority agreement) is not qualified and does not refer to the mortgage priority agreement. Mandell’s evidence is that in his practice, he does not insist that a registered mortgage postponement contain all the terms of the agreement between the parties relating to priorities and he is content to rely on a separate agreement delineating the parties’ agreement respecting mortgage priorities between the mortgages referenced in the postponement. Mandell’s evidence is that he had such an agreement with Milburn which was reflected in GCNA’s form of mortgage priority agreement sent to him by Milburn (together with the Postponement Acknowledgement).

[80] Mandell’s evidence is that from his perspective, the mortgage priority agreement and the Postponement Acknowledgement were a “package deal” and that the Postponement Acknowledgement was subject to the mortgage priority agreement. His evidence is that Milburn never indicated to him that he took a contrary view. In this regard, Mandell refers to an email dated July 12, 2016 from Milburn in response to Mandell’s June 8, 2016 email sending the two signed documents. Milburn asks for a signed Postponement Acknowledgment for the postponement only, and acknowledges “we have the priority agreement”. He did not express disagreement with any of its terms. Mandell sent another copy of the Postponement Acknowledgment on July 12, 2016.

[81] Mandell’s evidence is that based on his communications with Milburn prior to August/September 2019, he had no reason to question that GCNA and Centurion had agreed that the Centurion Mortgage was postponed to the GCNA Mortgage only with respect to unit purchasers’ deposits.

[82] GCNA relies on answers given by Mandell on his cross-examination in which he agreed that he reviewed the Postponement Acknowledgement before Centurion signed it and he recognized that it gave effect to the GCNA restated commitment and did not refer to any form of priority agreement or limit its effect to the Deposits. Mandell agreed that he did not request that the Postponement Acknowledgement by so limited and that he expected Milburn to register the Postponement Acknowledgment. These answers are not inconsistent with Mandell’s affidavit evidence.

[83] Based on his communications with Milburn, there was no reason for Mandell to question his understanding that GCNA had agreed that the Centurion Mortgage would have priority to the GCNA Mortgage except for Deposits until GCNA’s position became clear in September 2019. I find that Mandell did not know that GCNA’s position was that it is entitled to rely on the postponement Acknowledgement, without also agreeing to the terms of the mortgage priority agreement, until he was informed of this fact in September 2019.

[84] I also conclude that a reasonable person with the abilities and in the circumstances of Mandell would not have known that GCNA’s position is that the Centurion Mortgage was postponed in its entirety to the GCNA Mortgage until no earlier than August or September 2019.

[85] Centurion’s claim is not statute barred.

Does Centurion have priority over GCNA with respect to proceeds from the sale of condominium units on the basis that GCNA’s priority is limited to Deposits?

[86] At the hearing of this motion, counsel agreed that, having regard to the Escrow Agreement, the form of order to be made will depend on my decision with respect to the priority dispute and, if the parties are unable to agree on the form of order, further submissions may be needed.

What is the appropriate remedy?

[87] In its Notice of Motion, Centurion asks for an order declaring that the registered GCNA Mortgage is subordinate to the registered Centurion Mortgage and, in the alternative, an Order deleting the Postponement Acknowledgement from title to the Property.

[88] GCNA, having made the priority agreement with Centurion in May 2016, was not contractually entitled to sign only the Priority Acknowledgement, and rely upon registration of the Priority Acknowledgement on title to the Property. GCNA was contractually required to also sign and deliver the mortgage priority agreement. If it had done so, it would not have been entitled to rely on the effect of registration of the Postponement Acknowledgement to give the GCNA Mortgage priority over the Centurion Mortgage.

[89] Given my conclusion with respect to the priority dispute, the requested order is proper to give effect to the parties’ agreement with respect to relative priorities.

Disposition

[90] For these reasons, Centurion’s motion with respect to determination of the relative priorities between the Centurion Mortgage and the GCNA Mortgage is granted.

[91] I make an order:

a. Declaring that the registered Charge of GCNA (Instrument Number DR1493303) is subordinate to the registered Charge of Centurion (Instrument Number DR1474136).

b. Deleting Instrument Number DR1493304 (the Postponement Acknowledgement) from title to the Property.

[92] I ask counsel to advise whether they are agreed on the form of order to give effect to my decision with respect to relative priority of the Centurion Mortgage and the GCNA Mortgage, having regard to the terms of the Escrow Agreement. If so, I ask that counsel provide me with an approved form of order.

[93] If costs are not resolved, Centurion may make written submissions not exceeding 3 pages (excluding costs outline) within 14 days. GCNA may make written responding submissions (also not exceeding 3 pages excluding costs outline) within 14 days thereafter. Centurion may make brief reply submissions (not exceeding one page) within 5 days thereafter.

Cavanagh J.

Date: July 23, 2021